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Issue Preclusion in the Holiday Season

In celebration of the recent publication (November 30, 2018) of important sections of the American Law Institute’s Restatement (Second) of the U.S. Law of International Commercial and Investment Arbitration (in an as yet not formally ALI-approved Council Draft), concerning the topic of the issue preclusive (collateral estoppel) effect of international arbitration awards in later US litigation, today’s post will report upon findings of a brief excursion into recent US federal case law to see what the courts have actually been doing in this area. As a foundation for the reader’s appreciation of this report, it seems to suitable to set...
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The post Issue Preclusion in the Holiday Season appeared first on Marc J. Goldstein - Arbitration & Mediation.

Indian couple’s claim against Macedonia underway

Nigerian arbitrator Funke Adekoya SAN is presiding over a treaty claim brought against Macedonia by members of a prominent Indian business family who say their mining and quarrying investments were expropriated....

Swissbourgh v Lesotho: Can a Right to Arbitrate be an Investment?

Kluwer Arbitration Blog - Mon, 2018-12-10 16:08

Jack Wass

In a conventional investment dispute, the claimant seeks compensation for the impairment of its substantive investment in the territory of the host state. Swissbourgh Diamond Mines (Pty) Ltd v Lesotho arose out of mining investments made by the claimants in Lesotho in the 1990s. However, this arbitral proceeding was not concerned directly with the impairment of the claimants’ underlying investment. Rather, they alleged that Lesotho was liable for frustrating the claimants’ ability to bring their underlying investment claim in a particular forum.

The claimants alleged that Lesotho had participated in the unlawful dissolution of a tribunal established pursuant to the Treaty of the Southern African Development Community (SADC Tribunal) after the claimants had submitted their expropriation claim to that tribunal, but before the claim was resolved. This prevented them seeking recourse for the underlying expropriation. The claimants brought a separate arbitration, administered by the Permanent Court of Arbitration and seated in Singapore, under Annex 1 to the Protocol on Finance and Investment of the SADC (the Investment Protocol).

The PCA Tribunal granted an order that a new tribunal be established to hear the underlying claim,1) Swissbourgh Diamond Mines (Pty) Ltd v Kingdom of Lesotho (Sir David A R Williams QC, R Doak Bishop and Justice Petrus Millar Nienabar (dissenting in part)). jQuery("#footnote_plugin_tooltip_8997_1").tooltip({ tip: "#footnote_plugin_tooltip_text_8997_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Lesotho applied to set aside the award. The Singapore Court of Appeal, in a unanimous judgment delivered by Sundaresh Menon CJ, upheld the High Court’s decision that the PCA Tribunal did not have jurisdiction and that the award had to be set aside.2) Swissbourgh Diamond Mines (Pty) Ltd & ors v Kingdom of Lesotho [2018] SGCA 81. jQuery("#footnote_plugin_tooltip_8997_2").tooltip({ tip: "#footnote_plugin_tooltip_text_8997_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The Court of Appeal dealt with four issues:

  • First, it held that where a dispute fell outside the scope of an arbitration clause, then Article 34(2)(a)(iii) of the UNCITRAL Model Law allowed the award to be set aside;
  • Second, it held that Lesotho was not ‘bound to accept’ the jurisdiction of the PCA Tribunal;
  • Third, it held that the PCA Tribunal did not have jurisdiction over the claim; and
  • Fourth, it found that the claimants may not have exhausted local remedies before bringing the arbitral claim.

In this post I will focus on the second issue, and conclude with some brief thoughts on the third.

The claimants alleged that by making various public and private statements, Lesotho committed to accepting the jurisdiction of the PCA Tribunal, and that the respondent should not be permitted to approbate and reprobate on that question. Either Lesotho’s statements constituted binding unilateral declarations to accept the jurisdiction of the Tribunal, or Lesotho was estopped from denying that it had done so. The statements in question fell into three categories: (i) political statements to SADC organs that the claimants would be permitted to pursue their claims in other fora; (ii) submissions in the course of the Tribunal’s hearing phase that the claimants should have the opportunity to pursue their claims if the Tribunal found that it had jurisdiction; and (iii) a freestanding offer to have the claim arbitrated in another SADC state, which was rejected.

In principle, the second and third questions ought to have been addressed in the reverse order: only if the Court found that the Tribunal lacked jurisdiction did any question of relying on Lesotho’s statements arise. The claimants’ case was that if the Tribunal lacked jurisdiction, then Lesotho was precluded from relying on that absence because of the statements it had made.3) Chagos Marine Protected Area (Mauritius v United Kingdom), 18 March 2015, para 437, citing Case Concerning the Temple of Preah Vihear (Cambodia v Thailand) [1962] ICJ Rep 6, Judge Fitzmaurice Sep Op, 63. jQuery("#footnote_plugin_tooltip_8997_3").tooltip({ tip: "#footnote_plugin_tooltip_text_8997_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

The question of whether a claimant can invoke estoppel (or its related doctrines, acquiescence and binding unilateral declarations) to establish the jurisdiction of a tribunal is unsettled. The International Court of Justice controversially held that the United States was precluded from denying the Court’s jurisdiction in the Nicaragua Case,4) Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v United States of America) (Jurisdiction) [1984] ICJ Rep 392, 410–1 jQuery("#footnote_plugin_tooltip_8997_4").tooltip({ tip: "#footnote_plugin_tooltip_text_8997_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and more recently a minority of the International Tribunal on the Law of the Sea argued that Ghana was estopped from denying the Tribunal’s jurisdiction over Argentina’s claim in respect of the ARA Libertad.5) The ‘ARA Libertad’ Case (Argentina v Ghana) (Provisional Measures) [2012] ITLOS Rep 332, Judges Wolfrum and Cot Sep Op, paras 68–9 jQuery("#footnote_plugin_tooltip_8997_5").tooltip({ tip: "#footnote_plugin_tooltip_text_8997_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Critics argue that since the jurisdiction of an international tribunal is founded on consent, a respondent by definition cannot be precluded from contesting jurisdiction: either they consented or they did not. In Swissbourgh, the Court did not see anything objectionable in principle to the idea that a respondent state may be precluded from contesting the jurisdiction of an arbitral tribunal. As I have argued elsewhere,6) Jack Wass ‘Jurisdiction by Estoppel and Acquiescence in International Courts and Tribunals’ (2016) 86(1) British Yearbook of International Law 155. jQuery("#footnote_plugin_tooltip_8997_6").tooltip({ tip: "#footnote_plugin_tooltip_text_8997_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); the application of estoppel reinforces rather than undermines the consensual nature of international jurisdiction: where a state has made an unequivocal representation that it will not dispute the jurisdiction of a tribunal, and the claimant has relied upon that representation to its detriment, it would be contrary to the underlying principle of good faith for the respondent to resile from it. Reliance on unilateral declarations can be justified on the same basis.

