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2020 in Review: Sub-Saharan Africa in Focus

Kluwer Arbitration Blog - Mon, 2020-12-14 00:00

We initiate our traditional Year in review series of 2020 with a retrospective view of the reported developments in the Sub-Saharan Africa. In this post, we aim at giving you a quick look back to some of our most impactful publications in 2020 from this geographical area, with a focus on the commercial arbitration developments and interesting developments with national law or institutional rules. Africa has responded swiftly to the challenges brought by the pandemic, including with the release of the Africa Arbitration Academy Protocol on Virtual Hearings as reported by our contributors, and as it will be further developed in a separate end year post.

 

Developments in commercial arbitration

In 2020, the Blog covered interesting developments in commercial arbitrations involving African parties. The latest developments of the Garoubé saga have been brought to our attention, as the Paris Court of Appeals rejected a request by the State of Cameroon for the annulment of arbitral awards that had applied OHADA law over Cameroonian law. The dispute between SPRL Projet Pilote Garouble v Cameroon involved a lease agreement over two areas for game ranching and game farming, which was governed by OHADA law and provided for ICC arbitration.

The decision by the Paris Court of Appeal is important as it confirmed that the OHADA Treaty and its Uniform Acts take precedence over Cameroonian regulations regarding wildlife. As our contributor suggests, while confirming the primacy of international treaty provisions over municipal law is not a specificity of or a novelty brought by OHADA law, the decision is important as it reinforces the organisation’s goals of ensuring a harmonious system of business law amongst its state members.

Moreover, one of our contributors reported that on 25 February 2020, the High Court of Lagos State (the “Lagos Court”) in Nigeria set aside an award in the ICC arbitration involving Global Gas and Refinery Limited and Shell Petroleum Development Company. The Lagos Court found that the presiding arbitrator’s non-disclosure of the fact that the arbitrator had prepared an expert opinion in a previous case that involved Shell amounted to misconduct. This was decided despite the ICC Court dismissing this challenge when raised by Global Gas during the arbitration proceedings. The Lagos Court considered that where an arbitrator is challenged the arbitrator should resign. This approach is not in unison with the approach taken to such situations in international arbitration, as we can see also from recent developments in Europe in the much discussed Halliburton v Chubb case where a decision was recently issued by the UK Supreme Court. The general practice in international arbitration is to consider the legitimacy of a challenge to an arbitrator by applying non- binding principles such as the IBA Guidelines. If the IBA Guidelines are applied, this challenge may fall under the Orange List. Even if this fact should have been disclosed as an Orange List item, nondisclosure in itself cannot be evidence of the arbitrator’s bias.

The Lagos Court was not persuaded by the IBA Guidelines and the Court’s ruling only referred to Section 8 of the Nigerian Arbitration and Conciliation Act, which states that an arbitrator has an ongoing obligation to disclose any circumstances that may give rise to any justifiable doubts as to his/her impartiality or independence. This ruling raises serious concerns on Lagos’ attitude towards arbitration and the Court’s approach is a step back for the region.

 

New developments in national laws or rules

2020 started with positive news, as the Republic of Seychelles became the 162nd Contracting State of the New York Convention on 3 February 2020. Our contributors reported that this step brings a journey of more than forty years to an end. While looking back on important developments that took place up until joining the New York Convention framework, the authors identified three Seychelles court decisions that illustrate and explain the controversy surrounding the applicability of the New York Convention in that country. Two other Sub-Saharan African countries joined the New York Convention this year as well, and while Ethiopia’s accession already entered into force on 22 November 2020, Sierra Leone’s accession will shortly enter into force on 26 January 2021.

Another positive news this year was that, on 1 July 2020, the Arbitration Foundation of Southern Africa (“AFSA”), a leading arbitral institution in South Africa, launched its new draft International Arbitration Rules for public comment. The aim of the new rules was to meet the needs of international users. In the wake of South Africa’s 2017 International Arbitration Act (“IAA”) which is based on the UNCITRAL Model Law AFSA experienced a surge in its case law. Keeping with this increase and the needs of users of arbitration, the new AFSA rules consider the use of administrative secretaries, multi-party arbitrations, the availability of fast-track procedures, the flexibility to have fully electronic arbitration filings and remote hearings, and provisions striking a balance between confidentiality and transparency. Examples of key features introduced in the AFSA Rules include enabling fully electronic submissions (without the need for paper filings) and permitting hearings in any form the arbitral tribunal considers appropriate, including remote hearings conducted entirely by video or telephone conference and a new expedited procedure for cases where the amount of dispute does not exceed US$500,000 or where the parties agree. South Africa is definitely leading the way for international arbitration in the African continent.

Whilst the new AFSA Arbitration Rules introduce many progressive approaches to arbitrations the rules show that the drafting committee had to tackle with difficult issues such as confidentiality and disclosure of third-party funding. The new AFSA Arbitration Rules consider the issue of third-party funding; an increasingly topical issue particularly in view of bringing arbitrations during the pandemic which has had a significant impact on the cash flow of many entities. AFSA has taken a minimalist approach, requiring only the disclosure of the existence of an arrangement and the identity of the funder (Art 27(2)). This will unlikely please everyone as many would prefer some insight into the funder’s terms. However, it appears on balance the drafting committee may have seen this as potentially problematic, since the terms on which funding is offered necessarily reflect the funder’s assessment of a claim’s chances of success.

Interestingly, the AFSA Rules allow AFSA to publish all arbitral awards in an anonymised or pseudonymised form, provided the parties do not object. This is a key point and parties should be alert to submit their objections, if any, within 30 days from notification of the award (Article 36). The AFSA Rules take a similar approach to the ICC Rules. In January 2019, the ICC updated its Note to Parties and Arbitral Tribunals on the Conduct of Arbitration under the ICC Rules of Arbitration. While the default position remains that arbitral awards are publishable, the updated note provides parties with an opt out mechanism from publishing their arbitral award. Interestingly, the LCIA which revamped its arbitration rules this year did not follow suite. That is, awards issued under the LCIA Rules are not published in any form.

Moreover, one of our contributors has reported on aspects regarding the recognition and enforcement of foreign arbitral awards in the Kingdom of eSwatini (‘eSwatini’), one of the few jurisdictions worldwide who has not yet ratified the New York Convention. While the country’s 1904 Arbitration Act sets forth that an arbitral award that has been recognised (‘[a]n award which has been made an order of Court’) may be enforced like a national judgment or order, it does not identify the requirements for enforcing arbitral awards, nor clarify whether this provision applies to domestic and/or foreign arbitral awards.

The author understands that three national court decisions on the recognition and enforcement of foreign court judgments could shed light on this matter. In particular, the decision in Improchem (Pty) Limited v USA Distillers (Pty) Limited may provide useful guidance. From it, the author extracted aspects that could be applicable to the enforcement of foreign arbitral awards in eSwatini, namely that (i) foreign arbitral awards can be recognized and enforced either directly in eSwatini or after having been recognized and declared enforceable in their country of origin, and (ii) eSwatini’s courts should not review the merits of the foreign arbitral award, nor subject the foreign arbitral award to a broad review of public policy violations.

***

We thank our contributors for their support and encourage them to submit posts to [email protected].

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The Limits of Court-Ordered Interim Relief in Support of Arbitration?

Kluwer Arbitration Blog - Sat, 2020-12-12 22:48

It is important for parties to arbitration agreements to understand to what extent they might be able to obtain effective interim relief from the courts. While parties may provide in their arbitration agreement, whether through express drafting or (more often) by incorporation of institutional rules, that the parties shall be permitted to seek interim relief from any competent court, it will not necessarily be clear to the parties at the outset what steps this will entitle them to take in the courts without breaching their arbitration agreement. The measures that are available from national courts will of course depend on the local legislative framework in question. While parties may want to apply to the courts of the seat or the courts in another appropriate jurisdiction for legitimate interim relief, for example to preserve evidence or prevent the dissipation of assets, those proceedings must not stray into a determination of the merits.

Parties choosing London as the seat of their arbitration can take comfort from the considerable body of anti-suit injunction case-law, in which the English courts have clearly defined how they will uphold and enforce the parties’ contractual bargain as set out in the arbitration agreement, absent strong reason to the contrary. As it was put in the seminal Angelic Grace case (Angeliki Charis Compania Maritima SA v Pagnan Spa [1995] 1 Lloyd’s Rep 87), “if an injunction is granted, it is not granted for fear that the foreign Court may wrongly assume jurisdiction despite the plaintiffs, but on the surer ground that the defendant promised not to put the plaintiff to the expense and trouble of applying to that Court at all”.

The English courts are known to take a robust approach in respect of clear attempts to circumvent an arbitration clause through the initiation of litigation in a foreign court and will be prepared to grant an injunction in appropriate circumstances. However, it is well-established that the English courts will generally not grant an anti-suit injunction against a party which has commenced court proceedings with the sole purpose of seeking interim protective measures in support of its substantive claim, brought or to be brought in arbitration. Any application to a foreign national court seeking interim measures should therefore be carefully framed so that there is no application for determination of the merits.

But what if provisional measures are obtained and it subsequently becomes apparent that the provisional measures in question would lapse upon staying or dismissing the foreign court proceedings? In the recent case of SRS Middle East FZE v Chemie Tech DMCC [2020] EWHC 2904 (Comm), the English Commercial Court held that seeking provisional measures should be taken as a breach of the arbitration agreement, if such provisional measures can only be maintained by pursuing the claim on the merits before the relevant court. While the parties’ arbitration agreement in this case included, pursuant to Article 28(2) of the ICC Rules, wide and general wording as to the type of interim relief it was permissible to seek from a court, this could not sensibly be read as permitting a party to seek relief that would require the final determination of the substantive merits to occur otherwise than in arbitration.

In the SRS case, the claimant (“SRS”) had filed for anti-suit injunctions to restrain the defendant (“CT”) from pursuing proceedings in the Emirate of Sharjah, UAE (the “Sharjah Claim”) based on the orthodox test from the Angelic Grace case, asserting that (a) the commencement and/or pursuit of the Sharjah Claim was and would be a breach of the arbitration agreement and (b) no good reason had been shown why that should be tolerated to continue.

What made this case very unusual was that the anti-suit injunction defendant, CT, openly accepted its obligation to arbitrate the claims in question and indeed had already brought and was pursuing its substantive claims in ICC arbitration in London. CT contended that it had filed the Sharjah Claim for the establishment of its substantive rights in the Sharjah Court (after commencing the ICC arbitration) solely on the basis of advice that this filing was necessary to prevent the provisional measures it had already obtained from becoming deemed void under UAE law, and claimed that it ought not to be restrained by injunction from pursuing the Sharjah Claim if this would mean losing the protection of the conservatory measures and security which it had been granted.

The English Commercial Court disagreed. Echoing the Court’s wording in The Sam Purpose [2017] EWHC 719 (Comm) (a ship arrest case), it held that “if the effect of requiring the defendant to honour the arbitration agreement is that the provisional measures have to be discharged, so be it”.

The Court found that, on the evidence before it here, there was a prima facie case that a breach of the arbitration agreement was threatened, and no ‘good reason’ for not enforcing the arbitration agreement by injunction. In line with the view taken in The Sam Purpose, CT was not entitled to demand, as a condition to consenting to a stay of the Sharjah Claim proceedings, terms that would in substance preserve the provisional measures it had been granted. Such terms were either unnecessary, because the provisional measures would not be lost by the stopping of the Sharjah Claim, or they were inappropriate, because if the provisional measures could not be maintained under UAE law without prosecuting the Sharjah Claim through to judgment on the substantive merits, then they should not have been sought in the first place. The Court accordingly issued anti-suit injunctions restraining CT from pursuing the Sharjah Claim further and requiring it to consent to SRS’s application for a stay of the Sharjah Claim in favour of the ICC arbitration.

While anti-suit injunctions can also be obtained in other common law jurisdictions, this kind of injunctive relief can be controversial, particularly in civil law jurisdictions where there is no equivalent measure. As underlined in the UK Supreme Court decision in Enka v Chubb [2020] UKSC 38 (discussed in this recent blog post), the grant of anti-suit injunctions is a well-established and well-recognised feature of the supervisory and supporting jurisdiction of the English courts. More recently, this has also become a well-established feature of the jurisdiction of the courts of Hong Kong and Singapore (see further here and here in respect of Hong Kong, and Sun Travels & Tours Pvt Ltd v Hilton International Manage (Maldives) Pvt Ltd [2019] SGCA 10 for Singapore).

An application for court-ordered interim relief in support of arbitration should of course be avoided where such relief can only be preserved by maintaining a substantive claim in the local courts. For English-seated arbitration it is now clear that the English courts will not throw a party a lifebelt to enable it to preserve interim measures obtained from a foreign court in such circumstances.

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New York Law School Wednesday Conversations

ADR Prof Blog - Sat, 2020-12-12 08:39
GFOI Peter Phillips, the director of New York Law School’s ADR Skills Program, is a terrific interviewer and he is continuing the series of lunch time conversations with leading figures in our field.  Here’s an announcement of the next series of interviews. We are pleased to announce the fourth series of this popular event. Every … Continue reading New York Law School Wednesday Conversations →

Global Experts Keep it Real in Webinar Exploring Artificial Intelligence and its Role in Arbitrations and Legal Practice

Kluwer Arbitration Blog - Sat, 2020-12-12 00:47

Wolters Kluwer teamed up with the global law firm Clifford Chance to discuss the advances in artificial intelligence (AI), its limitations, and various applications in an interactive webinar titled Artificial Intelligence and Arbitration: Should We Keep It Real? The lively discussion covered AI fundamentals, in addition to recent developments in the field. The panel also explored the reliability of AI, issues around bias, as well as how, by whom and when could it be used in connection with international arbitration.

The webinar featured panelists Dean Sonderegger, Head of Wolters Kluwer Legal & Regulatory U.S., Bertrand Rondepierre, a Research Program Manager at Google AI, and Simon Greenberg, a Partner with Clifford Chance. Alexis Foucard and Karolina Rozycka, both senior associates out of Clifford Chance’s Paris office, served as webinar co-moderators. Jason Fry QC, Global Co-Head of the International Arbitration Group at Clifford Chance, offered closing remarks.

 

AI fundamentals and developments. At the onset, Bertrand Rondepierre provided some of the basics in terms of what AI is and what it is not. He also noted some of the recently emerging developments in the field. Some of Rondepierre’s observations include:

  • AI is the science of making things smart. Machine learning, a subset of AI, is the science of getting computers to do something without being programmed with rules. At its core, machine learning is a new way of creating problem-solving systems.
  • In a machine learning system, over time and with exposure to training datasets, the system will become smarter.
  • We are experiencing a deep learning revolution enabled by increased computational power combined with new training algorithms for scalable training of large models. The key benefits include the ability to learn from raw, noisy, heterogenous data where no featured engineering is required.

In 2011, machine learning approaches resulted in error rates of approximately 26 percent compared to human error rates of approximately five percent. As a result of advances in computational power, by 2016 machine learning error rates declines to less than three percent.

In Rondepierre’s view, the “intelligence” in AI lies in the mind of the people who design it so that it answers the question be asked of it.

 

AI for lawyers—focusing on the use case. In his remarks, Wolter Kluwers’ Dean Sonderegger pointed to a misconception that AI in the legal business is often mistakenly viewed as a grand solution which can be accessed much like turning on a light switch.

