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The Contents of the Yearbook Commercial Arbitration, Volume XLVI (2021), Upload 2

Kluwer Arbitration Blog - 15 hours 26 min ago

Subscribers to KluwerArbitration enjoy access to the ICCA Yearbook Commercial Arbitration.
A new upload of materials for the 2021 volume of the Yearbook is now available on the KluwerArbitration website.

This upload is entirely devoted to an update of court cases from the People’s Republic of China (PRC) on the application of the 1958 New York Convention, with 14 decisions dating from 2003 to 2020. Three decisions are particularly interesting.

In a decision from 2003, the Supreme People’s Court took a restrictive approach to public policy when it held that a dispute was arbitrable even though it concerned a futures trading contract. While the parties’ engagement in overseas futures trading without state approval contravened mandatory Chinese law, this contravention did not per se constitute a violation of Chinese public policy within the meaning of Art. V(2)(b) of the Convention.

In 2013, a majority of the Supreme People’s Court found that a clause for ICC arbitration in Shanghai was valid, against the minority opinion that the clause was null and void, even though the ICC was not an arbitration institution registered with the Chinese judicial administrative authorities as required by the Arbitration Law of the PRC.

Finally, in 2020, the Intermediate People’s Court in Guangzhou rendered a decision on how to distinguish between domestic and international awards in the PRC. It held that the New York Convention did not apply to an award rendered by an ICC tribunal seated in Guangzhou, even though the arbitration was between a US and a Chinese party, since the award’s nationality was to be determined by the seat of the arbitration.

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Award Rectification: Proposal on Solving the Functus Officio Problem

Kluwer Arbitration Blog - Mon, 2021-05-17 01:39

The Arbitration Committee of the New York City Bar Association has recently published a report titled: “The Functus Officio Problem in Modern Arbitration and a Proposed Solution” (the “Report”). In United States arbitration, the functus officio doctrine instructs that once an arbitrator finishes performance of her office, i.e., renders an award, her authority as an arbitrator is exhausted. The doctrine effectively establishes finality of arbitral awards by stipulating that arbitrators do not have the authority to alter an award after it was rendered (save for very narrow circumstances). The titular problem in the Report is that the contemporary application of the functus officio doctrine is surprisingly chaotic, which as a result undermines the finality of awards it was meant to protect. The proposal in the Report is to offer parties an opt-in rule, which would authorize arbitrators to rectify their award (i.e., make substantive corrections) within a strictly short timeframe after an award is rendered. The intended effect of the Report’s proposal is to allow parties to expressly decide on the scope of post-award review at the outset of proceedings to limit the risk of costly post-arbitration litigation.

The historical development of the functus officio doctrine follows a clash between finality and accuracy, in which the former slowly succumbs to the latter. At its inception in thirteenth century England, the doctrine was meant to serve as a deterrent for judges who would engage in a habit of altering their records. At that time, the doctrine was at its strictest and did not allow for any subsequent modification of judgments whatsoever. This, according to William Blackstone, led to a “great obstruction of justice” as judges were forced to follow even clearly erroneous judgments. (3 WILLIAM BLACKSTONE, COMMENTARIES 409-411 (1765).) When this doctrine reached United States arbitration in the nineteenth century, it was applied in a similar fashion. According to one early ruling, “If an arbitrator makes a mistake either as to law or fact, it is the misfortune of the party, and there is no help for it. There is no right of appeal, and the court has no power to revise the decisions of judges who are of the parties’ own choosing.” (Patton v. Garrett, 21 S.E. 679, 682 (N.C. 1895).)

At the turn of the twentieth century, the case law reflected some development towards allowing correction of at least some obvious clerical errors in awards. The Federal Arbitration Act (FAA) of 1925 provided a procedure for judicial correction of some evident mistakes. In 1967, the U.S. Court of Appeals for the Third Circuit explicitly recognized that arbitrators may correct apparent mistakes and clarify ambiguities. (La Vale Plaza, Inc. v. R. S. Noonan, Inc., 378 F.2d 569 (3d Cir. 1967).) Further practice specified that two generally recognized exceptions are (i) correction of an obvious typographical or computational error, and (ii) clarification of ambiguities that might prevent effective enforcement or party compliance. (2 DOMKE ON COM. ARB. § 26:2.) The latest development in the settled case law was recognition that the functus officio doctrine is merely a default rule which applies only if the parties do not agree otherwise. (Glass, Molders, Pottery, Plastics & Allied Workers Int’l Union, AFL-CIO, CLC, Local 182B v. Excelsior Foundry Co., 56 F.3d 844, 848 (7th Cir. 1995).)

