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Interviews with our Editors: A Chat with the Registrar and CEO of the Nairobi Centre for International Arbitration, Mr. Lawrence M. Ngugi

Kluwer Arbitration Blog - Fri, 2020-12-25 23:05

Welcome to the Kluwer Arbitration Blog, Mr. Ngugi!  We are grateful for this opportunity to learn more about the Nairobi Centre for International Arbitration – NCIA, the type of disputes it handles and the way it is facing recent developments, such as the COVID-19 crisis.

  1. Please give our readers a brief background of yourself and your journey to NCIA.

I attribute my profession to my faith in God, support from my wife Karen and our four children. I am an advocate of 20 years having started off as a litigator with a bias for commercial disputes. I got a flavour of arbitration in my seventh year of practice and from then my interest in arbitration has remained steadfast. I regularly acted as counsel in domestic and international arbitrations and became acquainted with the work of the UNCITRAL Working Groups II and III which are shaping development and reform in international arbitration whilst heading the Commercial and Arbitration division of the Attorney General’s Office in Kenya. In 2014, I was asked to start the NCIA.

 

  1. What is the general composition of cases that the NCIA has administered? How many cases are currently ongoing with the NCIA?

There has been a mix of different kinds of disputes, including supply contracts, employment, infrastructure development and construction, and shipping. Construction disputes have been on the upward trend with the main areas being road, aerodrome, and other infrastructure projects. Currently, we have about 40 active cases at various stages of proceedings and with the total value in dispute above Kenya Shillings 21 Billion or USD 210 Million.

 

  1. What difference do you see that the NCIA has made in the seven years since its establishment to arbitration in Africa and particularly in Kenya?

We are the premier arbitral institution in Kenya that has a dedicated case administration service complete with its own arbitration rules. As a result, we have broadened the choices of parties with regard to administered arbitration using institutional rules developed in Kenya for both domestic and international arbitration. Prior to NCIA, parties had a limited choice of adapting ad-hoc arbitration or institutional arbitration rules from outside Kenya. The NCIA has given an opportunity to develop arbitration further in Kenya. We are mindful that our remit is global hence we have forged partnerships with other arbitration centers and initiatives on the African continent to provide a much-needed catalyst to the growth of international arbitration. To this end we have entered into co-operation agreements with CRCICA- Cairo, the PCA- Hague, the China-Africa Joint Arbitration Centre framework amongst others. We have ventured into networking conferences, training and mentorship including an annual Moot Program for Regional Universities in East Africa. These are essential for emerging markets to shore up capacity and for exposure.

The SOAS Africa Arbitration Survey for 2020 ranked the NCIA amongst the top 5 arbitral institutions on the Continent.  

 

  1. A common observation of the arbitration community is that African heritage arbitrators are under-represented in arbitrations that concern disputes in Africa. What are your thoughts on this? What are your observations from arbitrations administered by NCIA? Any figures on the appointment of African arbitrators that you could provide?

There is a history to this concern. It is no doubt that post-independent African nations have developed expertise in various facets of international law including arbitration. The African continent has contributed a fair share of cases for adjudication through international arbitration. However, it is also true that not many arbitrators of Africa’s nationalities have been appointed to adjudicate those disputes that have a nexus with the continent. In my view, this situation is both a factor of systemic problems of international arbitration and wrong perceptions of the realities within the different jurisdictions on the continent. But with the surge in Africa based institutions, initiatives such as the African Promise, Africa Arbitration Survey, and Africa Arbitration Association amongst others these perceptions are changing.

As an institution we have deliberately promoted the advancement of Africa’s talent and this is evidenced by the number of NCIA panel arbitrators who are from Africa. The arbitrator appointments have also reflected a similar trend of having arbitrators from the African continent.

 

  1. What is the approach of Kenyan courts towards arbitrations in Kenya? Do they play a supportive or interventionist role?

Kenya is an arbitration friendly jurisdiction by every score. Kenyan courts have taken a minimalist approach and maintained a supportive stance towards arbitration. The underpinning of Alternative Dispute Resolution (“ADR”) in the Constitution has cemented this attitude. Article 159 (2) (c) requires Courts to promote the use of alternative dispute resolution. To my mind, this places a duty on the court to encourage parties to consider other mechanisms. The cummulative effect of this bold policy is a judicial culture endeared towards other forms of dispute resolution including arbitration.

The Arbitration Act is modelled on the UNCITRAL Model Law and the country is a signatory to both the New York Convention and the ICSID Convention. Its fidelity to the tenets of these legal frameworks has been repeatedly asserted by the judiciary. With a robust legal fraternity testing various aspects of the practice, the courts have defined the limits of judicial involvement within the confines of the Arbitration Act. The Supreme Court recently explored the landscape in the decision of Nyutu Agrovet Limited v Airtel Networks Kenya Limited; Chartered Institute of Arbitrators-Kenya Branch (Interested Party) [2019] eKLR. The case examined the question of finality and scope of appeal against the decision of the High Court (court with jurisdiction to determine applications to set aside an award) under Section 35 of the Arbitration Act (Kenya). The Court’s approach in this Case was to emphasise minimal judicial intervention.

Like every other jurisdiction that is committed to the continual development of jurisprudence in this area the core of the Court’s decision in this and other decisions mirrors the view that we have a bench and a bar that is increasingly aware of the framework of the UNCITRAL Model Law on Arbitration. This is good for any jurisdiction.

 

  1. I understand NCIA also administers mediation. Do you see an increase in mediation?

Yes! We have the NCIA Mediation Rules, 2015. We have entered the space for commercial mediations with an impressive response from the industry. This has been mainly in the construction sector in mega projects with domestic disputes.

Admittedly, this is an area where much more needs to be done for mediation to have the same level of acceptance as arbitration does. We are excited about the Singapore Convention which could be the precursor of a brighter future for mediation.

 

  1. The COVID-19 health crisis has caused and is expected to keep causing unprecedented disruptions to several sectors of the economy and business relationships. How is NCIA facing the challenges brought by this new reality?

Quite unexpectedly, the pandemic has not slowed the flow of disputes to NCIA. We have recorded more cases registered per quarter than in the same period last year. Since NCIA already had a functional virtual infrastructure before the start of the pandemic, we have been able to support the continuity of proceedings without any interruptions. That said we have adjusted our services to ensure the safety of the most important resource, our staff, and facilitated remote operations during the height of the pandemic.

We have also adopted the Africa Arbitration Academy Protocol on Virtual Hearings in Africa to guide parties on efficient use of remote hearings. We are committed to continual improvement and learning from our international network.

 

  1. Any parting words of wisdom you would like to share with African practitioners particularly the younger generation?

The train has left the station and we on the continent are firmly in the carriage. The debate will no longer be about inclusivity but the excellence of your performance. Learn, learn, learn!

We are well positioned in history to participate fully in the new advent for international arbitration. Rather than focus on past decades of isolation we have the opportunity to actively pursue excellence and live a footprint and a legacy that will usher a new dawn for posterity. I personally see no reason why the future can’t be anything but optimistic.

 

  1. Where do you see NCIA in ten years?

On the global map of international arbitration innovating, creating, and offering end-user friendly arbitral and other ADR services fashioned to meet the demands of a fast-evolving online generation.

 

Thank you for your time and perspectives – we wish you and NCIA continued success!

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

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From the Editors of Kluwer Arbitration Blog: 2020

Kluwer Arbitration Blog - Thu, 2020-12-24 22:57

In December of each year we take a moment to thank our readers, collaborators and editors for their tremendous support. This year is special. As we come at the end of a year of challenges, but also of opportunities, we express our gratitude for being part of an amazing community and for being able to bring our contribution to the scholarship and practice of arbitration.

Entering a New Year has also a special meaning to us. Every January we add another year to Kluwer Arbitration Blog and, in 2021, we will be celebrating the 12th anniversary. We hope we will continue to bring you “high quality discussions on arbitration”.

2020 was a generous year for Kluwer Arbitration Blog, with over 170,000 readers every month! We hope that this number reflects the increased awareness of international arbitration worldwide. Our readers come from established arbitration jurisdictions, such as the US, UK, France etc., but also from – hopefully – up-and-coming arbitration hubs, such as Fiji, St Lucia, Tajikistan, and Mali.

For international arbitration, no doubt, 2020 was the year of covid-19 and of the developments in international arbitration related to responses to the pandemic, including the rise of remote and virtual hearings and related concerns on the administration of justice, the seat of the arbitration, fairness and efficiency and due process. We could also see the court approach to covid-19 and arbitration matters, including by the Austrian Supreme Court in July 2020.

Nonetheless, 2020 has seen other significant developments above and beyond covid-19: new institutional arbitration rules of LCIA and ICC; the revival of the Yukos awards; the aftermath of Achmea and Micula cases; the Treaty for the termination of the intra-EU BITs entered into force on 29 August 2020; the ongoing modernisation of the Energy Charter Treaty (ECT), including the latest request from Belgium to CJEU for an opinion on the interaction between EU law and the future modernised ECT; the entry into force of the USMCA; ISDS and its reform, including the proposed Code of Conduct for Adjudicators; The Hague Rules on Business and Human Rights; arbitrators’ liability; and UNCITRAL Working Group II on expedited arbitration.

On the national fronts, we have seen ratifications and accessions to the New York Convention of Tonga, Palau and Seychelles, Ethiopia, Sierra Leone, and the 2020 Amendment to the Indian Arbitration Act. National courts have also been active, with the Uber v. Heller case and unconscionable arbitration agreements in Canada; disclosure obligations vs confidentiality in Halliburton v. Chubb; the application of international law by the U.S. Supreme Court in a case involving a non-signatory in GE Energy Power v. Outokumpu; strides in the enforcement of foreign awards in India; dissenting opinions and public policy; law governing the arbitration agreement in Enka v. Chubb.

Last, but not least, as it emerges that the UK has reached the Brexit deal with the European Union, sources indicate that “the draft deal includes a new arbitration mechanism intended to ensure ‘a level playing field’ between the two sides”.

 

As usual, this is also the time to acknowledge and thank our Editors. This year – and with many thanks to Mike McIlwrath for the suggestion-, we have started a new series “Interviews of Our Editors”. These are interviews with our Editors, bringing their perspectives on international arbitration and Kluwer Arbitration Blog.

The Blog is also the result of the fruitful collaboration with its publisher, Wolters Kluwer, and the Editorial Board is grateful to Eleanor Taylor and Vincent Verschoor, editors and content managers with Wolters Kluwer, for ensuring that we deliver the best final product to our readers.

We are also grateful to the permanent contributors and to the affiliates of the Blog, some being with us from the first days of Kluwer Arbitration Blog.

We are committed to deliver diverse arbitration. It is more important than ever to pursue gender, age, racial etc. diversity in international arbitration and Kluwer Arbitration Blog is an active participant in this discussion, aware of the responsibility it has in shaping the arbitration practice.

We would like to thank you for all your support and we send our best wishes for the Festive Season. We wish you a 2021 when we can meet in person.

 

Professor Roger Alford and Dr Crina Baltag, on behalf of the Editorial Board

 

The editors of Kluwer Arbitration Blog are always available at [email protected].

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Are Commercial Agency Disputes Arbitrable in the UAE?

Kluwer Arbitration Blog - Wed, 2020-12-23 18:00

One of the questions that the legal community in the United Arab Emirates (“UAE”) has been grappling with is whether or not commercial agency disputes are arbitrable. Decisions have been issued invalidating arbitration agreements in the context of commercial agency disputes. However, contrary decisions upholding arbitration agreements have also been issued. This post examines one recent decision upholding an arbitration agreement.

 

The Commercial Agencies Law

Activities of commercial agents in the UAE are governed by the Federal Commercial Agencies Law no. 18 (1981) (“Commercial Agencies Law”). Agency agreements that are subject to the Commercial Agencies Law must meet certain requirements, including (1) exclusivity, (2) Emirati nationality1)Until recently, the Commercial Agencies Law required that the agent be a UAE national or a corporation that is entirely owned by UAE nationals. There has been a recent amendment of this requirement which introduced a limited expansion of types of entities that can act as commercial agent. jQuery("#footnote_plugin_tooltip_4002_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4002_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and (3) registration with the Ministry of Economy.

When these requirements are met, the Commercial Agencies Law affords a commercial agent with a high level of protection, in particular by rendering the termination of the agency agreement by the principal a very difficult task. To ensure that the Commercial Agencies Law is applied to all qualified disputes between agents and principals arising from commercial agency agreements (and thereby guaranteeing the envisioned protection), as elaborated below, jurisdiction for such disputes is granted to UAE courts.

 

Jurisdiction of UAE Courts

Article 6 of the Commercial Agencies Law states that disputes arising out of commercial agency agreements shall be heard by UAE courts and that an agreement to the contrary is not valid. Consequently, Article 6 is a mandatory provision.2)This provision has been introduced in 1988 and has been maintained since then although the Commercial Agencies Law itself was subject to a number of amendments over the last two decades. jQuery("#footnote_plugin_tooltip_4002_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4002_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

If Article 6 is mandatory and parties to an agency agreement cannot agree to bring their dispute before a forum other than UAE courts, then they would not be allowed to arbitrate any potential disputes. In line with this view, a number of decisions have confirmed that an arbitration agreement cannot be upheld in agency agreements disputes (See Federal Supreme Court Case No. 270/judicial year 16 and Federal Supreme Court Case No. 99/ judicial year 20). As a result, it was often reported that agency disputes are not arbitrable.

 

Summary of the Dispute

The dispute arose out of a commercial agency agreement (“Agreement”) between a French manufacturer of a specific type of vehicles (“Principal”) and their commercial agent (“Agent”). The Agreement was exclusive for the entire territory of the UAE, which meant that the Agent would be entitled to commission for all sales done within the country even when such sales were concluded without the Agent’s involvement. The Agreement was registered with the Ministry of Economy in line with the Commercial Agencies Law since 1992 and was still valid when the dispute arose between the parties around the end of 2017.

The Principal concluded a transaction for the sale of vehicles to a governmental entity in the UAE without the involvement of the Agent. The latter learned of the transaction, in spite of its confidential nature, and claimed commission in line with the provisions of the Agreement. The Principal refused to pay the commission. The Agent filed a complaint with the Ministry of Economy’s Commercial Agencies Committee (“Committee”), which is the administrative body designated to issue a determination in disputes between agents and principals.3)According to the Commercial Agencies Law, no claim can be field to the courts before submitting the claim to the Committee. The decision of the Committee can then be challenged before the courts. jQuery("#footnote_plugin_tooltip_4002_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4002_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); As part of its claim, the Agent requested an order for the payment of almost four million euros as commission for the concluded transaction. The Committee issued a decision in favor of the Agent, stating that the Agent is entitled to commission in line with the Agreement and it directed the Agent to resort to courts to claim its entitlements.

On the basis of the Committee’s decision, the Agent filed a request, amongst other, for the appointment of an expert by Abu Dhabi Courts to determine the exact value of the commission that the Agent is entitled to and an order against the Principal for the payment of the determined amounts.

The Principal raised a number of defenses amongst which a challenge to the jurisdiction of the court on the basis of the arbitration clause in the Agreement, which provided that all disputes arising between the parties shall be settled through arbitration. On the basis of the arbitration clause, the Principal requested the court, to dismiss the claim for lack of jurisdiction.

 

The Courts’ Reasoning

The Court of First Instance (“CFI”) accepted the Principal’s defense and dismissed the case on the basis of the arbitration agreement. The CFI simply explained that the defendant had invoked the arbitration clause in line with the UAE Federal Arbitration Law and the court should therefore dismiss the case on that basis.