But the significant consequences of such a finding demand strict adherence to the elements of estoppel: an unambiguous representation, reliance, and detriment.7)It is sometimes said that benefit to the representor is sufficient, and detriment to the representee is not required; this theory is rejected in Wass at 165. jQuery("#footnote_plugin_tooltip_8997_7").tooltip({ tip: "#footnote_plugin_tooltip_text_8997_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The Court of Appeal rightly found that these elements were not satisfied: most importantly, Lesotho’s statements were not directed at the jurisdiction of the PCA Tribunal, but were directed at the merits question of whether the claimants should have an alternative forum available, and in some cases were expressly conditional on the PCA Tribunal having jurisdiction in the first place. There is an understandable temptation to restrain a state from adopting inconsistent positions generally, but the fundamentality of consent means that a tribunal cannot equate the state’s position on the merits with acceptance of jurisdiction to determine the substance, unless the state has made an unequivocal statement to that effect.8)It was for this reason that I argue the Separate Opinion in the ARA Libertad case was wrong: see Wass at 171. jQuery("#footnote_plugin_tooltip_8997_8").tooltip({ tip: "#footnote_plugin_tooltip_text_8997_8", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Since Lesotho was free to deny that the PCA Tribunal had jurisdiction, the Court was then required to determine whether it did so under Annex 1 to the Investment Protocol. It emphasized the need for a territorial nexus between the investment and the host state. Although the Court did accept that an investment consists of a bundle of rights which includes the secondary right to seek remedies and vindicate the primary right, the right to refer the underlying claim to the SADC Tribunal did not have the necessary territorial nexus since it existed only on the international plane and beyond Lesotho’s enforcement jurisdiction; the only investment left was the original mining leases, which did not carry an obligation to guarantee that the SADC claim would be heard. It followed that the PCA Tribunal had no jurisdiction over the claim in relation to the dissolution of the SADC Tribunal, and the award had to be set aside. Although the Court relied on the ‘generally accepted principle in international investment law’ of territoriality, that limitation is usually invoked to ensure that the underlying activity constituting the investment has the necessary economic link with the host state to justify the protection of the treaty.9)See, for example, the decision of the majority in Abaclat v Argentina (Decision on Jurisdiction and Admissibility) ICSID Case No ARB/07/5 (2011, Tercier P, van den Berg & Abi-Saab (dissenting)), para 374. jQuery("#footnote_plugin_tooltip_8997_9").tooltip({ tip: "#footnote_plugin_tooltip_text_8997_9", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the Court of Appeal’s conception, that criterion also serves to distinguish between matters within and beyond the enforcement jurisdiction of the host state.

The result in Swissbourgh may seem harsh. The claimants had a genuine underlying investment. They claimed that the investment had been expropriated and that they had possessed the right to refer that dispute to the SADC Tribunal. Lesotho participated in a process that foreclosed that avenue, leaving the claimants without recourse. In those circumstances it would have been tempting to find a remedy. However, adherence to fundamental principles of international jurisdiction did not allow the Court to do so.

References   [ + ]

1. ↑ Swissbourgh Diamond Mines (Pty) Ltd v Kingdom of Lesotho (Sir David A R Williams QC, R Doak Bishop and Justice Petrus Millar Nienabar (dissenting in part)). 2. ↑ Swissbourgh Diamond Mines (Pty) Ltd & ors v Kingdom of Lesotho [2018] SGCA 81. 3. ↑ Chagos Marine Protected Area (Mauritius v United Kingdom), 18 March 2015, para 437, citing Case Concerning the Temple of Preah Vihear (Cambodia v Thailand) [1962] ICJ Rep 6, Judge Fitzmaurice Sep Op, 63. 4. ↑  Military and Paramilitary Activities in and Against Nicaragua (Nicaragua v United States of America) (Jurisdiction) [1984] ICJ Rep 392, 410–1 5. ↑ The ‘ARA Libertad’ Case (Argentina v Ghana) (Provisional Measures) [2012] ITLOS Rep 332, Judges Wolfrum and Cot Sep Op, paras 68–9 6. ↑ Jack Wass ‘Jurisdiction by Estoppel and Acquiescence in International Courts and Tribunals’ (2016) 86(1) British Yearbook of International Law 155. 7. ↑ It is sometimes said that benefit to the representor is sufficient, and detriment to the representee is not required; this theory is rejected in Wass at 165. 8. ↑ It was for this reason that I argue the Separate Opinion in the ARA Libertad case was wrong: see Wass at 171. 9. ↑ See, for example, the decision of the majority in Abaclat v Argentina (Decision on Jurisdiction and Admissibility) ICSID Case No ARB/07/5 (2011, Tercier P, van den Berg & Abi-Saab (dissenting)), para 374. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Chinese music company hit with fraud claim ahead of IPO

A Chinese businessman has brought a CIETAC claim alleging he was defrauded and coerced into selling his stake in a music-streaming business that hopes to raise US$1.23 billion in an initial public offering...

How To Be Constructively Angry - What is Constructive Anger?

Communication and Conflict Blog - Mon, 2018-12-10 12:13
This page explores how to be constructively angry in a way that leads to learning and change and not destructively angry through violence, abuse or vandalism. It compares examples of constructive expression of anger with destructive expression of anger.

Romania faces ECJ action over Micula payout

The European Commission has said it will refer Romania to the European Court of Justice over the state’s failure to recover up to €92 million in illegal state aid allegedly granted to the Micula brothers...

The Contents of Journal of International Arbitration, Volume 35, Issue 6, 2018

Kluwer Arbitration Blog - Sun, 2018-12-09 16:47

Maxi Scherer

We are happy to inform you that the latest issue of the journal is now available and includes the following contributions:

Gordon Blanke, Free Zone Arbitration in the United Arab Emirates: DIFC v. ADGM (Part II)

This is Part II of a two-part article that deals with the phenomenon of free zone arbitration in the United Arab Emirates.  Part I, which was published in the last issue of this journal, discussed in some detail the concept and practice of free zone arbitration in the Dubai International Financial Centre (DIFC).  This Part II discusses free zone arbitration in the more recently established Abu Dhabi Global Market (ADGM) and highlights the main differences between the two.  In doing so, Part II will take a closer look at the judicial and legislative framework of the ADGM, including in particular the main provisions and the operation of the 2015 ADGM Arbitration Regulations, the institutional framework of arbitration in the ADGM, the curial function of the ADGM Courts in ADGM-seated arbitrations and the recognition and enforcement of domestic (non-)ADGM and foreign arbitral awards in the ADGM.  Part II also explores to what extent the ADGM Courts are envisaged to serve as a host or conduit jurisdiction in the terms proposed and practiced by their DIFC counterparts.