Sonderegger noted that is not the case, but rather AI is subtly infused in many areas of legal practice including analyzing unstructured texts, running judicial analytics, reviewing regulatory risk factors based on past outcomes, and mimicking certain tasks of an attorney.

Sonderegger noted that AI-powered tools can assist in reviewing briefs, contracts, and automate certain aspects of due diligence review in merger and acquisition transactions. Sonderegger also stated that Wolter Kluwer uses AI in the acquisition and curation of content, understanding how regulations evolve, and by building matching algorithms.

While conceding that lawyers may have been slower to adopt AI technologies than other professionals, Sonderegger credited the legal community for its carefulness and skepticism noting that technology must be fit for a specific purpose. In Sonderegger’s view, AI is most useful in a legal setting when its success is tied to a particular use case with a clear outcome. He observed while this is a simple notion, it is one that technologists often misunderstand.

 

Limitations for using AI in decision making. Clifford Chance’s Simon Greenberg expressed skepticism whether AI could replace human beings in connection with decision making, particularly in an international arbitration context. Greenberg pointed to five factors required for good decision making. In his view, AI hits the mark for only three of those five factors.

According to Greenberg, decision making factors where AI is effective include (1) considering relevant information relating to the facts and law, (2) analyzing that information, and (3) not bringing biases (or adjusting for those biases) into the process. The two factors where Greenberg believes AI falls short to include the ability to exercise judgment based on relevant experience, and the capacity to effectively communicate. That includes the ability to provide the specific reasoning underlying a decision.

Greenberg also pointed to other barriers in using AI with respect to international arbitration matters. These include the confidentiality of arbitration decisions; differing laws and differing facts across arbitrations are at plays; cases are highly fact-specific; and the various constituents (arbitrators, lawyers, and parties) vary from arbitration to arbitration.

 

Dealing with bias. In response to an audience question raising concerns about bias in AI results, Bertrand Rondepierre acknowledged that biased data can result in biased results, but asserted that bias can be controlled and adjustments can be made. He noted that if you have biased results, human judgment can be used to mitigate those results. Sonderegger echoed these sentiments noting that AI could be used to augment rather than replace a human being’s role in the decision-making process.

 

AI will not be replacing lawyers.  Counter to an assertion made by an industry observer some years ago, AI will not be replacing lawyers according to Sonderegger. He observed that AI will make lawyers and the legal industry more efficient, much like it has done in other industries like medicine and tax. While there may be fewer attorneys in the future, those that remain will be involved in higher value added activities. In Sonderegger’s view, international arbitration is one such activity. It’s Greenberg’s belief that if AI helps eliminate a particular activity, the person who previously performed that activity will be free to pursue another activity of higher value.

More information about Kluwer Arbitration is available here.

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Interviews of Our Editors: Global Perspectives with Benson Lim, Enrique Jaramillo, Boris Praštalo, and Giorgio Sassine

Kluwer Arbitration Blog - Fri, 2020-12-11 23:41

In this fourth installment of our “Interview of Our Editors” series, we take a global tour to gather perspectives from Benson Lim (Associate Editor), Enrique Jaramillo (Assistant Editor for Latin America), Boris Praštalo (Assistant Editor for Europe), and Giorgio Sassine (Assistant Editor for US and Canada).

Thank you each for joining me! 

  1. Can you start by identifying a certain moment or experience – either during your studies or professional experience since – that solidified your interest in pursuing a career involving the world of arbitration?

Enrique: My interest in international arbitration certainly grew the more I learned about its great reach and the practical solution it offers to companies doing business overseas. Unfortunately, traditional legal education does not focus much on this field. So it just amazed me when – through my pure curiosity – I started reading and learning about this international network of legal instruments (treaties, rules, etc.) that enable parties to have disputes decided by experts and under the rules of their choice, and to enforce their awards in most countries. It was like discovering a whole new spectrum of possibilities, beyond national courts.

Boris: I have a bit of a different experience as compared to Enrique’s. It was at Central European University (‘CEU’) where I discovered the intricate, yet fascinating world of international arbitration. I believe that it is during one’s university studies when preferences are formed. That is to say, during one already gets a general idea as to what area of law one would like to pursue, be it in the realm of practice or in academia. Of course, this is not something set in stone, but it helps a lot if you have a professor who will not only be there to instill the knowledge into you, but also to awaken curiosity and to present the topic in a way so that you yourself will wish to explore it outside of the class setting. This is the kind of an impact Prof. Tibor Várady’s course on international commercial arbitration at CEU had on me. During this year I strongly committed myself to pursue a career in academia as I joined the International University of Sarajevo. I just hope I too will be capable of inspiring my students to study arbitration.

Giorgio: That’s so funny, because I also took a course with Prof. Tibor Várady, but as part of a summer program through Cornell at the Sorbonne in Paris! It was during this class that I realized international arbitration is my passion and the field of law that I wanted to pursue. Maybe it was being in Paris studying where some of the most influential philosophers taught or studied, but something about that summer transformed my life. I think what ultimately drew me to international arbitration (and what continues to drive me) is culture. Even though our cultures and legal educations are so different from one another, we still all have a global, humanistic sense of what is right and wrong – this sense of justice. I find it absolutely astonishing that no matter what your culture or legal background may be, we can use international arbitration to reach a resolution to a cross-border dispute. The United Nations was surely onto something when the New York Convention was passed shortly after the end of World War II!

 

  1. Each of you points to your informal and formal legal educations as inspiring your passion for international arbitration. Having since jumped into the field with both feet, is there anything that you were not prepared for? What is your best advice to others?

Benson: Today many college students have both a greater number and diversity of opportunities locally, globally, and across disciplines. My advice to college students and younger lawyers is to make the most of what is now easily available. That said, my legal education paradoxically prepared me for the competitive arbitration space. That opportunities were rare only made me hungrier, more driven, and more creative in finding them. It is about seizing the opportunity just as Enrique, Boris, and Giorgio just explained how they did so. I think my college experiences were key to who I am as a lawyer, writer, and mentor today. I can cite many examples, including words of my mooting coach to me when I was filled with massive disappointment in the immediate moments after our team was defeated in Vis East; words in the reference letter from the professor overseeing my final year public international law research paper. Words can inspire. I hope that is truly what we are achieving with the Blog.

Enrique: As I said before, unfortunately, international arbitration is not part of many mandatory curricula in law schools around the globe. In a way, I stumbled into it by chance. That being said, probably my best advice to law students and young lawyers is to find an area of the law they are truly passionate about, be it litigation, arbitration, or corporate law. Then, let that passion drive them to learn about that field, to be curious and resourceful enough to discover all the opportunities that Benson mentions, and, finally, to be relentless in the pursuit of making a career out of that passion.

Giorgio: Writing legal briefs and correspondence, whether it be letters or emails. In my experience in the U.S., the legal education teaches theory, reading, and analytical/critical thinking skills; however, there is not enough focus on how to write. Often times, the only time law students write is for the final exam. In hindsight, this is not enough. On a daily basis, attorneys are required to write – whether it be letters, emails, reports, memorandum, legal briefs, etc. I believe that I was only able to begin honing my writing skills after law school. It would have been incredibly beneficial to have more practical writing lessons while in law school.

 

  1. Turning to your editorial roles with the Kluwer Arbitration Blog, what have you found to be most rewarding or surprising?

Benson: I joined as an Assistant Editor many years ago with a particular focus to develop the Blog’s reach in PR China and Hong Kong. It seems a no-brainer the Greater China region today features amongst the leading regions for our global audience until you realize that English is not the first language in this region. We are lucky to have excellent partners with our Permanent Contributors from this region. I am lucky to have an East Asia editorial team who regularly goes the extra mile to bring articles to publication and so do my two other teams. That is the most rewarding part of my role with the Blog. I mentor and coach. I try to motivate and stretch my team. I use different methods to bring the best out of each individual. The journey is as important as the end. Frankly though, the end result of seeing each of my Assistant Editors fulfil their personal potential is more satisfying to me!

Enrique: I echo Benson’s opinion. For me, the most rewarding aspect of being part of the Blog is the people I get to work with. Not just the Latin American team, which I share with two phenomenal professionals like Crina Baltag and Daniela Páez-Salgado. We often work with members of other teams and they are all brilliant, courteous, and conduct themselves with the utmost diligence.

It is also great to be able to interact with so many authors from around the globe. Working as an Assistant Editor with the Blog, really keeps you connected to the international arbitration community spread in so many different countries. Interacting with our authors, and learning about their different points of view is definitely one of the best parts of being part of the Blog.

Boris: Like my colleagues, I would like to emphasize the rich interactions not only with my fellow editors, but also with the authors. You learn a lot, be it from working on a Year in Review piece with one of your colleagues, or reviewing a submission. And your knowledge is not limited to one jurisdiction as you get to review posts from various countries. Let me tell you an anecdote. A former professor of mine contacted me. He was writing an article on a very specific topic, and he was struggling to find appropriate cases. It just so happened I was reviewing a post from Czechia whose facts corresponded exactly to what my professor was looking for. Needless to say, he was rather impressed that not only could I identify a case he was in need of, but that I could reiterate the facts, the issues, and the analysis of the court in a rather detailed manner.

 

  1. Each of you touches on a different aspect of what I also love about working on the Blog, and it is true that we have the chance to engage in many interesting topics at the same time. For our prospective authors, what’s your advice on identifying a meaningful and engaging topic to write about?

Benson: There is no silver bullet to a good article. For what it is worth, I have three tips:

  • First, write simply. It is harder to write a simpler sentence and for good reason because you have to capture the essence with so few words. But that makes it powerful.
  • Second, think more and longer. Be deliberate. Challenge your ideas with open and candid discussions. It is true what Enrique and Boris mentioned: we editors actively engage in discussions with authors on how to make your draft article better.
  • Third, make only positive contributions to the global literature. A public policy university professor once told me that the threshold question an author should ask before writing any piece is whether one is objectively contributing to the literature on that topic. I would second his advice!

Enrique: It’s not hard to find good topics. There are numerous resources one can use to be up to date with new cases, laws, and developments. The challenge is being able to bring something new to the discussion. For that, authors need to be creative and daring enough to bring a novel point of view to an ongoing discussion, or even to start a new discussion.

Boris: I agree with Enrique. It is not problematic to get to that ‘eureka’ moment when seeking to find an appropriate topic. But there is the other side of the coin; there will be numerous other people having access to those same resources, identifying that great topic that you just found. If plenty of other people already write on it, it will kind of become stale, unless what you have to say is sort of revolutionary. So, try to be as fast as possible.

 

  1. Kluwer Arbitration Blog isn’t the only ‘must read’ for the arbitration community. Can you tell us where else you go for timely and informative legal news (arbitration or otherwise)?

Enrique: ITA in Review, where I’m also part of the editorial board is a great resource! I also like to check articles from ICSID Review and try to listen to a podcast called The Arbitration Station as much as possible.

Boris: The resources Enrique listed are rather solid, and I too turn to them regularly. Moreover, I also follow several law journals, including the Journal of International Arbitration, which is also published by Kluwer.

Giorgio: Law360 is a terrific source for daily updates on many topics. I subscribe to daily updates on construction and international arbitration-related topics, which I always find quite informative. Their reporting has even inspired ideas for hot topics that could be addressed on the Blog!

 

  1. Any final parting words or advice for our readers?

Giorgio: It is hard not to address the fact that we are all adapting to the post-COVID-19 world, which demands remote work and flexibility. We are all living through exceptional times. Losing our sense of normalcy has been very challenging, especially as humans who are naturally drawn to being in group settings. If you are able, I encourage you all to enjoy nature and spend time with close friends and family to support coping with working remotely.

Boris: Although risking to sound somewhat generic, in these hard times I feel the best thing I can say is that we should all try to the best of our abilities to take care of ourselves and of each other.

Benson: Make more work friends in arbitration. Better still, make true friends.

Enrique: A big thank you to all our readers! It is their support and participation that has made the Blog what it is today. I also invite them all to reach out to us if they have a topic they consider worthy of publication in the Blog.

 

Further interviews in this series of interviews of our editors are published here.

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Does the Advocate General’s Opinion Provide Clarity on the Validity of Intra-EU ECT Investor-State Arbitral Awards?

Kluwer Arbitration Blog - Thu, 2020-12-10 23:28

Since Achmea there has been much debate on whether its reasoning invalidates ECT intra-EU investor state clauses as a matter of EU and international law. The recent AG’s Opinion in Cases C‑798/18 and C‑799/18 does not provide an answer to this question as a matter of EU law. A review of CJEU case law in any event dispels any uncertainty as it establishes that it is very likely that the CJEU will find that intra-EU ECT disputes are incompatible with Article 344 TFEU, the autonomy of EU law, and the principle of sincere cooperation as set out in Article 4(3) Treaty of the EU (TEU).

 

Background

Much has been written in the recent years including here on the relationship between EU law and the Energy Charter Treaty (ECT), the growing schism between EU law and international investment law, and the rising uncertainty for investors seeking to make investments in the EU in capital-intensive sectors such as energy.

In particular, in the wake of the Achmea judgment (C-284/16) there has been much debate on whether the reasoning of the Court of Justice of the EU (CJEU) invalidates Article 26 of the ECT insofar as concerns intra-EU investments, both as a matter of EU law and/or international law. With roughly 90 intra-EU investor-State disputes currently pending under the ECT, the financial implications are significant both for States and investors.

 

Different views concerning validity under EU law

As a matter of EU law, the European Commission has, unsurprisingly, argued that the CJEU’s reasoning in Achmea ‘equally applies to’ intra-EU ECT investor-State disputes. It has further contended that the ‘fact that the EU is also a party to the ECT Treaty does not affect this conclusion: the participation of the EU in that Treaty has only created rights and obligations between the EU and third countries and has not affected the relations between the EU Member States’. Twenty-two EU Member States (MS) who signed the Declaration of 15 January 2019 on the Legal Consequences of the Achmea Judgment and on Investment Protection agree with the European Commission.

However, those favouring a narrow reading of Achmea have pointed to its concluding paragraph in which the CJEU said that

‘Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the Agreement on encouragement and reciprocal protection of investments between the Kingdom of the Netherlands and the Czech and Slovak Federative Republic, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept.’

Presumably, in view of this, Luxembourg, Malta, Slovenia, and Sweden adopted a more circumspect position on the issue in their separate Declaration on the enforcement of the Judgment of the Court of Justice in Achmea and on investment protection in the European Union of 16 January 2019, noting that ‘[i]t would be inappropriate, in the absence of a specific judgment on this matter, to express views as regards the compatibility with Union law of the intra-EU application of the Energy Charter Treaty’. Hungary, presumably in view of the ongoing ICSID case which MOL (the state-owned energy company) has brought under the ECT against Croatia, on the other hand, has declared in its Declaration of 16 January 2019 that Achmea concerns only intra-EU BITs and not any pending or future intra-EU ECT claims.

 

The Advocate General’s Opinion does not provide clarity

Given the uncertainty regarding the validity of intra-EU ECT claims, some have hailed the opinion of Advocate General Saugmandsgaard Øe in Joined Cases C‑798/18 and C‑799/18 delivered on 29 October 2020 as providing the needed clarity. In these cases, the Regional Administrative Court of Lazio in Italy sought a preliminary ruling from the CJEU pursuant to Article 267 Treaty on the Functioning of the European Union (TFEU) in proceedings brought inter alia by operators of photovoltaic installations in Italy against the Italian Ministry of Economic Development and Gestore dei servizi energetici, a company owned by the Italian Ministry of the Economy and Finance, due to the reduction in the incentives payable to photovoltaic energy operators in Italy adopted by the Italian legislature in 2014.