The Agent filed an appeal before the Court of Appeal (“CA”) (see Case 2652/2018 Commercial). The CA upheld the decision of the CFI, agreeing that the case should be dismissed on the basis of the arbitration clause and provided a detailed reasoning for its decision. The Agent then challenged the CA decision before the Court of Cassation (“CC”) (see Case 362/2019 Commercial Cassation), which upheld the decision of the CA adopting the same reasoning.

According to the CC, the exclusive jurisdiction of UAE courts provided for in Article 6 of the Commercial Agencies Law is “conditional upon the dispute being related to the commercial agency itself in terms of its existence, its scope and the extent to which its provisions are complied with, determining the area it covers, or when the dispute relates to its being, or hanging on to its survival or its continuation or determining who should practice it according to its definition in the law or the non-compliance with its obligations or its execution principles”. The language used by the CC is not clear and requires a closer examination, and may be better understood in the context of the full decision.

The CC goes on to explain that the rules of the Commercial Agencies Law aim at protecting the exclusive agent from the potential of the products, subject matter of the agency agreement, being distributed through someone other than the agent in the territory of exclusivity of the agent. However, if the request of a party to the agency agreement is to settle the account between the parties with respect to transactions resulting from the agency agreement, then the arbitration clause is not a violation. This is so because the claim relates to the entitlements of a party with respect to acts performed by such party and which have benefitted the other contracting party.

The CC then concludes that, given that the Agent’s claim is to appoint an expert to determine the amount of commission it is entitled to and request an order for payment of amounts determined by the expert, then the dispute between the parties relates to settling their account. It does not relate to the terms of the agency, its area or its continuation and as such the arbitration clause remains valid.

 

Final Observations

The reasoning is difficult to understand at first, but it is clarified when considered against the backdrop of the scenarios in which disputes arise between an agent and a principal.

The first scenario arises where the principal, when unsatisfied with the performance of the agent, would want to terminate the agency agreement and cancel its registration with the Ministry of Economy. When looking at the text of the judgment closely, we note that the CC is primarily concerned with protecting the agent’s territory. Such protection requires maintaining the registration of the agency agreement, resisting its cancelation and eventually preventing the appointment of another agent (as another agent may not be appointed unless the previous agency is canceled). The CC uses too many words to simply say that disputes relating to the existence, registration and maintenance of the agency agreement fall within the jurisdiction of UAE courts.

The second scenario arises where the agent seeks commission for sales performed in its territory, whether through the agent’s involvement or not and whether these were performed by the principal on its own or through another agent. Clearly, this scenario is what the current case is about and the courts upheld the arbitration provision. The CC explained that when the issue relates to payments a party is entitled to then arbitration would be upheld. In other words, claims relating to an agent’s commission are arbitrable.

The confusing and rather convoluted language used in the courts’ decisions makes it hard to determine in a conclusive manner the distinction made above. One would hope that future decisions would shed further light on the envisaged distinction and make it easier for practitioners to predict the potential outcome of inserting an arbitration clause in a commercial agency agreement.

 

The author of this Blog post has been involved in the case discussed.

References   [ + ]

1. ↑ Until recently, the Commercial Agencies Law required that the agent be a UAE national or a corporation that is entirely owned by UAE nationals. There has been a recent amendment of this requirement which introduced a limited expansion of types of entities that can act as commercial agent. 2. ↑ This provision has been introduced in 1988 and has been maintained since then although the Commercial Agencies Law itself was subject to a number of amendments over the last two decades. 3. ↑ According to the Commercial Agencies Law, no claim can be field to the courts before submitting the claim to the Committee. The decision of the Committee can then be challenged before the courts. 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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ADR Scholarship Projects- Winter 2020 Edition

ADR Prof Blog - Wed, 2020-12-23 15:51
Thanks to AFOI Peter Reilly (Texas A&M) for gathering this great list of ADR Scholarship Projects our community of scholars worked on recently/is working on as of December 2020: Hal Abramson (Touro Law Center): Beyond the Courtroom-Resolving Disputes Through Agreement (published in November). This book is a selection of my articles over my academic career, so far, … Continue reading ADR Scholarship Projects- Winter 2020 Edition →

2020 in Review: Despite a Global Pandemic, Europe Saw Some Action-Packed Arbitration Developments

Kluwer Arbitration Blog - Wed, 2020-12-23 00:00

Although the Old Continent has suffered tremendously at the hands of the COVID-19 pandemic, the world of arbitration still managed to find a way to keep on going. In this post, we are going to provide an overview of the most pivotal arbitration developments that occurred on the European soil in 2020. Among others, these include the updated or new rules of several arbitral institutions, significant legislative developments as well as advances in case law that have made some heads turn. So, without further ado, let us examine these one by one!

 

Updated Rules and a New Star on the European Sky

In 2020, updating arbitration rules has been on the agenda of several arbitral institutions. For instance, the International Court of Arbitration (ICC Court) has released a draft version of its 2021 Rules of Arbitration. The revisions were made against the background of the ICC Court’s relentless mission to increase efficiency, flexibility and transparency of arbitral proceedings organised under their auspices. In the update process, the ICC Court focused, among other things, on the provisions on party representation, multi-party arbitrations, disclosure of external funding and the powers of the ICC Court to appoint all arbitrators in arbitral proceedings to prevent unequal treatment of the parties. Furthermore, in light of the COVID-19 pandemic, the 2021 Rules of Arbitration reaffirm that the tribunal may decide, after conducting consultations with the parties, to have virtual hearings through remote means of communication.

The London Court of International Arbitration (LCIA) is another arbitral institution that sought to update their Rules this year. The new LCIA Rules have already entered into force on 1 October, meaning that they will be applied to arbitrations from that date onwards. Striving to bring their Rules in line with the realities of contemporary arbitration as well as to ensure that they reflect the best practice of their tribunals, the LCIA entertained a wide array of topics in the update process, including early determination and multiple proceedings and claims. Moreover, just like the revised ICC Rules, the updated LCIA Rules as well took note of the COVID-19 pandemic by making it clear that hearings may also take place “virtually by conference call, videoconference or [by] using other communications technology with participants in one or more geographical places (or in a combined form)”.

While the well-established institutions such as the ICC Court and the LCIA sought to update their existing rules, there are those that had to start from scratch. More precisely, that was the case with the London Chamber of Arbitration and Mediation (LCAM), an arbitral institution that was established in May this year. Only time will tell whether this new star on the European arbitral sky will manage to shine bright or not. Looking at their Rules and the overall approach, the LCAM seems to be vying for a particular niche of the arbitration market involving smaller businesses and modest claims. The indication of this is the fact that the LCAM will be placing emphasis on its extensive institutional case management competences, and it will also aim to provide for a rather fixed, affordable and somewhat predictable approach to costs.

 

To Revise or Not to Revise Arbitration Laws, That Is the Question

In 2020, we have approached the crowning moment of Switzerland’s efforts to revise Chapter 12 of its Private International Law Act (PILA) that contains the country’s law on international arbitration. The final draft of the bill was approved in June this year, with the entry into force expected to take place sometime in 2021. There were four aims that ran as leitmotifs through the revision process:

  1. Alignment of the legislative text with the case law of the Federal Supreme Court of Switzerland;
  2. Clarification of the matters not been expressly tackled in Chapter 12 of PILA;
  3. Buttressing the role of party autonomy; and
  4. Making Chapter 12 of PILA more user-friendly.

What is interesting to note is that the final draft of Chapter 12 of PILA foresees the option for parties to submit applications in English both for setting aside and revision of arbitral awards, something that has stirred debate and provoked somewhat of a backlash. Nevertheless, some have characterised this as a positive development with the potential to enable counsel to represent the interests of their clients in a more effective manner.

Luxembourg is another jurisdiction that has taken steps towards overhauling its arbitration law. Namely, a draft bill has seen the light of day in September. It draws its inspiration from the work done by UNCITRAL in the area of arbitration as well as the French Code of Civil Procedure. The aim, unsurprisingly, is to modernise the country’s arbitration law. The ball is now in the court of Chamber of Deputies, the legislative body of Luxemburg, to transform the draft bill into law.

In contrast to the Swiss timely efforts and the Luxembourgish draft bill, still there are those countries that, in spite of having numerous scholars and practitioners calling for reform for years, have failed to take any meaningful action. Bosnia and Herzegovina (BiH) is a quintessential example of this laid-back approach. This year we have again heard pleas from experts that it is high time to tackle the country’s ineffective arbitration framework, and it remains to be seen whether BiH’s legislative bodies will continue to remain deaf in this respect.

 

The Rich Harvest from the International Case Law’s Soil

The year 2020 was rich for precedent cases. The ones that stole the spotlight are highlighted below, noting that the precedents for the proper law of the arbitration agreement will be discussed in a separate year in review post.

 

When Parties’ Right to be Heard May or May not be Violated

Saying ‘no’ to parties may be risky, but the Vienna International Arbitration Court (VIAC) tribunal did it and was right. Following respondents’ unsuccessful attempt to challenge the tribunal before the VIAC based on its decision to conduct an evidentiary hearing by videoconference over the respondents’ objection, the case had landed at the Austrian Supreme Court’s (OGH) doorstep. In holding that such a setting may not in fact violate due process, the OGH established that, inter alia, procedural errors are not enough to successfully challenge arbitrators. It could have been successful had the arbitrators’ case management decisions resulted in violations of the parties’ right to be treated equally and their right to be heard. Here, however, neither of the rights were violated as covered in the Blog post here. As result, OGH’s landmark decision found its relevance not only for the Vis Problem this year, but also for practitioners all over the world facing the challenges created by the global pandemic.

While in contrast to the decision above, the Swedish Supreme Court (SC) dealt with a procedural error which had affected the parties’ right to present their case which in turn affected the outcome of the case. The tribunal, in a dispute over royalty payments under pharmaceutical license, established in the Procedural Order its “final” position on respondent’s conditional entitlement to royalty payments and declared it would not deviate from this position “without informing the parties in advance and providing them with an opportunity to comment on the issue”. The tribunal has however never informed the parties that it decided to change its position and therefore deprived the parties of an opportunity to address this issue. Although the matter was reopened by the claimant, the SC concluded that the respondent was deprived of the opportunity to fully argue its case as a result of the procedural error created by the tribunal itself. Thus, the tribunal walked on thin ice when it declared it will ensure the parties’ opportunity to address a specific matter, but the weight of such a declaration turned out to be heavier than the ‘ice’ could actually hold.

 

Why Staying Quiet in Austria and Dissenting in Germany are Both Against Ordre Public

In a case decided by the OGH, the arbitrator appointed by the respondent was excluded from the deliberations on the merits, thereby prevented from the general decision-making process, and from influencing the decision-making of other arbitrators. Naturally, the arbitrator raised concerns as to his/her involvement in the deliberations, while, the presiding arbitrator merely referred the prior to the possibility of a dissenting opinion. Arbitrator’s concerns were justified, as the OGH held that, inter alia, it is preferable for all arbitrators to be physically present during the deliberations on the merits of the case. Otherwise, the award is considered to be against Austrian ordre public, which was the case at hand. The decision therefore demonstrated which consequences “ghosting” arbitrators may have on the enforceability of the award.

But what if the minority arbitrator did issue his/her dissenting opinion? Had it happened in Germany, such an action would have been against ordre public. With a place of arbitration in Frankfurt am Main, the award rendered, from the German perspective, was domestic. As the Frankfurt Court of Appeals held, disclosure of a dissenting opinion is inadmissible in domestic arbitral proceedings as it will violate the confidentiality of the tribunals’ deliberations. Although German legal commentators are of the position that attaching a dissenting opinion to the award is “predominantly considered permissible” as it is subject to party autonomy, the court had taken a strict position in holding that in domestic arbitral proceedings a dissenting opinion will be against German ordre public.

 

The Legendary Comeback: Revival of the Yukos Awards

The Yukos Awards’ saga had taken a new turn when on 18 February 2020 the Court of Appeal (CA) in The Hague reversed the lower court’s decision annulling the awards rendered against the Russian Federation in Veteran Petroleum Ltd., Yukos Universal Ltd., and Hulley Enterprises Ltd. cases. The CA therefore followed a pro-investor approach by holding that, inter alia, although the Russian Federation had signed the Energy Charter Treaty (ECT) but had not ratified it, under the Limitation Clause of the ECT, each State that signed the treaty will apply the treaty in a provisional way. It thus concluded that Contracting States accepted to comply with obligations found in the preamble of the ECT to establish conditions for investment immediately upon the signing of the treaty. The newly revived awards will therefore be subject to prompt enforcement, while, on the other hand, the issue of whether annulled awards shall be enforced or adjourned is in particular of issue in this Blog post.

 

A Word on Investment Arbitration in Europe

In the realm of investment arbitration, the highlight of the year in Europe has certainly been the enforcement of arbitral awards rendered in the intra-EU setting. More precisely, Europe is still dealing with the aftermath of the Achmea case. In this context, probably the most discussed development on the Old Continent has been the case of Micula and others v. Romania in which the UK Supreme Court held unanimously 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”. The holding of this case has served as a ‘told you so’ moment for those who argued that post-Brexit the UK may serve as a convenient spot for enforcing intra-EU arbitral awards stemming from investment arbitrations. Another relevant development in the field was the signing of the Agreement to terminate intra-EU BITs, whereby, according to our contributor, the Commission and most EU Member State are testing the principle of good faith under international law. This development will be discussed in more detail in another year in review post highlighting developments in investment arbitration.

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The Egyptian Court of Cassation Sets Standards and Affirms Arbitration-Friendly Principles and Trends in a Ground-Breaking Judgment

Kluwer Arbitration Blog - Mon, 2020-12-21 23:20

On 27 October 2020, the Egyptian Court of Cassation (“Court”) rendered a ground-breaking judgment that is demonstrative of the Court’s appreciation of ongoing global developments in the field of arbitration (a courtesy translation prepared by the author of this post is available here).

The case pertains to a domestic construction dispute under a subcontract that included an institutional arbitration clause. Owing to disputes between the contracting parties, an arbitration case was filed and an award was rendered in favour of the subcontractor. The contractor filed for annulment before the Cairo Court of Appeal, and a subsequent further challenge was lodged before the Court.

The Court addressed and analyzed the grounds for the challenge, and ultimately dismissed it. In the context of its analysis and reasoning, the Court affirmed certain general principles of Egyptian law and acknowledged and recognized certain trends in arbitration. Amongst the principles espoused by the Court are estoppel and resorting to general principles of law as a source of legal principles, prohibition of taking advantage of one’s own wrongdoing, the right to representation in arbitration by foreign lawyers and/or non-lawyers, the distinction between the ‘seat/place of arbitration’ and the ‘venue for certain aspects of the proceedings’, and the limited judicial review of awards in a nullity action. The Egyptian Court of Cassation also made passing references to the ‘notion of delocalization’ and the practice of ‘virtual hearings’.