Heiko A. Haller & Annette Keilmann, In Claimant’s Hands? Admissibility and Consequences of a Withdrawal of Claim in International Arbitration

The withdrawal of claim is not explicitly dealt with in most arbitral rules.  As a consequence, it can be unclear whether a withdrawal is without prejudice or with prejudice (i.e., a ‘waiver’ of the claims).  Also, it is questionable whether, in case of a withdrawal with prejudice, the respondent is entitled to object to a withdrawal.  Finally, there may be doubt whether a cost decision has to be taken and who decides on the allocation of the costs when a claim is withdrawn.  This article concludes that – unless the claimant clarifies that its withdrawal is one with prejudice – the withdrawal is only without prejudice.  The respondent may object to such withdrawal.  From the moment when the respondent has received the detailed request for arbitration or the statement of claim, even the respondent’s consent is required.  Regarding a withdrawal with prejudice, no consent of the respondent is needed.  Finally, although any effective withdrawal of a claim terminates the arbitration proceedings with immediate effect, the arbitral tribunal remains competent to decide on the allocation of the costs of the proceedings.

Joachim Drude, Fiat Iustitia, Ne Pereat Mundus: A Novel Approach to Corruption and Investment Arbitration

Corruption has existed forever.  Notwithstanding a seemingly universal condemnation as reflected in a number of international conventions, levels of corruption continue to be quite high across the globe.  The public sector is most troubled with it.  There are countries where grand corruption deeply rooted at highest government levels constitutes the very essence of state policy.  This article analyses whether it is appropriate in the investment arbitration context to deny contracts or investments procured by corruption any form of protection as the tribunals in World Duty Free, Metal-Tech and Spentex have done, relying on considerations of international (transnational) public policy.  Based on a comparative analysis of how several jurisdictions deal with the issue, the article concludes that, subject to certain limitations, it is not against international (transnational) public policy to accord protection to contracts and investments tainted by corruption.


Shaun Pereira, Deferred Challenges to Jurisdiction Under the Model Law

This note discusses a recent decision of the Singapore High Court, which decided that a party’s failure to bring a challenge against an arbitral tribunal’s preliminary ruling on jurisdiction under Article 16 of the UNCITRAL Model Law precluded that party from applying to set aside the merits award on the jurisdictional grounds which could have been challenged earlier.  This note argues that a better interpretation of the Model Law is that parties are entitled to choose between the two alternatives of a challenge under Article 16 or a subsequent setting-aside application on those jurisdictional grounds.  That interpretation is more consistent with the drafting history of the Model Law and makes good practical sense, and any undesirable conduct can be adequately regulated through the cognate doctrines of waiver and estoppel.


Patrick Dumberry, A Guide to State Succession in International Investment Law, 1st edition, Edward Elgar Publishing 2018, ISBN: 978-1788116602 (reviewed by Dr Hanno Wehland)

Jose Daniel Amado, Jackson Shaw Kern & Martin Doe Rodrigues, Arbitrating the Conduct of International Investors, 1st edition, Cambridge University Press 2018, ISBN: 9781108415729 (reviewed by Dr Crina Baltag)

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No More Penal Sanctioning of Arbitrators and Party-Appointed Experts in the UAE

Kluwer Arbitration Blog - Sun, 2018-12-09 16:01

Gordon Blanke

With 2018 drawing to a close, the UAE legislature has ushered in a long-awaited amendment to Art. 257 of the UAE Penal Code (see Decree issuing Federal Law No. (24) of 2018 amending certain provisions of the Federal Law no. (3) of 1987 issuing the Penal Code). Readers of Kluwer Blog will remember that that Article was last amended in 2016 to make arbitrators and party-appointed experts criminally liable for an expression of bias over the course of an arbitration process in violation of the prevailing principles of impartiality and fairness (see my previous reporting at Kluwer Blog).

My openly-held view at the time was that the potential effects of this Article should not be overstated and would, in any event, remain limited given in particular that criminal liability under UAE law requires mens rea and would therefore only be engaged provided that it could be shown that an arbitrator knowingly expressed bias. This means that an arbitrator’s criminal liability could only come into play if it was established that he or she had favoured one of the parties to the arbitration with the intention of providing an unfair advantage, so the bias had to be proven to have been intentional. As I explained at the time, a qualifying advantage could be procedural, such as not having accorded a party a fair hearing, or substantive, such as a finding in favour of a party in violation of the prevailing law on the merits. Any such violations, whether procedural or substantive, would require proof to have been committed by the arbitrator intentionally, i.e. a genuine error in applying the law or the unintentional conferral of a procedural advantage would not have been sufficient. Corresponding requirements apply to the application of Art. 257 to party-appointed experts although party-appointed experts could have arguably got into the crossfire of Art. 257 more readily given their role in providing one-sided expertise in support of one of the arbitrating parties only.

Even though it would have been difficult in practice to disqualify an arbitrator or a party-appointed expert in reliance on Art. 257, the Article risked being invoked abusively by unmeritorious parties that are known to make use of guerrilla practices in a local arbitration context. The newly amended Art. 257 provides verbatim as follows:

“Any person who, while acting in the capacity of an expert, translator or investigator appointed by a judicial authority in a civil or criminal case, or appointed by an administrative authority, confirms a matter contrary to what is true and misrepresents that matter while knowing the truth about it, shall be sentenced to imprisonment for a minimum term of a year and a maximum term of five years.

The punishment shall be temporary imprisonment if the mentioned individuals were assigned to mandate in relation to a felony.

The mentioned individuals shall be prohibited from undertaking the assignments commissioned to them another time, […].”

As is evident from the wording above, the most recent amendment to Art. 257 excises the reference to arbitrators and party-appointed experts and ensures that going forward, it will no longer apply to these two categories of professionals. This is not only a relief for the locally-active arbitration profession that frequently doubles as arbitrator in UAE-seated arbitrations and experts appointed by parties in arbitral UAE-seated proceedings, but also sends a strong signal to the international arbitration community that the UAE remains a preferential seat of arbitration in the region. The most recent amendment of Art. 257 arrives timely on the heels of the new UAE Federal Arbitration Law (see UAE Federal Law No. 6 of 2018 and my previous reporting at http://arbitrationblog.kluwerarbitration.com/2018/06/06/uae-federal-arbitration-law-adopted-long-last-well-ends-well/), which entered into force with effect from June this year, but missed an opportunity to rectify the anomaly introduced by the 2016 amendment of Art. 257.

It is encouraging to see that the UAE legislature has taken to heart the criticism that was levelled at the 2016 amendment since its publication and took note of the anomaly that the amendment created and the risks it placed on the perception of the UAE as a mature and safe seat of arbitration in the Middle East. The prompt reaction of the UAE legislature to undo the 2016 amendment to reflect best international standards and practice will no doubt be welcomed by both the local and international arbitration profession as an indicator of the UAE’s commitment to serving users of arbitration as an investor-friendly and arbitration-experienced seat.

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Document Production in International Arbitration: The Good or the Evil?

Kluwer Arbitration Blog - Sun, 2018-12-09 02:00

Pelin Baysal and Bilge Kağan Çevik

Document production is one of the most important and controversial topics in international arbitration. Some practitioners consider the document production as “an essential element of justice”, whereas some others consider it as “a waste of time and money”. So, where does the truth lie?

Does Common Law Provide Better Justice than Civil Law or Vice Versa?

