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Rescuer Syndrome and how it hinders conflict resolution

Communication and Conflict Blog - Mon, 2019-02-11 12:31
The Rescuer Syndrome - the main obstacle to being able to provide effective conflict resolution support.

Pakistan tries to reopen corruption defence

Pakistan has asked an ICSID tribunal to revise an US$800 million award in favour of a Turkish energy company in light of what the state says is new evidence to support its arguments that the underlying...

Albania defeats claim over privatisation vouchers

UPDATED WITH LINK TO AWARD: An ICSID tribunal has declined jurisdiction over a claim concerning Albania’s alleged failure to honour vouchers issued during a privatisation programme in the 1990s. In...

Challenges in Front of the Successful Evolution of the FDI Protection Regime: EFILA Annual Conference

Kluwer Arbitration Blog - Mon, 2019-02-11 01:07

Ivaylo Dimitrov

The 4th EFILA Annual Conference, held in London on 31 January 2019, offered a lively discussion about the future of the European investment policy among the EFILA’s distinguished guests. As expected, the focal topics were the ISDS reform, the EU proposal for Multilateral Investment Court (“MIC”), and the way forward. The MIC proposal was the subject-matter of the Keynote Speech delivered by Colin Brown (Directorate General for Trade, European Commission (“EC”)), and the subsequent panel debate moderated by Arif H. Ali (Dechert), which included John Gaffney (Al Tamimi & Co), Mélida Hodgson (Foley Hoag), Veronika Korom (ESSEC Business School Paris), and Saadia Bhatty (Gide Loyrette Nouel) as speakers. Nonetheless, the clash between the world of investment arbitration and the EU investment policy naturally came across as the leitmotif of the other panels as well. The following post examines certain aspects of the EU proposal and its possible loopholes in light of other recent developments, such as (i) the unsuccessful enforcement of the ICSID award in Micula v. Romania in Sweden, (ii) the EU Member States’ Declaration on the legal consequences of Achmea, and (iii) the AG Bot Opinion in Opinion 1/17 on the compatibility of CETA’s Investment Court System (“ICS”) with EU law.

 

EU MIC Proposal

Much has been said about the ongoing ISDS reform and, in particular, the EU MIC proposal (see Kluwer Arbitration Blog posts, for instance, here, here, and here). At the dawn of 2019, Nikos Lavranos noted that 2019 might prove to be the year of the EU’s “Big Harvest” with respect to its ISDS aspirations and that its first assessment will take place at the EFILA Annual Conference. While it is too early to comment on the first prediction, the second one was accurate. Whereas the EU MIC proposal has many strands, almost all of which were vigorously debated by the panellists, I will here concentrate on a couple of them, which come to show that the EU might not be aiming at completely dissolving the current system. These are: (i) the dichotomy between substantive rules of protection and dispute resolution mechanism, and (ii) the enforcement of investment awards/decisions.

First, it seems that the EU does not currently take issue with the substantive rules of investors’ protection in the BIT network. Indeed, there can hardly be raised an objection against rules prohibiting discrimination and expropriation, as well as rules ensuring fair and equitable treatment of investors. This was recently underscored by the Submission from the EU and its Member States to the UNCITRAL Working Group III on ISDS reform of 18 January 2019:

…[T]he precise scope of jurisdiction of the standing mechanism and the substantive rules that it would apply are determined by the underlying treaties. This implies that the substantive rules that the standing mechanism would apply may evolve with the underlying treaty rules. (emphasis added)

The EU’s sympathy for the standards of investor protection is further evidenced by its recent investment treaty practice — i.e. CETA, EU-Vietnam IPA, EU-Singapore IPA — which endorses the well-established standards of investment protection subject to modifications providing more regulatory space for the sovereigns.

Second, as clarified during the conference, the EU considers the effective enforcement of awards/decisions vital. Thus, in the EU’s view, the domestic review at the enforcement stage does not make sense. Rather, the EU will endorse an ICSID-like enforcement regime at an international level which would be provided for in the future convention establishing the MIC mechanism. As pointed out in the recent EU Paper, this is in line with the idea of having a two-tier system with a first-instance court and appellate tribunal with the latter exercising the function of annulment or set-aside currently vested with the ICSID annulment committees and, respectively, national courts. With respect to enforcement in States which are not parties to the conventional regime, the EU would opt for the application of the 1958 New York Convention.

Apparently, the crux of the EU’s reformist idea concerns predominantly the institutionalization of the system and the introduction of a permanent body which can address the perceived flaws of the investment arbitration, namely the lack of (i) predictability and certainty, (ii) deliberative process, (iii) independence and impartiality safeguards, and (iv) costs and duration cap.

 

Micula Enforcement in Sweden

Against this backdrop, on 23 January 2019, the Nacka District Court in Sweden refused to enforce the ICSID Award in the Micula v. Romania. This is one of the most interesting episodes in the long-running saga involving the Micula brothers, Romania, the EC, and various enforcement courts. As pointed out by another commentator, the Micula case foreshadowed the clash between the investment arbitration world and EU law long before Achmea. But unlike Achmea, which concerned a battle for dispute settlement supremacy, Micula presented a frontal collision between substantive rules, namely the FET provision of Sweden-Romania BIT, and EU rules on State Aid. The first one prevailed in the ICSID arbitration where the majority of the tribunal decided that Romania breached the BIT by revoking certain tax and customs incentives notwithstanding the obligations towards EU arising out of the State’s accession. Nonetheless, the conflict recurred at the post-award stage as in March 2015 the EC decided that any payment of the compensation awarded by the ICSID tribunal would be incompatible with the EU law and would constitute illegal State aid thus effectively foreclosing Romania from respecting the award.

The Swedish court sided entirely with the EU law and declared that enforcing the award would run counter the principle of sincere cooperation established in the CJEU case law which obliges Member State courts to respect 2015 EC decision and decline enforcement.  This is a particularly powerful message by the Swedish court if one takes into account the fact that enforcement proceedings concerned an ICSID award. Unlike enforcement under the New York Convention, the ICSID Convention, to which Sweden is a Contracting State since 1967, provides for a self-contained enforcement regime which allows no review by domestic courts. Pursuant to Art. 54 ICSID Convention, each Contracting State shall recognise and enforce an ICSID award as if it were a final judgment of a court of that State.