 

Prohibition of taking advantage of one’s own wrongdoing, estoppel and resorting to general principles of law as a source of legal principles

The Court held that if a party continued with the arbitration proceedings, without an objection, despite its knowledge of a breach of a condition of the arbitration agreement or one of the non-mandatory provisions of the Egyptian Arbitration Law No. 27 of 1994 (“EAL”), this would be deemed a waiver of his/her right to object. The Court found that the appellant had participated in the arbitration without objecting and in full knowledge that the agreement was concluded by the vice-chairman of the board of directors, and went further to hold that even if the appellant had invoked this objection earlier, the challenge would still be rejected because a person may not benefit from his/her own wrongdoing. The Court also added that the principle of estoppel would militate against the success of the appellant’s plea, and remarked that estoppel is in application of the universal maxim ‘non concedit venire contra factum proprium’ which is derived from Roman law.1)This is not the first time the Egyptian Court of Cassation affirms the existence of the principle of estoppel as a matter of Egyptian law. As early as the 1950s, the Egyptian Court of Cassation affirmed the existence of the principle of estoppel, albeit in a non-arbitration context. In 1952, by way of example, the Egyptian Court of Cassation unequivocally held (in Challenge No. 171 of Judicial Year 20, Court Session of 3 April 1952) that “he/she whomever seeks/attempts to negate what he/she has previously consented to/acknowledged/undertaken shall be estopped/prevented from doing so”. The Arabic words used in that judgment to refer to the principle of estoppel mirror those used in the 27 October 2020 judgment. jQuery("#footnote_plugin_tooltip_9867_1").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Court innovatively unveiled two conditions for application of this principle, these are: (i) a statement, an act, or an omission is made by a party and contradicts with its previous conduct; and (ii) that contradiction would prejudice the other party who acted in reliance on the validity of the first party’s previous conduct. Whilst the Court did not expressly refer to Islamic Shari’a in this context, it is worth noting that the principle of estoppel is also derived from Islamic Shari’a where no party may revoke what he/she has undertaken, concluded or consented to. It is also worth mentioning that estoppel is considered a variant of good faith.2)See for example, the Cairo Court of Appeal, Challenge No. 57 of judicial year 128, hearing session dated 4 April 2012; the Cairo Court of Appeal, Challenges Nos. 35, 41, 44 and 45 of judicial year 129, hearing session dated 5 February 2013. jQuery("#footnote_plugin_tooltip_9867_2").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The fact that the principles of no party may benefit from its own wrongdoing and estoppel are not expressed in Egyptian legislative texts does not negate their inclusion as overarching general principles of Egyptian law. The Court correctly affirmed the diversity of sources of legal principles and norms when it expressly referred to the long-forgotten and rarely invoked Article 1(2) of the Egyptian Civil Code No. 131 of 1948, which lists the sources of legal principles.3)Article 1(2) of the Egyptian Civil Code states “if there is no applicable legislative provision, the judge shall rule on the basis of custom, and if it does not exist, [the judge shall rule] by virtue of the principles of Islamic sharia, and if they do not exist, [then the judge shall rule] according to principles of natural law and rules of equity” [Bracketed words added for clarity]. jQuery("#footnote_plugin_tooltip_9867_3").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

Party representation in arbitration proceedings

The Court made several important findings and determinations, these are: (i) parties in Egyptian-seated arbitrations need not be Egyptian lawyers, despite the express reference in the Advocacy Law No. 17 for 1983 and that the subsequently enacted EAL, which is the lex specialis that trumps any express requirement of Egyptian lawyers in the Advocacy Law, does not include any restrictions or limitations on the parties’ right of representation; (ii) parties to an arbitration can elect to be represented by persons of their choice, whether lawyers or non-lawyers, Egyptians or foreigners in domestic or international arbitration; and (iii) rules relating to party representation in arbitration are not part of Egyptian public policy.4)On the issue of appearance of foreign counsel in arbitrations seated in Egypt, see Amr Omran, ‘The Appearance of Foreign Counsel in International Arbitration: The Case of Egypt’ (2017), 34(5) Journal of International Arbitration, pp. 901-920. jQuery("#footnote_plugin_tooltip_9867_4").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Court also emphasized that arbitration has gradually distanced itself from strict territorial limitations following the release of the New York Convention on the Recognition and enforcement of Foreign Arbitral Awards (1958).

 

Modernization of arbitration and virtual hearings

The Court held that arbitration has gradually shifted away from the traditional notion of localization. The Court did not expressly refer to arbitration as an autonomous legal order as championed and endorsed by French courts,5)On the existence of an arbitral legal order that is distinct from national legal systems, see Emmanuel Gaillard, ‘Legal theory of International Arbitration’ (2010), Martinus Nijhoff Publishers, Leiden, pp.52-66. jQuery("#footnote_plugin_tooltip_9867_5").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); but such reference was used to anchor the distinction between the notions of ‘legal seat/place’ and ‘geographical venue’ (already expressed in Article 28 of the EAL), and to expressly acknowledge that “virtual hearings” are increasingly used in arbitrations across the globe.

The Court was keen on incorporating an express reference to ‘virtual hearings’ (in English) in its judgment, and this came across as a coded message that virtual hearings are consistent with Egyptian law, which does not include any express prohibition of virtual hearings. In essence, this is a ground-breaking statement, whereby the Court signals that if parties wish to try and set aside arbitral awards on the sheer ground that a hearing is held virtually, this may not fly as a matter of principle.6)This is consistent with the ICT revolution that the Egyptian judiciary is undergoing. By way of example, a recent Law No 146 of 2019 was enacted to amend Law No 120 of 2008 establishing the Economic Courts, and the new 2019 amendments provide for the possibility of conducting court proceedings electronically. Moreover, the Egyptian State is currently preparing a draft law aimed at introducing amendments to the Criminal Procedures Law, whereby the competent investigating or trial authority may conduct all or part of the investigations remotely, noting that a criminal trial has already taken place online in 2020 owing to the COVID-19 crisis. jQuery("#footnote_plugin_tooltip_9867_6").tooltip({ tip: "#footnote_plugin_tooltip_text_9867_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Accordingly, concerned parties would need to establish how, if at all, virtual hearings would encroach upon their fundamental rights on a case-by-case basis.

 

Role of arbitrators and the review of arbitral awards

The Court remarked that it is common in arbitration for parties to choose arbitrators with technical knowledge and expertise on the subject matter of the dispute. The Court did not consider this sufficient to render arbitrators partial. In that specific Case, the Court found no evidence that the arbitrators decided the case on the basis of the personal knowledge of the facts.

The Court also confirmed that arbitral awards may not be reviewed on the merits and that a setting aside action is not an appeal. Accordingly, judicial review of awards should not transcend the normative limitations and courts may not (i) review the arbitral tribunal’s understanding and assessment of the facts; and (ii) ascertain whether the arbitral tribunal erred on the application of the law governing the merits. The Court also held that there is a presumption that the proceedings have been properly conducted, which implies that the party, which claims otherwise, would naturally bear the burden of proof. The Court emphasized that the grounds for setting aside arbitral awards are exhaustively defined in Article 53 of the EAL and that the Court may not review the arbitral award to examine its adequacy/appropriateness and/or to ascertain the soundness of the determinations of the arbitrators.

 

Concluding remarks

This landmark judgment serves as a further welcomed development, affirming the Court’s willingness to boldly set standards and principles that are of utmost importance for users. It also affirms the leading edge of the Egyptian judiciary within Africa, the MENA region and beyond. This wide-ranging judgment serves as a beacon of hope and a clear testament to the indispensable role of the judiciary in supporting the legitimacy and development of arbitration.

The Court capably navigated its way through intricate procedural and substantive issues, and reminded us of the unequivocal fact that the law goes well above and beyond the four corners of legislative texts. To all those familiar with Egyptian law and the fact that the judgments of Egyptian courts do set principles and address legal issues that are not necessarily fact-specific, it is clear that the Court seized an opportune moment to showcase its support to credible arbitration proceedings and its commitment to aligning Egypt with best practices in international arbitration.

 

Founding Partner and Head of International Arbitration, Construction and Energy, Zulficar & Partners Law Firm (Cairo) and Chair of Private International Law, Cairo University, Egypt.

References   [ + ]

1. ↑ This is not the first time the Egyptian Court of Cassation affirms the existence of the principle of estoppel as a matter of Egyptian law. As early as the 1950s, the Egyptian Court of Cassation affirmed the existence of the principle of estoppel, albeit in a non-arbitration context. In 1952, by way of example, the Egyptian Court of Cassation unequivocally held (in Challenge No. 171 of Judicial Year 20, Court Session of 3 April 1952) that “he/she whomever seeks/attempts to negate what he/she has previously consented to/acknowledged/undertaken shall be estopped/prevented from doing so”. The Arabic words used in that judgment to refer to the principle of estoppel mirror those used in the 27 October 2020 judgment. 2. ↑ See for example, the Cairo Court of Appeal, Challenge No. 57 of judicial year 128, hearing session dated 4 April 2012; the Cairo Court of Appeal, Challenges Nos. 35, 41, 44 and 45 of judicial year 129, hearing session dated 5 February 2013. 3. ↑ Article 1(2) of the Egyptian Civil Code states “if there is no applicable legislative provision, the judge shall rule on the basis of custom, and if it does not exist, [the judge shall rule] by virtue of the principles of Islamic sharia, and if they do not exist, [then the judge shall rule] according to principles of natural law and rules of equity” [Bracketed words added for clarity]. 4. ↑ On the issue of appearance of foreign counsel in arbitrations seated in Egypt, see Amr Omran, ‘The Appearance of Foreign Counsel in International Arbitration: The Case of Egypt’ (2017), 34(5) Journal of International Arbitration, pp. 901-920. 5. ↑ On the existence of an arbitral legal order that is distinct from national legal systems, see Emmanuel Gaillard, ‘Legal theory of International Arbitration’ (2010), Martinus Nijhoff Publishers, Leiden, pp.52-66. 6. ↑ This is consistent with the ICT revolution that the Egyptian judiciary is undergoing. By way of example, a recent Law No 146 of 2019 was enacted to amend Law No 120 of 2008 establishing the Economic Courts, and the new 2019 amendments provide for the possibility of conducting court proceedings electronically. Moreover, the Egyptian State is currently preparing a draft law aimed at introducing amendments to the Criminal Procedures Law, whereby the competent investigating or trial authority may conduct all or part of the investigations remotely, noting that a criminal trial has already taken place online in 2020 owing to the COVID-19 crisis. 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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Revisiting Islamic Finance Arbitration: An Opportunity for Malaysia?

Kluwer Arbitration Blog - Mon, 2020-12-21 00:00

Aside from providing great entertainment, films such as Wall Street and The Big Short have taught us that there are numerous complex financial products which are regularly created within the banking and finance industry that could give rise to disputes.

Traditionally, litigation has been the mode of choice for resolving banking and finance disputes. However, the aftermath of the 2008 global financial crisis has resulted in the steady increase of using international arbitration to resolve certain financial disputes, especially those of a transnational nature, such as cross-border swaps and derivatives transactions.

Despite this trend, one area which is arguably yet to fully embrace international arbitration is Islamic finance. The ICC Task Force on Financial Institutions and International Arbitration suggested that this was attributable to the potential lack of desire on the part of major Islamic banks and financial institutions to have disputes relating to Islamic finance decided by arbitrators in accordance with Shari’a principles. Alternatively, it could also be due to a lack of awareness of the products and services available to deliver a Shari’a-compliant dispute resolution process. This post will explore these issues in the context of choice of law issues in Islamic finance disputes and Malaysia’s suitability as a hub for Islamic finance arbitration.

 

What is Islamic Finance?

According to S&P Global Ratings’ Islamic Finance Outlook for 2020, the Islamic finance sector, which is predominately centralised around the Middle East, Africa and South East Asian regions, is presently worth more than US$2.1 trillion.

The economics underlying Islamic finance have been around for more than a millennium and are vastly different from those of the conventional banking industry. The four core concepts of Islamic finance are that the products must be halal (i.e. investments should be in compliance with Shari’a principles) as opposed to haram (i.e. in prohibited industries), interest or excessive gain is prohibited (riba), as is engaging in uncertain (gharar) or speculative transactions such as gambling (maysir). Social justice is also facilitated through the systems of profit and loss sharing and requiring zakat (taxing of property of people who acquire wealth and distributing the same to people in need).

In terms of the financial instruments available in the industry, there are profit-and-loss sharing partnerships (mudarabah), profit-and-loss sharing joint ventures (musharakah), and leasing (ijarah) arrangements, to name a few. Also available are Shari’a compliant fixed-income instruments (sukuk) and insurance arrangements (takaful). Irrespective of the product offering, it is imperative for any Shari’a product to maintain compliance with Shari’a principles throughout the lifecycle of the Islamic finance transaction.

 

Choice of law issues in Islamic finance transactions

Where money is involved, there may be commercial disputes. The obvious choice for resolving disputes arising from Islamic finance transactions would be for an Islamic finance or Shari’a law expert to get involved in dispute resolution process. In this regard, arbitration seems to be the go-to dispute resolution option given that parties have the autonomy to either contract in advance, or submit post-dispute, that the appointed tribunal is to have certain expertise.

However, most often, Islamic finance disputes are intentionally referred to civil courts which generally do not have the specialist expertise to address Shari’a compliance issues. Where this is the case, such disputes are resolved on the basis of the governing law, which often is English law in the context of cross-border Islamic finance disputes. Also noticeable is that there are some Islamic financing arrangements that may expressly exclude the application of Shari’a in determining the dispute and instead opts for a secular law in a jurisdiction well established to deal with financial disputes, such as English or New York law.

On the other hand, there are also some Islamic finance transactions where the underlying contract may contain a governing law clause which refers to both a national law and Shari’a. The English Court of Appeal considered such a clause in Beximco Pharmaceuticals Ltd v Shamil Bank of Bahrain [2004] EWCA Civ 19. In that case, it held that the reference to the agreement being governed by the laws of England “[s]ubject to the principles of the Glorious Sharia”, was not enforceable because the language was intended to reflect the religious principles by which the Bank had held itself out as conducting business, as opposed to expressly trumping the application of English law. However, in Sanghi Polyesters Ltd (India) v The International Investor KCFC (Kuwait) [2000] 1 Lloyd’s Rep. 480, the English High Court permitted the enforcement of an arbitral award where the arbitrator, who was a Shari’a expert, disallowed claims for additional damages on the grounds that such claims, although compliant with English law, were not compliant with Shari’a. The governing law in that dispute provided for English law “except to the extent that it may conflict with Islamic Shari’a which shall prevail”.

However, such issues relating to the choice of law in Islamic finance transactions should not deter parties from opting to resolve their disputes using arbitration. This is especially so given that certain jurisdictions, such as Dubai and Malaysia, have arbitration frameworks to ensure compliance with Shari’a.

 

Malaysia’s Potential to become a hub for Islamic Finance Arbitration

To date, Kuala Lumpur is considered a leading centre for Islamic finance. Indeed, Malaysia is one of the world’s largest issuers of Sukuk having issued nearly US$19.4B in the first half of 2018 alone. This industry expertise places Malaysia on a strong footing to spearhead the growth of Islamic finance arbitration.

A prime benefit of resolving Islamic finance disputes in Malaysia is that the national legal framework explicitly supports the resolution of Islamic finance disputes through civil proceedings or arbitration. Specifically, Section 56 of the Central Bank Act 2009 (the “Act”) provides that where a question arises in a court or arbitration proceeding with respect to a Shari’a matter, the court or the arbitral tribunal shall either: (a) take into consideration any published ruling issued by the Shariah Advisory Council (“SAC”) on that question, or (b) refer the question to the SAC for a ruling which shall be binding on the court or arbitral tribunal.

The SAC is a body which was established under the Act to, inter alia, advise the Central Bank of Malaysia (Bank Negara Malaysia) and Islamic finance institutions on matters relating to Shari’a law and compliance. In a recent landmark decision, the Malaysian Federal Court, by majority, held that the powers of the SAC were not unconstitutional because the SAC does not exercise a judicial function; rather, its purpose is to ascertain Islamic law for the purpose of Islamic finance disputes, which are binding on courts in the interest of harmonising the proliferation of Shari’a opinions in the industry. This, in turn, conserves and protects public interest.