In common law countries, the rationale for discovery suggests that justice can only be established if both sides have access, as far as possible, to the same materials. Thus, a party must not only produce documents that it intends to rely upon but also those which might have an adverse effect on its case. In common law countries, the discovery of documents is regarded as an indispensable tool in the fact-finding process.

In civil law countries, however, judges enquire into the facts with the assistance of the parties. The parties only present the documents that they wish to rely upon, but certainly do not present anything that would damage their own case. Furthermore, large document production proceedings can be a costly and time-consuming process. Accordingly, most civil lawyers suggest that the discovery adds significant delay and costs to the proceedings, yet rarely contributes much to the outcome.

Is common law justice better than civil law, or vice versa? Is American justice better than, French or German, or is it the other way around? It cannot be said that either common law or civil law countries produce a better quality of justice. Also, these legal systems do not call for a change to serve better justice. Further, the users of both systems seem content with the process in their country. Thus, neither system can be said to be inherently problematic, but still the divergent approaches to document production make life difficult for a litigant who is trying to pursue a claim before the national court of a different legal system.

Against this background, the concept of international arbitration emerged as an alternative to litigation before domestic courts and is perceived as the best forum of choice for international disputes. Thus, international arbitration has to accommodate the expectations of the parties from different legal systems. How then should document production be conducted in international arbitration?

As Malcolm Wilkey pointed out: “an emphatic tribunal should do its best to make both litigants feel at home.”1)Malcolm Wilkey, The Practicalities of Cross-Cultural Arbitration, in Conflicting Legal Cultures in Commercial Arbitration: Old Issues and New Trends 79. jQuery("#footnote_plugin_tooltip_4635_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4635_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The challenge in international arbitration is to satisfy both expectations: Obtaining the disclosure of documents that are material to the outcome of the case, but at moderate costs.

There is no standard “one size fits all” application of document production in international arbitration. What document production is required in a complex construction case might be quite different from a case seeking to determine the meaning of a word in a commercial agreement. This is the inherent advantage of the arbitration: being able to craft a procedure in relation to the needs of each case.

The IBA Rules or the Prague Rules?

Today parties often agree to be governed or at least guided by the International Bar Association Rules on the Taking of Evidence (“IBA Rules”). The IBA Rules main goal was to bridge the gap between different legal systems, which is “particularly useful when the parties come from different legal cultures”. To this purpose, the IBA Rules offer the tools for a limited search of evidence that is relevant and material to the outcome of the arbitration. This formulation is generally accepted as compromising the conflicting approaches as it allows the separation of the “wheat from the chaff “among the document production requests.

Nevertheless, nowadays some arbitration practitioners challenge the IBA Rules by arguing that the application of the IBA Rules is leading to the Americanisation of international arbitration. This criticism gave rise to the proposal of a different set of rules, Inquisitorial Rules on the Taking of Evidence in International Arbitration (“Prague Rules”), which is to be launched in December 2018 2)Draft of 1 September 2018 jQuery("#footnote_plugin_tooltip_4635_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4635_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); (for related posts on the Prague Rules on Kluwer Arbitration Blog click here, here and here). The defenders of the Prague Rules suggest that the features of the IBA Rules are unknown to the civil law systems and, therefore, causing dominance of common law in international arbitration. They further argue that the application of inquisitorial procedure would contribute to international arbitration particularly by reducing time and costs.

Assuming that the application of the IBA Rules establishes the dominance of the common law approach to international arbitration, should the Prague Rules not receive the same criticism from common law practitioners given that they provide for the inquisitorial approach which is uncommon for common law? In other words, would the application of the Prague Rules not cause international arbitration being played in a more civil law style?

If the parties wanted to resolve their dispute by the rules of the certain legal system, the need for international arbitration would not arise, as the national courts would suffice. The effective resolution of the international disputes could not be sustained by building an illusory divide between common law and civil law, but could only be sustained by bridging those cultural gaps.

Leaving aside the above discussion that is based on the purposes of the IBA Rules and the Prague Rules, there are numerous similarities between them. Both rules leave the ultimate control of the document production to the tribunal. It is the tribunal who will eventually satisfy both parties’ expectations by ensuring the production of those documents that are material to the outcome of the case and at a moderate cost.

Nonetheless, the difference arises where the Prague Rules suggest that “Generally, the Arbitral Tribunal shall avoid extensive production of documents, including any form of e-discovery” (cf. Article 4.2). Considering that transactions are conducted predominantly via electronic means nowadays, it seems that prohibiting the production of e-documents is excessive to reconcile the needs of the businesses in this century.

Final Awards May Be Successfully Challenged Based on Document Production Orders

When a losing party is analysing why it was unsuccessful in a case, it generally refers to the document production orders and might say that “if the tribunal had not rejected my document production request, I could have proven the other party’s meritless claims”.

Different legal systems’ different approaches to document production also show itself in actions for setting aside and the recognition and enforcement of arbitral awards. In many civil law countries, the prohibition of a “fishing expedition” constitutes a fundamental principle of procedural law. On the other hand, in many common law countries, a relatively extensive document production is considered as an essential requirement for a fair proceeding. Therefore, the issue arises as to whether a tribunal’s excessively limited document production or allowance of the fishing expedition, would result in the challenge of the final award due to the violation of public policy.

The issue got even more complicated after the Higher Regional Court of Frankfurt’s decision. The dispute arose out of a failed M&A transaction. The American purchaser accused the German vendor of having manipulated the internal debts and initiated arbitration proceedings to claim damages. In the procedural order, the parties agreed to submit all documents that the party-appointed experts had taken into consideration. Afterwards, the claimant submitted two financial expert reports but only submitted 110 out of 1,200 documents that were taken into consideration by those experts. Although the respondent requested the remaining documents to be produced, the tribunal rejected the request by arguing that it was in the tribunal’s discretion to order document production. At the end, the tribunal decided in favour of the claimants on the merits, and the respondent challenged the award before the Higher Regional Court of Frankfurt in June 2010.3)Oberlandesgericht Frankfurt, 17.02.2011, 26 Sch 13/10 jQuery("#footnote_plugin_tooltip_4635_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4635_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The applicant argued that the tribunal violated the parties’ agreement in the procedural order by refusing to order the production of the documents that the claimant made available to its party-appointed experts. The court set aside the award by stating that it is only in the discretion of the arbitral tribunal to order document production only when the parties’ agreements do not restrict the arbitral tribunal’s discretion. In the present case, however, the arbitral tribunal was bound by the parties’ agreement. Although the losing party appealed the decision before the German Federal Court of Justice, the court considered the appeal inadmissible and rejected it.4)BGH, 2 Oct. 2012, III ZB 8/11 jQuery("#footnote_plugin_tooltip_4635_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4635_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });.

It is crucial for every arbitral tribunal to conclude arbitration proceedings with an enforceable award. If questions of a breach of public policy or parties’ agreement stem from document production orders, then concerns as to the ability to enforce the final award under the New York Convention arise. To avoid raising concerns, the tribunals should be cautious when it comes to determining whether they have the discretion to order document production or not; and if yes, to avoid the refusal of sufficient document production or excessively onerous document production.