Further evolution of the common law doctrine was halted by the rise of institutional providers of arbitration rules, which included their own provisions on correction and interpretation of awards, the so-called ‘slip rules’. The current practice is dominated by these slip rules, and the default functus officio doctrine is applied only on relatively rare occasions in which no slip rules are agreed between the parties. The content of the slip rules shares a common basis with the functus officio doctrine (as described in Domke above) by generally permitting the arbitrators to correct clerical, typographical or computational errors. A minority of these rules do not go beyond these three categories (e.g., R-50 of the AAA Commercial Arbitration Rules). The majority provides some additional maneuvering space for arbitrators by including an ‘other’ category of errors which may be corrected (e.g., Art. 36 of the ICC Arbitration Rules). Other relatively frequent features are possibilities for parties to request interpretation of an award or an additional ruling on matters which were omitted in the original award. Nevertheless, none of the rules provide much guidance on correction of more substantive errors, such as overlooking an important piece of evidence or misunderstanding of a key legal rule. The question arises: what should an arbitrator do in case such substantive error occurs?

Inspection of the applicable statutory rules does not provide clear guidance as regards correction of substantive errors either. The FAA provisions only offer the above-mentioned judicial correction of awards, which does not extend beyond clerical and computational errors and situations where arbitrators awarded upon a matter not submitted to them. The New York Civil Practice Law and Rules (CPLR) mirror this rule. More interesting is the case law interpreting the statutory provisions (particularly in vacatur cases), in which courts displayed a range of views on addressing ambiguous and erroneous awards. In a number of rulings, the courts recognized arbitrators’ power to interpret their awards (see more on this topic also here) and, in some vacatur cases, even remanded awards to arbitrators for clarification of ambiguities. (E.g., Weiss v. Sallie Mae, Inc., 939 F.3d 105, 111 (2d Cir. 2019).)

Another series of rulings, which took a liberal approach towards arbitrators’ powers to modify awards, concerned interpretation of the institutional slip rules. In the Dempsey Pipe case (T. Co. Metals v. Dempsey Pipe & Supply, Inc., 592 F.3d 329 (2d Cir. 2010)), the Second Circuit considered a case in which the arbitrator reduced an award of damages upon re-appreciation of certain evidence during award interpretation under the ICDR’s slip rule. Although this ‘interpretation’ included a substantive modification of the award and re-consideration of evidence, the court held that the parties delegated power to interpret the slip rule to the arbitrator by adopting the ICDR rules. Therefore, the arbitrator’s interpretation of the slip rule was not subject to judicial review. This approach was followed by the Fifth Circuit in the Southwestern Bell case (Communication Workers v Southwestern Bell Tel. Co., 953 F.3d 822 (5th Cir. 2020)) but not by the U.S. District Court for the Southern District of New York in the Black Diamond Capital case (Credit Agricole Corporate & Investment Bank v. Black Diamond Capital Management, 2019 WL 1316012 (S.D.N.Y. Mar. 22, 2019)), in which the judge did not discuss the Dempsey Pipe case and simply vacated the amended award on the basis of manifest disregard of the law. Furthermore, when considering comparable circumstances under default rules of New York arbitration law, the New York Court of Appeals held in favor of restrictive application of the slip rule. (American Int’l Specialty Lines Ins. Co. v. Allied Capital Corp., 35 N.Y.3d 64 (2020); see more on this topic here.)