A similar provision is reflected in the AIAC i-Arbitration Rules 2018. Specifically, Rule 11 contains a detailed provision on references to the SAC, or a Shari’a expert, whenever the arbitral tribunal has to form an opinion on a point related to Shari’a principles and decide on a dispute arising from a Shari’a aspect of the contract. Further, Rule 6(g) permits the arbitral tribunal to award a late payment charge on the awarded sum, determined by applying the principles of ta’widh and gharamah, in lieu of awarding pre- or post-award interest. Additionally, the AIAC i-Arbitration Rules 2018 also provide for the technical review of awards, which are aimed verifying the procedural aspects of the dispute and ensuring that the award meets the formal requirements at the seat, to minimise any issues with enforcement. Granted, these rules require some reworking to reflect best standards in international arbitration practice, but they are a good example of how Shari’a compliance can be facilitated through institutional arbitration.

With respect to the choice of law issue highlighted above, the 2018 amendments to Section 30 of Malaysia’s Arbitration Act 2005 clarify that the arbitral tribunal, in both domestic and international arbitrations, shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. The reference to “such rules of law” is arguably broad enough to encapsulate an agreement where the substantive law provision only makes reference to Shari’a, or a combination of a national law and Shari’a.

 

The Way Forward

Despite the above-mentioned advantages of arbitrating Islamic finance disputes in Malaysia, the uptake of the same has been low across the board. However, in light of the World Bank’s recent remarks on the potential of using Islamic finance to alleviate the impact of COVID-19, and Malaysia’s role as a global leader in effecting the same, it is likely that the remainder of this new decade will see a flourishing of Islamic finance activity, and hopefully, greater use of arbitration as the preferred dispute resolution tool. In this regard, the AIAC will also be making a greater investment to revitalise its Islamic arbitration offering in the near future.

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Link for Ohio State Symposium on the Role of ADR in Disputes Involving Gender-Based Violence

ADR Prof Blog - Sun, 2020-12-20 14:28
Our Ohio State Journal on Dispute Resolution hosted a terrific online symposium titled, “A Conversation about the Role of ADR in Resolving Issues of Gender-Based Violence.” Over 300 people were in attendance for most of the day. If you’d like to watch any of the proceedings, here are the links: Morning panel: https://www.youtube.com/watch?v=O-ZP2VRejSw&feature=youtu.be&ab_channel=TheOhioStateUniversityMoritzCollegeofLaw Afternoon panel: … Continue reading Link for Ohio State Symposium on the Role of ADR in Disputes Involving Gender-Based Violence →

Riding New Tides: Arbitration in a Changing World – A Conference Report

Kluwer Arbitration Blog - Sat, 2020-12-19 23:49

The Centre for Advanced Research and Training in Arbitration Law (CARTAL) and the Indian Journal of Arbitration Law (IJAL) organised the 5th Annual Conference on International Arbitration titled ‘Riding New Tides: Arbitration in a Changing World’ (‘Conference’) on 9–11 October 2020 with the support of the SAARC Arbitration Council. The Conference comprised three panel discussions on forward-looking topics in the field of international arbitration, which are discussed below.

 

Arbitration in a Data-Driven World

The first panel discussed best practices for compliance with data protection laws in the arbitral process. Ms. Kristin Campbell-Wilson (Deputy Secretary-General, SCC Institute) observed that since most arbitrations involve multiple parties, institutions, and documents which may be in various jurisdictions, the data processed in arbitration could be subject to multiple data privacy regulations. Flagging the same concern, Prof. Dr. Jacomijn van Haersolte-van Hof (Director General, LCIA) emphasised the need for harmonising different data protection standards across jurisdictions.

Ms. Mélanie van Leeuwen (Partner, Derains & Gharavi International, Paris) then explained how the classification of arbitral participants as data controllers, processors, and subjects further determines the data protection obligations that may apply in an arbitration proceeding. By way of illustration, Ms. van Leeuwen mentioned that as arbitral institutions and arbitrators define a purpose and means for processing of personal data, they become data controllers (or fiduciaries). She emphasized that by being aware of these classifications, each participant can better ensure compliance with applicable data protection laws. For example, there may be situations where the data collected from employees (by a firm) or from an e-mail (by a CEO) is analysed by an arbitrator. In such instances, Ms. van Leeuwen mentioned that the arbitrator will be using data as a secondary processor, such that care has to be taken to ensure that the use of such data is consistent with its original purpose. Similarly, Prof. Dr. van Haersolte-van Hof explained the data protection provision in the new LCIA Arbitration Rules 2020 to highlight the need for those dealing with protected data in arbitrations to balance concerns about transparency, confidentiality, and cybersecurity.

Recognising the potentially arduous requirements associated with complying with data protection standards, both Ms. van Leewen and Ms. Marily Paralika (Partner and Head of the International Arbitration Practice, Fieldfisher, Paris) stressed the importance of identifying where data is located, which jurisdictions are involved, and where data will have to be transferred even before the arbitration commences. Ms. Paralika recommended that any potentially relevant information about the data involved in the dispute – such as where it is located, stored, or how it has been collected – be mentioned in the notice for arbitration (or response to the notice of arbitration). The objective behind this approach would be to give all of the arbitral participants enough time to check what their compliance requirements might be with regard to sharing and processing the data involved. The Panel emphasised that there exists a shared responsibility amongst the arbitral participants towards data protection that must be fulfilled together with other stakeholders in the process. Ultimately, however, the Panel emphasised that minimizing data collection is the safest option in like of current data protection frameworks.

 

State-State Dispute Settlement: A Viable Alternative to Investor-State Dispute Settlement?

The second panel considered the criticisms against the investor-State Dispute Settlement (‘ISDS’) system to discuss the viability of State-State Dispute Settlement (‘SSDS’) as an alternative to ISDS. Dr. Prabhash Ranjan (Senior Assistant Professor, South Asian University, New Delhi) opened the discussion by noting that several recent Bilateral Investment Treaties (‘BITs’) have included SSDS as the sole mechanism for resolution of investment disputes.

However, this extreme approach is not predominant at the multilateral level as highlighted by Dr. Catharine Titi (Research Associate Professor (tenured), French National Centre for Scientific Research (CNRS)-CERSA, University Paris II Panthéon-Assas). Dr. Titi recalled that the UNCITRAL Working Group III on ISDS Reform has considered several alternatives (such as mediation and dispute prevention) to date, but it is yet to consider SSDS as a reform option. From an investor’s perspective, Dr. Titi observed that it is better to have access to ISDS as the investor will not have to depend on its home State to bring claims against the host State. However, for States, there are various factors at play. In theory, a capital-importing State might consider opting for SSDS instead of ISDSto discourage investor claims. Capital-exporting States might be concerned, by contrast, about the potential re-politicisation of disputes through SSDS mechanisms. Dr. Titi noted that the dangers of re-politicisation led to the replacement of SSDS by ISDS in the first place. Dr. Titi concluded that the ISDS system may be ‘very far’ from being perfect, but it is considerably a better option than SSDS. Dr. Ranjan concurred and observed that if a country truly believes in upholding its international obligations, it would retain ISDS as a deterrence against breaching its treaty obligations. He compared this to SSDS, where relief will be generally declaratory in nature. Dr. Ranjan, however, did not agree that re-politicisation is a concern for SSDS alone as the ISDS system is also mired in similar controversy.

Dr. Romesh Weeramantry (Counsel, Clifford Chance, Singapore) thereafter discussed the rare SSDS case of Italy v. Cuba, in which Italy had invoked the SSDS provision under the Italy-Cuba BIT to exercise diplomatic protection in relation to its investors. Deciding upon the admissibility of the claims, the tribunal emphasised the role of exhaustion of local remedies requirements in this context. It held that the ISDS provision under the Italy-Cuba BIT waived the requirement for exhaustion of local remedies for investors, but the SSDS provision remained subject to exhaustion of local remedies as a mandatory requirement under principles of customary international principle.

The Panel unanimously concluded that while both systems have their advantages and disadvantages, the ISDS system is more favourable. It was also noted that SSDS may serve as a complementary mechanism, but was not a viable alternative to ISDS.

 

Rise of Effective Cross-Border Litigation and Mediation: Does Arbitration Still Wear the Crown?

The third panel debated the most effective method of international dispute resolution, in light of the United Nations Convention on International Settlement Agreements Resulting from Mediation (‘Singapore Convention’) and Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (‘Hague Convention’), which facilitate enforcement of mediated settlements and court judgments respectively.

Enforcement has always been a concern for parties seeking resolution of international disputes. Edna Sussman, Esq. (International Arbitrator and Mediator) and Ms. Sherina Petit (Partner and Head of India Practice, Norton Rose Fulbright, London) took the view that while the recent Singapore and Hague Conventions are a step in the right direction, they will likely take considerable time to become as widely accepted as the New York Convention.

Mr. Paul Mason (International Counsel, Arbitrator, and Mediator) noted several reasons why the Singapore Convention may become more effective than the New York Convention in time. For instance, since the Singapore Convention does not impose an additional requirement of recognition, it may prove less time-consuming and expensive to enforce mediated settlements in comparison to arbitral awards. He further noted that the Singapore Convention better respects confidentiality, given that the text of mediated settlements need not be disclosed for enforcement. Lastly, Mr. Mason observed that the Singapore Convention removes an obstacle to enforcement by not including a reciprocity-based reservation, unlike the New York Convention which permits an optional reciprocity declaration by parties.

Prof. Robert Volterra (Partner, Volterra Fietta, London) lauded the Hague Convention’s endeavour to avoid the conflict surrounding the interpretation of the term ‘contrary to public policy’ under the New York Convention, by imposing the standard of ‘manifest violation of public policy’ to refuse enforcement.

The Panel also considered Arb-Med/Med-Arb procedures for international dispute resolution. Ms. Sussman observed that some jurisdictions require the existence of a dispute when an arbitrator is appointed, and already having a mediated-settlement may pose a problem for enforcement of consent awards obtained through Med-Arb procedures, especially, as noted by Mr. Mason, if the Singapore Convention is not widely ratified.

Lastly, Prof. Dr. Katia Fach Gomez (Tenured Associate Professor, University of Zaragoza, Spain) stressed that in investor-state disputes, with the new ICSID Mediation Rules, mediation may be conducted prior to or in parallel with arbitration proceedings. However, in her view, arbitration would still be the predominant mode of resolution of such disputes in the near future.

The Panel concluded that both the Hague and Singapore Conventions have built on the experience of implementation under the New York Convention. Nevertheless, with limited signatories at present, there is a long road ahead for achieving effective cross-border litigation, mediation, and Med-Arb procedures.

***

The Conference concluded with closing remarks from Dr. Nidhi Gupta (National Law University, Jodhpur), with hopes for more certainty on these challenges in the future. The Conference was supported by SARCO. Wolters Kluwer and TDM were the Media Partners. ICC, LCIA, SIAC, VIAC, HKIAC, SCC, AAA-ICDR, AIAC, MCIA, Young ICCA, CIArb (India), Bar Association of India, and Society of Indian Law Firms were the Institutional Partners. SCC Online and EBC were the Knowledge Partners.

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2020 in Review: Latin America and Investment Arbitration

Kluwer Arbitration Blog - Sat, 2020-12-19 00:00

In 2020, we witnessed a number of interesting developments in the field of investment arbitration in Latin America. From the entry into force of the United States – Mexico – Canada Agreement (USMCA) signed over a year ago, as well as numerous cases and actions still arising from the Odebrecht scandal that became public back in 2016, to the conclusion of treaties departing from the traditional approach to investor-State dispute settlement (ISDS). Our authors did a tremendous job covering and sharing their insights on the most important developments affecting our industry. In this post, we aim at giving you a quick look back to some of our most impactful publications in 2020.

 

A new era for investment arbitration in Mexico

In 2020, Mexico gained positive attention by strengthening its commitment to ISDS. The United States – Mexico – Canada Agreement (USMCA) finally entered into force in July 2020. The USMCA succeeds the North American Free Trade Agreement (NAFTA) and covers a range of trade-related issues, and investment protection. As reported by Kiran Gore and Esmé Shirlow, the USMCA provides an ISDS mechanism that departs in many ways from the one established in NAFTA. Glaringly, Canada is not a party to the ISDS mechanism. ISDS survives only for the benefit of American and Mexican investors, and even then, with certain procedural and substantive restrictions.

Likewise, in April Mexico and the EU released a draft text of the upcoming EU-Mexico Free Trade Agreement, including its proposed Investment chapter (including ISDS provisions). There are various innovations in the agreement. For example, it removes the system of party-appointed arbitrators in favor of a pre-selected pool of arbitrators, appointed by States. It also includes a permanent appellate arbitration court also appointed by the States. As pointed out by our authors, Danny Davila II and Nicolas Borda, removing party-appointed arbitrators is a stark change from typical ISDS clauses and will test the debate between those in favor of maintaining the status quo and those proposing a centralized appointment mechanism. In regard to the appellate mechanism, the same authors note that this novelty has strengths, such as enhanced consistency, but also weaknesses, such as the replacement of parts of the traditional system, like the finality of awards.

 

The Odebrecht scandal: What’s the burden of proof to prove corruption acts?

It’s been almost four years since Odebrecht admitted to paying bribes to obtain infrastructure contracts throughout Latin America, and the consequences stemming from the scandal are still making the headlines.

In Colombia, a national arbitration tribunal in the Ruta del Sol case ruled in favor of the government, and declared an infrastructure contract null and void, concluding that it was obtained and awarded through corrupt practices. This case is peculiar, however, because it deviates from the current trend in regard to both gathering and assessing evidence of corruption. Regarding the gathering of evidence, the tribunal adopted an active – as opposed to a passive – role. The Tribunal decided to go beyond and didn’t limit its determination on evidence obtained from the parties and other proceedings. It assumed an active role: it undertook its own investigation; it obtained additional evidence and made its own determination regarding the validity of the corruption allegations. In assessing the evidence, the Tribunal seemed to have deviated from the preponderance of the evidence standard, which is customary in civil cases. Specifically, the Tribunal established that, to prove acts of corruption, the evidence should prove them without any doubt. Therefore, implementing a burden of proof resembling the clear and convincing evidence standard.

Peru is probably one the countries most affected by the Odebrecht scandal. In the Rutas de Lima case, an arbitral tribunal – hearing a case between a consortium led by Odebrecht and a Municipality – decided that, in accordance with the current trend in international arbitration, it was bound to apply a preponderance of evidence standard. In other words, the Tribunal concluded that it had to decide whether it was more likely than not that the contract was obtained through corrupt means. Ultimately, the Tribunal rejected the corruption allegations holding that the casual link between the evidence and the contract was insufficient.

In yet another case arising from the corruption scandal, in February 2020, Odebrecht registered a request for arbitration before the International Centre for Settlement of Investment Disputes (ICSID) against Peru, in relation to a concession agreement for the improvement of a pipeline in Peru. As to this date, the case has not moved forward as the Tribunal is not constituted yet. Carlos Matheus opines that, once all the members of the Tribunal are appointed, Peru is likely to use the “clean hands doctrine” to allege lack of jurisdiction. In doing so, Peru will have to prove that the acts of corruption that it alleges actually took place, which in turn will depend on the standard of proof used by the Arbitral Tribunal. The ICSID Convention and the Arbitration Rules are silent on this matter, on which there is no consensus in Investor-State jurisprudence. However, as Pablo Mori Brigante noted, arbitral tribunals currently tend to apply a more flexible standard (preponderance of the evidence) to prove acts of corruption, like the Ruta del Sol Tribunal.