References   [ + ]

1. ↑ Malcolm Wilkey, The Practicalities of Cross-Cultural Arbitration, in Conflicting Legal Cultures in Commercial Arbitration: Old Issues and New Trends 79. 2. ↑ Draft of 1 September 2018 3. ↑ Oberlandesgericht Frankfurt, 17.02.2011, 26 Sch 13/10 4. ↑ BGH, 2 Oct. 2012, III ZB 8/11 function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Recent Developments on Arbitration in Franchising Contracts: a Brazilian Perspective

Kluwer Arbitration Blog - Fri, 2018-12-07 16:05

Ricardo Aprigliano

I. Introduction

Despite the fact that commercial arbitration has experienced a huge development in Brazil in the last years and a general favorable approach by Brazilian courts, there are fields in which arbitration is still incipient, with complex discussions about its enforceability and to what extent consumer, labor or adhesion contracts can be discussed via arbitration.

Brazilian Courts have already decided some cases regarding adhesion contracts, with a restricted interpretation of the validity of arbitration agreements when related to asymmetrical relations, such as consumer contracts. Recently, the Appellate Court of São Paulo has ruled a case about a franchising contract, in which it dismisses the formal requirements of arbitration clauses inserted in adhesion contracts (Appellation no. 1047574-03.2017.8.26.0100), even though franchising agreements are generally classified as adhesion contracts.

It seems an important decision about the formal requirements of arbitration clauses in franchising contracts, with a new and more liberal approach in favor of the arbitration clauses.

II. Formal Requirements in International Arbitration Law

The New York Convention (1958) prescribes, under its Article II(2), that the “agreement in writing” must exist in written form to effectively bind the parties and must be either signed by all the parties or contained in an exchange of letters or telegrams (it is widely accepted that other means of exchange are also admissible). The enforceability of the agreement depends on the alternative fulfillment of one of the two requisites, in combination with the written form.

The UNCITRAL Model Law on International Arbitration, in which the Brazilian Arbitration Act was inspired, does not impose a specific way when it comes to the required form of the arbitration agreement in its Article 7, as it allows two possible options to the Contracting States: Option I, which requires that the arbitration agreement be made in a corporeal, non-ephemeral form (such as through writing or recording), or Option II, which institutes no formal requirements whatsoever.

III. Formal requirements in Brazilian arbitration law

The Brazilian Arbitration Act (Lei 9.307/1996, “BAA”) has adopted the expression “arbitration convention” (“convenção de arbitragem”) as a general term to refer to its two different species: arbitration clause (“cláusula compromissória”) and arbitration agreement (“compromisso arbitral”). These two species do not coincide with those of international law. The second and less common option is to agree to arbitrate after the beginning of the conflict. Our law has provisions about its formal requirements, demanding that the arbitration agreement must exist in written form, signed by the Parties before two witnesses, among other requirements (Article 9 of the BAA).

The most common way to agree to arbitrate is through the arbitration clause, which is signed before the beginning of the conflict. It can be included in the contract or signed in a separate document. In fact, Article 4(1) of the BAA explicitly admits the possibility of an arbitration clause which exists independently of the contract itself, as long as it mentions unequivocally the contract affected by it. Based on those provisions, Brazilian courts have decided some cases regarding the formal requirements of the arbitration clauses.

It should also be noted that our Arbitration Act has a provision which states that the arbitration clause must not only be written, but also (i) inserted in boldface type, and (ii) signed in particular by the adherent. According to Article 4(2) of the BAA, that is the case when the contract in question is classified as an adhesion contract:

Article 4(2): In adhesion contracts, the arbitration clause will be effective only if the adherent takes the initiative of instituting the arbitration or expressly agrees with its institution, as long as it is written in a separate document or in boldface type, with a signature or special approval for that clause.

The Brazilian concept of adhesion contract mostly overlaps that of international law. An adhesion contract is the one in which one party has substantially more power to determine the essential aspects of the contract, in a “take it or leave it” fashion. When a contract is classified as an adhesion contract, any arbitration clause in it included automatically incurs in the two additional form requirements mentioned above.

To complete this legal framework, we shall also mention the Brazilian Consumer Defense Code, a Federal Act from 1990 that contains, in this particular regard, a provision that invalidates arbitration clauses inserted in consumer contracts (Lei 8.078/1990, article 51, VII).

IV. Adhesion Contracts: a Restricted Approach from Brazilian Courts

The highest Brazilian court in charge of interpretation of federal law is the Superior Tribunal of Justice (STJ). In recent years, STJ has issued decisions stating that consumers are not bound by arbitration agreements inserted in consumer contracts, whether they are classified as adhesion contracts or not, and are authorized to argue that invalidity of the clause directly before a state court. Not even the competence-competence rule applies in those cases.

In 2016, the Court has decided that franchising contracts are to be presumed adhesion contracts (as already discussed in this blog), which means that their arbitration agreements are only valid if the signature is followed by the two additional formal requirements: boldface typing and specific signature. More recently, another decision has asserted that a consumer is not bound by an arbitration agreement inserted in a contract regarding the buying of real estate from a construction company (REsp no. 1.753.041).

V. A New Decision From a Lower Court Proposes a More Flexible View on Franchise Agreements

Despite those decisions, the São Paulo Court of Appeal, which is one degree below the STJ in hierarchy, has ruled a decision on opposite terms: an arbitration clause inserted in a franchising contract is in principle valid, even if the formal requirements are not fulfilled.

The appellant (“Brumaria Comércio de Bolos”) was the franchisee of a franchising contract between itself and the appellee (“Vó, Quero Bolo! Franchising.”), which contained an arbitration clause. Despite of it, the appellant decided to initiate state court procedures in order to terminate the contract.

Initially, the single judge dismissed its request on the basis of the sole Paragraph of Article 8 of the BAA, which essentially incorporates the competence-competence doctrine, according to which only the arbitrator has the competence to decide whether the arbitration clause is enforceable.

At the Appellate Court of São Paulo, the decision was maintained, with the following additional arguments:

  1. The function of the formal requirements of Article 4(2) of the BAA is to warn the “vulnerable part” in an asymmetric relation, which means that the existence of asymmetry between the parties must be verified, in conjunction with the adhesion nature of the contract, in order to justify the formal requirements of Article 4(2);
  2. Entrepreneurial contracts are to be presumed symmetrical, which means that the burden of proof of asymmetry in the relation falls upon the “vulnerable part”. A franchise contract is of entrepreneurial nature, so it falls upon the appellant (who allegedly was in a vulnerable situation) to prove the existence of asymmetry between the parties;
  3. The appellant did not prove the asymmetry in the relation between the parties, and the fact that the contract had pre-defined clauses by the franchiser is not sufficient to prove otherwise. Therefore, the formal requirements of Article 4(2) are unnecessary for the validity of the arbitration clause in question.