However, the Advocate General’s Opinion does not provide such clarity for two reasons. First, the Advocate General simply asserts in footnote 55 of his Opinion that “inasmuch as Article 26 of the Energy Charter, which is headed ‘Settlement of disputes between an investor and a Contracting Party’, provides that such disputes may be resolved by arbitral tribunals, that provision is not applicable to intra-Community disputes”, without giving any reasons other than that the above-mentioned twenty-two EU Member States reached the same conclusion. Second, his Opinion on this issue is obiter dictum: his above-mentioned assertion is prefaced by the following statement “[w]hile emphasising that it is unnecessary to resolve this issue in the present cases”. This is because the preliminary reference concerned a purely domestic case of Italian investors bringing claims against the Italian state. In other words, the case before him was not an intra-EU dispute.

 

In view of its case law the CJEU is very likely to find that intra-EU ECT disputes invalid

There have been lots of calls by the Commission and MS for the Court to rule on the point including at the recent hearing in Case C-741/19 (albeit the case does not concern an intra-EU ECT dispute). With Belgium submitting a request to the CJEU last week on the compatibility of intra-EU investor-State provisions of the revamped ECT with EU law it will not be long until the Court pronounces itself on the point.

But, arguably, a careful review of CJEU case law already dispels all uncertainty. In particular, a careful reading of Achmea and, in particular of paragraph 55 thereof, in light of the CJEU’s decisions concerning the duty of sincere cooperation in cases such as Inland Waterways1)Case C-266/03, Commission v. Luxembourg, para. 60, Judgment of the Court of 2 June 2005 (2005) ECRI-04805; Case C-433/03, Commission v. Germany, para. 66, Judgment of the Court (Second Chamber) of 14 July 2005 (2005) ECR I-06985 (together these two cases are known as the ‘Internal Waterways’). jQuery("#footnote_plugin_tooltip_4147_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4147_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and Commission v. Sweden (Case C-246/07) highlights the inherent difficulty the CJEU has with any attempt by EU MS to remove any disputes between them ‘from the jurisdiction of their own courts, and hence from the system of judicial remedies which the second sub-paragraph of Article 19(1) TEU requires them to establish in the fields covered by EU law’. In Inland Waterways, the ECJ went so far as to hold that Germany and Luxembourg had breached their obligation of sincere cooperation and endangered the unity and coherence of EU external action simply by seeking to conclude agreements with third countries without coordinating their action with the European Commission.

Furthermore, the reasoning of the CJEU in Opinion 2/13 concerning the European Convention of Human Rights (ECHR) can be applied by analogy to the ECT. In paragraph 194 thereof the CJEU explained why the EU could not accede to the ECHR, notwithstanding an express provision in the TEU (Article 6(2)) envisaging such accession, as follows:

‘[i]n so far as the ECHR would, in requiring the EU and the Member States to be considered Contracting Parties not only in their relations with Contracting Parties which are not Member States of the EU but also in their relations with each other, including where such relations are governed by EU law, require a Member State to check that another Member State has observed fundamental rights, even though EU law imposes an obligation of mutual trust between those Member States, accession is liable to upset the underlying balance of the EU and undermine the autonomy of EU law’.

And in paragraphs 205–213 it further explained that the very existence of the possibility that Article 33 of the ECHR could apply to disputes between MS themselves, or between MS and the EU, in circumstances where EU law will be in issue undermined Article 344 TFEU.

This reasoning can be applied to the ECT to which the EU and MS are a party and which contain State-State and investor-State clauses for resolving any disputes concerning breaches of its terms.

In view of this case law, it is considered very likely that the CJEU will find that intra-EU investor-State provisions of the ECT are incompatible with Article 344 TFEU, the autonomy of EU law, and the principle of sincere cooperation as set out in Article 4(3) Treaty of the EU (TEU).

 

Investors to opt to bring investment arbitral proceedings and enforce arbitral awards outside EU to minimise risk

Clarity as a matter of EU law, however, does not mean the end of the debate as a matter of international law since to date arbitral tribunals sitting in investment treaty cases have not considered themselves bound by Achmea. Nor are they likely to consider themselves bound by any CJEU decision on the validity of intra-EU ECT investor-state clauses in the future. What is sure is that the selection of the seat of arbitration and the place of enforcement of arbitral awards outside the EU will become standard practice for investors.

References   [ + ]

1. ↑ Case C-266/03, Commission v. Luxembourg, para. 60, Judgment of the Court of 2 June 2005 (2005) ECRI-04805; Case C-433/03, Commission v. Germany, para. 66, Judgment of the Court (Second Chamber) of 14 July 2005 (2005) ECR I-06985 (together these two cases are known as the ‘Internal Waterways’). 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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Seeing Trojan Horses in Lightening with the Eyes Wide Shut: A Reflection on Prof. Catherine Rogers Post

Kluwer Arbitration Blog - Thu, 2020-12-10 00:05

Let us be clear, the lightening’s spirit is out of the bottle and here to stay. It is neither possible nor desirable to prevent party counsel from using tools that increase the efficiency of party representation. Prof. Rogers and her co-authors provide a correct general description of AI-based information systems on decision makers. My firm uses such a platform for analyzing possible outcomes in proceedings before the EPO opposition divisions and boards of appeal. The proceedings are always subject to the same procedural and substantive rules and the issue categories are stable. A relatively small group of persons forms the decision makers. In addition to somehow unsuspicious data, such as duration of the proceedings or win/loss rates, the system provides deep insight into the types of arguments that are more likely to persuade a specific decision maker. This statistical information is certainly helpful for preparing written and oral arguments. Therefore, I have no difficulty to imagine that in the field of treaty based investment arbitration such systems provide the same level of insight and statistical predictability.

In international commercial arbitration, the panorama is different. Substantive and procedural rules vary from case to case. The group of decision makers is much more varied and instable. There are more and varying cultural factors that affect the case, such as inter alia language and professional training. Transporting an AI platform trained in a more stable environment such as investment arbitration or the US legal system into this arena for crunching information may provide problematic statistical information, which in the worst case can be biased and mislead without any user being able to apprehend or understand. There will be a confirmation bias that a system trusted by others can be always trusted.

Of course, in a scenario where everybody may choose between many AI platforms offering essentially identical services one could expect an auto correction effect over time, because users could compare their experiences and results. However, the substantial resources required for the development, deployment and constant improvement of such AI platforms, the somehow limited number of potential customers (restricted market) and a comparison with other core platform services in the Internet seem to indicate with a high degree of likelihood, that one may end up with not more than a handful of such AI platforms, which among them cover the bigger part of the market. This could lead to interesting situations, if all parties use the same platform for case outcome prediction and the preparation of their submissions.

Considering the ever increasing ability of AI to crunch ubiquitous unstructured data as long as it is machine readable (these include digital photographs and voice recordings, not only digital documents) and the advancement in automated semantic analysis, it is easy to foresee that AI based predictive analysis may extend its scope beyond the obvious (directly case related information) to other more human factors driving the decision makers. Think of attitudes and inclinations of a more personal character. The AI systems may provide users with statistical information about decision makers, which these – sometimes for good reasons – ignore.

It is interesting to note that the most likely users of these AI-platform services, the law firms, have not yet voiced a strong demand for being offered similar predictive services covering their potential opponent counsel. Prof. Rogers and her co-authors stress the high degree of control by counsel, i.e. their determinative role, in arbitration proceedings. Intuition would prompt the question, whether this does not result in a bigger influence on duration, cost, and result, than arbitrator behavior. At least, predictive counsel AI could also help to make crucial choices concerning party representation, at least from a party perspective. Perhaps because they see no market, the information aggregators have apparently not yet dedicated resources to this market segment, because their potential clients are the very same law firms and not the clients, who mostly have an arbitration only occasionally.

Presently not much is asked and little is known about the inner workings of the information gatherers’ AI platforms that are probably still in their infant stage. This is worrying.

I think that:

  • Any person who is an arbitrator and for whom information or information processing results are stored should know this and have a right to inspect such information. This right would be hollow if this person were not allowed to gain access to generated reports for users insofar as she is concerned and have the right to correction of false data. Whilst these rights are statutory under the EU GDPR, they may not be taken for granted on a global level.
  • Any AI platform owner should be transparent about ownership, control structures, affiliations, and used sub-contractors. They should also be transparent about the algorithms underlying their AI and the measures taken to monitor and avoid unreliable or biased results. Admittedly, transparency needs to be balanced against the legitimate need of protecting proprietary know-how.
  • There should be ethical standards and accountability for the AI platform owners and/or service providers, because after all they provide services in a field that – even if privately administered – is a public good: Justice and the Law.

Platforms for arbitrator intelligence also claim that these platforms will provide more arbitrator market transparence, more opportunities for newcomers or underrepresented groups, and more objective information than the present opaque arbitrator selection approaches. This may well be the case. However, if these platforms enable better arbitrator selection using AI algorithms, one may suspect that those candidates on which more machine readable and accessible information is available, will have a systemic advantage, if this is the right information. This may not privilege newcomers and is critical, if the algorithm is inadvertently biased. Here new business opportunities loom for consultants who help prospective arbitrators getting their accessible information profile right in the same way consultants help companies to move up the Google display lists.

Those among us, with more philosophical or social science inclinations, may take their analysis of AI driven arbitrator intelligence a step further. They may ask what it means for our traditional concept of law, if those who have to find and apply it, are inherently conceived as rickety machines that cannot be repaired but must be reined in by taking preemptive measures based on historical information and statistical methodology applied by unaccountable self-learning algorithms. We can also ask whether we like to see ourselves as rickety machines – probably not a very attractive content of our self-narrative, but true.

Finally, corporations and other clients may ask whether automated outcome prediction is not sufficient to meet their needs. After all, business is used on a daily basis to take decisions based on outcome probabilities. To them the resources required to gain the ultimate 20% of outcome certainty may be too big, given that these are often more expensive to obtain than the other 80%. Why not use the 80% for seeking a deal that sometimes can yield more than is covered by legal claims or is preferable from a financial perspective, because less time is consumed in the process?

Too many questions? Wrong questions? Good! Don’t walk the path with your eyes wide shut. Ask your own questions.

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Belgium Seeks CJEU’s Opinion on the Future Interaction between a Modernised ECT and EU law

Kluwer Arbitration Blog - Wed, 2020-12-09 23:02

On 3 December 2020, Belgium announced the submission of a request to the Court of Justice of the European Union (“CJEU”) for an opinion on whether the intra-European application of the arbitration provisions of the future modernised Energy Charter Treaty (“ECT”) are compatible with the EU Treaties. Belgium indicated that the purpose of its request is “to provide clarity and legal certainty” and that it puts the question to the Court “in a neutral manner”, without taking a stand on the issue.

 

Are the CJEU’s Achmea findings applicable to intra-EU disputes under the ECT?

With respect to the ECT as currently in force, the European Commission takes the position that the CJEU’s Achmea judgment also applies to the arbitration mechanism under Article 26 of the ECT, in case of disputes between EU Member States under that treaty. As is well known to the readers of this blog, in Achmea the CJEU had found the investor-State dispute settlement (“ISDS”) mechanism contained in the (intra-EU) 1991 Netherlands-Slovakia bilateral investment treaty (“BIT”) to be incompatible with EU law. However, arbitration tribunals (such as the Vattenfall tribunal) have been undeterred by the Commission’s position, rendering awards on the merits in intra-EU cases under the ECT. Last October, in the Joined Cases C‑798/18 and C‑799/18, Advocate General Saugmandsgaard Øe opined in a footnote that the CJEU’s decision in Achmea applies to the ECT and that the treaty may thus be “entirely inapplicable” to intra-EU investment disputes. Advocate General opinions are not binding on the CJEU but often followed in practice.

While most EU Member States terminated their intra-EU BITs in the wake of the Achmea judgment, they have not yet agreed on an approach regarding the ECT. Some of them have already sought to obtain, in the context of preliminary rulings, an answer from the CJEU. Last October, for instance, the Svea Court of Appeal (Sweden) refused a request by Spain to consult the CJEU before deciding whether to set aside the Greentech ECT award in favour of renewables investors (see here, as well as here and here for similar earlier decisions by the same court in regard to the Novenergia ECT award). A number of Member States, including Spain, also intervened at a recent hearing before the CJEU in Moldova v. Komstroy, requesting the Court to take a stand on the application of Achmea to intra-EU disputes under the ECT, despite the intra-EU issue not formally being relevant to the dispute (see more in this previous post).

 

The European Commission’s proposal for the modernisation of the ECT

Strictly speaking, Belgium’s request does not concern the current version of the ECT, but the future version of the treaty whose modernisation process was initiated in November 2017 (while the negotiation rounds started in July 2020; see more in these previous posts and on the ECT’s website). The opinion procedure under Article 218(11) of the Treaty on the Functioning of the European Union (“TFEU”) is a preventive mechanism that allows Member States to obtain the opinion of the CJEU as to whether an envisaged agreement is compatible with the Treaties. It does not, however, allow for review of treaties already in force.

On 27 May 2020, the European Commission presented its own ECT modernisation proposal, while stating that such proposal does not affect its position that the “ECT does not contain an investor-to-state arbitration mechanism applicable to investors from one EU Member State investing in another”.

The Commission presents its proposal as having three main goals:

Firstly, to bring the ECT’s provisions on investment protection in line with those of agreements recently concluded by the EU and its Member States.

Secondly, to ensure the ECT better reflects climate change and clean energy transition goals and facilitates a transition to a low-carbon, more digital and consumer-centric energy system, thus contributing to the objectives of the Paris Agreement and our decarbonisation ambition.

Thirdly, to reform the ECT’s investor-to-state dispute settlement mechanism in line with the EU’s work in the ongoing multilateral reform process in the United Nations Commission on International Trade Law (UNCITRAL)”.

The Commission indicated on 2 December 2020 that if its core objectives are not attained within a reasonable timeframe, it may consider proposing other options, “including the withdrawal from the ECT”.

 

Belgium’s previous request on the compatibility with EU law of CETA’s Investment Court System

As we developed in a previous post, in September 2017, Belgium already requested the opinion of the CJEU on the compatibility with EU law of arbitration provisions in another international treaty, namely the Investment Court System (“ICS”) provided for by the Comprehensive Economic and Trade Agreement between the EU and Canada (“CETA”). In its Opinion 1/17 of 30 April 2019, the CJEU answered positively, concluding that this mechanism for the settlement of investor-State disputes was compatible with the EU Treaties and the EU Charter of Fundamental Rights.

In a nutshell, the Court concluded that the principle of autonomy of EU law would only be breached if the CETA Tribunal could (i) interpret and apply EU rules other than the provisions of the CETA or (ii) issue awards having the effect of preventing the EU institutions from operating in accordance with the EU constitutional framework. By contrast with the conclusion it reached for the ISDS mechanism of the Netherlands-Slovakia BIT in Achmea in regard to the intra-EU issues raised in that case, the CJEU was satisfied that this was not so in the context of CETA in regard to the extra-EU protection of investments between Canada and the EU as well as its Member States.

In Opinion 1/17, the Court rendered its opinion around 20 months after Belgium’s request. It remains to be seen whether the CJEU will answer a preliminary ruling reference on the compatibility with EU law of applying the current version of Article 26 ECT to intra-EU disputes, before rendering its opinion on the ISDS mechanism of the revamped version of the treaty.