As reported here, Odebrecht’s corruption was not limited to bribes to get contracts from government agencies. It also including bribing arbitrators to obtain favorable awards, in order to increase the value of certain contracts and, hence, increase the company’s profits. In response to this ploy, public and private entities in Peru have endeavored to develop a means to prevent this from occurring yet again, or at least to minimize the risk of recurrence. For example, our authors reported that the National and International Arbitration Center of the Lima Chamber of Commerce (LCC Arbitration Center) launched a digital platform named “Faro de Transparencia” (“Transparency Lighthouse”), aimed at providing public access to key pieces of information with regard to arbitrations administered by the institution as well as the arbitrators acting in them since 2012. The digital platform publishes the full texts of the awards that have been issued in proceedings involving the Peruvian State as a party, and special anonymized summaries of arbitral awards that have been issued in commercial cases. In the same vein, Rafael Boza reported that, in January 2020, Peru amended its arbitration law to increase transparency to any arbitration in which the Peruvian Government is involved. The amendment, for example, bans ad hoc arbitration in almost all cases involving the State, and establishes that the drafting of an arbitration clause is a multi-department process resting on both the contracting agency and the attorney general’s office.

 

Interpretation of treaty provisions – or lack thereof – in investment arbitration

In the passing year, we also reported more than a few issues relating to treaty interpretation and the interplay between arbitration tribunals and courts. In regard to Latin America specifically, Inaê Siqueira de Oliveira noted the development of two cases arising under the Spain–Venezuela BIT, in which the corresponding tribunals and courts diverged in the interpretation of the same term: the applicability of the treaty to “any kind of assets, invested by investors . . . .”

In García Armas v. Venezuela, Venezuela objected to the jurisdiction of the Tribunal, alleging that the claimants were not nationals of Spain when they made investments in Venezuela; they obtained Spanish citizenship only a few years later. Hence, the respondent argued, the treaty protections did not apply to them because they were not “investors,” when the investments were made. The Tribunal issued a jurisdictional award in favor of the claimants, holding that the claimants’ nationality when making the investment was not relevant. The relevant dates were those pertaining to (a) the alleged treaty breach and (b) the commencement of the arbitration. A French Court of Appeals partially set aside the jurisdictional award concluding that nationality at the time of the investment was relevant. This decision was eventually overturned by the French Supreme Court. In June 2020, however, the Court of Appeals rendered a new decision in the annulment proceedings to fix the previous error, reaffirming its prior interpretation and setting aside the jurisdictional award in its entirety.

In Clorox Spain v. Venezuela, the South American nation argued that the tribunal lacked jurisdiction because the claimant – Clorox Spain – had not “invested” in Venezuela, it had merely received shares in Clorox Venezuela, the local investment vehicle, from its parent corporation – US-based, Clorox International. In the award, the tribunal sided with Venezuela’s interpretation, and held that Clorox Spain prima facie had an investment, but that treaty protection was limited to assets “invested by investors”, so an action of investing was also required. In March 2020, Switzerland’s highest court set aside the Clorox award. Unpersuaded by what it called a “particular importance” given to  the term “invested by investors,” the Swiss Federal Tribunal held that Article 1(2) is an ordinary asset-based definition of investment – known for its openness.

In a somewhat similar case – Michael Lee-Chin v. the Dominican Republic – the respondent challenged the jurisdiction of the tribunal not based on what the treaty said, but on what it omitted. Particularly,  the Dominican Republic argued that, unlike the language used in other treaties it signed, the treaty in question (the Free Trade Agreement between the Caribbean Community and the Dominican Republic -“CARICOM-DR FTA”) provides for three different disputes resolution mechanisms, but does not expressly allow the investor to unilaterally choose one of them. Hence, investors cannot resort to any of those mechanisms without the State’s agreement. The majority was not persuaded and held that a difference in wording between treaties could hardly prove which interpretation should be preferred, or be evidence a “special meaning” for a term under Article 31 (4) of the Vienna Convention on the Law of Treaties (VCLT). Hence, the tribunal concluded that even if the ISDS clause of the CARICOM-DR FTA does not specify the investor’s right to choose among the dispute resolution mechanisms, that did not entail that such right was not conferred by the Treaty.

 

Conclusion

We expect to see as many interesting developments in 2021 concerning arbitration in the Latin American region, just as we did in 2020. Once the EU-Mexico FTA is in force, it will certainly be interesting to see how such stark deviations from the traditional system – lack of party-appointed arbitrators and existence of an appellate mechanism – play out. Likewise, we expect to keep reading about cases related to the Odebrecht scandal, expanding existing case law on the role of arbitral tribunals in gathering evidence and the standard used to prove acts of corruption. Last but not least, we expect to see a number of cases and post discussing ways in which COVID-19 has impacted international investments and, hence, investment arbitration.

 

We look forward to receiving our readers and contributors’ insights on these and other matters at [email protected].

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Does this hat make me look biased? The UK Supreme Court delivers its judgment in Halliburton Company v. Chubb Bermuda Insurance Ltd.

International Arbitration Blog - Fri, 2020-12-18 17:05

The Supreme Court of the United Kingdom (the “Court”) recently handed down its decision in Halliburton Company v Chubb Bermuda Insurance Ltd.[1] The appeal followed an initial application to the High Court by Halliburton (and its subsequent appeal), in accordance with the terms of the arbitration agreement between the parties, in which Halliburton challenged the impartiality of the chairman of the arbitral tribunal and sought his removal and replacement on the basis of an appearance of bias.

 

Inaugural Washington Arbitration Week: Industry-Focused Perspectives in International Arbitration, Another Layer of Complexity

Kluwer Arbitration Blog - Thu, 2020-12-17 23:18

Following on the first day of Washington Arbitration Week (WAW), covered in detail here, later programming of WAW did not shy away from further in-depth discussions. This post highlights programming that dug into energy and the environment, arbitration from the client’s perspective, infrastructure disputes during the pandemic, and last but not least, damages valuation.

 

Fuel, Clean Energy and Environment intersections

Moderator Marinn Carlson (Sidley Austin) set the stage by noting that energy and environmental issues often intersect in commercial and investment arbitrations. Each of the panelists—Tom Sikora (Exxon Mobil Corporation, Institute for Transnational Arbitration), Ian Laird (Crowell & Moring), and Ucheora Onwuamaegbu (Arent Fox)—described the winding professional journeys they took to the subject.

For Mr. Sikora, the field is “very specialized” for three reasons: (i) it is technologically complex, requiring specially-designed equipment to operate flawlessly, particularly in challenging situations; (ii) commercially complex and (iii) legally complex, involving a sophisticated suite of interactive contractual and commercial arrangements. Dr. Onwuamaegbu added another level of complexity, mentioning the large public interest considerations in energy and environmental disputes, and the consequences flowing from that, such as civil society involvement.

The State looms over every energy or environmental proceeding. Even in commercial contract cases, a party might have contracted with a national oil company or regional electricity board standing in the shoes of the sovereign, whose interests are profound. The State as regulator can additionally affect the proceeding in direct or indirect ways.

The panelists identified a number of progressive issues in the field, such as new treaty language more overtly protecting the right to regulate. The panelists identified a number of progressive issues in the field, (such as the EU-Canada Comprehensive and Economic Trade Agreement provisions on regulatory measures at Article 8.9 and indirect expropriation at Annex 8-A(3)), and the difficulty of stranded assets, that is, hydrocarbons that will be left unused if States are to meet their climate change obligations. The move to renewables is not without its challenges, as aggrieved investors in green energy have famously initiated scores of investment proceedings. The most pointed question from the moderator—“what will the situation look like in five years?”—was carried into the breakout rooms for further discussions by WAW attendees.

 

International Commercial Arbitration from the Client’s Perspective

Moderator Chip Rosenberg (King & Spalding) took WAW participants through the looking glass to consider an oft-overlooked perspective: that of in-house counsel. The panel featured Theresa A. Coetzee (Marriott International), Rafael Boza (Sarens USA), Ariel Wade Trajtenberg (Bechtel Corporation) and Alberto Ravell (ConocoPhillips).

Each of the panelists evinced a preference for dispute avoidance. Thus, when asked for the typical steps prior to commencing an international arbitration, the answers primarily sought to resolve the dispute or divert it to a more informal forum, such as mediation. Yet, as we know very well, proceedings are often unavoidable, and Mr. Boza offered three main criteria for the selection of external counsel: (i) budget and economics, which are “paramount;” (ii) the jurisdiction of the dispute; and (iii) the expertise required, in terms of industry or technical knowledge. Ms. Coatzee added that she prefers to choose a firm with a global reach and a true partnership across offices. This ensures consistency across issues and proceedings, and is additionally useful for finding counsel in less frequently used jurisdictions.

By a show of hands, the panelists agreed with the oft-cited advantages of arbitration over litigation, including confidentiality, flexible procedures, choice of decision-makers, natural decision-makers, enforceability, and speed. Mr. Boza and the participants especially appreciate the finality—“you get what you get and it’s over.” While the advantages are well known, Ms. Trajtenberg identified one of the downsides. While flexibility is a positive, it does not allow for much certainty or predictability, which is equally important when advising the company’s commercial executives. Contrary to the findings of the 2015 QMUL Survey, the panelists did not express strong preferences for an arbitral seat, but Ms. Coatzee marveled at the expansion of capable arbitral institutions over the past two decades. When she began her current role, the company’s arbitrations were nearly all administered by the ICC; now, they have had positive experiences with regional institutions in Hong Kong, Cairo, and Dubai.

Some of the commentary might come as a surprise to practitioners. For all of the discussion surrounding third-party funding, none of the panelists had even considered the practice in their current roles. Although some seemed open in theory, others felt it would not be well received internally. As to expedited or emergency arbitrations, Mr. Ravell reported positive experiences, particularly in time-sensitive circumstances, such as where there is need to stop the dissemination of protected information.

As in-house counsel, the panelists offered sound advice for their external counterparts. As fundamentally commercial enterprises, the companies have larger concerns than simply winning the case. Ms. Coatzee shared an experience of maintaining a fruitful business relationship with the respondent after winning in the arbitration. Mr. Boza observed that the parties might have to continue working together on their contracting project during and after the proceeding. A single-minded focus on victory in a discrete arbitral proceeding would fail to appreciate the other important considerations of the client.

At the end of the day, as shared by Mr. Ravell, arbitration practitioners would do well to remember the most important rule that clients expect from external counsel—“no surprises.” That sentiment was widely shared, as was the panelists’ confidence that they would continue to work well along their external counterparts.

 

Infrastructure Disputes in International Arbitration

We live in the era of the global megaproject, but also that of the global megaproject gap—that is, a gap between expected economic growth and productivity of infrastructure development. Megaprojects invite complexity and are inherently challenging—this creates a paradox in which the higher importance placed upon the project, the more difficult it is to complete. This program was moderated by WAW Co-founder Ian Laird (Crowell & Moring). He was joined by Meagan Bachman (Crowell & Moring), Don Harvey (Secretariat), and Michael Nolan (Milbank), each of whom agreed that the infrastructure field was among the most complex and rewarding in international disputes.

The discussion was framed around an unavoidable topic: the effect of the COVID-19 pandemic on infrastructure development and disputes. Ms. Bachman and Mr. Harvey agreed that a “wave” of COVID-related disputes was building, but it is yet unclear how significant it will be.  Ms. Bachman identified several types of claims that were possible, and noted a shift in language from force majeure at the outset of the pandemic, to “change in law” or “delay by authorities” in contract provisions, which in addition to being easier to establish also grant costs, not simply time extensions in the manner of force majeure.

One under-appreciated aspect of the effect of COVID-19 is the restrictions on the movement of persons and labor. In an industry that often relies on foreign workers living communally, this can have a profound effect and the result is yet uncertain. In addition to the creative dispute reduction and avoidance techniques that Ms. Bachman suggests to her clients, COVID-19-specific task forces might dampen the force of the crashing disputes wave.

Mr. Nolan introduced several more of the applicable legal issues. Despite the prevalence of force majeure claims, he agreed with Ms. Bachman that it is not easy to establish, pointing to the reasoning of ICC Award in National Oil Corporation v Libyan Sun Oil Co. He observed that several governments, including China, Italy, France, Iraq, and the UK, have issued pandemic-related declarations purporting to establish a force majeure. This issue is especially sensitive when establishing whether it is a shield for those governments or meant to be a sword for companies established under those State’s laws working abroad.

In any event, global megaprojects are as much drivers of economic activity as they are reflective of it. Their resilience in light of the pandemic will have a profound effect over the next few years.

 

Alternative Approaches to Valuing Early Stage Investments in Investor-State Arbitration

Valuation of damages is a vexing problem faced in every arbitral proceeding, rendered even more acute for early-stage investments, whose cash flows are more uncertain than more established ones. Borzu Sabahi (Curtis Mallet-Prevost Colt & Mosle) began by identifying three main principles that underlie the legal standards for the assessment of damages: (i) the articulation by investment treaty provisions of the compensation due for expropriation; (ii) the familiar Chorzów Factory principle, and (iii) further precepts on reparation contained in the ILC’s Articles on State Responsibility. Panelist Miguel Nakhle (Compass Lexecon) built upon that foundation by introducing three main approaches to valuation: an income-based approach, a market-based approach, and a costs-based approach (“sunk costs”)

A decade ago, tribunals tended to award sunk costs for early-stage investments owing to their inherent lack of certainty. Beginning with the “watershed caseSiag and Vecchi v. Egypt, however, tribunals started using the market-based values of compensation to award damages. According to Dr. Sabahi, one can draw a line between Siag and recent, eye-popping “mega-awards” such as Al-Kharafi v. Libya, Tethyan v. Pakistan, and P&ID v. Nigeria.

Mark Kantor (Independent Arbitrator) underscored that despite the prevalence of highly-valued awards for early-stage investments, he identified a positive development of a move from black-letter law to an evidence-based approach in valuation, a shift that began in Delaware (USA) state courts a few decades ago. He explained that such approach can take many forms, ranging from analysis of future prices and revenues, comparisons to competitive bids, to determining the guaranteed rate of return specified in investment contracts. Garrett Rush (Versant) concurred, and expressed a preference for third-party models, such as those conducted by a bank or other investor, which are not affected by the dispute itself.

 

Conclusion

WAW’s industry-focused panels have a high likelihood of converging in practice over the coming years. The anticipated “wave” of COVID-19 related claims will require creative dispute avoidance and resolution, as clients will prioritize continuity of operations and seek to minimize a multiplicity of legal proceedings. The energy sector has been affected by the pandemic in various ways, with a collapse in oil demand and a reallocation of energy usage to facilitate alternative working arrangements. It was, in some respects, an unexpectedly green year as well. The unique, unanticipated effects of the pandemic will undoubtedly confound valuation exercises as well. The convergence of these issues, the disposition of COVID-19 related claims, and the continued dialogue among parties, counsel, experts, and arbitrators, will have a profound effect as the legal community begins to contemplate the post-pandemic future.

Kluwer Arbitration Blog’s full coverage of Washington Arbitration Week (WAW) is available here

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Inaugural Washington Arbitration Week: Discussions on ISDS Reform, A Light at The End of the Tunnel

Kluwer Arbitration Blog - Thu, 2020-12-17 23:15

The 1st edition of Washington Arbitration Week (WAW) included focus on systemic issues pertaining to ISDS. Today, ISDS reform is at a crucial point. Theories and approaches to reform are now crystallized into working papers from States and other organizations, and academic papers submitted before UNCITRAL’s Working Group III (“WG III”). Panelists critically reviewed the milestones of ISDS reform from inter-institutional, State and legal counsel perspectives.