The above overview shows that there is a significant lack of clarity as regards the extent of arbitrators’ powers to correct and interpret their awards after an award has been rendered. When an arbitrator identifies an error in her award that does not fall in the clerical, typographical or computational category, there is little to no clear guidance in the applicable slip rules or relevant jurisprudence. Such arbitrator can refuse to correct the error relying on the finality of the award and lack of rules that would allow the correction, which will result in the party aggrieved by the error attempting to request a judicial correction. Alternatively, the arbitrator can correct the error relying on circumvention of the restrictive wording of the applicable slip rule and the Dempsey Pipe case, which will likely result in the party aggrieved by the correction applying for vacatur. Either way, the finality of the award is compromised, and the parties are likely to engage in costly litigation that they tried to avoid in the first place by choosing arbitration to resolve their disputes. This shows that the status quo is unsatisfactory and requires further attention.

The Report proposes a solution to the above-described problem. Since the common law functus officio doctrine is unlikely to evolve further in a world of slip rules, the Report opines that the institutional rule providers should take the lead. Their slip rules should be amended to include a mechanism that would allow arbitrators to “correct any mistake affecting the outcome in the Underlying Award that the party claims arises from oversight, omission or misapprehension of a matter of fact or law presented by one or more of the parties” (the Report, p. 42) in a strictly limited timeframe after rendering of an award (the proposal works with 20 days). The mechanism, named award rectification, should be available on an opt-in basis to allow parties to decide whether this mechanism is useful for the particularities of their dispute. The opt-in would occur at the outset of the proceedings and would require both parties to agree. The Report does not discuss a specific mechanism of how the parties would engage in the opt-in, instead leaving this to be determined by the rule providers. At the earliest, the parties could be required to express their position on the opt-in the request for arbitration and the answer to the request, respectively. At the latest, this issue could be discussed at the case management conference and memorialized in a procedural agreement such the ICC’s Terms of Reference. Rejection of the opt-in may be interpreted as emphasizing that the arbitrators should follow the restrictive language of the standing slip rules. Therefore, either response would provide needed clarity on how an arbitrator should address substantive errors in awards and help parties to avoid post-award litigation.

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The Standard Applicable to Arbitrator Challenges under the MIAC Rules

Kluwer Arbitration Blog - Sun, 2021-05-16 01:43

In a field as competitive as arbitration, international reputation is earned, not created overnight. In 2021, various judgments of the Spanish Constitutional Court (see here, here and here) have done away with some case law by inferior Madrid courts which favoured an expansive review of awards and compromised the finality of arbitration (see here and here). Spain is back on track.

The creation over a year ago of the Madrid International Arbitration Centre (MIAC) further confirms this direction. Built on decades of experience of three well-established Spanish institutions (the Madrid Court of Arbitration, the Civil and Commercial Court of Arbitration and the Spanish Court of Arbitration), the MIAC consolidates the institutional infrastructure that is required to nourish a fertile arbitration ecosystem. The MIAC has an international mission and seeks to exploit Spain’s strategic location as a natural bridge between Europe and Latin America as well as Africa. It offers services in multiple languages (Spanish, English, French and Portuguese) and aims to be considered at par with other leading arbitral institutions worldwide. The involvement of well-known names in MIAC’s Appointment Committee, the Committee for the Preliminary Examination of Awards and the International Commission (such as Gabrielle Kaufmann-Kohler, Juan Fernández Armesto, Nigel Blackaby or Eduardo Silva Romero) is testament of its pursuit of excellence.

Yet, it is frequently said that an arbitration is only as good as its arbitrators; and it could be added that an institution is only as good as its arbitrations. It is for that reason that the MIAC Rules on appointment, duties and challenge of arbitrators adhere to the high standards followed by other major institutions and epitomised in the Code of Best Practices in Arbitration (2019) of the Spanish Arbitration Club.

This background is relevant to understand the MIAC’s rules on arbitrator challenges.

 

Lack of Independence and Impartiality – A Flexible Approach

According to article 13.1 MIAC Rules:

“Challenges to arbitrators based on a lack of independence, impartiality or any other reason are to be filed with the Centre in a written submission that specifies and substantiates the facts on which the challenge is based.”

A first reading of article 13.1 MIAC Rules could lead to the conclusion that a challenge in a MIAC arbitration will only succeed if supported by evidence that proves “actual” lack of independence or impartiality. This rigid reading, suggested elsewhere on this Blog, seems misconceived.