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The 2020 Amendment to the Indian Arbitration Act: Learning from the Past Lessons?

Kluwer Arbitration Blog - Wed, 2020-12-09 22:32

In a bid to make its legal regime international arbitration-friendly, India has repeatedly amended its principal legislation, i.e. the Arbitration and Conciliation Act, 1996 (the ‘Act’), over the last five years. The most recent one, the Arbitration and Conciliation (Amendment) Ordinance, 2020 (the ‘2020 Amendment’), came into force on 4 November 2020 seeking “to address the concerns raised by stakeholders after the enactment of the Arbitration & Conciliation (Amendment) Act, 2019 [the ‘2019 Amendment’]”. I had earlier discussed on this blog the concerns raised by the 2019 Amendment from the standpoint of international arbitration. This post aims to serve as an update by analysing the two changes introduced by the 2020 Amendment.

 

Amendment to Section 36(3): Additional grounds for an unconditional stay on enforcement

Section 36 falls under Part I of the Act and deals with the enforcement of domestic arbitral awards. Part I of the Act applies where the place of arbitration is in India (Section 2(2) of the Act). If the seat of arbitration is outside India, Section 36 of the Act would not be relevant – the enforcement of that award would be subject to conditions set out in Section 48 in Part II of the Act. No amendments have been made to Section 48 of the Act. Nonetheless, from an international arbitration practitioner’s standpoint, the amendment to Section 36(3) of the Act carries relevance from two aspects – substantive and procedural.

 

The Substantive Aspect

The 2020 Amendment adds a new Proviso to Section 36(3) of the Act. It reads as follows:

Provided further that where the Court is satisfied that a prima facie case is made out,-—

(a) that the arbitration agreement or contract which is the basis of the award; or

(b) the making of the award,

was induced or effected by fraud or corruption, it shall stay the award unconditionally pending disposal of the challenge under section 34 to the award.

While the new Proviso is a positive step, there are four key issues here that may require attention. First, for a court to make an order under Section 36(3) (or the new Proviso) of the Act, there must be an application under Section 36(2) of the Act. That application is further dependent on the pendency of an application challenging the award under Section 34 of the Act. Interestingly, Section 34 does not contain any express provision for setting aside an award or refusing its enforcement if “the arbitration agreement or contract which is the basis of the award” was induced or effected by fraud or corruption. As per Section 34(2)(b)(ii) of the Act, the only ground (in cases involving allegations of fraud or corruption) to refuse enforcement is where “the making of the award” was induced or affected by fraud or corruption. Therefore, one might argue that if a ground is not available for setting aside an award, how can it be available to an applicant seeking a stay of its enforcement. Secondly, whether an arbitration agreement or a contract is affected by fraud or corruption is a matter of fact and ought to have been debated by the parties during the arbitration proceedings. In most cases, it would have been inquired in detail by the tribunal. To second-guess the tribunal’s reasoning and reappreciate the evidence would be contrary to the Proviso to Section 34(2A) of the Act, which states that “an award shall not be set aside merely on the ground of an erroneous application of the law or by reappreciation of evidence.Thirdly, a possible counter-argument may be that Section 34(2)(a)(ii) provides for setting aside an award where “the arbitration agreement is not valid under the law to which the parties have subjected it” and therefore, an arbitration agreement induced by fraud or corruption will be void under Indian law. But that again begs the following question: given that Section 34(2A) prevents the court from setting aside an award in an international commercial arbitration even when the award is vitiated by patent illegality on the face of it, how could the enforcement of the same award be stayed for an illegality based on fraud or corruption? Moreover, to identify such illegality may not be a straightforward exercise. While corruption in the “making of an award” may be identified by evaluating the tribunal’s conduct and is more a matter of procedure, corruption in procuring the underlying contract is a matter of merits and would, thus, require more than just prima facie evaluation of evidence. Lastly, the mandate to unconditionally stay the enforcement in cases of corruption seems to lack logic or reasoning, especially when, in other situations, the court can exercise its discretion to put any applicant to such terms, as it deems fit, before granting any stay order.

 

The Procedural Aspect

The temporal scope of Section 36 of the Act was the subject-matter of some controversy in the past after it was amended by the Arbitration and Conciliation (Amendment) Act, 2015 (the ‘2015 Amendment’). It took some back and forth between the Indian government and the Supreme Court of India to conclusively resolve that issue (see previous pots on this blog here, here, and here). With the 2020 Amendment, it seems that judicial intervention in revisiting the same issue would not be needed. The Explanation to the new Proviso to Section 36(3) of the Act makes it abundantly clear that the said Proviso shall have retrospective effect and shall be deemed to have been inserted with effect from 23 October 2015 (i.e., the date on which the 2015 Amendment came into force). This is also in conformity with the decisions in BCCI v Kochi Cricket Pvt. Ltd. and Hindustan Construction Co. v Union of India where Section 36 of the Act was held to be retrospective in its applicability. The 2020 Amendment further states that the new Proviso would apply to all court proceedings, irrespective of whether the court or underlying arbitral proceedings commenced before or after 23 October 2015. The 2020 Amendment, therefore, settles the debate from a procedural aspect by formally acknowledging the maintainability of an application for stay of enforcement on the grounds mentioned in the newly added Proviso to Section 36(3) of the Act, irrespective of when that application was filed.

Although the 2020 Amendment brings clarity to the temporal scope of the newly added Proviso to Section 36(3) of the Act, it raises two potential concerns. First, in cases where an application under Section 36(2) of the Act is pending adjudication before a court, the applicants will now have to make fresh applications based on the grounds listed in the new Proviso. This is likely to involve delays and increased costs unless the courts can sua sponte take notice of this new Proviso and dispense with the filing of fresh submissions. Secondly, in cases where applications under section 36(2) already stand dismissed, the applicants would claim to have a fresh cause of action to file a new application based on a legal ground that is deemed to have existed since 23 October 2015 in the statute but could not be relied upon earlier. Given the tendency to take one’s chances in an already lost cause, especially in Indian courts, it would not be surprising to see some applicants trying to take a second shot at the same pie. Since it is not difficult to rule out such abusive behaviour, the revival of already decided cases using the new Proviso may be cautiously handled by the courts.

 

Amendment to Section 43J of the Act

In my previous post, I had highlighted how the 2019 Amendment outrightly disqualified foreigners (such as a foreign scholar, or a foreign-registered lawyer, or a retired foreign officer) from being an accredited arbitrator under the Act. This was because of the limitations imposed by the Eighth Schedule to the Act, that was introduced by the 2019 Amendment. The Eighth Schedule specified the qualifications, experience, and norms for accreditation of arbitrators and these norms were largely biased in favour of Indian lawyers, cost accountants, government officers, etc. The 2020 Amendment directly addresses that concern by removing the Eighth Schedule altogether from the Act and replacing it with “the regulations.” It means that the accreditation of arbitrators will now be governed by the criteria laid down in these “regulations.” However, what these “regulations” might be, who would make them, by when they would be released, are some of the questions that have been left unanswered. It is only hoped that scholars, practitioners, and key stakeholders will be consulted in finalizing these regulations to prevent any further controversy on this issue. It is likely, in my view, that these regulations will ensure inclusivity through diversity rather than fall prey to the same limitations in the Eighth Schedule.

 

Conclusion

What is evident is the intent of the Indian government in streamlining its arbitration regime through a flurry of amendments in the last few years, particularly after a stalemate of 19 years since the Act was enacted in 1996. On a positive note, it confirms that the concerns of the international arbitration community are reaching the ears of Indian policy-makers, who are not only taking them into account but are keeping an open-minded approach in rectifying past errors when needed. Until the next amendment, we can keep our fingers crossed.

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The Standard of Independence and Impartiality under the Madrid International Arbitration Center Rules and the Spanish Arbitration Law: An Apparent Conflict

Kluwer Arbitration Blog - Tue, 2020-12-08 23:18

Enforcing standards on the independence and impartiality of arbitrators requires provisions allowing parties to challenge arbitrators. Traditionally, in jurisdictions that have based their provisions on the UNCITRAL Model Law on International Commercial Arbitration (but not only these), such provisions have allowed parties to challenge arbitrators where they have ‘justifiable doubts’ as to the arbitrator’s impartiality or independence (see for example Article 10(1) of the UNCITRAL Arbitration Rules, Article 10.1 of the LCIA Arbitration Rules, and Section 1036 of the German Code of Civil Procedure) A provision in the Arbitration Rules of the recently established Madrid International Arbitration Center (‘MIAC’), however, departs from this wording, allowing for challenges based on a “lack” of independence or impartiality. This is in apparent conflict with the wording of the Spanish Law on Arbitration, and the UNCITRAL Model Law and may cause problems with the enforcement of the new provision.

 

The Conflicting Provisions

The MIAC is an arbitral institution established in January 2020. Article 13(1) of its Arbitration Rules, regulating challenges to arbitrators, appears to be based on Article 15(1) Model Arbitral Rules of the Spanish Club of Arbitration (2019) and establishes that:

‘challenges to arbitrators on grounds of lack of independence, impartiality or any other reasons are to be filed with the Centre in a written submission (…)’.

These two provisions have departed from the wording of Article 17(3) of the Spanish Law on Arbitration (2003), which itself is very similar to Article 12(2) of the UN Commission on International Trade Law (‘UNCITRAL’) Model Law on International Commercial Arbitration (1985), that states:

‘[a]n arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence (…)’ [emphasis added].

Therefore, the standard established by Article 17(3) allows arbitrators to be challenged not only where they display evident partiality, but also where circumstances exist that give rise to ‘justifiable doubts’ about their impartiality. Additionally, the rule is more encompassing and, therefore, more rigorous than a mere ‘appearance test’, because ‘justifiable doubts’ about an arbitrator’s independence or impartiality can exist even without an appearance of dependence or partiality.

 

The Origins of Article 12(2) of the UNCITRAL Model Law

Tracing the origin of the standard of independence and impartiality enshrined in Article 12(2) of the UNCITRAL Model Law clearly demonstrates that the use of the words ‘justifiable doubts’ is not random. Its immediate precedent is Article 7(i) of the UN Economic Commission for Europe (UN/ECE) Arbitration Rules for Certain Categories of Perishable Agricultural Products (1979), which established that: ‘An arbitrator may be challenged if any circumstances exists which may cast doubt on his impartiality or independence (…)’. In turn, the precedent of this Article 7(i) was the well-known Article 10(1) of the UNCITRAL Arbitration Rules (1976), that stated: ‘any arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrators impartiality or independence’.

The rule can be traced back even further to: (i) Article III of the ECAFE Arbitration Rules, published by the Centre for Commercial Arbitration of the UN Economic Commission for Asia and the Far East in 1966; and (ii) Article 6 of the UN/ECE Arbitration Rules, prepared by an Ad hoc Working Party on Arbitration of the Committee on the Development of Trade, UN Economic Commission for Europe in 1963, that prescribes:

‘Either party may challenge an arbitrator… where any circumstance exists capable of casting justifiable doubts on his impartiality or independence.’

The connection between the UNCITRAL Rules and UN/ECE Rules of 1963 is documented, amongst other places, in paragraph 85 of the Report of the UNCITRAL on the work of its sixth session (Geneva, 2-13 April 1973) (A/9017).

Digging deeper, we find that Article 6 of the UN/ECE Rules was not an original piece of work by the UN, but rather was directly inspired by the Draft of a Uniform Law on Arbitration in respect of International Relations of Private Law prepared by the International Institute for the Unification of Private Law (‘UNIDROIT’) between 1934 and 1954. This connection was recognized by Ambassador Schurmann in his Opening Speech for the UN Conference on International Commercial Arbitration (20 May 1958) (page 3, paragraph 7). The initial drafts of this UNIDROIT Uniform Law already contained a standard that was essentially identical to that contained in Article 17(3) of the Spanish Law on Arbitration. See for example, Article 12 of the Preliminary Draft of an International Law on Arbitration of UNIDROIT (New Redaction) (U.D.P 1935, Etude III, Arbitrage, Doc. 20) or Article 12 of the so-called ‘Rome Draft’ (U.P.L 1940 – Draft III[1]).

The first expression of the standard can be traced back to 1930, when a twenty-five year old professor at the University of Grenoble, René David, wrote his fundamental ‘Rapport sur l’arbitrage conventionnel en droit privé. Etude de droit comparé’ (1932) on behalf of UNIDROIT. On pages 70 and 71 of this ‘Rapport’ the author outlined the general clause that remains today in Article 12(2) of the UNCITRAL Model Law:

‘The arbitrator may have a personal interest in the dispute, even only indirect; he can be the parent or ally of one of the parties; he can be his friend, or on the contrary his enemy; he may have already known the litigation or have already given advice on it; he can be the employee; or the presumptive heir, or the creditor of one of the parties: in all these cases and in any other circumstance which makes the arbitrator’s impartiality or independence doubtful, the arbitrator may be challenged (emphasis added, translation by authors).

On page 71 of his ‘Rapport’, David acknowledged that Article 5(5) of the Swedish Law of Arbitrators (‘Lag [1929:145] om skiljemän’) was the inspiration for his provision:

‘Undoubtedly the best legislative method is contained in the Swedish Law (Article 5,5º) which, after listing various circumstances always allowing a party to challenge an arbitrator, includes -in a general formula- that the challenge is possible for any reason making the arbitrator’s impartiality suspect (translation by authors).’

For the sake of clarity, Article 5(5) of the Swedish Law of Arbitrators, dated 14 June 1929, established:

‘An arbitrator may be challenged: (…) 5. If any special circumstance exists, which is apt to diminish confidence in his impartiality (…) (translation by the authors, from French, page 233 of René David’s Rapport).’

 

Possible Legal Difficulties when Applying the Standard of the MIAC

As shown above, the evolution of the standard on the independence and impartiality of arbitrators from the Swedish Law of Arbitrators (1929) to the Spanish Law on Arbitration (2003) indicates that the standard expressed in the latter is not capricious or by chance, rather the result of the work of the UNICITRAL and UNIDROIT. The evolution also demonstrates that the key to the general clause that is Article 12(2) of the UNCITRAL Model Law, lies in ‘justifiable doubts’, not in appearances; That is equivalent to establishing the rule ‘in dubio pro separatione’ in a very deliberate way. Article 17(3) of the Spanish Law in Arbitration, itself based on the UNCITRAL Model Law, should be interpreted in the same way.

Article 17(3) of the Spanish Law on Arbitration also establishes a rule that cannot be waived by agreement of the parties. Whilst the legislator left a large margin of discretion to the parties throughout this law, this particular provision is expressed in unequivocal terms, stating:

‘An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties.’

Article 13(1) of the new MIAC Arbitration Rules departs from the longstanding tradition behind this standard by requiring a “lack” of independence or impartiality in order for parties to be able to challenge an arbitrator, instead of “justifiable doubts”. Although Article 13(1) also refers to challenges for ‘any other reasons’, this generic expression could refer to the ‘qualifications agreed by the parties’. The provision does not adequately specify the standard to be applied, which on the one hand is too rigid (‘lack of independence or impartiality’) and on the other, too indeterminate (‘any other reason’).