 

Challenges Ahead

The brief remarks set out above demonstrate that States, regional organisations, and think tanks will face significant challenges in shaping the new regime of FDI protection and dispute settlement.

A. Substantive Conflicts

First, achieving predictability and certainty of the outcome is not premised solely on an effective dispute settlement mechanism. Even the most objective and knowledgeable pool of adjudicators can produce inconsistent results if there is no clarity with respect to the applicable law. As evidenced by Micula, the confrontation between EU law and investment treaty arbitration is not limited to issues of procedural character, but finds its roots in the conceptually different nature of the two systems. Thus, establishing a clear and uniform legal framework which is able to reconcile both systems is crucial for successful reform. In the intra-EU context, the obstacles seem to be the lack of uniform substantive rules on the protection of foreign investors. This lacuna is all the more problematic in light of the recent Declaration of 15 Member States on the legal consequences of the CJEU Judgment in Achmea which evidences, inter alia, Member States’ firm intention to terminate their intra-EU BITs. As suggested by Nikos Lavranos, one possible measure to remedy this situation could be the adoption of an EU regulation on investment protection. Alternatively, to the extent that substantive rules on investor protection remain in force as between the Member States, the relevant stakeholders should come up with an effective mechanism to resolve conflicts between substantive rules preventing thereby Micula-like scenarios. In this respect, seeds of reasonableness could be found in AG Bot Opinion with respect to the compatibility of CETA’s ICS with EU law, who pointed out that “the autonomy of the EU legal order is not a synonym of autarchy” (para. 59). This is equally valid with respect to the EU’s external investment policy and possible conflicts between treaty provisions and EU law. As set out by one panellist during the EFILA Conference, the coherence between MIC and EU law should be based on a set of key principles, among which: (i) respect for the autonomy of EU law, (ii) exclusive application of investment treaty law as interpreted by the rules of international law, rather than EU law, (iii) sufficient safeguards for the exclusive jurisdiction of CJEU, (iv) the binding power of CJEU’s interpretation of EU law, and (v) the preservation of the role of national courts in the dialogue under Art. 267 TFEU.

B. Enforcement

Leaving the question of enforcement of the MIC decisions under the New York Convention aside, the Micula enforcement saga proves that the establishment of an effective self-contained and supranational enforcement system is dependent on having uniform and coherent legal framework of substantive protection, as well as means for resolution of conflicts between various set of rules operating on the international level. Hopefully, negotiators, policymakers, and all relevant stakeholders will quickly grasp the problems and will successfully address the challenges in shaping a new just and fair regime of foreign investment protection.

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Listening and its importance in effective conflict resolution

Communication and Conflict Blog - Sun, 2019-02-10 16:54
Effective listening - It's not just down to eye contact and nodding!

That we don't interrupt one another - Effective Communication

Communication and Conflict Blog - Sun, 2019-02-10 16:47
That we do not interrupt one another, Principle 2 of the Principles of Effective Communication, mediation, mediators, Voltaire, Stephen R.Covey, Andrew G.Marshall

Treat each other with respect

Communication and Conflict Blog - Sun, 2019-02-10 16:40
That we treat each other with respect, Principle 1 of the Principles of Effective

Could a Reduction in a State’s Income Violate Public Policy – A View on Turkey?

Kluwer Arbitration Blog - Sat, 2019-02-09 22:04

Pelin Baysal and Bilge Kağan Çevik

The Public Policy Exception as an Unruly Horse

There is an ongoing quest for a uniform application of the New York Convention. However, the interpretation of the exceptions to enforcement still varies. Albeit applying the same provisions, national courts continue to adopt different approaches to the enforcement of foreign arbitral awards. This is particularly true where the public policy exception is raised under Art. V(2)(b).

Considerable debate exists as to what the public policy is. To the extent it is capable of definition, the public policy is found to embrace nebulous concepts such as a state’s most basic notions of morality and justice. Due to its vague and unpredictable application; the public policy described by an English judge as “a very unruly horse, and when once you get astride it you never know where it will carry you.”1)Richardson v Mellish [1824]2Bing229, 252. jQuery("#footnote_plugin_tooltip_5643_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Driven by the motivation of taking advantage of the ambiguous nature of the public policy, the parties often raise the public policy exception where all other arguments for setting aside or refusing of the enforcement of the foreign arbitral awards have failed. As described by one national court: “the public policy ground is often invoked by a losing party raised to frustrate or delay the winning party from enjoying the fruits of a victory.”2)A v R [2009]HKCFI 342. jQuery("#footnote_plugin_tooltip_5643_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Partially in reaction to this, in many developed jurisdictions, courts have taken very restrictive and demanding views of public policy. Indeed, some national courts acknowledged that even when their domestic rules were inconsistently applied in arbitration, this was not in itself enough to refuse enforcement provided, i.e., that international public policy was not violated.

On the other hand, the unruly horse has not been fully tamed in some jurisdictions. In those countries, the inconsistent or broad application of the public policy exception may cause a severe infringement of the legal expectations of the parties to the arbitration and significantly decrease those countries’ reliability on legal predictability.

 

Unruly Horse is not Fully Bridled in Turkey, Especially when the 13th Civil Division of the Turkish Court of Cassation is in the Saddle

In Turkey, the Turkish Court of Cassation’s interpretation of the public order has changed throughout the years and embraces a trend towards a pro-arbitration approach. Nevertheless, it is still not possible to conclude that the task is complete and that the unruly horse of public policy is fully controlled in Turkey.