This post proposes an interpretation of the standard applicable to the challenge of arbitrators based on the high ethical standards and leading practices that inspire the MIAC’s endeavours. Standards and practices which do not support limiting the removal of arbitrators only to “actual” lack of independence and impartiality. Instead, it is generally understood that arbitrators may be disqualified when circumstances exist which give rise to “justifiable doubts” as to the arbitrator’s lack of independence and impartiality. Article 12.1 UNCITRAL Model Law and many arbitration rules expressly require this threshold (i.e., article 12.1 UNCITRAL Arbitration Rules, article 10.1 LCIA Rules or rule 14.1 SIAC Rules).

 

The MIAC Rules Adhere to Leading International Practice

The absence of an express reference to that standard in article 13.1 MIAC Rules does not necessarily mean that evidentiary requirements for the removal of arbitrators depart from, or are higher than, common international practice. Various reasons support this conclusion.

From a comparative point of view, article 14.1 ICC Rules equally omits any reference to the applicable standard to arbitrator challenges:

A challenge of an arbitrator, whether for an alleged lack of impartiality or independence, or otherwise, shall be made by the submission to the Secretariat of a written statement specifying the facts and circumstances on which the challenge is based.”

The ICC Secretariat’s Guide confirms that the mere reference to “lack of independence and impartiality” in the relevant provision is neither an oversight nor a decision to raise the standard. Rather, it is a voluntary omission to retain flexibility:

“The Rules do not provide any guidance on what is to be understood by independence and impartiality. Nor has the Court adopted internal regulations or guidelines on the application of these concepts. While the Court is aware of the importance of consistency in decision making, its main priority is to reach the most fair and effective solution on a case-by-case basis. In this field as in other fields of procedure, flexibility is essential, especially given the different regions and legal traditions involved in ICC arbitration.”1)The Secretariat’s Guide to ICC Arbitration, 2012, para. 3-373. jQuery('#footnote_plugin_tooltip_37361_9_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37361_9_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Indeed, from a functional point of view, the flexibility built into article 13.1 MIAC Rules permits the consideration of the standard applicable under the law and place of arbitration, and avoids conflicting with them when they are considered mandatory. In fact, the ICC frequently welcomes that information as part of the submissions made by parties in the context of a challenge under article 14 ICC Rules.2)The Secretariat’s Guide to ICC Arbitration, 2012, para. 3-560. jQuery('#footnote_plugin_tooltip_37361_9_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37361_9_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Similarly, the stage of the proceedings, the quantity and quality of information disclosed by the arbitrator prior to the challenge and even whether the challenged arbitrator was party appointed or not might also impact the institution’s approach to the removal of arbitrators. An adaptable framework like the one found in the ICC and the MIAC rules accommodates such flexibility.

This approach is further facilitated by the inclusion of “other reasons” in the text of article 13.1 MIAC Rules (along the lines of “or otherwise” in article 14.1 ICC Rules). While some might find this formulation too indeterminate, the catch-all clause affords parties the possibility to obtain protection of their due process rights when circumstances exist that might sit uncomfortably with a limited reference to the arbitrators’ duty to remain independent and impartial throughout the arbitration.3)This is also achieved through the addition in article 10.1 MIAC Rules of the requirement that arbitrators, besides remining impartial and independent, “cannot maintain any personal, professional or commercial relationship with the parties”. jQuery('#footnote_plugin_tooltip_37361_9_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37361_9_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); For instance, this could include an alleged violation of the obligation to disclose important circumstances relating to the arbitrator’s impartiality and independence, as required by article 10.3 MIAC Rules.4)The same applies in ICC Rules. See Herman Verbist, Erik Schäfer, et al., ICC Arbitration in Practice, 2nd edition, Kluwer Law International, 2015, p. 90. jQuery('#footnote_plugin_tooltip_37361_9_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37361_9_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Precisely because the evidentiary value of a failure to disclose in the context of an alleged lack of independence and impartiality remains a controversial question (see, for instance, the judgment of the UKSC in Halliburton v Chubb, paras. 117-118), the absence of a rigid standard in article 13.1 MIAC Rules, combined with the reference to “other reasons”, allows the MIAC to calibrate the test in light of the circumstances.