The difference between this rule and that established by Article 17(3) of the Spanish Law on Arbitration could lead to legal difficulties. In proceedings for the annulment of an arbitral award where one of the parties invokes the MIAC Rules, the judge will need to decide whether the agreement between the parties in the form of Article 13(1) of the MIAC Arbitration Rules can override Article 17.3 of the Spanish Law on Arbitration.

In our opinion, given the non-waivable character of the rights established under Article 17(3) of the Spanish Law on Arbitration, Article 13(1) of the MIAC Arbitration Rules cannot override Article 17.3 of the Spanish Law on Arbitration.

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Sustainability and Diversity in the Newly Virtual World of International Arbitration

Kluwer Arbitration Blog - Tue, 2020-12-08 21:11

Climate change and increasing calls for greater diversity in the workplace have been making headlines daily. With the onset of the COVID-19 pandemic, the world, including that of international arbitration, has turned to a virtual setting to conduct many of its operations. While this new terrain has resulted in technical obstacles and challenges, it has also created greater opportunity to adopt environmentally-friendly policies and simultaneously “level the playing field” for historically disadvantaged actors in the field of international arbitration, particularly underrepresented women and minorities. In this post, we explore the opportunities and potential pitfalls that longer-term behavioural changes triggered by the pandemic represent for arbitration from a sustainability and diversity perspective.

 

Sustainability

Earlier this year, Lucy Greenwood’s brainchild, the Campaign for Greener Arbitrations, was formally launched with the central objective of reducing the environmental impact of international arbitrations. Initial research conducted by Lucy Greenwood and members of the Campaign revealed that just under 20,000 trees would be required to offset the carbon emissions created by a medium-sized arbitration – four times the number of trees in Hyde Park. A similar study by Herbert Smith Freehills, which looked at the energy usage of proceedings and the carbon emissions of one party’s counsel in a medium-sized arbitration, identified three priority areas to review: energy usage, travel practices and material and electronic waste.

COVID-19 has acted as a natural accelerator for the many behavioural changes which the Campaign seeks to promote, in particular, a move to more virtual settings with less day-to-day travel requirements in the management of arbitral proceedings. However, in order for these behavioural changes to have the desired impact of reducing the overall carbon impact of arbitral proceedings, they need to be implemented in a sustainable way.

Transitioning to increased virtual proceedings in the longer term naturally requires greater energy usage, as our social interactions are making the transition, currently by necessity and perhaps in the longer term by choice, from in person to online. It makes sense that, as a priority, arbitration users and participants looking to reduce their environmental footprint should first review their energy sources and ensure that the energy being used to power their workspaces and home offices is clean and that the tools they are using are energy efficient. This simple measure is perhaps the one with the most significant impact, as the Herbert Smith Freehills study indicates that carbon emissions from non-clean energy sources are the largest contributor of emissions in proceedings. As practitioners are increasingly working from home, this is a personal commitment which can be made by individual practitioners in parallel to those made by law firms, chambers, and service providers.

The second most significant contributor to carbon emissions in arbitral proceedings is travel, in particular air travel. This year, Earth Overshoot Day, the day which marks the date that humanity’s resource consumption exceeds the amount of resources that the Earth can produce in 12 months, came one month later than last year, due to the COVID-19 pandemic – in no small part due to a large reduction in domestic and international air travel. This reduction in travel has not prevented arbitrations from moving ahead. In-person meetings and hearings have, in large part, been replaced by virtual alternatives.

These virtual alternatives, including use of ever more sophisticated means of video-conferencing, will remain suitable following the pandemic and should continue to be adopted in the longer term. However, transitioning proceedings to a fully virtual setting is not a panacea. This transition also runs the risk, as further explored below, of leaving behind or preventing access to a large pool of skilled practitioners who do not have access to the technological infrastructure required to make these virtual proceedings a success.

It is therefore important to recognise that in the post-COVID world, travel may continue to be a necessity, but that more can be done to ensure environmentally conscious travel, for example by selecting the most environmentally friendly mode of transportation (for instance, travel by high-speed train as opposed to air travel where possible, or by prioritising travel with airlines ranked for their carbon efficiency) and considering, where required, options to offset the carbon footprint associated with travel.

Similarly, there is great potential for the reduction of material waste in arbitral proceedings by choosing electronic communications, filings and bundling over hard copy alternatives – a simple change increasingly endorsed by leading arbitral institutions – e.g. Article 4 of the LCIA 2020 Arbitration Rules providing for electronic communications as a default, or Article 26.1 of the draft ICC 2021 Arbitration Rules providing for virtual hearings.

 

Diversity

The transition of international arbitration to a virtual setting has also impacted historically disadvantaged and underrepresented women and minorities, creating opportunities for increased visibility and participation while exacerbating existing biases.

Some of the difficulties traditionally experienced by women in male-dominated workspaces may worsen in the digital environment. Some studies suggest that women may have the length of their speaking time cut short, problems with being interrupted (more common in the virtual environment with lag time), difficulty getting a word in, or having their statements ignored or co-opted. Others suggest that networking in the virtual setting is more difficult for women, claiming that women may be more reluctant to make virtual networking requests than their male counterparts, as they do not feel comfortable asking someone for something without having forged a closer connection with them. In its Gender Insights Report, LinkedIn reported that men are 26% more likely to ask for a referral on LinkedIn to a job they are interested in and recruiters are 13% less likely to click on a woman’s profile when she shows up in a search and 3% less likely to send her a message after viewing her profile.

Women may also be disproportionately affected by stay-at-home orders and the increasingly commonplace teleworking environment. Some studies have shown that women are more likely to carry out a host of additional domestic responsibilities while working at home including childcare, cooking, cleaning, care for isolated relatives, etc. on top of their day jobs. This has left them with little to no time to engage in professional extra-curricular activities which contribute to career development such as writing articles, speaking at conferences, or networking online.

Historically disadvantaged and underrepresented minorities may also suffer in the virtual environment. Working from home poses unique challenges for minorities and recent “Zoombombing” incidents show that racism in the virtual setting remains alive and well. The new virtual setting has also amplified technological and access barriers for practitioners from jurisdictions or neighbourhoods which suffer from low bandwidth internet connections, poor video streaming quality, or electricity shortages and power outages. Organizers may decide not to invite speakers who cannot be properly heard due to a low-quality internet connection, often those situated in jurisdictions with lesser access.

This important context must be taken into account when recognizing that the virtual setting may also positively result in increased visibility of underrepresented women and minorities. Indeed, the breakdown in geographical barriers, the increased ease of international virtual networking, and the new norm of virtual communications can contribute to the diversity of international arbitration. It may result in increased appointments of arbitrators from more diverse jurisdictions and of younger ages, and more diverse sized clients may be empowered to bring claims of varying sizes as costs become more manageable. Virtual hearings may allow for greater diversity of languages as new digital features such as simultaneous translation become available and further developed.

Lesser heard voices can be amplified by the effective use of interactive features such as chat, poll, or hand-raising functions, and virtual break-out sessions. Individuals can be presented on a level playing field, regardless of age, gender or other physical characteristics as sound volumes are generally uniform, physical stature of individuals is less perceivable, and less attention may be paid to “professional” attire in the virtual context.

Virtual conferences, webinars, and networking events have also opened the door to new participants and speakers who might not otherwise have been able to make the time and travel commitment required, for example parents with young children, or individuals for whom the costs associated may have been prohibitive. Indeed, many conference organizers have acted upon the virtual availability of a wider pool of candidates to field more diverse panels and seek speakers from farther jurisdictions.

The pandemic, in many ways, has accelerated certain inevitable trends such as the digitalisation of international disputes, and has allowed a spotlight to be shone even more brightly on important issues such as diversity and climate change. It has afforded us all time to reflect on what the post pandemic world might and should look like and has also highlighted some of the opportunities and problems an increased virtual setting for arbitral proceedings, conferences, and networking presents. These are all issues which we should be mindful of as we decide how to tackle the systemic changes which we are seeing our community undergo.

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Concepts That Can Help Practitioners Help Parties Make Decisions in Disputes

ADR Prof Blog - Tue, 2020-12-08 16:29
The good folks at the Association for Conflict Resolution of Greater New York and CUNY Dispute Resolution Center at John Jay College invited me to give a talk as part of their monthly breakfast series.  Last week, I gave a presentation, Helping Parties Make Decisions About What’s Really Important, which synthesizes ideas I have been … Continue reading Concepts That Can Help Practitioners Help Parties Make Decisions in Disputes →

The RCEP Investment Chapter: A State-to-State WTO Style System For Now

Kluwer Arbitration Blog - Tue, 2020-12-08 01:18

The Regional Comprehensive Economic Partnership (RCEP) was signed by its 15 Parties (after India, an initial negotiating party, withdrew from negotiations) on 15 November 2020.1)This article represents the authors’ personal opinions and does not represent the opinion of their respective organisations. jQuery("#footnote_plugin_tooltip_4094_1").tooltip({ tip: "#footnote_plugin_tooltip_text_4094_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The signature of this agreement amid the COVID-19 pandemic has made quite a headline given it is the largest free trade agreement in history in terms of the Parties’ combined GDP. This post analyses the dispute settlement mechanism (DSM) offered under Chapter 10 of RCEP (the RCEP Investment Chapter).

 

RCEP: Innovations in Investment Protection?

RCEP contains 20 chapters regulating a range of matters, including trade, investment and competition. One of us earlier suggested that the RCEP Investment Chapter could be an opportunity to consolidate and modernize the investment liberalization, promotion, facilitation, and protection regimes applicable to the RCEP Parties, many of which already had international investment agreements (IIAs) among themselves.2)Junianto James Losari, “An international investment agreement for East Asia: issues, recent developments and refinements” in L. Y. Ing, M. Richardson and S. Urata (eds), East Asian Integration: Goods,  Services and Investment (Routledge, 2019). For example, the ASEAN Comprehensive Investment Agreement (ACIA), the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), the ASEAN-China Investment Agreement, the ASEAN-Korea Investment Agreement, and the China, Japan and Korea Investment Agreement. jQuery("#footnote_plugin_tooltip_4094_2").tooltip({ tip: "#footnote_plugin_tooltip_text_4094_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, the RCEP Investment Chapter does not appear to offer advanced refinements to the standards contained in the Parties’ existing IIAs so much as a compromise based on the lowest common denominators amongst the Parties – a topic that goes beyond the scope of this post.

Unlike most of the existing IIAs among Parties, the RCEP Investment Chapter does not contain an investor-state dispute settlement (ISDS) mechanism. Article 10.18 of RCEP provides a strong indication that the Parties were unable to reach agreement about ISDS. It provides, instead, that the parties would discuss this topic within two years after the date of entry into force of RCEP. The RCEP further removes the capacity for investors to attempt to access ISDS in other investment agreements through the RCEP’s most-favoured nation (MFN) clause: Article 10.4(3) carves out the applicability of the clause to international dispute settlement procedures or mechanisms. Nevertheless, investors may arguably access any more favourable treatment that RCEP may offer by virtue of the MFN clauses (subject to the limitations in those clauses) in their other investment agreements.

This, nonetheless, does not mean that investors are left without any recourse for breaches of RCEP Investment Chapter by a host state. Although the RCEP Investment Chapter does not specify any DSM, an all-purpose state-to-state DSM is provided under Chapter 19 (Dispute Settlement) (the RCEP DSM). This means that if a Party to RCEP commits any breach of the obligations under the RCEP Investment Chapter, the relevant investors could request their home state to espouse their claims by way of diplomatic protection, and subsequently the home state may bring a claim against the host state under Article 19.3(1) of RCEP. Article 17.11 of RCEP, however, carves out a major area of protection by providing that the RCEP DSM is not applicable to disputes relating to pre-establishment rights, namely those disputes relating to admission or approval of foreign investment during the screening process applied by the Parties.

The RCEP further provides the state Parties with the option to choose a forum for the settlement of such a dispute from among their other IIAs provided the dispute concerns substantially equivalent rights and obligations under the RCEP and the relevant IIA. For example, suppose that a dispute regarding a breach of investment protection standards under the RCEP Investment Chapter were to arise between Indonesia and South Korea concerning the impact of Korea’s conduct on an Indonesian investor. In such a hypothetical scenario, the Indonesian government, upon espousing the claim, has the option to bring the dispute to either an ad hoc arbitral tribunal under Article 10(2) of the 1994 Indonesia – South Korea bilateral investment treaty (BIT) or the dispute settlement mechanism under the ASEAN-Korea Investment Agreement or to the RCEP DSM.

 

RCEP’s State-State Dispute Settlement Mechanism – An Overview

While some aspects of RCEP DSM are similar to the World Trade Organisation (WTO) DSM, some of the main differences in RCEP include the absence of i) a mechanism where panel reports must be adopted by a certain body consisting all parties to the agreement; and ii) an appeal mechanism. We set out below a simplified flow chart summarizing the dispute settlement process under the RCEP DSM. Notably, Article 19.7 of RCEP provides that the Parties to the dispute may at any time agree to take an alternative dispute settlement mechanism, including good offices, conciliation or mediation. In this section, we examine the core features of RCEP DSM, the procedure of which is summarized in the flowchart below.

 

Flowchart of RCEP DSM (Simplified)


 

(a) Applicable Law

Article 19.4 of RCEP provides that the RCEP “shall be interpreted in accordance with the customary rules of interpretation of public international law”. It further provides that “findings and determinations of [a] panel cannot add to or diminish the rights and obligations under [the RCEP]”. This is very similar to Article 3.2 of the DSU, which some scholars have regarded as hermetically sealing the WTO from the application of non-WTO treaties or customary international law except for interpretational purposes.3)A Antoni and M Ewing-Chow, “Trade and Investment Convergence and Divergence: Revisiting the North American Sugar War” (2013) 1(1) Latin American Journal of International Trade Law 315. jQuery("#footnote_plugin_tooltip_4094_3").tooltip({ tip: "#footnote_plugin_tooltip_text_4094_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); Interestingly, to avoid a paucity of jurisprudence, Article 19.4(2) of RCEP also provides that panels shall also consider relevant interpretations in WTO panels and Appellate Body (AB) reports even for provisions of the WTO Agreement which are not incorporated into RCEP. In relation to RCEP Investment Chapter, Article 17.12 of RCEP incorporates Article XX of the 1994 General Agreement on Tariffs and Trade (GATT), hence various WTO panel and AB reports will be particularly relevant for the interpretation of these General Exceptions.

 

(b) Panel appointment

Under Article 19.12 of RCEP, an RCEP panel consists of three panelists unless the Parties to the dispute agree otherwise. Similar to the appointment of arbitrators under most major arbitral rules, the Parties to the dispute may each appoint one panelist, and they will jointly agree on the appointment of the third panelist (by providing to each other a list of up to three nominees) who shall be the chair of the panel. If the Parties to the dispute fail to appoint any panelist, RCEP specifies the procedure of appointment, designating the appointing authority as the Director General of the WTO and failing which, the Secretary General of the Permanent Court of Arbitration.