Previously, the Turkish Court of Cassation was using the public policy exception as a gateway to examine whether the tribunals correctly applied Turkish law or not. Although this appeal-like role ceased after the entry into force of the International Arbitration Act in 2001, the Turkish Court of Cassation continued to use the public policy exception as a tool to get “desired results”. Indeed, in its previous decisions, the Turkish Court of Cassation found that the ICC arbitrations’ scrutiny process violated Turkish public policy, and as a result refused to enforce arbitral awards with the ICC cache. Similarly, despite the parties having agreed that the seat of arbitration would be Switzerland and that Turkish law would be applicable, the Turkish Court of Cassation refused to enforce the final award stating that the “Turkish law” term also covers the Turkish procedural law, and the tribunal should have applied the Turkish procedural law as opposed to the Swiss procedural law.3)Court of Cassation 15th Civil Chamber, File No:1617, Decision No:1052 dated 10.3.1976. jQuery("#footnote_plugin_tooltip_5643_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

This perception has been changing, and Turkey has been transforming into an arbitration-friendly country thanks to the new pieces of legislation and change in the national courts’ perception of arbitration. This is especially evident after the Turkish Court of Cassation’s General Assembly on Case-Law Unification decision of 2012, in which it concluded that the lack of reasoning in a court decision or an arbitral award does not constitute a violation of Turkish public policy.4)Court of Cassation, General Assembly on Case-Law Unification, File No:2010/1, Decision No:2012/1 dated 10.2.2012. jQuery("#footnote_plugin_tooltip_5643_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Current predominant practice of the Turkish Court of Cassation suggests that there is a violation of the foundations of Turkish public policy on enforcement of the arbitral awards only in cases where the award is contrary to the principles that underpin the public or commercial life of Turkey, as well as in cases where it is contrary to the fundamental notions of justice. In this context not every violation of the mandatory legal rules can be classified as a violation of the public policy.

However, this arbitration-friendly approach is apparently not endorsed by the 13th civil chamber of the Court of Cassation. The 13th civil chamber of the Court of Cassation is still continuing to abuse the public policy exception to not to enforce decisions against Turkey. In fact, the 13th civil chamber of Court of Cassation consistently sets aside, or refuses the enforcement of foreign arbitral awards, by arguing that “the reduction in an income of the State would clearly violate the economic balance and public policy.”5)Court of Cassation, 13th Civil Chamber, File No:2015/16140, Decision No:2017/3322 dated 16.3.2017. jQuery("#footnote_plugin_tooltip_5643_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

One of the most popular decisions of the 13th civil chamber of Court of Cassation was dated back to 2012. The dispute was related to a concession agreement concluded between a GSM operator and the Turkish Information Technologies and Communication Authority (“TITCA”). The tribunal concluded that the discounts provided to distributors on wholesales were required to be excluded from the base of the shares. Accordingly, TITCA approached the Turkish courts to set aside this award due to a public policy infringement. The Turkish Court of Cassation held that even though the shares stipulated in the concession agreement did not constitute a tax per se, but that they were an important and continuous source of income for the State. Therefore, the reduction in such an income of the State would clearly violate both economic balance and public policy.6)Court of Cassation, 13th Civil Chamber, File No:2015/16140, Decision No:2017/3322 dated 16.3.2017. jQuery("#footnote_plugin_tooltip_5643_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Although this decision was believed to be an example of an unfortunate and singular decision, the 13th civil division of the Turkish Court of Cassation endorsed the same approach also in 2014, 2015, 2016, and 2017. In those decisions, the 13th civil division of Turkish Court of Cassation either set aside the arbitral awards by arguing that “the reduction in an income of the State would clearly violate the economic balance and public policy”, or overturned the decision of the first instance court by suggesting the first instance court to undertake an evaluation whether such an award results in the decrease of the income of the State and decide accordingly.

In line with the work distribution of the civil chambers of the Turkish Court of Cassation, if the dispute is related to

  1. water, electricity, natural gas, phone and internet subscription agreements,
  2. waste water prices,
  3. joint ventures,
  4. invalid contracts, or
  5. strict liability provisions,

set aside and/or recognition and enforcement actions are to be brought before the 13th civil division of the Turkish Court of Cassation. Accordingly, if one of the disputing parties is a state and the award requires a reduction in the income of that state, the recognition and enforcement of the award will likely be rejected, or the award could be set aside.

 

Suggestions and Future Perspective

The decisions of the 13th civil division of the Turkish Court of Cassation are a reminder that dealing with the public policy exception continues to be a struggle for the Turkish courts. There is no doubt that the decisions of the 13th civil division of the Turkish Court of Cassation are contrary to the nature of the arbitration. These decisions suggest that if an arbitral award touches in the economic gains of a state, it violates its public policy and it is either to necessary to set it aside or deny the enforcement of it.

To circumvent the vexing decisions of 13th civil chambers of the Turkish Court of Cassation, the parties might refer their disputes to ICSID arbitration rather than other arbitration institutions and/or to ad hoc arbitration. As widely known, the ICSID awards are directly enforceable in contracting states and there is no recourse available to national courts in ICSID arbitrations.

Otherwise, there is a risk that the final award would not be enforced or it would be set aside by the 13th civil division of the Turkish Court of Cassation. Investors and the arbitration practitioners are eagerly waiting with fingers crossed for one of the first instance courts which will insist on its decision and try to convey the issue to the General Assembly of the Turkish Court of Cassation to finally resolve the issue.

Nevertheless, the re-organisation of the structure of the Turkish Court of Cassation to establish a separate civil division specialised on international arbitration law is under consideration. If this happens, it would avoid any incompatibility among different chambers of the Turkish Court of Cassation, and would make Turkey an even more arbitration-friendly jurisdiction. As an English judge said in response to his distinguished predecessor’s observations: “With a good man in the saddle, the unruly horse can be kept in control.”7)Enderby Town Fc ltd v. Football Association [1971] Ch 591, 606-7 CA. jQuery("#footnote_plugin_tooltip_5643_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5643_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

References   [ + ]

1. ↑ Richardson v Mellish [1824]2Bing229, 252. 2. ↑ A v R [2009]HKCFI 342. 3. ↑ Court of Cassation 15th Civil Chamber, File No:1617, Decision No:1052 dated 10.3.1976. 4. ↑ Court of Cassation, General Assembly on Case-Law Unification, File No:2010/1, Decision No:2012/1 dated 10.2.2012. 5, 6. ↑ Court of Cassation, 13th Civil Chamber, File No:2015/16140, Decision No:2017/3322 dated 16.3.2017. 7. ↑ Enderby Town Fc ltd v. Football Association [1971] Ch 591, 606-7 CA. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Decisions of the Swiss Federal Supreme Court in 2018: Part I

Kluwer Arbitration Blog - Sat, 2019-02-09 04:00

Petra Rihar

This is the 1st part of the report highlighting the most significant arbitration-related decisions of the Swiss Federal Supreme Court (the “Supreme Court”) published in 2018.

Consent to Arbitrate

In two decisions, the Supreme Court dealt with the validity of an arbitration agreement under Swiss law. It set aside both awards – two of rather rare cases in which an appeal was granted.