In addition, one would imagine that, in giving specific content to the rules on challenges, the MIAC will frequently resort to the standards set by the IBA Guidelines on Conflicts of Interests. While not binding on the Centre and applicable to disclosure rather than challenge, the Guidelines offer valuable assistance in any scenario where the impartiality and independence of arbitrators are doubted. Practice under leading arbitration rules such as the ICC, SCC or UNCITRAL confirms the frequent reliance on the IBA Guidelines5)Karel Daele, Challenge and Disqualification of Arbitrators in International Arbitration, Kluwer Law International, 2012, paras. 5.100-105; and Catherine Rogers, Ethics in International Arbitration, para. 2.86. For the specific case of the ICC, see The Secretariat’s Guide to ICC Arbitration, 2012, para. 3-374. jQuery('#footnote_plugin_tooltip_37361_9_5').tooltip({ tip: '#footnote_plugin_tooltip_text_37361_9_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and there is nothing to doubt that the MIAC will act any differently.

It is precisely for these common practices that previous comparative studies have concluded that reported disqualification decisions made under arbitration rules which do not clearly spell out the threshold applicable to arbitrator challenges, such as the ICC, are in line with decisions under the UNCITRAL and SCC Arbitration Rules, which explicitly stipulate a justifiable doubts threshold,6)Maria Nicole Cleis, The Independence and Impartiality of ICSID Arbitrators: Current Case Law, Alternative Approaches, and Improvement Suggestions, Brill, 2017, p. 143. jQuery('#footnote_plugin_tooltip_37361_9_6').tooltip({ tip: '#footnote_plugin_tooltip_text_37361_9_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); so that “challenges based on comparable circumstances are not adjudicated more strictly across the board when a justifiable doubts threshold is applied”.7)Maria Nicole Cleis, The Independence and Impartiality of ICSID Arbitrators: Current Case Law, Alternative Approaches, and Improvement Suggestions, Brill, 2017, p. 185. jQuery('#footnote_plugin_tooltip_37361_9_7').tooltip({ tip: '#footnote_plugin_tooltip_text_37361_9_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Finally, the fact that the standard of “justifiable doubts” is expressly referred to in the context of the arbitrators’ duty to disclose (article 10.2 MIAC Rules) vis-à-vis the less precise terminology in article 13 is not conclusive that a higher standard is applicable to challenge applications. The distinction is motivated by the willingness of the institution to adopt the most appropriate decision in each case.8)The Prologue of the IBA Guidelines on Conflicts of Interest in International Arbitration, p. iii, recognises expressly that “the standard for disclosure differs from the standard for challenge”. jQuery('#footnote_plugin_tooltip_37361_9_8').tooltip({ tip: '#footnote_plugin_tooltip_text_37361_9_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); To that end, a precautionary standard is applied to the duty to disclose so that parties, co-arbitrators and the institution are informed about all the relevant circumstances that can potentially compromise the arbitrators’ independence and impartiality, thereby avoiding the potentially high costs and significant delays associated with challenges. The rule on removal of arbitrators, in contrast, voluntarily omits the standard so that the appropriate decision, in more or less precautionary terms, can be adopted depending on the circumstances.

 

Conclusion

In conclusion, the MIAC Rules do not establish a higher evidentiary threshold for the successful challenge of arbitrators than the rules of other leading institutions. Nowhere can it be found that the ethos of the MIAC, and those in command thereof, would be satisfied with anything less than complete independence and absolute impartiality. The adaptable framework of the MIAC Rules permits the application of a justifiable or reasonable doubts test when the circumstances so require and is the most effective solution to earn the confidence of MIAC’s users and to contribute toward the legitimacy of arbitration.

References[+]