 

  1. Institutional Synergies Advancing ISDS Reform

Although the work at ICSID and UNCITRAL represent two distinct initiatives, they have recently intersected in critical areas of reform and will likely continue to do so in the future. Lee Caplan (Arent Fox) moderated a panel featuring Meg Kinnear (ICSID), Anna Joubin-Bret (UNCITRAL), Mairee Urán Bidegain (Chile’s Investment Arbitration Defense Program), Mallory Silberman (Arnold & Porter), and Chiara Giorgetti (University of Richmond School of Law). In particular, they highlighted three key reform proposals currently under consideration by the international investment community.

 

The Draft Code of Conduct for Adjudicators

The First Draft Code of Conduct for Adjudicators (“Code”) was published in May as a combined effort by the Secretariats of ICSID and UNCITRAL (which has been previously discussed on the Blog several times). Professor Giorgetti introduced the Code as a binding instrument applicable to all adjudicators in all ISDS. The Code addresses the core concern of ISDS reform: independence and impartiality (Article 4) and avoiding conflict of interests is tackled by an extensive disclosure requirement (Article 5).

The Code does not define issue conflict, which is left to States to flexibly regulate with several “bracketed” options suggested in the current draft. Ms. Kinnear shared feedback received thus far on the Code, with some States expressing a preference for an IBA-type model. On conflict and disclosure (Article 5), in view of the impossibility of an exhaustive definition, she clarified that clause 5.1. provides a general clause, while clause 5.2 provides specific examples. She suggested that there might be a need to clarify that failure to disclosure is not automatically conclusive of a conflict of interest.

However, as explained by Professor Giorgetti, there are several moving pieces in the broader picture of ISDS reform. Whilst the Code enjoys significant consensus, other aspects of the reform, such as the possible Multilateral Investment Court (“MIC”), continue to draw divided views.

 

The “Multilateral Investment Reform Agreement” ISDS Reform “A la Carte”

Ms. Urán shared the proposal submitted by Chile, Israel and Japan, for a Multilateral Investment Reform Agreement (“MIRA”) as part of the proposals for the development of a workplan for stage three of WG III. The MIRA is structured as a menu of reform solutions that States could opt into on an “a la carte” basis. As highlighted by Chile, Japan, Israel, Mexico and Peru in their submission before UNCITRAL’s WG III, the mechanism could achieve uniformity by being applied across multiple investment treaties, as well as consistency and coherence of the ISDS system, tackling two of its most widely criticized issues.

 

A Shift Towards a Critical Stage in the ISDS Reform Process

Ms. Joubin Bret indicated that consensus has emerged on a binding multilateral agreement, with the crux of the question remaining on the content of such an agreement. The next session of WG III will examine the selection and appointment of adjudicators, including looking into elements of the Code. The cost of establishing a full-blown MIC or an appellate body was underscored by Ms. Kinnear, indicating that ICSID could usefully aid in providing those mechanisms.

For Ms. Silberman  the ISDS reform process has reached a critical stage, where “nebulous theories and concepts” will soon be “turn[ed] into black and white text.” As practical matter, counsel will turn to UNCITRAL’s WG III working papers, aiming to rely on the contents of those drafts. To counter and prevent a possible misuse of the commentary, she suggested that further guidance could be added in the drafts for parties to take note.

 

2. Best Practices for States Regarding the Defense and Prevention of Investment Disputes

Albeit critiques, the ISDS system has acquired a level of maturity and sophistication, as evidenced by the panel on States tactical defenses. With the steady rise of investor-State arbitration, there is a great need for guidelines or best practices to assist States with the prevention of investment disputes and defense in investment arbitrations. This panel was moderated by Jose Antonio Rivas (Xtrategy, WAW Co-Founder), featuring former and current government officials Chester Brown (former UK ISDS Negotiator and currently at The University of Sydney), Adam Douglas (Trade Law Bureau, Canada), Cindy Rayo (Trade Secretary, Mexico), Nicole C. Thornton (Office of International Claims and Investment, Disputes U.S. Department of State) and Ricardo Ampuero (former President of the Special Commission Representing Peru in Investment Arbitration Disputes). The discussions expanded on the Draft Guidelines for States’ Defenses and Prevention of Investment Arbitration (to be published), proposed at the 2018 ABA Conference in Singapore.

 

Inter-Agency Communication Regarding ISDS

As investment claims tend to involve the actions or omissions of one or more State agencies, efficient inter-agency communication is key for defense, prevention and deterrence of investment disputes. Mr. Douglas mentioned that creating awareness among agencies is the most important preventive tool. However, it requires a great level of coordination and organization at an inter-agency level, particularly in federal and large States.

Inter-agency communication is critical for the settlement of potential investment disputes against the State. Mr. Ampuero presented the State’s perspective, in which the case of Peru depicts a clear illustration. In Peru, State agencies alert the Special Commission whenever there are indications that an investment dispute may arise, allowing prevention mechanisms to kick in before the dispute has been formally notified to the State.

Ms. Thornton explained that prevention mechanisms such as incorporation of treaty language deterring frivolous claims and fostering judicial economy, benefit the State defense during the arbitration proceedings. She also mentioned the possibility of a summary disposition motion, by which States may seek to request the tribunal to narrow or dispose of the issues in the case. It is worth noting that most arbitration rules do not forbit it such motions, nor authorize them (aside of JAMS rule 18 for domestic arbitrations or if the parties agree to).

 

Time is of the Essence

Besides coordination, as quoted by Ms. Rayo from the Draft Guidelines “time is the most valuable asset that the State has” in the pre-arbitral and arbitral phases. States must articulate their defense strategies as soon as they receive a notice of dispute or notice of intent, or even before the notice, as illustrated by Peru’s experience.

 

3. The Exception to the Rule in Investment Arbitration: States Counterclaims

With the growing trend among respondent States to file counterclaims against investors, States have asserted that they may also uphold investors’ obligations in ISDS proceedings.

Marinn Carlson (Sidley Austin) served as moderator of a program on this topic, and was joined by Ana María Ordoñez (State´s Legal Defense Agency, Colombia), Ricardo Ampuero (former President of Peru’s Inter-Agency Commission), and José Antonio Rivas (Xtrategy).

 

The Importance of Treaty Language for Counterclaims in Investment Arbitration

One of the most common challenges that States face when evaluating the possibility of filing a counterclaim is the issue of consent. Mr. Rivas provided some examples that have been used by tribunals to identify the disputing parties’ consent to the counterclaim, establishing the tribunal’s jurisdiction to hear counterclaims, which emphasizes the need to include clear language in investment treaties, including with respect to express obligations for investors.

 

Non-Treaty Contract ISDS Clauses, a Different Story for Counterclaims

The filing of counterclaims under ISDS contract provisions is a completely different story. As Mr. Ampuero emphasized, Peru’s experience with counterclaims has been rather positive. More than 50% of the State’s ISDS cases have arisen out of contractual ICSID provisions. Hence, review of statistics on counterclaims in investment arbitration reveals that many successful counterclaims arose out of contractual provisions allowing States to file such counterclaims.

 

4. A Conciliation Between Human Rights Claims and Investment Arbitration?

With the exponential growth of investment disputes, the tension between human rights and investment arbitration has become a hot issue in ISDS. Clovis Trevino moderated a panel titled “Human Rights and Investment Arbitration” that featured Douglas Cassel (King & Spalding), Christian Leathley (Herbert Smith Freehills), María Angélica Burgos (Baker McKenzie), and Mariana Reyes (Xtrategy) as panelists.

Mr. Leathley explained that investment treaties have a very narrow focus as they address a particular audience and specific investor rights. However, some arbitration tribunals, such as the one in Philip Morris v. Uruguay, have attempted to broaden the scope. Recent investment treaties, such as the Morocco-Nigeria BIT and the Brazil-India BIT, demonstrate that States are increasingly including human rights protections in investment treaties. Mr. Cassel mentioned that States are best placed to include human rights in international investment law, as the balance that used to be in favor of investors, is now turning towards the State’s side, with the emergence of sophisticated model treaties and significant carve-outs.

 

Long Road to Go from Urbaser

Although the decision made progress by stating that enterprises are subject to a negative obligation “not to engage in activity aimed at destroying”, however it left the question unanswered as to positive obligations of the investor (in that sense see also David Aren v. Costa Rica, previously discussed on the Blog here).

Ms. Burgos mentioned that there is a general understanding that investors have Corporate Social Responsibility (“CSR”) obligations. However, the debate concentrates on whether tribunals have jurisdiction to decide these matters given the limited scope of their competence.

Mr. Leathley raised the question of what would be the consequences of holding an investor responsible for human rights violations? Subsequently, will that be limited to counterclaims, or would that undermine the legality of the investment and therefore should be raised as a question on jurisdiction?

While some of these questions were left unanswered, the panelist did assess that the harmonization of investment arbitration and human rights may prove difficult for investment tribunals, considering that investment arbitration tribunals are seldom asked to address human right issues and both areas of international law may still be perceived – albeit questionably – as two worlds apart.

As for the future of human rights claims in ISDS, Ms. Burgos stated that, while there has been progress in the drafting of new generation BITs (see the Morocco-Nigeria BIT providing for “investors and investments shall uphold human rights in the host state”), that route is set to take long. The most expeditious way would be to regulate human rights obligations for investors at the national level. Nonetheless, how and when tribunals decide to address human rights claims in investment arbitration, will depend on the treaty and on the parties’ submissions of each case.

 

Conclusion

The questions raised at the end of the human rights panel reflect many of the interrogations that remain in ISDS. As concrete answers to those questions are still in the making, the discussions amongst the fioriture of stakeholders’ evidence that there is still a long road to ISDS reform.  An earlier post entitled “Can’t See the Tree Or the Forest” used an earthy metaphor, concluding synergies between experts and law makers must continue so that “every potentially viable variety of tree will be given due consideration before a decision is made whether to replant the forest entirely, or whether to seek better results through forest management”. WAW’s contribution to the discussion fostered those synergies, allowing us to at least “see” the issues.

 

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Inaugural Washington Arbitration Week: COVID-19 Silver Linings and Prudent Prognostics

Kluwer Arbitration Blog - Thu, 2020-12-17 00:17

The first edition of Washington Arbitration Week or WAW, took place on-line from November 30 to December 4, 2020, hosting 15 panels with over 4,000 registrations and 1,476 attendees. This post aims to provide a flavor of the first day of programming.

The Co-Chairs of WAW, Ian Laird and Dr. Jose Antonio Rivas, opened the week, introducing Meg Kinnear, ICSID Secretary-General, as Keynote Speaker. She described Washington, DC as a city perceived from the outside as the city of cherry blossoms, or House of Cards, but for those in the virtual room it is the place for international arbitration. She noted that, from ICSID’s perspective, the Washington, DC hub has expanded in two significant ways: first, with the recent expansion of the ICSID hearing Center facility. Second, in March, ICSID became an expert in remote hearings, handling close to 145 such proceedings.

The remainder of the programming of the first day capitalized on expertise from around the Washington DC arbitration scene.

 

Retention of Talent Through Gender Diversity: Women in the Radar

Against the backdrop of the first US Vice President elect and also a recent recommendation of the first woman President to the ICC Court, it seems women are finally on the radar. Thus, WAW’s first session was aptly titled “Women in International Arbitration.” Margarita R. Sánchez (Quinn Emanuel Urquhart & Sullivan) moderated with Mónica Jiménez (Ecopetrol), Melissa Stear Gorsline (Jones Day), Ashley Riveira (Crowell & Moring), and Ana Stanič (E&A Law) joining the panel.

Flexible Work Arrangements During COVID-19 May Help Harness Talent in the Future: The pandemic has underscored the critical need for flexibility in the legal profession. Ms. Gorsline stressed that a positive spillover of the pandemic is the broad realization that there is no need to be sitting in the office. Ms. Riveira agreed, adding that retention of talent and flexible work arrangements go hand in hand. Dauntingly, an increasing number of women are setting up their own practices because of COVID-19. Ms. Stanič, owner of her own boutique firm, urged women to think outside of the box as “one can trailblaze in whatever direction, it is not linear”.

Initiatives and Accountability Mechanisms to Close the Gender Gap: To help further gender diversity beyond wishful thinking, Ms. Stanic discussed the work of the Cross-Institutional Task Force on Gender Diversity. The Task Force, supported by ICCA, has published findings which identify ways to enhance gender diversity and representation in dispute resolution, and confirmed that diversity can improve the outcomes and the legitimacy of such proceedings.

Other accountability mechanisms were heralded by Ms. Jimenez, such as Economic Social Governance (“ESG”) company score cards, which may be useful to introduce in the law firm context. There is also a panoply of tools to foster diversity, such as the blind selection of arbitrators, sponsorship opportunities, and shared co-responsibility in the household. The discussions closed with advice on how young female practitioners can break into international arbitration: visibility, mentorship, write articles and “just do it”.

 

Are Virtual Hearings Set to Dethrone In Person Hearings as the “King” of Proceedings?

A further program addressed the rise of virtual hearings, another topic coinciding with the pandemic. It brought together diverse perspectives, including the arbitrator by Anne Marie Whitesell (Georgetown Law Center), counsel for sovereign states by Mélida Hodgson (Jenner & Block), in house counsel by Karl Hennessee (Airbus), and arbitration institutions, by ICSID Deputy Secretary-General Gonzalo Flores (ICSID).

Program moderator Gaela Gehring Flores (Arnold and Porter) described in-person hearings as the “king of proceedings”. She explained that placing in person hearings on a pedestal presumes that its benefits outweigh the costs. Mr. Hennessee set the pragmatic tone of the discussions, by signaling that much ink was spilled on the topic of force majeure, cautioning against speculation towards a wave of claims related to this area.

Cautious Prognostics About COVID-19-Related Disputes: Panelists concurred that time is decisive in international adjudication, as there is a lag between the facts giving rise to litigation and the litigation of the dispute itself. Focusing on investment disputes, from the sovereign state counsel’s perspective, Ms. Hodgson explained that many treaties, such as the 2012 US model BIT, include state defenses (i.e., “measures necessary”) should the State need to execute certain public policy objectives. Arbitrators have yet to consider whether those provisions could excuse in response to COVID-19. Ultimately, the success of a COVID-19-related investment claim will boil down to a demonstration that any such measures were arbitrary and discriminatory. To add a layer of complexity, in the event that such claims would be funded by third-parties, Ms. Hodgson explained thatanother set of eyes will be looking at [those] potential claims”.

Welcome Innovations to Institutional Rules Regarding Virtual Hearings with the Launch of the 2021 ICC Rules: Bringing the arbitrator’s perspective, Professor Whitesell focused on the new 2021 ICC arbitration rules, set to come into effect on January 2021 (the new rules have previously discussed on the Blog, for example here). The ICC notably added a new provision (Article 26) to authorize tribunals to hold virtual hearings. Under the previous versions, the provision stated that the tribunal shall hear the parties together “in person”, a reference which caused much debate on what it meant under the rules.

ICSID’s Approach to Virtual Hearings: Mr. Gonzalo Flores articulated that ICSID did not adhere to new rules for virtual hearings but rather to a set of solid principles. The 4 key principles now imbedded in ICSID Working Paper 4 set forth (i) an obligation of the parties to conduct proceedings in good faith, (ii) the duty to treat parties equally and ensure the opportunity to present their case; (iii) the parties’ right to frame the proceedings; and (iv) the tribunal’s duty to consider the conduct of the parties when allocating costs.

As pointed out by Professor Whitesell, this approach raises two issues, namely cross-examination of fact witnesses as arbitrators prefer to see those witnesses, and the synergy among the members of the tribunal. Given these concerns, the panel concluded ambivalently, casting doubt on whether virtual hearings will in fact dethrone in-person hearings.