In the decision 4A_150/2017 of 4 October 2017, published on 19 January 2018, the Supreme Court set aside a partial award, holding that the parties did not consent to submit to arbitration. The dispute arose between two insurance companies which, in the context of a reinsurance arrangement, entered into several agreements. Whilst the other agreements contained an arbitration clause, the retrocession agreement, on which the claim was based, provided for jurisdiction of state courts. Confirming the principle of consent in arbitration, the Supreme Court held that the interpretation of an arbitration agreement follows the general principles of contract interpretation, the decisive factor being the concurrent actual will of the parties. Where no such concurrent actual will exists, the agreement must be interpreted according to the principle of trust. When interpreting an arbitration agreement, it must also be borne in mind that the renunciation of a state court severely restricts the possibilities to appeal. Consequently, the will to depart from the state court jurisdiction cannot be easily assumed and must be clearly expressed by the parties.

Following the same principles, in the decision 4A_432/2017 of 22 January 2018, published on 26 February 2018, the Supreme Court set aside a CAS award. The dispute arose from an exclusive brokerage agreement between a footballer and his agent, who sued the footballer for payment of brokerage compensation. Whilst the dispute resolution clause in the brokerage agreement contained a reference to AFA and FIFA as “national and international bodies”, it contained no mention of an arbitral tribunal, but rather submitted the parties to the jurisdiction of the state courts in the “Comercial de Capital Federal, Republica Argentina”. Applying the principle of trust, the Supreme Court found that the tribunal had wrongly declared itself competent to decide the dispute as the dispute resolution clause did not contain a clear expression of the parties’ will to derogate from the state court jurisdiction.

The Scope of an Arbitration Agreement

In the decision 4A_583/2017 of 1 May 2018, published on 6 June 2018, the Supreme Court dealt with the objective scope of an arbitration agreement contained in a mandate agreement dated 2 July 1997 (“Mandate”), in a dispute between a foundation and an attorney. Whilst the foundation requested the return of a share certificate, the attorney claimed retention right on the certificate to secure outstanding payments under the Mandate and under other agreements. In an interim award, the tribunal affirmed its jurisdiction to hear all claims for outstanding payments as well as the request for the return of the share certificate. The attorney appealed against this award arguing that the tribunal was competent to assess his claim for outstanding payments under the Mandate, but not his claims not having their basis in the Mandate. The Supreme Court found that the parties did not actually agree on the objective scope of the arbitration agreement. It, therefore, interpreted the agreement in accordance with the principle of trust, thereby assuming that the parties did not want a division of legal process, but rather a comprehensive jurisdiction of the arbitral tribunal. The Supreme Court held that the jurisdiction of a tribunal competent for disputes arising out of a contract also included the assessment of the opposing party’s retention claims, provided that these claims had a sufficiently close connection with the object of retention, i.e. the share certificate. It was thus not necessary that the retention claims had their basis in the Mandate.

When deciding on the validity of an arbitration clause, the Supreme Court requires a clear expression of the parties’ will to derogate from the state court jurisdiction. Once the validity of the arbitration agreement is established, the Supreme Court’s approach is more liberal. When deciding on the objective scope of an arbitration agreement, it tends to assume a comprehensive jurisdiction of the tribunal.

Substance over Form

In the decision 4A_136/2018 of 30 April 2018, published on 6 June 2018, the Supreme Court dealt with the question of whether an interim decision titled as “Verfügung” (corr. to procedural order) should be challenged in the same way as an interim award. The issue arose from a dispute brought before a tribunal under the DIS Arbitration Rules. During the proceedings, the claimant challenged both the chairman and the arbitrator nominated by him for lack of impartiality. After the tribunal rejected the challenge in a “Verfügung”, the proceedings continued and ended with an award that was detrimental to the claimant. Subsequently, the claimant appealed before the Supreme Court requesting that the award be set aside, and the case be referred back to a newly appointed arbitral tribunal. Confirming the “substance over form” approach, the Supreme Court held that interim decisions of a tribunal on its jurisdiction or its composition – including an alleged bias of the arbitrators – are not only subject to an independent appeal but must also be directly challenged within 30 days upon notification, as the objections raised will otherwise forfeit and cannot be brought before the Supreme Court in an appeal against the final award.

The parties are well advised to promptly study the content of an arbitral decision – regardless of its title – and examine whether it can or must be challenged in order not to forfeit the grounds of appeal.

Anticipatory Assessment of Evidence

In the decision 4A_550/2017 of 1 October 2018, published on 18 December 2018, the Supreme Court dealt with the anticipatory assessment of evidence. The issue arose in a dispute brought before a tribunal under the Swiss Rules. In the award, the respondent was ordered to pay to claimant USD 1.5 Mio. on the basis of a contract which was – according to the respondent – invalid because it did not express the true will of the parties. The respondent challenged the award before the Supreme Court arguing that he was denied his right to be heard as the tribunal had ignored a number of arguments and evidence presented by the respondent. The Supreme Court dismissed the appeal, confirming the tribunal’s right to an anticipatory assessment of evidence. It held that a tribunal is allowed to refrain from assessing all evidence presented by the parties if (i) the presented evidence is unfit to support the alleged facts, or (ii) the fact to be proved is already sufficiently established by other evidence and the tribunal, by making an early assessment, reaches the conclusion that the additional evidence would not lead to different results with respect to the disputed facts.

This principle was again confirmed in the decision 4A_65/2018 of 11 December 2018, published on 27 December 2018, concerning an investor-state dispute brought before a tribunal under the UNCITRAL Arbitration Rules. Before the Supreme Court, the appellant Republic of India alleged, i.a., a violation of its right to be heard as it did not obtain permission to present a preparatory work for a bilateral investment treaty, which allegedly supported its position that the BIT relevant in the case at hand did not to protect indirect investments. As the preparatory work not only related to a treaty different from the relevant BIT, but was also presented late, the Supreme Court found that, due to the delay in invoking evidence that was not decisive in the case at hand, the appellant’s right to be heard had not been violated. It pointed out that not only did tribunals have a right to an anticipatory assessment of evidence, but also that a party’s right to have the presented evidence assessed must be exercised in a timely manner and in the agreed form.