The sentence also reaffirms the applicability of the competence-competence principle expressed in the Article 8 of the BAA, denying its competence to decide about the enforceability of an arbitration clause. The apparent contradiction of this statement with the aforementioned argument of the decision has not been subject of further scrutiny.

VI. Is There a New Standard on the Validity of Arbitration Agreements Related to Franchise Contracts in Brazil?

The recent decision of an important Court of Appeal in Brazil might lead us to the conclusion that the rules regarding adhesion contracts will, from now on, be interpreted by an initial distinction between commercial or entrepreneurial relations and non-entrepreneurial ones, and their influence on the enforceability of the arbitration agreement.

The São Paulo State Court of Appeal has established an important distinction. In contracts of entrepreneurial nature, the parties must be presumed on equal footing, even in adhesion contracts, leading to an interpretation that the formal requirements of Article 4(2) of the BAA are, in principle, unnecessary. It is up to the franchisee to argue and prove the asymmetry between the parties and the consequent need of the additional formal requirements.

The question is whether the Superior Court of Justice will follow that distinction and evolve its interpretation of the Brazilian Arbitration Act, not only regarding franchising contracts, but also other types of contracts where, despite the adhesion nature, the relation between parties might be considered equal and fair.

The end of the story is yet to be told, since the losing Party has appealed. The question will be, in the future months, once again decided by the Superior Tribunal of Justice.

More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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English court to rule on ownership of Kazakh assets

The Commercial Court in London has ruled that it has jurisdiction to decide issues relating to the ownership of US$530 million in funds that were frozen by the Belgian courts in support of a bid to enforce...

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Google International ADR News - Fri, 2018-12-07 00:40
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So You Think You Can… Enforce an Arbitral Award in the Kingdom of Saudi Arabia?

Kluwer Arbitration Blog - Thu, 2018-12-06 23:28

Sergejs Dilevka


On 8 October 2018, the Ministry of Justice (the “MoJ”) of the Kingdom of Saudi Arabia (“Saudi Arabia”) announced that in the last 12 months its enforcement courts received a record-breaking 257 applications for enforcement of judgments and arbitral awards rendered outside Saudi Arabia, which were appraised at SAR 3.6 billion or “nearly one billion dollars.”  Relevant issues of award enforcement in Saudi Arabia have been previously discussed in the Blog. The aim of this post is to provide a brief comparative summary of the applicable legal framework and an overview of the recent figures and developments pertaining to the foreign enforcement applications in Saudi Arabia.

Legal Framework

Saudi Arabia has acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “NY Convention”) in 1994.  Unfortunately, the accession did not provide any relief to the level of uncertainty surrounding the recognition and enforcement of arbitral awards.  In short, arbitral awards and all relevant documents still had to be translated into Arabic and submitted to the Saudi Board of Grievances (the “Board”). The Board would then perform a comprehensive review of the merits of the case to ensure that the award is in compliance with Shari’ah.

The infamous case of Jadawel International (Saudi Arabia) v Emaar Property PJSC (UAE) is a good, or perhaps slightly extreme, example of the interventionist approach adopted by the Board when conducting its review of the award.  In its 2008 ICC award, the Tribunal dismissed Jadawel’s USD 1.2 billion claims and ordered Jadawel to pay Emaar’s legal costs.  Upon review, however, the Board reversed the award and order Emaar to pay more than USD 250 million to Jadawel in damages.

In 2012, Saudi Arabia replaced its 1983 Arbitration Law (Old Law) that did not conform with modern arbitration practice with a New Arbitration Law, based on the UNCITRAL Model Law, by Royal Decree No. M/34 of 16 April 2012 concerning the approval of the Law of Arbitration (the “Arbitration Law”), which came into force on 9 July 2012.  In the same year, Saudi Arabia enacted a New Enforcement Law by Royal Decree No. M/53 of 30 August 2012 concerning the Execution Law (the “Enforcement Law”), which came into force on 27 February 2013.  The Enforcement Law was also complemented by Executive Regulations issued pursuant to the Minister of Justice Circular No. 13/T/4892 on 28 February 2013.

It is worth noting the following provisions of the New Enforcement Law:

  • Article 1 defines an Enforcement Judge as the chief of the execution department and judges, execution department judge and the judge of the court who undertakes the duties of the execution judge, as the case may be.
  • Article 2 provides the execution judge with the authority of forcible execution and supervision assisted by the sufficient number of execution officers pursuant to the provisions of the Law of Procedure before Shari’ah Courts.
  • Article 6 states that all decisions taken by the execution judge shall be final. As a result, there is no appeal from the decision of the Enforcement Judge.
  • Article 11 sets out the requirements for enforcing foreign judgments and arbitral awards. It provides that the Enforcement Judge may not enforce any court judgment and order passed in any foreign country except on the basis of reciprocity and after verifying the following:

1) the Saudi courts are not competent to hear the case in respect of which the court judgment/order/arbitral award was passed and that the foreign court/arbitration tribunal which passed it is competent in accordance with the international rules of jurisdiction set down in the laws thereof;

2) the litigants to the case in respect of which the judgment/award was issued were duly summoned, properly represented and were able to legally represent themselves;

3) the court judgment/arbitral award has become final in accordance with the law of the court/arbitration tribunal that passed it;

4) the court judgment/arbitral award is in no way inconsistent with any judgment or order previously passed by the Saudi courts; and

5) the court judgment/award does not provide for anything which constitutes a violation of Saudi public order or ethics.

The New Enforcement Law provides Enforcement Judges with enough teeth via Articles 46 and 47 to enforce the decisions. If the award debtor fails to pay the sum owed or fails to disclose property sufficient to satisfy the award within five days of notification of the execution order, the Enforcement Judge may impose a variety of sanctions some of which include travel bans, freezing debtor’s bank accounts, ordering the disclosure and seizure of assets, and event imprisonment.

One of the areas, where exercising extreme caution is advisable, is with respect to Article 11(5) of the New Enforcement Law requiring the Enforcement Judge to ensure an award does not contradict Saudi public order and Shari’ah.  Apart from the obvious issue of the myriad of way in which Shari’ah may be interpreted, the author would also like to highlight the remaining difficulties in enforcement of an arbitral award that, inter alia, grants interest.  It remains to be seen in what way an Enforcement Judge would treat such awards.

Arguably, the most important feature of the exceptionally fast processing of the foreign enforcement applications.  Subject to any hearings and under normal circumstances, the Enforcement Judge should issue the execution order within one month of the application and, if necessary, order seizure of assets, freezing bank accounts and so on within another one-two months depending on the circumstances of the case.