RCEP does not establish a list of panelists for the Parties to choose from. However, Article 19.11(10) and (11) set out the requirements and qualifications that each panelist shall have. Unless agreed otherwise by the Parties, Article 19.11(13) further provides that the chair shall not be a national of any Party to the dispute or a Third Party4)This refers to any RCEP Party who has a substantial interest in the matter besides the disputing Parties as regulated under Article 19.10 of RCEP. jQuery("#footnote_plugin_tooltip_4094_4").tooltip({ tip: "#footnote_plugin_tooltip_text_4094_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and shall not have his or her usual place of residence in any Party to the dispute. While the nationality restriction is similar to that of the WTO DSU5)WTO DSU, Article 8.3 (in which the nationality restriction is more restrictive as it is applicable to all panelists and not just the chair). jQuery("#footnote_plugin_tooltip_4094_5").tooltip({ tip: "#footnote_plugin_tooltip_text_4094_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); and some arbitral institution’s rules,6)London Court of International Arbitration Rules (2020), Article 6.1; Singapore International Arbitration Centre Investment Rules (2017), Rule 5.7, though this is only applicable where the Court is appointing a sole arbitrator or a presiding arbitrator; Hong Kong International Arbitration Centre Administered Arbitration Rules (2018), Article 11.2. jQuery("#footnote_plugin_tooltip_4094_6").tooltip({ tip: "#footnote_plugin_tooltip_text_4094_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); RCEP adds further requirements that the chair should have served on a WTO panel or the WTO AB and that the chair cannot be a resident in any of the parties to the dispute. This is likely introduced to enhance the perception of impartiality of the panel.

 

(c) Panel Procedures

Article 19.13 of RCEP sets out some general procedures for the panel proceeding, but also provides more specific procedures under the Rules of Procedures for Panel Proceedings adopted by the RCEP Joint Committee (unless the Parties to the dispute agree to opt for another rules of procedures). At the time of writing, these Rules of Procedures are not yet publicly available. Under Article 18.5(1), the Joint Committee is due to have its first meeting within one year of the date of entry into force of RCEP and so might be expected to produce Rules of Procedures then.

 

(d) Remedies available to investors

Unlike ISDS which provides a direct remedy to investors affected by a host state’s measure (mostly in the form of monetary compensation), the main remedy under the RCEP DSM is in the form of a final and binding panel report where a wrongdoing state is ordered to bring its measure into conformity with RCEP or carry out its obligations under RCEP. Like in the WTO, if the host state refuses to comply with this order, the home state of the investor may bring a compliance review which eventually can lead to either payment of compensation by the host state to the home state, or where such compensation is not agreed by the disputing Parties, the home state may suspend concessions given to the host state under RCEP. No direct compensation is granted to investors under the RCEP DSM.

 

Conclusion

The current RCEP DSM may not attract investors of the Parties to use the RCEP Investment Chapter because investors will still need to go through the hurdle of persuading the home state to espouse their claims. Where the claim at stake is relatively small or the investor has limited political capital, there may be less incentive for the home state to bring such a dispute given the political considerations at play. Further, under the RCEP DSM, the investors will likely have much less say in the legal strategy for the dispute. Nonetheless, RCEP does not in any way terminate existing IIAs between the Parties. Those IIAs may still be relied upon by investors.7)RCEP, Article 20.2. jQuery("#footnote_plugin_tooltip_4094_7").tooltip({ tip: "#footnote_plugin_tooltip_text_4094_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  This means that investors from relevant RCEP Parties will have the option to obtain protection or to benefit from liberalization commitments under other relevant IIAs with ISDS mechanisms. In conclusion, although RCEP may become the largest trade agreement when it enters into force, it may not be frequently used by investors to resolve investment disputes due to the absence of an ISDS mechanism.

References   [ + ]

1. ↑ This article represents the authors’ personal opinions and does not represent the opinion of their respective organisations. 2. ↑ Junianto James Losari, “An international investment agreement for East Asia: issues, recent developments and refinements” in L. Y. Ing, M. Richardson and S. Urata (eds), East Asian Integration: Goods,  Services and Investment (Routledge, 2019). For example, the ASEAN Comprehensive Investment Agreement (ACIA), the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA), the ASEAN-China Investment Agreement, the ASEAN-Korea Investment Agreement, and the China, Japan and Korea Investment Agreement. 3. ↑ A Antoni and M Ewing-Chow, “Trade and Investment Convergence and Divergence: Revisiting the North American Sugar War” (2013) 1(1) Latin American Journal of International Trade Law 315. 4. ↑ This refers to any RCEP Party who has a substantial interest in the matter besides the disputing Parties as regulated under Article 19.10 of RCEP. 5. ↑ WTO DSU, Article 8.3 (in which the nationality restriction is more restrictive as it is applicable to all panelists and not just the chair). 6. ↑ London Court of International Arbitration Rules (2020), Article 6.1; Singapore International Arbitration Centre Investment Rules (2017), Rule 5.7, though this is only applicable where the Court is appointing a sole arbitrator or a presiding arbitrator; Hong Kong International Arbitration Centre Administered Arbitration Rules (2018), Article 11.2. 7. ↑ RCEP, Article 20.2. 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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Is International Arbitration Adapting to a Changing World? Empirical Research May Help us Find Out

Kluwer Arbitration Blog - Tue, 2020-12-08 00:51

Knowledge of international arbitration has often been based on anecdotal evidence. However, there has been increasing interest in empirical research among practitioners and scholars. In the context of the recent COVID-19 pandemic, arbitral practice has rapidly changed and new empirical research aimed at understanding the experience and expectations of the users of international arbitration is timely. The 2020 School of International Arbitration (SIA), Queen Mary University of London (QMUL) Survey on ‘Adapting Arbitration to a Changing World’ reflects a central question raised in these strange times: How much adaptability has international arbitration shown and quo vadimus? (the ‘2020 Survey’ or the ‘2020 QMUL/W&C International Arbitration Survey’).

 

Background and Context

Since 2006, the SIA/QMUL has conducted several surveys into international dispute resolution practices and trends. These unique empirical research projects are carried out with the financial support of sponsors and focus on topical issues. The surveys conducted by the SIA are well recognised and often-cited including most recently by the UK Supreme Court in its judgment in Halliburton v Chubb (para 63) (discussed here).

The 2020 Survey is conducted in partnership with White & Case for the fifth time (see indicatively the coverage for the 2018 Survey, here and here).

 

The 2020 QMUL/W&C International Arbitration Survey: Questions

The 2020 QMUL/W&C International Arbitration Survey has two parts. One quantitative and one qualitative.

First, the quantitative part consists of a Questionnaire comprised of 21 (substantive in nature) questions that aim to reach a balance between breadth and depth (an inherent challenge to empirical research). It takes approximately 20 minutes to complete. There are four categories: (1) Current and future use of arbitration (2) Diversity; (3) Technology and sustainability; and (4) Data Protection and Cybersecurity.

In the 2018 QMUL/W&C Survey, more than half of respondents (61%) thought that “increased efficiency, including through technology” was the factor most likely to have a significant impact on the future evolution of international arbitration. It seems this prediction was correct. Most of the questions in the 2020 QMUL/W&C Survey (categories 3 and 4) are largely inspired by the increased use of technology in the past few years and, in particular, the rise of remote hearings in light of the pandemic (see here, as well as the recently-published book International Arbitration and the COVID-19 Revolution). This increased use of technology potentially raises concerns about cybersecurity and the protection of personal data and may (inadvertently) lead to greener arbitration. Is the arbitration community aware and addressing these issues? Do counsel consider sustainability when making procedural choices in a given case? And what about data protection? In particular, what is the perceived impact of legal instruments, such as the EU General Data Protection Regulation (GDPR), on international arbitration?

The question of diversity remains open, leaving room to explore how much progress has been made in different aspects of diversity in addition to gender diversity (see for example the ICCA Report of the Cross-Institutional Task Force on Gender Diversity). The 2018 Survey explored whether users perceived there to be a connection between the quality of decision-making and diversity. The 2020 Survey aims to explore whether there is any connection between diversity among the panel of arbitrators and the users’ perception of their independence and impartiality. As the legitimacy of international arbitration is largely a matter of perception it is important to explore whether such a connection exists.

 

Methodology

The 2020 Survey takes an inclusive approach as it aims to take a snapshot of the views of the entire arbitration community not just a particular group. We hope to capture the views from as wide a range of arbitration participants as possible. All industries (from energy disputes to sports disputes) are of interest. Therefore, all stakeholders are welcome to share their perspectives, including private practitioners, in-house counsel, arbitrators, academics, experts, third-party funders, government officials, economists, entrepreneurs, international arbitration students and/or arbitral institution staff. The results will inevitably reflect the data provided by those who generously devote their time to take the 2020 Survey. It does not incorporate data from other external surveys.

Second, as part of the qualitative phase, personal (remote) interviews take place with a diverse range of stakeholders who have expressed an interest in contributing to this phase. The qualitative information gathered is used to supplement the quantitative data. It is an extremely important part of the 2020 Survey as it further explains the findings on particular issues.

 

Conclusion – Take the Survey!

The 2020 Survey (SIA’s twelfth) is currently ongoing. It is primarily your survey and we aim for it to be as representative as possible. We need you to participate to make this happen! Please do not forget to take the Survey by Monday 21 December 2020. If you would like to be part of the qualitative interviews please contact Dr Maria Fanou. We very much look forward to sharing the results with you in late Spring 2021.

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International Law Talk Podcast and Arbitration: In Conversation with Chiann Bao

Kluwer Arbitration Blog - Sun, 2020-12-06 23:26

Welcome to the third post in the series of International Law Talk. In this series of podcasts, Wolters Kluwer will bring you the latest news and industry insights from thought leaders and experts in the field of International Arbitration, IP Law, International Tax Law and Competition Law. Here at Kluwer Arbitration Blog, we will highlight the podcasts focused on international arbitration.

 

In the third podcast of the series, Arie Eernisse, Assistant Editor for East and Central Asia of the Kluwer Arbitration Blog, interviews Chiann Bao, an independent arbitrator at Arbitration Chambers, based in Hong Kong. Chiann Bao is a former Secretary-General of the Hong Kong International Arbitration Centre (2010-2016) and is currently Vice President of the ICC Court of Arbitration and Chair of the ICC Commission Task Force on Arbitration and ADR. She is also the editor (with Michael J. Moser) of Managing Belt and Road Business Disputes: A Case Study of Legal Problems and Solutions (Wolters Kluwer, forthcoming 2021) and author of other books and articles.

Chiann Bao first reflects on the four main highlights of her multi-faceted career and then shares her insights on various relevant topics pertaining to international arbitration, including the following:

 

http://arbitrationblog.kluwerarbitration.com/wp-content/uploads/sites/48/2020/12/KLI-3-trailer-1dec2020.mp3

 

  • an introduction to her forthcoming book, which involves a fact scenario based on actual transactions and chapters on major issues faced by parties in such transactions, such as arbitration and ADR in China, enforcement of arbitral awards in China, and issues arising from project finance, construction and investor-state disputes involving China or China-based entities;
  • disputes arising from China-outbound investment in connection with China’s Belt and Road initiative. Bao explains that her new book is a follow-up to Managing Business Disputes in Today’s China: Duelling with Dragons (Wolters Kluwer, 2007), edited by Michael Moser, which focused more on issues arising from China-inbound investment transactions. Bao notes that the changed focus is reflective of changes in the flow of investment to and from China;
  • the availability of arbitration awards from China and the work of China-based arbitral institutions;
  • the work of the ICC Commission Task Force on Arbitration and ADR, which has involved addressing the issue of achieving more efficiency in arbitration through two specific mandates: (1) finding better ways to settle arbitration, observing the trends of settlement in arbitration and assessing what features of the arbitral process may facilitate settlement and (2) how to better utilize ADR, in general and in the context of arbitration. Bao notes that, considering the effects of the COVID-19 pandemic, it is an ideal time for the task force to be grappling with these types of issues; and
  • Hong Kong’s evolution as an arbitral seat.

Offering her final thoughts and answering a question that we will pose to all interviewees in this podcast series, Bao predicts that there will be three main areas of change in the next five to ten years: (1) technology playing an increasingly important role, (2) a spreading out of seats, including in Asia, and (3) an increase in diversity.

 

Listen to the podcast ‘Arbitration in China’ with Chiann Bao.

 

Follow the coverage of the International Law Talk arbitration podcasts on Kluwer Arbitration Blog here.

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New York Arbitration Week Revisited: Perspectives from the Annual Fordham International Arbitration and Mediation Conference

Kluwer Arbitration Blog - Sun, 2020-12-06 01:36

The annual Fordham Conference on International Arbitration and Mediation took place virtually on 20 November 2020, the final day of the second annual New York Arbitration Week. Under the guidance of co-chairs Louis B. Kimmelman (Sidley Austin, New York) and Edna Sussman (Independent Arbitrator and Mediator and Distinguished Practitioner in Residence Fordham Law School), the conference examined a number of hot topics, including innovative dispute resolution mechanisms, the relationship between international arbitration and the European Union (EU) and the applicability of 28 U.S.C. § 1782 to private international commercial arbitrations.

 

Combinations and Permutations: Creating a Solution-Driven Dispute Resolution Process

The conference opened with a roundtable discussion on the effectiveness of so-called “mixed modes” of dispute resolution. The panel was moderated by Kathleen Paisley (Ambos Lawyers) and Edna Sussman (Independent Arbitrator), with Jeremy Lack (LAWTECH.CH), Thomas Stipanowich (Pepperdine Law School), Moti Mironi (Haifa University), and Kun Fan (University of New South Wales) sharing their perspectives. The moderators and panelists are members of the Mixed Mode Task Force, a combined effort between the International Mediation Institute, the College of Commercial Arbitrators, and the Straus Institute for Dispute Resolution from Pepperdine School of Law, that is examining combining different dispute resolution processes in parallel, sequentially or as integrated processes.

The panel discussed unexplored conflict management possibilities and presented the work of its Working Groups 1 and 2, which are focused on how mediators can utilize different tools to be more effective. The discussion considered how to educate parties on alternative modes of dispute resolution and how neutrals can facilitate tailored-made dispute resolution processes.

The panelists then examined the cultural challenges faced in cross-border dispute resolution. This discussion drew on the Task Force’s Working Group 3, which is studying when neutrals can “change hats” (from mediator to arbitrator and vice versa), a practice with varying levels of acceptance depending on the jurisdiction and legal background of the parties. More generally, the panelists encouraged practitioners to go beyond their understanding of terms like “mediator”, “conciliator”, and “neutral facilitator” – whose meanings differ from jurisdiction to jurisdiction – to instead focus on the tasks the parties wish a neutral to facilitate. The panelists suggested that a neutral’s flexibility will be key in facing cultural challenges. For example, sometimes openly discussing proposals with the parties will be effective, whereas, at other times, a neutral will be more effective by remaining more distant.

The panel closed by considering how to persuade parties and practitioners to experiment with different modes of dispute resolution. The conclusion that stood out was that success stories are key to fostering use of new and mixed modes of dispute resolution. The panelists agreed that neutrals should encourage parties to try something new and should be prepared to propose alternative processes along the way that could lead to a more efficient solution.

The panel and the work of the Task Force reflect an innovative response to a demand from users of alternative dispute resolution processes. Many decades ago, arbitration was proposed as an alternative to litigation and praised for its flexibility and for providing parties with a tailor-made method to resolve their disputes. Users have recently complained, however, that arbitration is increasingly more rigid and has arguably lost some of its flexibility. The loss of creative procedural design to a more formalized structure that parties have come to expect in arbitration can result in a process that is less tailored to the parties’ needs. The tools proposed by the Task Force therefore provide a means to get back those characteristics that critics say arbitration has lost. By combining different dispute resolution processes, parties have the opportunity to create a tailor-made process that is best suited to solve their particular dispute.

 

International Arbitration and EU Law: What Next?