Tribunal Appointed Expert

In the decision 4A_505/2017 of 4 July 2018, published on 6 September 2018, the Supreme Court dealt with the question whether a tribunal may, based on the results of its anticipatory assessment of the previously presented evidence, subsequently unilaterally reduce the scope of the tribunal appointed expert’s mandate concerning technical issues. The reduction of the mandate’s scope by the tribunal resulted in the exclusion of the counterclaims from the expert’s analysis. The Supreme Court held that the tribunal was entitled to reduce the scope of the expert’s mandate since (i) in the relevant agreement signed by all parties, the tribunal had expressly reserved the right to adapt the scope of the expert’s mandate, and (ii) the tribunal’s anticipatory assessment of evidence previously presented (including a witness hearing) showed that the counterclaims would be dismissed based on legal considerations, irrespective of the expert’s findings.

The 4A_505/2017 decision also confirms the established requirements regarding the parties’ right to a tribunal appointed expert. Such right exists, if: (i) the party expressly requested the appointment of an expert, (ii) in the agreed form and in a timely manner, (iii) she advanced the costs of the expertise, (iv) the expert evidence relates to relevant facts, and (v) it is necessary and capable of proving such facts. The requirements (iv) and (v) are met, e.g., where the facts are of a technical nature or otherwise require special knowledge and the arbitrators themselves do not have such knowledge (see also Kluwer Arbitration Blog of 9 August 2011).

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Decisions of the Swiss Federal Supreme Court in 2018: Part II

Kluwer Arbitration Blog - Sat, 2019-02-09 03:55

Petra Rihar

This is the 2nd part of the report highlighting the most significant arbitration-related decisions of the Swiss Federal Supreme Court (the “Supreme Court”) published in 2018.

 

Jura Novit Arbiter

In the decision 4A_525/2017 of 9 August 2018, published on 26 September 2018, the Supreme Court dealt with the principle of jura novit arbiter, controversial in a dispute resulting from a construction contract governed by Algerian law, between an Algerian public company and a constructor Canadian company. Applying the principle of equity and a contractual clause that was, according to the tribunal, not strictly applicable, the tribunal ruled that the constructor had to pay damages for the unjustified presence at the construction site. The constructor appealed to the Supreme Court arguing that its right to be heard was violated since the tribunal applied the rules of equity as an autonomous source of law under Algerian law, although no arguments based on equity had been advanced by either party, and the applied contractual clause did not concern the type of delay referred to in the counterclaim.

Referring to the principle of jura novit arbiter, the Supreme Court held that the right to be heard relates mainly to the establishment of facts and not of law. As the arbitral tribunals freely determine legal provisions applicable to the dispute, they may also decide on the basis of rules of law other than those invoked by the parties. The parties’ right to be heard becomes relevant and the parties must receive an opportunity to comment only in exceptional cases, namely if (i) the arbitral tribunal intends to base its decision on a legal norm that was not raised during the proceedings, (ii) the relevance of which could not be assumed by the parties, and the application of the norm thus comes as a surprise. The Supreme Court found that the notion of equity was used in different provisions of Algerian law and had been mentioned repeatedly during the arbitration. The appellant could thus not reasonably argue that it could not expect the tribunal to use considerations of equity to decide the dispute. The same was true for the contractual clause referred to by the tribunal by analogy, which was not only known to the parties, but had also been invoked by one of them in support of another claim.

The principle of jura novit arbiter was also applied in the decision 4A_338/2018 of 28 November 2018, published on 21 December 2018. In a domestic arbitration, a Swiss company alleged that FIFA had infringed the company’s contractual rights to purchase World Cup tickets. The tribunal rendered a decision in favor of the company. FIFA appealed to the Supreme Court arguing, i.a., that its right to be heard was violated since the tribunal applied one specific provision of Swiss law although neither party claimed that this provision was relevant. The Supreme Court held that the argument was inadmissible, noting that FIFA failed to explain why it could not have assumed the relevance of said provision and why its application by the tribunal came as a surprise.

Jura novit curia/arbiter, an established principle of Swiss procedural law, has two aspects, (i) the determination of the applicable law and (ii) the ex officio application of the determined law to the case.

 

Res Judicata

In the decision 4A_247/2017 of 18 April 2018, published on 6 June 2018, the Supreme Court dealt with the principle of res judicata. The dispute arose out of two loan agreements providing for the application of Swiss law and each including an arbitration clause. The dispute was first brought before and decided by state courts of Russia and the BVI. It was subsequently brought before a tribunal seated in Zurich. The tribunal’s award was appealed against before the Supreme Court.

Confirming its prior case law, the Supreme Court held that the principle of res judicata governs, i.a., the relationship between a Swiss arbitral tribunal and a foreign state court. If a party files a claim before a tribunal seated in Switzerland, identical to the one already subject of a judgment rendered between the same parties in another territory, the arbitral tribunal – in order not to expose itself to a claim of violation of procedural public policy – must declare the claim brought before it inadmissible insofar as the foreign judgment is capable of being enforced in Switzerland. The Russian state court had rendered its judgment disregarding the objection of lack of jurisdiction raised before it, without, at the same time, finding that the arbitration agreement was null and void, inoperative or incapable of being performed. As a consequence, the decision of the Russian state court was not enforceable in Switzerland and did not have the res judicata effect in the Swiss arbitration. The tribunal did therefore not violate the procedural public policy when rendering the award.

Under Swiss law, res judicata applies where (i) the parties and (ii) the subject matter are identical. It affects the operative part of the decision, but not the reasons on which it is based. It applies, without restriction, if a Swiss state court or tribunal is called upon, but a Swiss court decision or award exists. It applies, under the precondition of enforceability, where a Swiss court or tribunal is called upon, but a foreign court decision or award already exists.

 

Costs

In two decisions, one of them being the decision 4A_338/2018 (cited above), the Supreme Court dealt with the appeals against arbitral cost decisions. It held – in both cases – that the allocation of costs is a question of procedural law and not of substantive law.

In the decision 4A_450/2017 of 12 March 2018, published on 1 May 2018, a cost decision of a sole arbitrator was appealed against, based on the alleged violation of the principle of equal treatment. The dispute concerned the interpretation of a termination clause in a contract. The arbitrator issued a final award and agreed with the respondent on the disputed point. Claimant appealed before the Supreme Court arguing, i.a., that the arbitrator, by awarding costs exclusively to the respondent, although, by his own statement, no party was fully successful with its claims, violated the principle of equal treatment of the parties. The Supreme Court held that the principle of equal treatment can be invoked during the evidentiary phase, however not in later stages of the arbitral proceedings, and is not affected by the assessment of evidence or the application of law during the deliberations or when deciding on costs.