As a result of the data available on the MoJ’s website on the previous numbers and values of the applications for enforcement of foreign judgments and awards, the increase in the number of Foreign Enforcement Applications becomes apparent:

Time Period Number of Foreign Enforcement Applications Total Value of Foreign Enforcement Applications (USD, approximate) 25/10/2014 – 13/10/2015 69 639,408,000 14/10/2015 – 01/10/2016 129 1,145,606,000 02/10/2016 – 20/09/2017 163 666,050,000 21/09/2017 – 10/09/2018 257 959,112,000 Total: 618 3,410,176,000

In this regard, the author would like to offer three key takeaways with respect to the Foreign Enforcement Applications.  First, the growth in applications year-on-year averages at 35%.  Second, the total number of applications has now exceeded 600 with a total value passing the USD 3.4 billion mark.  Third, more than 40% of the total number of application were made in the last 12 months.


Considering the absence of any statistics on the success rate of foreign enforcement applications in Saudi Arabia’s enforcement court, the author provides below some anecdotal enforcement examples identified mainly on the MoJ’s official website.

ICC Award (UAE subsidiary)

The first reported example of a successful enforcement of an arbitral award, pursuant to the Enforcement Law, came from an international law firm, on 31 May 2016.  The development was also covered by a post on the Blog.

The Riyadh Enforcement Court (the “REC”) decided to grant the Foreign Enforcement Application made by a UAE subsidiary of a Greek telecommunications company against a Saudi data communications service provider.  The ICC award in favour of the UAE subsidiary was rendered in London.  The subsidiary managed to defend approximately USD 350 million-worth of counterclaims and was awarded approximately USD 18.5 million in its favour.

The arbitral award was obtained in late 2011 and, therefore, enforcement proceedings commenced with the Board.  When it became possible, the subsidiary transferred the proceedings to the REC and, three months later, the award was recognised in Saudi Arabia.

US Court Judgment 

On 16 May 2018, the MoJ informed of successful enforcement of a judgment rendered by a court in the US state of Virginia in favour of a US company against a Saudi tourism company in the REC.  The judgment value was USD 3,758,000.  It is not clear how long it took the REC to consider the US company’s Foreign Enforcement Application, but the Saudi company was ordered to pay the applicant within five days of the decision’s notification date.

Chinese Award

On 24 May 2018, the MoJ statement produced an example of award enforcement through an order a court in Jeddah.  The court ordered a Saudi gold mining company to pay in excess of USD 10.1 million to a Chinese company thus enforcing an award issued by a “Chinese international arbitration tribunal.”  Reportedly, the Jeddah court ordered the Saudi company to pay the award within five days of the decision’s notification date or “face the penalties in the country’s Enforcement Law.”

ICC Award (Malaysian company)

On 29 May 2018, the MoJ reported a new successful enforcement of the Foreign Enforcement Application at the REC.  The REC enforced an ICC award in favour of a Malaysian company against a private Saudi university, which was ordered to pay the applicant USD 24,684,266, the award value, within five days of the decision’s notification date.

Other Examples

The MoJ has also cited enforcement of a foreign award ordering repayment of debts, which was issued in favour of Japanese companies against a Saudi company.  Another shared example of enforcement proceedings relating to a Foreign Enforcement Application included “incarcerating the owner of a Saudi establishment for refusing to pay [approximately USD 636,000] to a Chinese company.”


Establishment of the Saudi Center for Commercial Arbitration in 2016 is a prime example of Saudi Arabia’s reignited interest in resolving disputes through arbitration, which is a vital element for attracting investments and ensuring that international commerce continues thriving in  Saudi Arabia.

On the other hand, it is no less important for companies and individuals entering into business relationships with the residents and businesses in Saudi Arabia to be confident that a judgment or an arbitral award rendered by a court or a tribunal outside Saudi Arabia will be enforced effectively and expeditiously.  Judging by the provisions of the New Enforcement Law, the substantial growth in the number of the foreign enforcement applications, and the (limited) positive anecdotal evidence, the author is optimistic that such confidence continues to grow and cases like Jadawel will remain a thing of the past.

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Honouring Agents of Peace, Justice - THISDAY Newspapers

Google International ADR News - Thu, 2018-12-06 23:12

THISDAY Newspapers

Honouring Agents of Peace, Justice
THISDAY Newspapers
Recently, the Negotiation and Conflict Management Group (NCMG) held its 2018 annual Alternative Dispute Resolution (ADR) Conference and Peace Award Dinner at the Grand Ball Room of the Oriental Hotel, Lekki, Victoria Island, Lagos. ... Oluwatoyin ...

Deb Eisenberg is a star!

ADR Prof Blog - Thu, 2018-12-06 21:15
For those that haven’t seen it yet, this is the link to Deb Eisenberg’s talk on “Creating a Culture of Conflict Resolution Talk.” Congrats Deb on a great job!

Opportunity at the U.S. Air Force Academy

ADR Prof Blog - Thu, 2018-12-06 20:44
There is a an interesting opportunity at the U.S. Air Force Academy.  Many probably saw this post on the List Serve, but in case anyone is interested and didn’t see it, I am happy to post it here from the Friends of Indisputably at the Air Force Academy: The link to the job announcement is: … Continue reading Opportunity at the U.S. Air Force Academy →

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India has asked the Delhi High Court to set aside an UNCITRAL award rejecting the state’s claims that Indian energy company Reliance Industries and its foreign partners profiteered from gas that the state...

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A conference in Paris looked at the impact of the Court of Justice of the European Union’s judgment in Achmea and its "unintended consequences”, with one speaker saying we can still "save quite a lot from...

Can I Get A … Diverse Tribunal?

Kluwer Arbitration Blog - Thu, 2018-12-06 16:21

Joshua Karton

Institute for Transnational Arbitration (ITA)

Jay-Z changed the rap game. Can he change the arbitration game? In a new lawsuit, the rap star (legal name: Shawn C. Carter) seems to be trying. Carter has recently won a temporary order staying arbitration for a dispute in New York. The memorandum of law in support of the petition for a stay (filed by a team from Quinn Emanuel’s New York office led by Alex Spiro) makes for memorable reading. It is in some ways a local particularity, a case with an Empire State of mind, but the arguments raised have potentially global ramifications.

Hip-hop fans will remember Jay-Z’s famous line, “I’m not a businessman; I’m a business, man!”. The dispute relates to one of Mr. Carter many commercial enterprises outside of his music career. In 2007, Mr. Carter sold a clothing brand that he had developed (“Rocawear”) along with a set of associated trademarks to Iconix, a brand-management company that owns and licenses a portfolio of consumer brands. After disputes arose over the use of certain trademarks by a different entity founded by Mr. Carter after the 2007 transactions (“Roc Nation”), several of the associated entities entered into a Master Settlement Agreement in July 2015, which contained an arbitration clause submitting any disputes to arbitration in New York, administered by the American Arbitration Association (AAA) under the AAA’s Commercial Arbitration Rules and governed by New York law. Iconix commenced arbitration according to this provision.

The arbitration clause called for three arbitrators “unless the parties are able to agree on a single arbitrator”. If the parties could not agree, the AAA would appoint all three arbitrators. During an administrative conference call between the parties and the AAA, the parties agreed that if they could not decide on a sole arbitrator, they would each submit four names from the AAA’s roster of arbitrators for “Large and Complex Cases”, a subset of the AAA’s National Roster of Arbitrators. The AAA would then add four more names and return that longer list to the parties, who could strike the names of individuals they found to be unsuitable.