During his keynote speech entitled “International Arbitration and EU Law: What Next?”, Professor George A. Bermann (Gellhorn Professor of Law and Monnet Professor in European Union Law, Columbia Law School) shared an insightful perspective on the “challenging challenge” posed by the tense relationship between international arbitration and the EU. Professor Bermann described the international arbitration community’s unique ability to self-govern, self-improve and meaningfully – but imperfectly – tackle challenges on its own. This is due, in part, to its transparency, attentiveness to users’ interests, and constant self-examination. But, according to Professor Bermann, the EU presents a “stalemate” to international arbitration that it cannot solve with these go-to tools.

The EU and international arbitration’s decades of peaceful coexistence began to change in 2018 with the Achmea decision, in which the European Court of Justice (ECJ) held that arbitration clauses in certain BITs are contrary to EU law (see blog posts here). Professor Bermann explained that the Achmea decision illustrates a shift in the EU’s assertion of autonomy, which has created a conflict with international arbitration. Since the 1960s, the EU has asserted its autonomy vertically (with respect to Member States), but, more recently, it also does so horizontally (with respect to other international actors). For example, the European Commission consistently intervenes in arbitration and enforcement proceedings as amicus to ensure that awards issued under intra-EU BITs are set aside or not enforced. The international arbitration community has been persistent, however. Tribunals have not declined jurisdiction based on intra-EU objections, and, while intra-EU awards have been annulled and denied enforcement in the EU, they are being enforced in courts outside the EU. According to Professor Bermann, both sides have hardened their views and it is uncertain how and when accommodation will be reached.

Professor Bermann closed by noting that the EU and the international arbitration community are not communicating well, as most discussions center on condemning the other rather than seeking compromise. He stressed, however, that reconciling the conflicting autonomies underlying the tension cannot lie in the international arbitration community’s hands alone.

Answering Professor Bermann’s question – “what’s next?” – is no easy task given the number of moving pieces. For example, the EU member states continue to disagree on the impact of the Achmea decision on the Energy Charter Treaty (ECT). Hope was placed on resolving the disagreement in Novenergia v. Spain, but the Svea Court of Appeal twice denied Spain’s request for a preliminary ruling from the ECJ on whether the arbitration clause in the ECT is compatible with EU law. Further, the EU has been exploring a new path outside of international arbitration. The European Commission is in negotiations to establish a multilateral investment court, a permanent body that could replace the traditional arbitration framework, and the ECJ has recently concluded that the investment court set up by the Canada-EU Comprehensive Economic and Trade Agreement (CETA) is compatible with EU law. Additionally, Brexit could add complications to the already convoluted scene, with UK investors able to enforce awards against their EU counterparts at home and in the EU, while their EU counterparts are subject to more limited enforcement options. At present, it seems only time can tell us “what’s next”, but while we wait for it to do so, the well-being of international arbitration would benefit from discussions involving actors from both legal regimes to overcome the impasse.

 

Does 28 U.S.C. § 1782 Apply to Private International Commercial Arbitrations?

The Fordham Conference’s third panel took the form of a mock US Supreme Court argument addressing the unresolved issue of the scope of 28 USC § 1782 (Section 1782). Section 1782 provides that a US district court may order a person within its jurisdiction to appear for testimony or to produce a document for use in a proceeding before “a foreign or international tribunal” upon application either by that tribunal or by “any interested person”. Section 1782 certainly allows foreign courts to apply to a US district court for US-style discovery, but whether the provision allows parties and tribunals in private international arbitrations to do so has split US federal circuit courts and remains unanswered by the US Supreme Court. This issue is hotly debated in the arbitration community.

The bench for the mock argument possessed a wealth of US Supreme Court litigation experience, consisting of Paul Clement (Former US Solicitor General), Nicole Saharsky (Mayer Brown), and Professor Pamela Bookman (Fordham Law School). Kwaku Akowuah (Sidley Austin) argued for the Petitioner, with Caline Mouawad (Chaffetz Lindsey) arguing on behalf of amici professors supporting Petitioner’s position. Martine Cicconi (Virginia Deputy Solicitor General) argued for Respondent, with Ari MacKinnon (Cleary Gottlieb) arguing on behalf of amici in support of Respondent.

Petitioner urged an expansive interpretation of the phrase “international tribunal” in Section 1782, explaining that it should include private international arbitral tribunals. As Mr. Akowuah and Ms. Mouawad argued, this position is consistent with the plain meaning of the words “international tribunal”, which do not distinguish between a foreign court and a private arbitral tribunal. Further, this reading also comports with Congress’s long-stated pro-arbitration policy. As Petitioner’s counsel stressed, there can be little doubt that private international tribunals are able to come to more informed factual determinations with access to US discovery that Section 1782 allows. The result of this, namely decisions rendered by tribunals with more complete factual records, can only enhance commercial confidence in the integrity and rigor of international arbitration.

Respondent’s counsel argued in response that “international tribunal”, when read in the provision’s proper context, clearly intended to exclude tribunals created in private international arbitrations. References in Section 1782 to judicial mechanisms such as letters rogatory and a tribunal’s “practices and procedures” lead to the conclusion, according to Respondent, that Congress contemplated “international tribunal” as meaning only a state-sanctioned body. Moreover, Respondent stressed that reading “international tribunal” as including private arbitral tribunals would grant an international arbitral tribunal greater discovery powers than a domestic arbitral tribunal possesses under the Federal Arbitration Act, an inconsistency in the statutory scheme that is difficult to reconcile.

What emerged from the bench’s questions and the advocates’ arguments was that, although an ordinary reading of Section 1782 may point to such discovery being available in private commercial international arbitrations, consideration of the statutory language in context and Congress’s intent may in fact point in the other direction. While it might appear “pro-arbitration” to grant private international tribunals access to US testimony and documents, there are indications in the surrounding statutory scheme and drafting history that such a position might be more expansive than Congress intended. As several panelists noted, the apparent divergence between language and policy in the Section 1782 analysis makes it a truly “hard case”. This ensures that the international arbitration community will watch with interest for what seems like an inevitable progression of Section 1782 issue to the US Supreme Court.

 

Recordings for all New York Arbitration Week 2020 events are available here, and Kluwer Arbitration Blog’s full coverage is available here. 

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New York Arbitration Week Revisited: The Challenges of Multi-Party and Multi-Contract Issues in International Arbitration and the Anticipated ICC Rules Changes

Kluwer Arbitration Blog - Sat, 2020-12-05 01:36

On Thursday 19 November 2020, during the fourth day of New York Arbitration Week, the ICC International Court of Arbitration held a virtual round-table discussion of the challenges faced by parties and the ICC Court in cases involving multi-party and multi-contract disputes and the ways in which the 2021 revisions to the ICC Rules of Arbitration (the “2021 Rules”) regarding joinder, consolidation, and the constitution of the arbitral tribunal address these issues. Jennifer Kirby (Independent Arbitrator, Kirby Arbitration) moderated the discussion among panelists Laura Abrahamson (Arbitrator, JAMS), Paul Di Pietro (Counsel, ICC International Court of Arbitration (SICANA, Inc.)), Ziva Filipic (Managing Counsel, ICC International Court of Arbitration), and Claudia Salomon (Partner, Latham & Watkins LLP; Vice President, ICC International Court of Arbitration).

Over 300 participants joined the event to engage in an active discussion about the revisions and the practical impact the changes will have on disputes when the 2021 Rules enter into force on 1 January 2021. In one of Ms. Salomon’s first public appearances since the ICC announced their historic recommendation that she serve as the ICC Court’s first female President on 1 July 2021, Ms. Salomon began the discussion by providing an overview of the changes the 2021 Rules made to Article 7 (Joinder of Additional Parties) and Article 10 (Consolidation of Arbitrations), before inviting comments from other panelists and audience questions.

 

Joinder

With respect to Article 7 on joinder, Ms. Salomon explained that since 2012, the Rules have allowed for joinder of additional parties after the confirmation or appointment of any arbitrator with the consent of all parties to the arbitration. Article 7(1) of the 2017 Rules thus provides, “[n]o additional party may be joined after the confirmation or appointment of any arbitrator, unless all parties, including the additional party, otherwise agree.” The new Article 7(5) marks a shift, dispensing with the need for an agreement from all parties after the confirmation or appointment of any arbitrator and giving the decision-making power to the tribunal to join a consenting additional party, in effect eliminating the veto that each party could previously exercise to prevent the joinder of a willing third party. In deciding on the request for Joinder, “the arbitral tribunal shall take into account all relevant circumstances, which may include whether the arbitral tribunal has prima facie jurisdiction over the additional party, the timing of the Request for Joinder, possible conflicts of interests and the impact of the joinder on the arbitral procedure.”

Providing illustrative case studies on how the 2021 changes will mitigate challenges that parties and tribunals previously experienced, Mr. Di Pietro walked the audience through several situations that demonstrated how the restrictions on joinder found under the 2012 and 2017 Rules have resulted in inefficiencies. For example, in the case of a dispute involving an owner/operator of an LNG terminal as Claimant, Claimant had materially identical contracts allocating its storage capacity with two companies. Claimant brought an arbitration against Respondent for unpaid storage fees and then sought to join its other storage customer, Company X, contending that the three parties had a tripartite relationship. Because Respondent objected to the joinder and the tribunal had already been constituted, Company X could not be joined. Instead, the two arbitrations proceeded in parallel, with identical tribunals adjudicating essentially identical claims.

Under the 2021 Rules, the panelists explained, the tribunal would have been empowered to “take into account all relevant circumstances” and could have avoided the duplication of the proceedings by joining Company X earlier. The 2021 revisions thus strike a balance between promoting efficiency in the proceedings and reducing the risk of any award set-aside, including by requiring that a party joined after the composition of the arbitral tribunal accept the tribunal, and as the case may be, the Terms of Reference.

Espousing the perspective of arbitrating parties, Ms. Abrahamson characterized the introduction of Rule 7(5) as the most important change in the 2021 Rules and underscored how helpful removing the unilateral veto on joinder will be to corporate entities that are likely to face complicated disputes with multiple parties.

 

Consolidation

With respect to consolidation, Ms. Salomon explained that arbitrations could be consolidated under the 1998 Rules, but only in limited circumstances, which were expanded by the 2012 Rules. The 2021 Rules now explicitly allow for consolidation where all of the claims made in the arbitration arise from the “same arbitration agreement or agreements,” clarifying any doubts regarding the application of Article 10(b) to more than one arbitration agreements, when previously it could only be used when one arbitration agreement was being relied upon. The updated Article 10(c) further clarifies that it applies to claims not made under the same arbitration agreement or agreements. Thus, the changes to Article 10(b) address the situation where it is undisputed that all claims in Arbitrations A and B arise under the same arbitration agreements contained in Contracts Alpha and Beta. While under the current Rules, there would be a question of whether the claims in A and B arose under a single arbitration agreement, and therefore, whether the two proceedings could be consolidated, under the 2021 Rules, there is additional clarity regarding the permissibility of consolidation.

 

Multi-Party Arbitration

The panelists addressed the importance of considering multi-party arbitration from the outset. The panelists highlighted the importance of considering the possibility of multi-party arbitrations when negotiating complex transactions and ensuring that dispute resolution clauses be drafted intentionally. The panelists also discussed claimants’ ability to frame a multi-party arbitration from the outset of the proceeding, and the potential benefits to a claimant of bringing all claims against all parties in a single arbitration in the first instance, while recognizing that it is not always possible for the claimant to ascertain in the beginning the full scope of claims or all relevant parties. Moreover, because the 2021 Rules eliminate the requirement that all parties to an arbitration agree to a joinder after the confirmation or appointment of any arbitrator, claimants must be cognizant that respondents may have the ability to shape an arbitration after the confirmation or appointment of any arbitrator by joining additional parties that the claimant would not have named of its own volition.

 

Constitution of the Tribunal

The panelists discussed the introduction of Article 12(9) which allows the Court to appoint each member of the arbitral tribunal, notwithstanding any agreement by the parties on the constitution of the tribunal, in exceptional circumstances “to avoid a significant risk of unequal treatment and unfairness that may affect the validity of the award.” Ms. Filipic discussed a well-known case where the arbitration agreement provided for a five-arbitrator panel, with the four party-appointed arbitrators to be appointed by the four parties to a shareholder agreement. In that case, however, the interests of the parties were aligned in such a way so that following the text of the arbitration agreement would likely lead to unequal treatment of the parties. The Court ultimately relied on Article 42, which requires the Court and the tribunal to “make every effort to make sure that the award is enforceable at law,” and appointed all five members of the tribunal.  The panelists agreed that Article 12(9) effectively addresses such exceptional cases and ensures that the Court is able to balance party autonomy against ensuring the enforceability of the award.

 

Additional Innovations in the 2021 Rules

The panelists rounded out their discussion by highlighting several additional improvements in the 2021 Rules, including:

  • Articles 3, 4, and 5 now provide that paper copies are only required when a party specifically requests transmission by delivery against receipt, registered post or courier.
  • Article 11(7) now requires increased transparency regarding third party funding.
  • Article 22(2) now requires rather than permits the arbitral tribunal to adopt appropriate procedural measures.
  • Article 26(1) has been amended to reflect explicitly that the tribunal may decide – after consulting the parties and on the basis of the relevant facts and circumstances of the case – to conduct virtual hearings.
  • The threshold for the application of the Expedited Procedure Rules has been increased to US$ 3 million for arbitrations brought under arbitration agreements concluded on or after 1 January 2021.

 

Conclusion

The 2021 Rules introduce several amendments that are likely to be welcomed by arbitration practitioners as they enhance the efficiency, flexibility, and transparency of ICC-administered arbitrations. The most noteworthy amendments in this respect include the changes regarding joinder and consolidation, which facilitate and clarify the management of complex arbitrations involving multiple parties on the basis of multi-layered contractual arrangements. The 2021 Rules on consolidation of claims should prove particularly helpful in multi-party arbitrations arising out of several interrelated contractual instruments.

 

The views expressed in this article reflect those of the authors and not necessarily those of Cleary Gottlieb Steen & Hamilton LLP or any of its clients.

Recordings for all New York Arbitration Week 2020 events are available here, and Kluwer Arbitration Blog’s full coverage is available here

 

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New York Arbitration Week Revisited: Stronger Together: Colloquy on Diversity and Perseverance

Kluwer Arbitration Blog - Fri, 2020-12-04 00:08

ArbitralWomen promotes women and diversity in many different ways. We share statistics that reflect the incremental progress toward gender parity in dispute resolution. We share news about the professional achievements and qualifications of women so that the international arbitration community can more readily identify well-qualified women to serve as arbitrators, mediators, experts, and lead counsel. We publish interviews of leading women to make accessible the journeys of female leaders and how they succeeded—against the odds.

But reading about someone’s journey is different from hearing it live. Therefore, for New York Arbitration Week 2020, ArbitralWomen organised an event focused on the theme ‘Stronger Together: Colloquy on Diversity and Perseverance’ that featured two keynote presentations by Mélida Hodgson and Caline Mouawad, in which each shared their respective professional and personal journeys as multicultural female citizens ‘of the world’. The video recording can be found here. Each woman’s journey is poignant and inspiring. This post shares some highlights of each keynote and offers advice to women building careers in international arbitration.

 

Mélida Hodgson’s Keynote

Mélida Hodgson began by emphasising that perseverance is key. She summarised her path with four epithets ‘outsider’, ‘invisible me’, ‘what is not mine is not mine’, and ‘just do it!