As a rule, in international arbitrations, the cost decisions may be challenged on the grounds listed in article 190(2) PILA, in particular if the tribunal lacked jurisdiction to decide on costs (article 190(2) lit. b) or if its decision went beyond the claims submitted (article 190(2) lit. c). Unlike in Swiss domestic arbitrations, in international arbitrations, the arbitrators’ fees and expenses cannot be challenged with the argument that they are manifestly excessive.

 

Success Fee

In the decision 4A_125/2018 of 26 July 2018, published on 29 August 2018, the Supreme Court dealt with the question of admissibility of a success fee in arbitration. The question arose in a dispute between a Portuguese client company and a Zurich law firm (representing the company in two ICC arbitrations) regarding the amount invoiced by the law firm for its work. With respect to the law firm’s remuneration, the parties agreed on a combination of a reduced hourly fee and a success fee. The dispute was brought before a sole arbitrator who found that the success fee arrangement was valid. The company challenged the award.

The Supreme Court confirmed that a success fee (“pactum de palmario”) was admissible under Swiss law. However, due to its restricted scope of review under article 190(2) PILA, it did not examine the admissibility parameters under domestic Swiss law. Instead, it validated the sole arbitrator’s explicit departure from the domestic requirements holding that Swiss public policy was not violated by the sole arbitrator’s confirmation of a success fee owed to the law firm by its client (see also Kluwer Arbitration Blog of 7 October 2018).

 

Enforcement

In the decision 5A_942/2017 / 144 III 411 of 7 September 2018, published on 27 September 2018, the Supreme Court dealt with the admissibility of an attachment over real estate property of a sovereign state in Switzerland. The attachment order proceedings were commenced by a UK company against the Republic of Uzbekistan, based on an award in favor of the UK company, rendered under the UNCITRAL Arbitration Rules by a tribunal seated in Paris.

With reference to article III of the New York Convention, the Supreme Court held that, for attachment of assets of a foreign state located in Switzerland in cases where the foreign state has acted “iure gestionis“, the requirement of a sufficient connection applies. It presupposes that the legal relationship on which the arbitral award is based and from which the attachment claim arises has a sufficient connection to Swiss territory. This requirement is fulfilled if (i) the legal relationship was established or is to be fulfilled in Switzerland, or (ii) the foreign state has undertaken acts thereby establishing a place of performance in Switzerland. By contrast, for an attachment to be granted it is not sufficient that assets are located in Switzerland or the claim has been awarded by a tribunal seated in Switzerland.

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New 2019 JCAA Rules: Is Three a Crowd?

Kluwer Arbitration Blog - Fri, 2019-02-08 01:00

David Gilmore, Ben Jolley, John Ribeiro and Sam Beer

Herbert Smith Freehills

Overview1)The views expressed herein are those of the authors and should not be construed as necessarily reflecting those of their firm or of any of its clients. jQuery("#footnote_plugin_tooltip_6008_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6008_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

On 1 January 2019 the Japan Commercial Arbitration Association (the “JCAA“) amended its two current sets of arbitration rules. At the same time, it introduced an additional set of new rules with the aim of providing a more efficient and cheaper arbitration procedure that draws on some civil law-type approaches.

The JCAA’s motivation for these changes, and the introduction of the new Interactive Rules, is to provide a range of arbitration rules to support the potential needs of different businesses.2)JCAA background document: “Reform of the JCAA Arbitrations Rules: Three Sets of Rules in Response to All Business Needs” at page 2. jQuery("#footnote_plugin_tooltip_6008_2").tooltip({ tip: "#footnote_plugin_tooltip_text_6008_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); These changes also come at an important time, where Japan is embarking into new territory in its approach to and support of international arbitration.

In this post we summarise and analyse the key changes to the JCAA’s two sets of existing rules (the Administrative Rules and the Commercial Rules) and consider the different approach enshrined in the new Interactive Rules.

 

1) Administrative Rules

The JCAA administers arbitrations under the UNCITRAL Arbitration Rules pursuant to the Administrative Rules. Accordingly, these Rules are designed to provide “the minimum essentials” to allow the UNCITRAL Rules to be overseen by an institution.

The only significant updates focus on arbitrator remuneration. These changes put the JCAA at a similar level – at least under the Administrative Rules – to other international institutions in the region (e.g., SIAC and HKIAC) for arbitrator remuneration; previously the JCAA had a reputation for keeping such fees lower.

The JCAA’s logic behind these revisions is to make it easier to appoint “prominent international experts to serve as arbitrators”.3)Ibid, page 4. jQuery("#footnote_plugin_tooltip_6008_3").tooltip({ tip: "#footnote_plugin_tooltip_text_6008_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

 

2) Commercial Rules

The Commercial Rules is the JCAA’s main set of institutional rules. Here the JCAA’s approach is markedly different from that taken vis-a-vis the Administrative Rules. The changes are more significant and include some inventive amendments designed to encourage efficiencies and protect against challenge. They also place heavier restrictions on arbitrators’ fees than before.

The most important revisions are as follows:

a) Explicit ongoing duties for arbitrators to conduct a “reasonable investigation” into potential conflicts of interest (Article 24) – these active duties after appointment go further than what is stated explicitly in many other sets institutional rules and appears to codify the position for Japan-seated arbitrations as set out by the Japanese Supreme Court in December 2017. Arbitrators should be aware that they may not be able to discharge this requirement by simply disclosing conflicts of which they become aware, and active steps may be required. In the rules, no detail is given as to what such an investigation should involve.

b) Detailed rules regarding the role of the Tribunal Secretary (Article 33).

c) Explicit right for the Tribunal to reject evidence submitted in an untimely manner (Article 41).

d) No dissenting opinion may be disclosed “in any manner” (Article 63) – going beyond most other institutional rules, this change is designed to avoid (i) potential challenges, which are often based on dissenting opinions, and (ii) the additional cost associated with preparation of such opinions.

e) Increase in scope of automatic expedited procedures to cover disputes up to JPY 50 million (around USD 400,000) (Article 84) – this represents a welcome increase from the previous figure, but is still far below institutions like the ICC, HKIAC and SIAC. Many smaller disputes, otherwise well-suited to the expedited process, may therefore still end up being resolved in a more time-consuming manner.

f) Arbitrators’ Remuneration (Article 93.2) – the most fundamental of the changes to arbitrators’ remuneration requires all arbitrators to be paid a fixed hourly rate of JPY 50,000 regardless of experience or the complexity of the case. The JCAA has also maintained existing provisions that reduce arbitrators’ hourly rates after a period of time worked on the case, but increased the threshold for reduction to 150 hours.