 

Third-Party Funding Developments, Pitfalls and Looking to the Future

A program on third-party funding (“TPF”) drew upon the idea raised by Ms. Hodgson in a separate program held earlier in the day, regarding the “new set of eyes” on international disputes. This program was moderated by Tim Feighery of Arent Fox, joined by speakers Michael P. Kelley (Parker Poe Adams & Bernstein), Ty Ludbrook (Allegiance Capital), William Marra (Validity Finance), and Michael Perich (Westfleet Advisors).

Whilst transparency surrounding TPF is often conceived in light of disclosures to avoid conflicts of interest, the perspectives of funders during this program highlighted another angle: transparency to the funders from the investor and counsel by being upfront on the pros and cons of their case. Such transparency allows for parties to align on their interests, fomenting a cooperative view of TPF rather than an antagonistic one. Mr. Marra highlighted that TPF is a collaborative effort in view of adding value to the claims.  As to the control of the case, identified as “the most controversial”, Mr. Kelley explained that funders are present throughout the duration of the case to provide an alternative view that may assist with the process, rather than stand in the way. Additionally, the TPF agreement structure is crafted to allocate roles of the funder, counsel, and the client involved.

Asked about the impact of the pandemic on the risk/benefit analysis of prospective disputes, the speakers observed that, at the dawn of the pandemic there was a slower learning curve for deals, but that activities are returning to business as usual. What is more, Mr. Marra indicated the pandemic has been a driver for demand for investors that lack liquidity to fund their claims.

Panelists presented their views on the crucial question of whether TPF serves the access to justice of meritorious claims, to which all concurred with a positive answer. In times where law firms and companies are concerned with withholding cash, funders were confident that the “TPF bubble” is not going to burst any time soon.

 

The Rise of Technology in International Arbitration

Moderated by Nigel Blackaby (Freshfields) the panel focused on what technology can and cannot do for different stakeholders in international arbitration with interventions from Isabel Yang (ArbiLex), Jonathan Hamilton (White and Case), and Claire Morel de Westgaver (Bryan Cave Leighton Paisner).

Technology as A Tool: Delivering a legal tech perspective, Ms. Yang indicated that artificial intelligence (“AI”) could be leveraged to predict outcomes. Notably, counsel can use data to complement their analysis in advocating arbitration disputes.

Opting for a balanced approach, Mr. Hamilton pointed out there is a role for technology, but it must be framed as a tool. Ms. Morel concurred that technology serves as a tool for counsel, adding that potentially the technology and AI can also have an impact on the decision. Mr. Hamilton agreed, pointing out that the war shack test of the arbitrator’s rationale, is now balanced with statistical information one can rely on.

Ms. Morel focused on predictive coding as a form of AI which identifies the documents sought through the use of an algorithm. Counsel could apply the algorithm and identify the best document to advise the client. The second way AI can impact the decision is where it will effectively accompany the assessment of evidence. Concerning the tools that are already available like predictive coding, there is at the moment a lack of regulation regarding what counsel can do, and how could it impact proceedings as to equality of arms between the party that uses AI and the one that does not.

Although witness and expert cross-examination remain difficult to undertake online, a post-pandemic world will likely conserve a hybrid “in person” – online nature, making virtual hearings a reality. The panel concluded that the rise of technology in COVID19 irremediably implicates that “arbitrators are being forced into the 21st century”.

Technology as A Steppingstone for Young Practitioners: Ms. Morel mentioned in the breakout room discussions that tech will be a winning ticket for tech savvy young practitioners.

Relatedly, Pablo Mori (GST) moderated a panel targeting young practitioners. Claire-Naïla Damamme (White and Case) explained how to break and succeed in the field of arbitration. Enrique Molina (King and Spalding) elaborated on how to successfully second-chair an oral argument and a cross-examination. María Lucía Casas (Xtrategy) then shared on the opportunity to clerk for an arbitrator, an additional venue in the career path of young lawyers.

Finally, Daniela Paez (Herbert Smith Freehills) presented Kleros, a dispute resolution system based on Block Chain in which young practitioners could apply to serve as “adjudicators” of these peer-to-peer disputes, and give them the experience to serve as an arbitrator in the future.

 

Conclusion

To counter arbitration conference fatigue, WAW managed to scrutinize major developments in the field by a plethora of experts. The panels brought a nuanced view on the predicted wave of COVID-19 disputes, taking stock of past experience in ISDS factoring in the time lag and case-by-case nature of ad-hoc adjudication. Although it might be “too soon to tell” for actual COVID-19 arbitrations, the timeliness of the discussions allowed for panelists to highlight silver linings in arbitral proceedings. Those upsides included the availability of tools for remote legal work, increased flexibility with the advent of mass virtual hearings, exponential financing of claims, and opportunities for tech savviness.

 

The author of this blog and the WAW organizers thank Vienna Messina for her reporting.

 

Kluwer Arbitration Blog’s full coverage of Washington Arbitration Week (WAW) is available here

More from our authors: International Arbitration and the COVID-19 Revolution
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LIRA Videos Out the Wazoo!!

ADR Prof Blog - Wed, 2020-12-16 16:12
Everyone knows that lawyers should carefully assess their cases at the earliest appropriate time.  In cases that are or might be litigated, lawyers often focus primarily or exclusively on estimating the expected court outcome (aka the BATNA value). The LIRA book provides guidance for more thorough and systematic case assessments, including values for tangible costs … Continue reading LIRA Videos Out the Wazoo!! →

Enka v Chubb [2020] UKSC 38: Bringing the Validation Principle Into the Light

Kluwer Arbitration Blog - Tue, 2020-12-15 23:18

Much has been written about the UK Supreme Court’s decision in Enka v Chubb [2020] UKSC 38 (“Enka”) including on the blog. Those familiar with the judgment will know the Supreme Court decision was split 3 – 2 and the majority upheld the Court of Appeal’s decision but on different grounds. These divisions may give the appearance the law remains as confusing as it was. However, the Supreme Court decision is much less divided than it appears. The majority and the minority agreed on more than they disagreed. It is important to note all five judges agreed an express choice of the main contract law would, save for the validation principle,1)The majority thought another excepting circumstance might be where the law of the seat provides, in the absence of an express choice, the arbitration agreement will also be treated as governed by the law of the seat (e.g. Swedish Arbitration Act, section 48; Arbitration (Scotland) Act 2010, section 6). jQuery("#footnote_plugin_tooltip_5417_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5417_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); be an express or implied choice of law for the arbitration agreement as well. This settles the position in English law for the majority of cases where the main contract contains an express choice of law clause.

One should also bear in mind the split in the Court arose on the uncommon facts of Enka: there was no express choice of law in the main contract, leading to differences on two primary issues:

  • Implication of the main contract law; and
  • The principle to be applied to the determination of the law with the closest connection at stage three of the “express law-implied law-closest connection” three-stage test.

The Court did not differ on the answer had the main contract contained an express choice of law clause.

This post focuses on the Court’s express recognition of a validation principle in the determination of the law of the arbitration agreement.

 

Bringing the validation principle into the light

Enka is the first decision in the English Courts to expressly recognise the application of a validation principle to the determination of the law of the arbitration agreement. All five judges agreed on this.

The Supreme Court framed the validation principle as a principle of English contractual interpretation dating back to the 17th century, expressed in the Latin maxim “verba ita sunt intelligenda ut res magis valeat quam pereat” (the “ut res magis principle”) i.e. the contract should be interpreted so that it is valid rather than ineffective. (Enka, [95])2)Staughton LJ in Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB 897, 910. jQuery("#footnote_plugin_tooltip_5417_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5417_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Court recognised the principle applied if a putative governing law, where none had been expressly chosen, would render all or part of the agreement ineffective.

The Court explained several earlier cases, including Hamlyn & Co v Taliker Distillery [1894] AC 202 and Sulamérica Cia Nacional de Seguros SA and others v Enesa Engelharia SA and others [2013] 1 WLR 102 (“Sulamérica”), can be understood by way of the validation principle, in that the Courts had applied the choice of law which validated and gave effect to the arbitration agreement.

The Court explained the validation principle was purposive:

The principle that contracting parties could not reasonably have intended a significant clause in their contract, such as an arbitration clause, to be invalid is a form of purposive interpretation, which seeks to interpret the language of the contract, so far as possible, in a way which will give effect to – rather than defeat an aim or purpose which the parties can be taken to have had in view. (Enka, [106])

This rationale is in line with the validation principle implied in the scheme of the New York Convention3)See Gary Born, The Law Governing International Arbitration Agreements: An International Perspective (2014) 26 SAcLJ 814 at [27], [56] and [59]. jQuery("#footnote_plugin_tooltip_5417_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5417_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); to uphold and give effect to arbitration agreements. While the Court explained the validation principle in English law terms, the majority recognised the New York Convention encapsulates a similar principle in the choice of law rule in Articles V(1)(a) and II(3). (Enka, [128] to [131])

Notably, the Supreme Court took a broad approach to the application of the validation principle. It not only applies when a putative choice of law would invalidate the arbitration agreement, it also applies where there is a serious risk, but not a certainty, a putative law would defeat or frustrate the purpose of the arbitration agreement. The majority of the Court said the principle extends to a failure to recognise that arbitration is chosen as a one stop method of dispute resolution – i.e. the validation principle favours an expansive interpretation of the arbitration agreement, in cases of doubt, to encompass disputed claims. (Enka, [107] to [108]) The majority and minority were divided on whether the validation principle applies to the scope of the arbitration agreement as opposed to its validity. This is discussed further below.

In defining the validation principle, the Court said it could not improve on the formulation of Moore-Bick LJ in Sulamérica that commercial parties are generally unlikely to have intended a choice of governing law for the contract to apply to an arbitration agreement if there is “at least a serious risk” that a choice of that law would “significantly undermine” that agreement. (Enka, [109])

 

Validation principle applies to scope and validity of the arbitration agreement

As noted above, the majority was of the view the validation principle applied to the scope of the arbitration agreement, in addition to its validity. Lords Burrows and Sales departed from the majority on this – they did not agree the same choice of law rules (and hence the validation principle) applies to both the validity of the arbitration agreement and to its scope.

The majority found the general approach in conflict of laws, adopted by both the common law and the EU Rome I Regulation, is to treat the validity and scope of a contract (as well as other issues, such as the consequences of breach and ways of extinguishing obligations) as governed by the same applicable law. This makes good sense, not least because the boundary between issues of validity and scope is not always clear. It is logical to apply the law identified by the conflict rules prescribed by article V(1)(a) of the New York Convention, enacted in England in section 103(2)(b) Arbitration Act 1996 (“Arbitration Act”), to questions about the scope or interpretation of the arbitration agreement as well as disputes about its validity.4)The majority also referred to the Restatement (Third) US Law of International Commercial and Investor-State Arbitration (which applies the same rule to scope as well as validity) – Enka, [139] and [140]. jQuery("#footnote_plugin_tooltip_5417_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5417_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The majority’s view is supported by the scheme of the New York Convention. As the majority recognised, the New York Convention is to be interpreted to apply the same conflicts rule to Art II(3) of the Convention, on recognition of arbitration agreements, as in Article V(1)(a) New York Convention (Enka, [130])5)Applied in section 103(2)(d) Arbitration Act; Article 36(i)(a)(iii) Model Law. jQuery("#footnote_plugin_tooltip_5417_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5417_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); i.e. the same choice of law rule should apply pre and post-award. Article II(3) of the New York Convention (enacted as section 9(4) Arbitration Act) requires the court to recognise and enforce an arbitration agreement (and to stay litigation brought in breach of the arbitration agreement) unless the agreement is “null and void, inoperative or incapable of being performed”. While not express, the scope of the arbitration agreement must form part of the court’s enquiry, at least on a prima facie basis – if the arbitration agreement patently does not cover the dispute then the court is not required to stay the litigation before it in favour of arbitration. It is clear the scheme of the Convention requires the same governing law (and the same means of determining the governing law) to be applied both to scope and to validity.

 

Validation principle and the law of the closest connection

The minority did not agree with the default application of the law of the seat as the law with the closest connection to the arbitration agreement – they preferred the application of the law of the main contract, even if determined as a rule of law by the closest connection – with the application of the validation principle displacing the main contract law, if necessary. (Enka, [285]) The majority left open whether the validation principle can apply to displace the law of the seat as the law with the closest connection. (Enka, [146])

The validation principle said to be embedded in the New York Convention, most notably associated with Gary Born’s work,6)See Gary Born, The Law Governing International Arbitration Agreements: An International Perspective (2014) 26 SAcLJ 814 at [27], [56] and [59]. jQuery("#footnote_plugin_tooltip_5417_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5417_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); is said to operate at the implied choice stage, favouring the implication of a law validating the arbitration agreement, to give effect to the parties’ agreement to arbitrate. The application of the default choice of the law of the seat law, or of the closest connection, should therefore not arise in most cases.

All five judges in the Supreme Court agreed there is no sharp distinction between an implied choice and a default positive rule of law. (Enka, [37], [256] and [282]) A more expansive approach to the application of the validation principle at the implication stage7)Enka, [245] per Lord Burrows – insufficient weight had been given to the implied choice of the parties in the past. jQuery("#footnote_plugin_tooltip_5417_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5417_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); may obviate the debate seen in Enka over the default choice of the law of the seat as the law with the closest connection and whether the validation principle applies at that stage.

 

Consistency with international law and legislative policy

The Supreme Court’s decision in Enka is to be lauded for the majority’s sophisticated consideration of the scheme of the New York Convention and other international instruments, as well as sections of the Arbitration Act giving effect to the New York Convention. (Enka, [125] to [141])

The Court’s careful treatment of the validation principle can be contrasted with the Singapore High Court decision in BNA v BNB [2019] SGHC 142 (“BNA HC”), in which the Court rejected the application of the validation principle in Singapore law as impermissibly instrumental, inconsistent with the parties’ intention, unnecessary because of the ut res magis principle and inconsistent with Article V(1)(a) of the New York Convention, discussed by the author in an earlier post. (BNA HC, [53], [55], [62] and [65])

The validation principle gives effect to the parties’ agreement to arbitrate and is derived from the choice of law principles and pro-enforcement policy in Article V(1)(a) and Article II of the New York Convention. The majority’s decision in Enka recognised this and emphasised the importance of an internationally consistent approach to the arbitration agreement proper law, and for a uniform approach across national courts. (Enka, [136]) This is a welcome alignment of English law with the transnational approach to the proper law of the arbitration agreement.

References   [ + ]

1. ↑ The majority thought another excepting circumstance might be where the law of the seat provides, in the absence of an express choice, the arbitration agreement will also be treated as governed by the law of the seat (e.g. Swedish Arbitration Act, section 48; Arbitration (Scotland) Act 2010, section 6). 2. ↑ Staughton LJ in Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB 897, 910. 3, 6. ↑ See Gary Born, The Law Governing International Arbitration Agreements: An International Perspective (2014) 26 SAcLJ 814 at [27], [56] and [59]. 4. ↑ The majority also referred to the Restatement (Third) US Law of International Commercial and Investor-State Arbitration (which applies the same rule to scope as well as validity) – Enka, [139] and [140]. 5. ↑ Applied in section 103(2)(d) Arbitration Act; Article 36(i)(a)(iii) Model Law. 7. ↑ Enka, [245] per Lord Burrows – insufficient weight had been given to the implied choice of the parties in the past. 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 Sorcerer’s Apprentice, or Integrity-Driven Innovation in International Arbitration

Kluwer Arbitration Blog - Tue, 2020-12-15 20:16

In Disney’s Fantasia, the third segment—called The Sorcerer’s Apprentice—is based on the poem by Johann Wolfgang von Goethe. It features the charming but somewhat lazy Mickey, who is tired of his chores. To get some help, he borrows Sorcerer Yen Sid’s hat, and uses it to magically animate a broom with what today we might call artificial intelligence.