Mélida described her journey as a multicultural woman in international arbitration as one of ‘constant adaptation.’ An immigrant from the East Coast of Nicaragua where the Moravian Church was central to her cultural experience as a child, Mélida explained that this background defined her and equipped her to manage life as a diverse woman in the United States. Mélida observed that she has always been an outsider, as an immigrant, a female, and with brown skin. She did not have steady professional mentors and emphasised the importance of mentors, sponsors, and allies to progress diversity.

Mélida first observed efforts to promote diversity when she was a junior associate at a large law firm. Thereafter, she left private practice and held government roles at the US Department of Justice and the Office of the US Trade Representative, where she handled WTO cases, NAFTA arbitrations, and negotiated bilateral investment treaties. She observed less focus on diversity in government than in private practice.

When Mélida returned to private practice and even since, she felt some colleagues looking past or through her – disappointingly what she described as the ‘invisible me’ syndrome. Even with her unique experience and qualifications to handle treaty arbitrations, she felt unwelcome by the ‘arbitration club’, which she attributed to both conscious and unconscious bias. Nonetheless, Mélida persevered. She accepted that life is not fair —and that ‘what is not mine is not mine.’ She was grateful for any opportunities and worked intensely to make the most of them to build her practice. She chose not to dwell on obstacles and instead to focus on successes and steps forward. Her overwhelming message was that, notwithstanding any challenges and obstacles, ‘just do it!

With hard work and perseverance, Mélida succeeded in advancing to the top of the international treaty arbitration field. She is head of the New York International Arbitration Practice of Jenner & Block, recognized in numerous directories, and recently elected Vice Chair of the International Chamber of Commerce (ICC) Institute of World Business Law, effective 1 January 2021.

However, Mélida has never taken her success for granted and she invests substantial energy toward making the path for others less difficult. She urges that promoting women and diversity at every level starts with each of us and that we must all contribute to achieve progress. If you are an ally of women and diverse people, recruit and hire women and diverse people. If you are a client that wants to progress diversity, select diverse counsel, and appoint diverse arbitrators. Mentor and sponsor diverse talent. Mélida highlighted the importance of educating clients on diversity issues and supporting clients that are seeking diverse counsel teams and teams led by diverse members.

In closing, Mélida said that it was important to remember to be kind to each other and to support each other. With the support of allies, sponsors and the members of your community, ‘just do it’ as best you can!

 

Caline Mouawad’s Keynote

Caline Mouawad began on a personal note, stating: ‘Everything I needed to know to build a career in international arbitration, I learned from my father.’ Caline described her father as an inspirational figure who ‘did not fear change or sacrifice’, safely moving the family out of Lebanon to Paris during the Lebanese Civil War and later at the height of the hostage crisis in Beirut to Houston, Texas. Caline observed that her father was ‘unsentimental’ about such difficult moves because ‘he knew it was necessary for his five daughters’ futures.’ She described her father as fiercely traditional and patriarchal, yet he raised five daughters who are all extraordinarily accomplished in their respective professions doing their best to balance personal and professional demands.

Her father distilled the sum of his life experiences into three key pieces of advice that have been instrumental and path-determinative in Caline’s personal and professional journey. First: ‘get your education.’ This encompassed not only formal academic education, but also the informal school of life. He instilled a desire to learn, a refusal to stagnate, and a willingness to take chances and embrace change. When Caline was accepted to Harvard Law School, he did everything he could to help, from organising her financial aid application documents to moving Caline’s personal items into her dormitory room. Caline derived inspiration from her father to have the courage to seek a 1L summer internship in Paris, where she ‘had the opportunity to work for Laurie Craig, one of the deans of international arbitration.’ Little did she know that this summer internship would decide the course of her career. After law school, she joined Simpson Thacher in New York. Later she moved to Salans in Paris and then New York, and eventually joined King & Spalding in New York, where she spent ten years before recently joining Chaffetz Lindsey in New York. These life experiences and the relationships she developed enriched her personally and professionally – a mix of the formal and informal ‘education’ to which her father referred.

Second, ‘be your full, complicated self.’ Caline struggled to reconcile her identity and sense of belonging – was she Lebanese, French, American, Texan? She asked her father for advice on how to prioritize these different allegiances and how he dealt with the different parts of his identity. Her father’s answer was simple: ‘I am a citizen of the world.’ He explained that Caline was privileged to belong to all these groups – that it was a strength and competitive advantage. It took time for Caline to fully appreciate this advice. Ultimately it became her license to be her ‘full, complicated self’ and an asset.

Being her ‘full, complicated self’ meant being a New York lawyer who is involved in her Lebanese Catholic Church, spends every Christmas in Texas with family and friends, is married to an American, speaks French to her children, Arabic to her mother, and feels at home in her 3,000-people hometown in the mountains of Lebanon. She described these as ‘but a few of the ways that I have the privilege, every day, of being multi-dimensional, of living out this global citizenship without having to choose an identity to the exclusion of others.’ She naturally gravitated to international arbitration.

Third, ‘follow your path with conviction’ and trust yourself and your chosen path. After having her first child, Caline chose to return to the practice of law on a reduced hours schedule, an ‘unconventional’ choice at the time. Her firm supported her and she found her rhythm. She maintained a reduced hours schedule as her career advanced, even though it meant she made partner later than her peers. It was not always easy to manage, but she was determined to follow her ‘path with conviction’ and ultimately prevailed.

Now Caline is a recognised leader in international arbitration. In addition to serving as counsel in arbitrations conducted in English and French administered by the leading institutions, she is on the ICDR and AAA panel of arbitrators, serves as Vice-Chair of the Steering Committee of the ICC Commission on Arbitration and ADR and is the former Chair of the International Law Committee of the New York City Bar Association.

In closing, Caline noted that in all her personal and professional choices, she has tried to live up to her father’s expectations and hopes for her. His advice has been a beacon to her. She continues to follow his advice as ‘a guiding light’ in her continuing arbitration journey. She concluded, ‘my hope is that it may offer you some light as well.

 

Concluding Remarks and Inspired Impressions

I knew there was a chance as a moderator I might tear up during the live event, having seen Mélida’s and Caline’s outlines beforehand. I shared that concern right before the live broadcast, and Caline aptly replied, ‘There’s no crying on the baseball field!

Attendees were empowered by Mélida’s and Caline’s candid narration of their respective journeys. Some are sharing the video with their daughters.

I asked Caline to share more about her reduced hours of experience in private practice. She made every effort to get home in the evenings to spend time with her children, hopping back online to work again once the children were in bed. But extensive business travel made it challenging. She valued her support network to care for her children while away.

Both Mélida and Caline observed it is possible in the ‘virtual world’ to attend events without travel, a silver lining of the pandemic. They encouraged taking advantage of virtual programming and networking as much as possible.

We all look forward to gathering in-person again. Until then, we must make the most of virtual platforms to expand our professional connections and learn new skills to be among the well-qualified women in the field. The ArbitralWomen member directory is a searchable resource to find talented women leaders in dispute resolution. Mélida and Caline are two shining examples.

 

Recordings for all New York Arbitration Week 2020 events are available here, and Kluwer Arbitration Blog’s full coverage is available here

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New York Arbitration Week Revisited: Non-Signatories Before And After Arbitration, Closing In On An International Approach?

Kluwer Arbitration Blog - Thu, 2020-12-03 00:08

Day three of New York Arbitration Week 2020 featured a panel discussion on non-signatories in arbitration sponsored by the Chartered Institute of Arbitrators New York Branch and the New York International Arbitration Center (NYIAC). The session was broken into two parts: compelling arbitration (before arbitration) and enforcing an award (after arbitration), each framed by the relevant Articles of the New York Convention. This post highlights key takeaways from both panels and provides additional thoughts.

 

Panel One: Compelling Arbitration By A Non-Signatory

The first panel session was led by Eric A. Schwartz, an independent arbitrator and co-chair of the NYIAC Global Advisory Board. The panelists were:

  • Benjamin G. Davis, Professor, University of Toledo College of Law
  • Teresa Giovannini, Senior Counsel, LALIVE (Geneva)
  • Richard Kreindler, FCIArb, Partner, Cleary Gottlieb Steen & Hamilton (Frankfurt)

 

A Consistent Outcome, But A Variety of Approaches

The discussion was framed by the recent U.S. Supreme Court decision in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020) (which was previously discussed on the Blog). After being sued for damages related to the failure of motors it provided, GE Energy Power Conversion France SAS, Corp.—a subcontractor—moved to compel arbitration pursuant to the main construction contract as a non-signatory under the domestic doctrine of equitable estoppel. The Supreme Court ultimately held that the New York Convention does not conflict with the domestic equitable estoppel doctrine thereby allowing a non-signatory, like GE Energy Power Conversion France SAS, Corp., to enforce an arbitration agreement even though it was a non-signatory.

Although the panelists all agreed that most courts would ultimately compel arbitration in such a circumstance, they analyzed the approaches of different countries which differ considerably.  Article II does not explicitly state that non-signatories can enforce arbitration agreements. This creates a vacuum, which has been filled by a patchwork of domestic doctrines and substantive law.

Professor Davis began by framing the pathway to arbitration as the Autobahn, with the court’s role as gatekeeper. While many cases—such as those between two signatories—are allowed an express lane to arbitration by U.S. courts, others—such as Outokumpu—face a stoplight, delaying traffic to arbitration by analyzing substantive claims such as equitable estoppel. Prof. Davis was concerned that the Supreme Court’s decision creates a rabbit hole within the New York Convention which will result in further delays to reaching arbitration. This framework would give each subcontractor a route to arbitration, adding cost and uncertainty in settlement discussions. Prof. Davis thus argued the need to preserve an “express lane” for international commercial arbitration clauses in which the court was more of a “gate opener”, while allowing greater court involvement in a “local lane” for domestic arbitrations.

Mr. Kreindler offered a German perspective, which is apt given that Germany was both the seat and the choice of substantive law in Outokumpu. Mr. Kriendler explained that the outcome of Outokumpu would have been similar had a German court been asked to compel arbitration under the same circumstances. German courts have interpreted Article II to allow enforcement of arbitration agreements at the request of a non-signatory, with the operative question being whether the signatories had an intent to extend the agreement to non-signatories. Further, under German case law and commentary, Article VII(1) does not limit a court’s analysis to domestic law. Thus, in cases such as Outokumpu, a German court could apply a foreign doctrine—such as equitable estoppel—that is more permissive in extending jurisdiction to a non-signatory, even if that doctrine was disfavored by German courts.

Finally, Ms. Giovannini concluded with competing European perspectives on the Outokumpu question. The Swiss Federal Supreme Court has held that Article II does not prevent extension to third parties. The court applied Swiss substantive law, finding that a clause can bind individuals who have not signed the contract. Comparatively, the English and French courts would look to the law of the seat, rather than substantive domestic law. Regardless, most courts would find that Article II is not a barrier and extend the arbitration clause’s jurisdiction to non-signatories.

The key takeaway from this panel was that courts around the world consistently find that Article II of the New York Convention is not a barrier to enforcing arbitration agreements by or against non-signatories to the agreement. It is rather a question of domestic law that provides the vehicle to enforcing an arbitration agreement in relation to a non-signatory. This is where courts diverge in their approach.

 

Patchwork Doctrines Remain A Barrier

Though courts are consistent in not interpreting the New York Convention as a barrier to binding non-signatories in an arbitration, the reliance on domestic legal doctrines as the pathway to compelling arbitration has made for a bumpy ride. An expanded role for courts as gatekeepers leads to delay, and therefore greater cost. On the other hand, leaving this patchwork of doctrines to arbitral tribunals creates a landscape in which substantive local doctrines are interpreted by international arbitrators with little to no familiarity with this body of law. Either way, the lack of consensus in doctrine for allowing a non-signatory to compel arbitration remains a problem, and one that still demands an international approach—such as a uniform doctrine of consent—if parties are to avoid getting stuck in the traffic jam of traditional litigation.

 

Panel Two: Enforcing Arbitral Awards Against Non-Signatories

The second panel session focused on enforcing awards against non-signatories who participated in the arbitration or against those who first become involved at the award enforcement stage. The panel was led by Nancy M. Thevenin, FCIArb, an international arbitrator, Adjunct Professor at St. John’s University School of Law, and General Counsel at the United States Council for International Business (USCIB). The panelists were:

  • Teddy Baldwin, Partner, Steptoe & Johnson LLP
  • Victoria Shannon Sahani, Associate Dean of Faculty Development and Professor, Sandra Day O’Connor College of Law at Arizona State University
  • William H. Taft V, Partner, Debevoise & Plimpton LLP

 

U.S. Patchwork of Laws Leaves Open Question For Parties

The panelists agreed that a non-signatory could be bound by an arbitration, in this case after a proceeding. This frequently arises in cases where a party seeks to hide its assets to prevent enforcement of the award. However, unlike the conclusions regarding non-signatories reached by the first panel, the patchwork of laws does not always lead to the same outcome.

Mr. Taft illustrated the U.S. approach to enforcement through a recent U.S. case. In CBF Industria de Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58 (2d Cir. 2017), the U.S. Court of Appeals for the Second Circuit, after amending its previous decision partially due to the New York City Bar Association’s amicus curiae brief, held that the enforcement against non-signatories was governed by the law of the forum, under such doctrines as alter ego, piercing the corporate veil, and vicarious liability.

Professor Sahani next provided a snapshot of the framework of U.S. laws affecting the analysis of enforcing against a non-party. Normally, a U.S. court would find that, under Article V, a non-signatory is not bound by an award. However, Federal Rule of Civil Procedure 17—which is applicable as forum law—allows the court to apply an equitable remedy, such as piercing the corporate veil, instead of dismissing a claim against a non-party in interest. Prof. Sahani suggests that when facing fraud such as asset hiding, this could open the door to enforcement against non-signatories.

Mr. Baldwin in turn focused on the application of a claim for piercing the corporate veil when the non-signatory is a sovereign government. This scenario involves the Foreign Sovereign Immunities Act (FSIA), which generally bars a U.S. court’s jurisdiction over a foreign sovereign. However, FSIA has an exception in cases confirming an award pursuant to an arbitration agreement. If, at bottom, a party can show that the related entity is so controlled by the sovereign that it would be considered an agent of the state, then it may be entitled to the exception under FSIA. Mr. Baldwin explained that courts often interpret this like the doctrine of alter ego, which allows for limited pursuit of sovereign non-signatories.

 

The Strategic Choice

Parties are then left with a choice: attempt to join non-signatories to the arbitration proceeding or wait to seek enforcement of the award against the non-signatory (non-party to arbitration).  Because the U.S. is not bound by a finding of the arbitral tribunal that the non-signatory is a proper party and because the patchwork legal framework is fraught with uncertainties, it appears that in most cases parties would benefit by taking two bites at the apple: attempting during the proceeding and if denied, taking a second chance during enforcement.

 

Conclusions

An international principle seems to be emerging from these discussions: the New York Convention will not be a barrier to binding a non-signatory to an arbitration agreement or enforcing an arbitral award against it. However, the shifting landscape of domestic principles that are then used as a pathway forward in compelling or enforcing against a non-signatory can provide strategic advantages to some and costly delay to others. This inconsistency in substantive approach remains a challenge, and one that calls out for an international consensus.

 

Recordings for all New York Arbitration Week 2020 events are available here, and Kluwer Arbitration Blog’s full coverage is available here

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