We generally see the rule changes as being positive in terms of encouraging efficiency and protecting against challenges. The attempts to limit fees should also be generally welcomed, although the approach is not without risk. Questions may arise as to whether the lower fixed hourly rates for arbitrators – just one part of the costs of arbitration – could operate as a disincentive to senior international arbitrators, with experience running complex proceedings, taking appointments under JCAA Commercial Rules arbitrations. Alternatively, if such appointments are accepted, there will likely be immediate requests to dis-apply the restrictive provisions (something we have seen happen in JCAA arbitrations regularly in practice).

 

3) Interactive Rules

The JCAA has also introduced new “Interactive Rules” which is the third and final set of JCAA rules. The Interactive Rules follow the updated Commercial Rules closely, but are meant to also deal with three main issues with arbitration today as identified by JCAA: (i) awards are unnecessarily long; (ii) counsel often do more work than required for the matter resulting in more costs; and (iii) arbitration costs are increasing.

The Interactive Rules propose two main solutions:

a) Inquisitorial / interventionist approach from the tribunal – this is enshrined in Articles 48 and 56, which require the tribunal (i) to share a document, as early as possible, summarising the parties’ positions and factual and legal issues that arise and (ii) to set out preliminary views on key factual and legal issues before a decision is made as to whether a hearing is necessary. We think the tribunal’s more active role could drive greater efficiency and potentially increase the likelihood of early settlement. With the perceived prevalence of common law approaches to arbitration and natural justice concerns, it remains uncertain whether tribunals will adopt this approach on a large scale, but where the Interactive Rules are selected a tribunal is at least empowered explicitly to do so.

b) Fixed fees – arbitrators’ fees are fixed depending on the value of the claim (up to JPY 5 million for a sole arbitrator working on the highest value claims under Articles 94 and 95).
This should mean that arbitrator remuneration under the Interactive Rules is likely to be lower than in an arbitration under, say, the Commercial Rules. However, it is foreseeable that some arbitrators may be put off from committing to this fixed fee structure – particularly where there is no guarantee that a dispute under the Interactive Rules will necessarily be over quicker or more limited in scope and complexity.

 

Comment

The JCAA’s new rules – coming four years after the last update – demonstrate the JCAA’s ambitions to: (i) improve its reputation as a viable institution for international arbitration; and (ii) increase its limited caseload. The focus on efficiency and innovation in the Interactive Rules and the provision of a flexible set of options focused on arbitration users appears to be part of an attempt to overcome the perceptions around “Japan’s (In)Capacity in International Commercial Arbitration“.

Some of the innovations implemented merit close consideration by the arbitration community at large. For example, while not an endorsement of the “controversial” Prague Rules on the Efficient Conduct of Proceedings in International Arbitration (launched on 14 December 2018), the Interactive Rules are certainly a nod to them and a more inquisitorial and interventionist approach to arbitration. This approach may be an attractive prospect to some parties. While others may be concerned about parties’ right to a fair hearing in this inquisitorial approach, both sets of rules present themselves as welcome developments in the international arbitration community and we look forward to seeing how well they are received.

However, rightly or wrongly, it seems that the JCAA has now established a seemingly three-tiered approach via its new Rules. In this regard, the changes to the Commercial Rules – presently understood to be the most widely used set of JCAA Rules for complex international arbitrations – could make it difficult to attract international arbitrators of the highest quality.

Further, although the changes to the Administrative Rules are welcome, our experience is that parties tend to choose institutions for their own bespoke rules or for their track record in administering proceedings. It may be that UNICTRAL cases involving international parties will only come to the JCAA for administration where there is some direct link to Japan (be it seat, party, language or maybe governing law), at least until the JCAA is able to demonstrate sufficient experience to the arbitral community.

Only time will tell how successful these changes are. Alongside the opening of (i) the Japan International Dispute Resolution Center in Osaka in May 2018, with a Tokyo hearing-facility expected to follow by 2020, and (ii) the IP-focused International Arbitration Center in Tokyo (IACT) in September 2018, many will view the updates to the JCAA Rules as building upon the “Japan is Back” fever that gripped the arbitral community in Japan last year. The contributors remain optimistic for further developments in the year ahead. Watch this space!

 

A more detailed summary of the key changes can be found in a separate post on HSF arbitration notes blog.

References   [ + ]

1. ↑ The views expressed herein are those of the authors and should not be construed as necessarily reflecting those of their firm or of any of its clients. 2. ↑ JCAA background document: “Reform of the JCAA Arbitrations Rules: Three Sets of Rules in Response to All Business Needs” at page 2. 3. ↑ Ibid, page 4. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); var l_obj_Target = jQuery("#" + p_str_TargetID); if(l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight/2 }, 1000); } }More from our authors: Arbitration in Belgium: A Practitioner’s Guide
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Analyzing Features of Investment Court System under CETA and EUVIPA: Discussing Improvement in the System and Clarity to Clauses

Kluwer Arbitration Blog - Thu, 2019-02-07 23:50

Shilpa Singh J.

An intriguing feature of Investment court system (“ICS”) of resolving disputes in Comprehensive and Economic Trade Agreement (“CETA”) and the European Union-Viet Nam Investment Protection Agreement (“EUVIPA”) is the amicable resolution of disputes to avoid long and expensive burden of Investor-State Dispute Settlement (“ISDS”) (see Art. 8.19 (1) CETA and Art. 3.39 EUVIPA). Another exceptional feature of the agreements is transparency to limit confidentiality and privacy as UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, available here (“Transparency Rules”) (see Art. 8.36 CETA and Art. 3.46 EUVIPA). Confidentiality is pertaining to the access of information like written submissions, a record of the hearing, award of the tribunal, whereas privacy excludes the participation of unauthorized third parties or even observing the hearing.