At first it looks like a great solution! The broom readily takes up Mickey’s chores, including carrying buckets of water to fill a cauldron.

The problem is that, like more modern versions of artificial intelligence, the broom has no common sense. As a result, the broom continues to bring buckets of water long after the cauldron is full, and on and on and on until the entire room is flooded.

Mickey makes various attempts to stop the broom, alas with no success. Eventually, he tries to chop the broom into pieces with a huge axe. His initial relief soon vanishes when he sees that the little wooden pieces that had been lying quietly on the floor suddenly come alive, stand upright, grow into brooms, and start carrying even more buckets of water.

This tale depicts the concerns expressed by Dr Schäfer in his recent blog post—ill-used artificial intelligence (AI) transmutating from a helpful tool into a flood of unforeseen consequences.

It is an easy task to write a response to Dr Schäfer because on virtually all points, we are in agreement. Of course, there is a need for transparency, and we would go so far as to say modesty and restraint in using AI in the context of dispute resolution. We also agree that there are important ethical questions to be addressed in order to ensure that any technology or process applied in dispute resolution is fair and unbiased.

We also agree with observations made not only by Dr Schäfer, but in other posts in this blog here and here that have pointed out the limitations that exist for introducing effective AI in light of the confidentiality and increased variability in international arbitration cases. In fact, a prior blog post by Aditya Singh Chauhan, which was selected as a winner in our Essay Competition, stated quite simply (and perhaps rather fittingly) that “AI is not magic, just glorified statistics.”

It is easy for us to agree on all these points because, despite the similarity in names, Arbitrator Intelligence does not use AI or Artificial Intelligence. We also do not currently engage in predictive analytics. Instead, our Reports focus on descriptive analytics.

Those descriptive analytics, however, still provide incredible empowerment for parties and counsel seeking information about selected arbitrators. In the past, parties and counsel were not able to obtain broad-based insights about an arbitrator’s track record, but only a few limited examples based on ad hoc research to uncover details from still-confidential previous arbitrations.

Arbitrator Intelligence has replaced that hunt-and-peck method by enabling, through our platform, hundreds and thousands of lawyers from around the world to exchange information on an anonymous and confidential basis. The results may seem magical when you see the insights we provide in our Report on Fernando Cantuarias, based on feedback from 25 individual attorneys and on 19 cases in which the awards remain confidential. You can browse the full Report yourself by clicking here to obtain access through our website.

Before you look, query whether you would, through ad hoc research, be able to guess accurately whether more Claimants or more Respondents self-reported having prevailed in cases in which Cantuarias sat? Or would you be able to guess which standard Cantuarias tribunals most frequently used to award document production or interest? For most, other than the sorcerers among us, the answer will likely be no.

Even in investor-State arbitration, where most awards are public, reading past awards one-by-one can make it difficult to discern patterns and compare those patterns for a specific arbitrator to those from other arbitrators.

Instead, you can see our full Report on Juan Armesto—gain access by clicking here.

If you just read his publicly available awards, would you be able to accurately guess the rate of recovery for Claimants in Armesto cases, in comparison with other arbitrators or by reference to the average of all investment cases? Would you be able to estimate how costs and fees are typically allocated by tribunals on which he sat? Or how the duration of Armesto investment arbitrations compares with averages, or differs based on whether Armesto was the chair or a co-arbitrator, whether there was a dissent, or whether the case was bifurcated or trifurcated?

These kinds of insights are readily available regarding judges in national courts, and are proving invaluable to parties in domestic litigation. As explained in a recent article by Burford’s Jeffery Commission and Giulia Previti:

[L]itigation analytics providers offer sophisticated data analysis tools that, if used properly, can shed light on how a particular judge is likely to rule, as well as provide indications on the expected length or cost of specific proceedings. This information aids counsel and parties in making important strategic decisions, including whether to pursue a particular case or litigation strategy.

Commission and Previti also note that “access to data analytics is even more relevant in the context of international arbitration, where the parties and counsel exert a greater degree of control over key features of the dispute resolution process.”

Going back to Dr Schäfer, Goethe, and Disney’s concerns, we believe these basic insights improve transparency and predictability of international arbitration for parties. Our commitment to transparency and integrity is part of our DNA, manifesting in how we created our platform, how we collect information and how we present information in our Reports.

Our Arbitrator Intelligence Questionnaire or “AIQ” was developed after extensive public vetting, including sessions with over 500 lawyers, arbitrators, staff and administrators from arbitral institutions. Such broad consultation enabled us to reduce or eliminate cultural biases in our questionnaire and instead truly reflect the diversity of our field—no cultural approach is preferred. Our Reports reflect the feedback provided on the basis of such cultural neutrality.

We are transparent even in our provision of descriptive analytics—our Reports are accompanied by detailed guidance in the form of a “How to read” instructional note, a “note on methodology” and a detailed “glossary”. Our Reports are tools to assist parties and their counsel in selecting arbitrators and developing case strategies—an augmentation of, not a replacement for, human decision making.

Arbitrator Intelligence provides benchmarks against which parties and counsel can check their assumptions when evaluating arbitrators, including some assumptions they did not even know they made. Moreover, our Reports organize information in a user-friendly format that enables users to understand and assess our data and analytics in the context of their own search process. Imagine starting your next arbitrator search or discussion about possible chairpersons with one of our Reports in hand.

As we prepare Reports, we notify the arbitrators that we have received feedback about them, which includes personal data obtained from sources in the public domain, such as publicly available awards, in accordance with our Arbitrator Personal Data Policy. Information relating to the counsel, parties, and third-party funders who complete our AIQ is anonymized and kept confidential to maintain the independence of the feedback.

The size of our Reports depends solely on the amount of external feedback provided in the AIQ, or the number of publicly available awards rendered by a particular arbitrator. There is no opportunity for outside influence on the positioning of an arbitrator on the AI website, and there is no algorithm dictating which Reports appear first on the page. Instead, the reports are presented in alphabetical order, regardless of size.

Note to arbitrators: If you don’t yet have a Report, encourage parties and counsel in your next arbitration to fill out an AIQ!

To ensure quality, we collaborate with law firms and arbitral institutions, the first such cooperating institution being the Singapore International Arbitration Centre. Since that time, we have welcomed the opportunity to cooperate with institutions, law firms, corporations and states committed to sharing and encouraging the submission of feedback about arbitrators.

SIAC Americas New York Office Launch Day 1 – East Coast Perspectives

Ultimately, the theme of the Sorcerer’s Apprentice and Dr Schäfer’s blog is the same: unwise use of the power of magic or technology can turn against those who invoke it and potentially cause much damage in the process.

At Arbitrator Intelligence, we could not agree more.

Our road so far has been long, and in many ways arduous as we have faced criticism and concerns, some fair and occasionally some not so fair.

But our road has also been incredibly exciting, inspirational, and gratifying. Although we have always believed in the transformative power of our Reports, even we have been pleasantly surprised by the flood of positive feedback and encouragement we have received from arbitrators, counsel, institutions, academics, and of course parties, both corporations and States.

Each day with renewed resolve, we aim to respect the interests and concerns of all stakeholders who make international arbitration function. We know that is the only way to establish the trust that is essential for an online platform like ours to build the essential networks that are necessary for it to function properly.

Ultimately, despite the pressures that come with any start up, we remain professionally committed internally to the values we aim to promote externally: transparency, accountability, and diversity.

We hope you will join us in creating transformational magic, together.

 

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
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LIRA in Criminal Cases

ADR Prof Blog - Tue, 2020-12-15 11:22
The LIRA book – Litigation Interest and Risk Assessment: Help Your Clients Make Good Litigation Decisions – focuses on civil litigation.  It describes three elements that practitioners and parties should consider when assessing litigation interests and risks: (1) the expected court outcome, (2) future tangible costs of continuing to litigate, and (3) future intangible costs … Continue reading LIRA in Criminal Cases →

Inter-School Negotiation Practicum for the Spring

ADR Prof Blog - Tue, 2020-12-15 10:58
From FFOI Debra Berman: As you begin to prepare for the spring semester, please consider incorporating our Inter-School Negotiation Practicum. Over the last year, more than 1,000 students from 31 schools have participated and we are gearing up to do it again this spring.  Please note that this is not a “competition.”  Rather, it is … Continue reading Inter-School Negotiation Practicum for the Spring →

Ramifications of Two Indian Parties Choosing a Foreign Seat of Arbitration

Kluwer Arbitration Blog - Mon, 2020-12-14 23:31

On 3 November 2020, the Gujarat High Court rendered a decision in GE Power Conversion India Private Limited v. PASL Wind Solutions Private Limited where it held that while two Indian parties can choose a foreign seat of arbitration, they would not be entitled to seek interim measures from Indian courts under section 9 of the Arbitration and Conciliation Act 1996 (the “Arbitration Act”).

 

Background to the dispute

The dispute arose out of a settlement agreement executed between two Indian companies, GE Power Conversion India Private Limited (“GE”) and PASL Wind Solutions Private Limited (“PASL”). The settlement agreement provided for arbitration in Zurich under the ICC rules of arbitration. In 2017, PASL referred certain disputes under the settlement agreement to arbitration. In the arbitration proceedings, GE raised a preliminary objection that both parties being Indian, the choice of a foreign seat was invalid. This objection was rejected by the Sole Arbitrator, and the decision of the Sole Arbitrator was not challenged by GE. The Sole Arbitrator made a final award in favour of GE, directing PASL to make payments to GE.

GE then commenced enforcement proceedings before the Gujarat High Court seeking enforcement of the award as a foreign award in India. At the same time, GE also made an application under section 9 of the Arbitration Act seeking security from PASL, pending the enforcement of the award.

 

The High Court’s decision

The three main issues before the Court were: (i) whether the award could be enforced as a foreign award in India under Part II of the Arbitration Act, (ii) whether the enforcement of the award could be refused on the ground that it was contrary to the public policy of India, and (iii) whether GE’s application for interim measures under section 9 of the Arbitration Act was maintainable.

On the first issue, the High Court held that the award was a foreign award under the definition of “foreign award” in section 44 of Part II of the Arbitration Act. The definition of “international commercial arbitration” in section 2(f) in Part I, which requires at least one of the parties to the arbitration to be a foreign national or entity, is not relevant for determining the applicability of Part II of the Act. Part I and Part II of the Arbitration Act are mutually exclusive (as held in BALCO). Section 44 exhaustively sets out the requirements for an award to qualify as a foreign award, and the nationality of the parties is not a relevant consideration. However, the award should be made in a New York Convention Member State. In this case, the award was made in Zurich.

On the second issue, the High Court held that the award was not contrary to the public policy of India. PASL had contended that the award was contrary to the public policy of India because the choice of a foreign seat by Indian parties was violative of section 28(a) read with section 23 of the Indian Contract Act 1872 (the “Contract Act”), section 28 of the Arbitration Act as well as the Supreme Court’s decision in TDM Infrastructure Pvt Ltd v. UE Development India Ltd.

The Court held that section 28(a) of the Contract Act, which provides that an agreement that absolutely restricts a party from enforcing its contractual rights “by the usual legal proceedings in the ordinary tribunals” is void to that extent, is inapplicable. This is because Exception 1 to section 28 of the Contract Act provides that section 28 will not render an arbitration agreement, which results in jurisdiction being conferred on another forum, illegal. Further, since the Arbitration Act does not per se prohibit two Indian parties from choosing a foreign seat, there is no breach of section 23 of the Contract Act.

As regards section 28 of the Arbitration Act, which sets out the rules applicable to the substance of a dispute when the place of arbitration is in India, the High Court, relying on BALCO, held that this only reflects the conflict of law rules applicable in India. When the arbitration is seated outside India, the conflict of law rules of the seat would be applied to determine the law applicable to the substance of the dispute. TDM Infrastructure was held to be inapplicable on the ground that it prevents two Indian parties from derogating from provisions of Indian law in cases where the arbitration is seated in India.

On the third issue, the High Court held that GE’s application under section 9 was not maintainable. Section 2(2) of the Arbitration Act provides that Part I applies where the place of arbitration is in India, and section 9, subject to an agreement to the contrary, also applies to international commercial arbitrations seated outside India. Since a foreign seated arbitration between two Indian parties does not fall within the definition of “international commercial arbitration”, section 9 is not available to the parties. The language of section 2(2) of the Arbitration Act being unambiguous, its scope cannot be extended to apply section 9 in cases of enforcement of a foreign award (not being an award made in an international commercial arbitration).

 

Comments

Freedom of Indian parties to choose a foreign seat

The decision is a welcome one because it supports parties’ freedom of contract in the matter of choosing a foreign seat. There has been much confusion over whether two Indian parties can choose a foreign seat of arbitration, and the position taken by different Courts has not been consistent, as discussed previously on this blog here.

In Atlas Export Industries v. Kotak & Company, the Supreme Court held that two Indian parties can choose a foreign seat, but that was a decision under the earlier Arbitration Act of 1940 which was repealed by the Arbitration Act of 1996. The decision in Atlas Export was relied on by a Division Bench of the Madhya Pradesh High Court in Sasan Power Limited v. North American Coal Corporation India Pvt. Ltd. to hold that two Indian parties can choose a foreign seat under the Arbitration Act of 1996 as well. The decision of the Madhya Pradesh High Court was challenged before the Supreme Court, but the issue whether two Indian parties could choose a foreign seat was not addressed by the Supreme Court – the Supreme Court on facts concluded that the agreement was between two Indian parties and one foreign party, and as such this was not a relevant issue. The decision of the Madhya Pradesh High Court, having merged with the decision of the Supreme Court, lost its precedential value.

The issue was indirectly considered in another Supreme Court decision – Reliance Industries Limited v. Union of India where Indian parties had agreed to London as the seat of arbitration. The question before the Court was whether the parties had impliedly excluded the application of Part I of the Arbitration Act by choosing a foreign seat and a foreign law to govern the arbitration agreement. The Supreme Court proceeded on the basis that the choice of London as the seat of arbitration was valid, but the question whether Indian parties could choose a foreign seat was not directly considered.

In the absence of an authoritative decision by the Supreme Court, different High Courts have taken different positions. The Delhi High Court in GMR Energy Limited v. Doosan Power Systems India Private Limited upheld the choice of a foreign seat by Indian parties while the Bombay High Court in Addhar Mercantile Private Limited v. Shree Jagdamba Agrico Exports Pvt. Ltd. took the opposite approach.

The GE case, by upholding the parties’ right to choose a foreign seat, would hopefully contribute to strengthening this legal position, which also gives effect to the principle of party autonomy.

 

Non-availability of section 9 remedies

Perhaps the most significant aspect of the GE case is the ruling that the section 9 remedy of seeking interim measures is not available in case of a foreign seated arbitration between two Indian parties. While Indian parties choosing a foreign seat would be entitled to have their award enforced as a foreign award in India under Part II of the Arbitration Act, they would not be entitled to avail of the section 9 remedies which are (subject to a contrary agreement) available to parties in an international commercial arbitration seated outside India. This would mean that a party that anticipates or receives an unfavourable award would be at liberty to dispose of the assets and defeat the rights of the award holder, and the Indian courts would be powerless to grant any interim measures for the protection and preservation of the assets. A civil suit before the Indian courts for such measures of an interlocutory nature would not be maintainable because interlocutory measures can only be granted when they are in aid of the final relief sought.

Indian parties opting for a foreign seat of arbitration would have to carefully weigh the pros and cons of having their award enforced as a foreign award in India vis-à-vis having no recourse to Indian courts under section 9 of the Arbitration Act for interim measures of protection.

More from our authors: International Arbitration and the COVID-19 Revolution
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