The trouble came when the lawyers representing Mr. Carter and his businesses tried to identify four arbitrators from the AAA’s Large and Complex Cases roster that they felt comfortable nominating. They reviewed more than 200 potential arbitrators on that roster who are based in the New York area but found—allegedly to their surprise—that not a single one who possessed the necessary expertise was African-American. Noting that Mr. Carter is black, they asked the AAA to provide the names of some “neutrals of color” whom they could vet, and the AAA responded by providing the names of six additional potential arbitrators. Of these, three appeared to be African-American—two men and one woman—and one of the men was a partner in the law firm representing Iconix. Mr. Carter’s counsel profess themselves unable to determine whether the other two proposed arbitrators have similarly disqualifying conflicts of interest, nor could they confirm whether the individuals suggested by the AAA are actually listed on the AAA’s Large and Complex Cases roster. (The AAA does not publish its arbitrator lists, partly in order to maintain its ability to provide tailored lists of potential arbitrators for a fee.)

At this point, the AAA suggested that Mr. Carter could make selections from the arbitrators already identified, or else the AAA would select four candidates on his behalf. The AAA then proceeded to choose those four candidates, which included the two not-obviously-conflicted African-Americans on the list of “neutrals of color” it had previously provided to Mr. Carter. It combined that list with four candidates proposed by Iconix and four that it itself proposed, and sent the list of twelve candidates to the parties, inviting each to strike up to four names. The AAA set a deadline of November 30, 2018 for the parties to make their strikes, after which the AAA would appoint the tribunal itself. Mr. Carter and his associated entities turned to New York Supreme Court (a first-instance court of general jurisdiction), seeking a temporary restraining order enjoining arbitration.

Mr. Carter alleges that the arbitration agreement is void for violating New York’s public policy against racial discrimination, a policy is enshrined in the state constitution and statutory law. The legal argument is both simple and complex. It is simple because, if anything amounts to public policy, constitutional rights would seem to fit the bill. It is complex because it is not at all clear that a lack of potential arbitrators who share characteristics of an arbitrant constitutes racial discrimination (as a lack of diversity would clearly do in other contexts, such as in the composition of juries in criminal trials). It is even less obvious that arbitral institutions like the AAA have an obligation to provide diverse panels of potential arbitrators—the petition invokes “the AAA’s failure to associate with African-American arbitrators with the expertise to decide complex commercial disputes”. Nevertheless, the petition was successful; on November 28, the court issued a temporary restraining order staying arbitration until a full hearing on December 11.

Some may dismiss this petition as a clever tactical gambit made on behalf of a wealthy litigant—an American Gangster no less. But it raises important and potentially painful questions for arbitration around the world. For all the attention that the issue of arbitrator diversity has garnered, an aspect that is often overlooked is fairness to arbitrants (aside from the allegation of pro-investor or anti-developing-state bias in investment arbitrators). We have seen extensively discussed, especially with respect to gender, the unfairness to potential arbitrators who may be shut out of the profession, the danger that “group think” will compromises the quality of tribunal decisions, and the threat to popular legitimacy of international arbitration (especially investor-state arbitration) presented by the continuing dominance of “pale, stale, and male” arbitrators.

What often goes unaddressed is the reason for that risk to perceived legitimacy: that homogeneous panels of arbitrators may be unable to appreciate the concerns of arbitrants from minority or disadvantaged backgrounds, even when they are open-minded and willing to try. Mr. Carter’s argues that lack of access to African-American arbitrators with sufficient expertise to resolve complex commercial disputes “deprives litigants of color of a meaningful opportunity to have their claims heard by a panel of arbitrators reflecting their backgrounds and life experience, and all but excludes the voices of diverse decision makers in the arbitration process.” The petition goes on to note that homogeneous panels risk “unconscious bias in decision-making because ‘negative images of “the others” is pervasive … [and] arbitrators are not exempted from its negative influences’” (quoting Larry J. Pittman, “Mandatory Arbitration: Due Process and Other Constitutional Concerns”, 39 Cap. U. L. Rev. 853, 862 (2011)). Parties on the losing end of an arbitral process tainted by unconscious bias may well conclude that the industry is shady, it needs to be taken over.

It is often noted that parties appear to be the worst offenders when it comes to arbitrator diversity, frequently opting for the “usual suspects” over diverse appointees. But even if that phenomenon is real, some parties may rationally prioritize factors such as race—as Mr. Carter seems to have done in this case—for the same reasons that other parties appoint arbitrators with particular professional or national backgrounds: to ensure that at least one member of the tribunal will understand (and presumably be sympathetic to) their perspective. In a party-driven system like international arbitration, arbitrants are entitled to that.

Applications for temporary restraining orders are made ex parte, so the allegations in Mr. Carter’s petition will not be contested until the hearing on December 11. It is therefore not clear how far this line of argument will proceed, although in granting the order, the court will have found that Mr. Carter was likely to succeed on the merits of his claim that the arbitration agreement violates New York public policy. Regardless of the final disposition of the case, arbitration lawyers and especially arbitration institutions should consider themselves put on notice: arbitration agreements may be subject to attack based not on drafting defects in the agreements, but on the complexion of the pool of potential arbitrators from which the tribunal will be appointed. Institutions that operate “closed” lists of arbitrators (where only arbitrators on the list may be appointed), such as the Court of Arbitration for Sport, should immediately consider the composition of those lists and vet them for diversity. In particular, sufficient numbers of arbitrators from a wide range of communities should be represented in the lists, so that even if some are conflicted or unavailable, diverse tribunals may still be formed. (The issue is particularly acute where, as with the AAA, the institution does not publish its lists, but could potentially be raised even where the lists are publicly available.) Institutions that fail to adapt may find themselves guilty until proven innocent.

The whole arbitration world should also be aware that incremental improvements on arbitrator diversity are no longer sufficient (if they ever were). Lack of diversity is not something we can brush off our shoulders. If the arbitration community cannot make real progress on arbitrator diversity (not just, for example, increasing the numbers of white, European women on tribunals), parties will increasingly force the point. This lawsuit provides a blueprint for minority arbitrants—whether genuinely concerned about lack of diversity or cynically employing defensive tactics—to derail arbitrations on the basis of lack of representativeness in the available pool of arbitrators.

Stay tuned….

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NB announces new board appointments, resignation - BusinessAMLive (press release) (blog)

Google International ADR News - Thu, 2018-12-06 14:30

BusinessAMLive (press release) (blog)

NB announces new board appointments, resignation
BusinessAMLive (press release) (blog)
Adeyinka Aroyewun is a lawyer and an international accredited mediator of the Centre of Effective Dispute Resolution (CEDR), UK. She is a member of the Chartered Institute of Arbitrators, UK, the Negotiation and Conflict ... Aroyewun is currently the ...

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