Compared to adversarial processes, the conciliation and mediation mechanisms under CETA and EUVIPA envisage a more flexible evidentiary process aiming to provide a fair and independent system. Unlike under CETA, EUVIPA provides for detailed rules concerning mediation. There is a mandatory six-month cooling period before a claim can be submitted for arbitration. During this period, the parties should engage in a consultation followed by mediation or conciliation. A party can submit a notice of arbitration only upon expiration of the cooling period. Otherwise, the claim will not be admissible.

Both Treaties envisage similar procedures in terms of submission of a claim, constitution of a first instance and appellate tribunal, and envisage the same rules on transparency. These common features are further described below.

Submitting a Claim

To submit a claim for a dispute under either Treaty, it is necessary to determine a respondent. Under CETA, a notice is sent within 90 days of the submission of the request for consultation to the EU concerning the alleged breach by the EU or a Member state (Art. 8.22(1) CETA). The procedure is slightly different under EUVIPA; the claimant may send a notice of intent to arbitrate within 90 days of the submission of the request for consultations, which automatically triggers the determination of a respondent by the EU within 60 days of the notice of intent (Art. 3.32).

Both instruments allow an investor to make a claim for breach of the obligations in the agreements (Art. 8.18(1) CETA; Art. 3.33 EUVIPA). An investor can submit a claim only with regard to a breach of obligations under provisions of Chapter 8 in CETA and Chapter 2 of EUVIPA. Moreover, there is substantive protection of “market access” but this is excluded from the jurisdiction of the Tribunal and thus a claim cannot be submitted against this.

Under both CETA and EUVIPA, the parties have a choice to submit claims under the rules prescribed in the agreement; the rules of ICSID Convention and Rules of Procedure for Arbitration Proceedings, ICSID Additional Facility Rules if the former do not apply, UNCITRAL Arbitration Rules or any other rules agreed the parties.

Constitution of First-instance Tribunal and Appellate Tribunal

The European Commission calls it an ICS as done in for the first time under CETA and Transatlantic Trade and Investment Partnership. As a matter of fact, under both CETA and EUVIPA, the tribunals constituted are ad hoc established for the purpose of dispute dissolution. The court system that the Commission envisaged comprises of a tribunal and an appellate tribunal.

Under CETA, ICS is not explicitly mentioned as a permanent body but there are diverse opinions that the intention is to create a permanent tribunal empowered with exclusive competence to hear claims. The tribunal, as envisaged by the Commission, is a semi-permanent body where a roster of judges is chosen from members of the tribunal who are not appointed on a full-time basis. For now, the Tribunal in CETA consists of 15 members appointed by each, i.e., 5 members from Canada and other 5 from the EU with remaining 5 neutral members appointed by the Joint Committee for a term of 5 years. Under EUVIPA system, a tribunal consists of 9 members: 3 members from Viet Nam, 3 from the EU, and 3 neutral members, all appointed for a 4-year term. The adjudicators are ex-ante selected by the state parties to the investment agreements.

The dispute is heard in a division of 3 members, appointed by the President of the Tribunal, where one of the members shall be national of a Member state of the EU, one from Canada/Vietnam and one from a third country chairing the division. The assignment of cases is “random and unpredictable” and with the possibility of being heard by a sole arbitrator who shall be from the third country. What is important to find is that the members of the Tribunal are paid a monthly retainer fee contributed by both parties of the agreement ensuring independence and impartiality of the members. The issue of conflict of interest is addressed under Article 8.30(1) CETA, and Article 3.40 (1) EUVIPA as members are not allowed to act as counsel or party-appointed expert in pending or new investment protection dispute in this or any other agreement which may ensure independence “beyond doubt” and avoids direct or indirect “conflict of interest”.

Another feature pertinent to find among these agreements is the establishment of an appellate tribunal to review awards if the Tribunal based on the grounds fora challenge (Art. 8.28 CETA; Art. 3.54 EUVIPA). The Commission envisages the appellate mechanism that might “increase legitimacy both in substance and through institutional design by strengthening independence, impartiality, and predictability”. This is a permanent body under Article 3.39 (1) EUVIPA but no such permanency is found explicitly in CETA. However, the lack of word “permanent” in CETA does not infer that it is not permanent since the Commission envisioned of creating a “permanent multilateral appeals” in future. Members of Appellate Tribunal, in both FTAs, are paid a retainer fee. Under Article 3.39 (8) EUVIPA appeal to be heard in a division of three, one from the EU, one from Viet Nam and one from the third country and it shall be chaired by the national of a third country. However, in Article 8.28 CETA no such restriction on nationality is found but left to the Joint Committee to adopt a decision on administrative and organizational matters.

Transparency of Proceedings

In 2013, the Transparency rules, applicable to CETA and EUVIPA, introduced a large degree of publicity in the arbitral proceedings. The rules introduced provisions, inter alia, for public disclosure of commencement of the arbitration proceeding and also the notice and response of arbitration with written submissions from the parties and non-disputing third parties, transcripts of hearings, awards, and decision while allowing open hearings and submissions by non-disputing parties. However, expert reports, witness statements, and exhibits are made available upon request to the arbitral tribunal.

Transparency is assured to limit confidentiality and privacy and making documents available for public irrespective of arbitration rules chosen under CETA and EUVIPA. Moreover, hearings are public, and it is a matter of right of a non-disputing third party to attend under Article 3.51 (2) EUVIPA. The public disclosure of the award would improve predictability and consistency in the jurisprudence of the Tribunal creating precedents for future decisions. However, the availability of documents in public is subject to redaction of confidential or protected information, like business secrets and classified government information of respondent. Much burden lies on the Tribunal to determine on confidentiality of information and in cases when legible confidential information is disclosed could damage the interest of the disputing parties and may be a cause to appeal the award. The Tribunal can also accept or invite the non-disputing party to submit an interpretation of a particular provision of the treaties, a significant opportunity for academic and practitioners to scrutinize and contribute to the interpretation of the agreements.

Where next?

In sum, ICS introduces a new regime by assuring transparency, independent members of tribunals who are not appointed by the disputants, and importantly an appellate mechanism. The mechanism provides for mandatory resolution of disputes through amicable settlement. With an optimistic outlook of these features, criticisms have developed on its drawbacks especially the provisions to challenge award, jurisdictional issues and power of the Joint Committee/Trade Committee of the agreements. What is certainly expected from the Commission to push for the mechanism in the future agreements and thus the outcome of the Court of Justice on its compatibility could deeply affect and inspire changes.

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