↑1 The Secretariat’s Guide to ICC Arbitration, 2012, para. 3-373. ↑2 The Secretariat’s Guide to ICC Arbitration, 2012, para. 3-560. ↑3 This is also achieved through the addition in article 10.1 MIAC Rules of the requirement that arbitrators, besides remining impartial and independent, “cannot maintain any personal, professional or commercial relationship with the parties”. ↑4 The same applies in ICC Rules. See Herman Verbist, Erik Schäfer, et al., ICC Arbitration in Practice, 2nd edition, Kluwer Law International, 2015, p. 90. ↑5 Karel Daele, Challenge and Disqualification of Arbitrators in International Arbitration, Kluwer Law International, 2012, paras. 5.100-105; and Catherine Rogers, Ethics in International Arbitration, para. 2.86. For the specific case of the ICC, see The Secretariat’s Guide to ICC Arbitration, 2012, para. 3-374. ↑6 Maria Nicole Cleis, The Independence and Impartiality of ICSID Arbitrators: Current Case Law, Alternative Approaches, and Improvement Suggestions, Brill, 2017, p. 143. ↑7 Maria Nicole Cleis, The Independence and Impartiality of ICSID Arbitrators: Current Case Law, Alternative Approaches, and Improvement Suggestions, Brill, 2017, p. 185. ↑8 The Prologue of the IBA Guidelines on Conflicts of Interest in International Arbitration, p. iii, recognises expressly that “the standard for disclosure differs from the standard for challenge”. function footnote_expand_reference_container_37361_9() { jQuery('#footnote_references_container_37361_9').show(); jQuery('#footnote_reference_container_collapse_button_37361_9').text('−'); } function footnote_collapse_reference_container_37361_9() { jQuery('#footnote_references_container_37361_9').hide(); jQuery('#footnote_reference_container_collapse_button_37361_9').text('+'); } function footnote_expand_collapse_reference_container_37361_9() { if (jQuery('#footnote_references_container_37361_9').is(':hidden')) { footnote_expand_reference_container_37361_9(); } else { footnote_collapse_reference_container_37361_9(); } } function footnote_moveToAnchor_37361_9(p_str_TargetID) { footnote_expand_reference_container_37361_9(); 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 * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Tricky Technical and Quantum Matters for Rising Arbitrators: RAI’s Conversation with Dr. Pablo T. Spiller

Kluwer Arbitration Blog - Sat, 2021-05-15 01:35

On 21 April 2021, members of the executive committee of the Rising Arbitrator’s Initiative (RAI) hosted a discussion and Q&A session with Dr. Pablo Spiller (Compass Lexecon), who has testified as expert in more than 150 arbitrations across a broad range of sectors over more than two decades. The discussion was led by Paul Tan (Cavenagh Law LLP, Clifford Chance Asia), and the Q&A was led by Flavia Mange (Mange & Gabbay).

Beyond providing attendees with a unique insight into the perspective of one of the world’s foremost economic experts in international arbitration, the discussion offered food for thought for rising arbitrators on not only the best practices that they should look to adopt in the generation and examination of expert evidence, but also on how international arbitration as an industry may benefit from implementing practices that hold experts, and the work they produce, to account.

 

Being ‘Straight’ with Headstrong Clients

The introductory theme of the discussion concerned the client-expert relationship, and its interrelation with the expert’s duties in an arbitration. On being retained for any given arbitration, Dr. Spiller explained that he does not lose sight of the two essential duties that he considers himself bound to: (i) a duty to the arbitral tribunal to be objective and independent, and (ii) a duty to the client to be truthful. On the latter, he explained that clients will commonly have exaggerated views and expectations, and that he is required to inform such clients that their expectations may be unachievable. This is rarely an easy process, given the often strong-headed nature of the individuals in senior roles in multinational industries or governments; however, a “mouthpiece” expert, in his view, will not last long in the industry. Dr. Spiller noted that the smooth collaboration with counsel is important in this effort of managing clients’ expectations.

Dr. Spiller further noted that it may be highly valuable for the client to be provided with an independent preliminary economic assessment, to the extent possible, before any legal proceedings are initiated.  Precisely because often clients have overly optimistic expectations about damages, an independent preliminary economic assessment by a damages expert can help counsel to manage such expectations. He noted that he has observed an increase in this practice since the 2008/2009 financial crisis, and recommended that counsel promote it, in lieu of launching disputes ‘gung ho’.

 

Optimizing the Quality of Expert Analysis

The discussion turned to the respective merits and pitfalls of the use of the ‘adversarial’ system of presenting expert evidence, as contrasted to the use of a sole, tribunal-appointed expert. Dr. Spiller is an advocate of the adversarial approach. In his view, a thorough adversarial process should be seen as akin to a brainstorming session, whereby multiple experts, their counsel, and the arbitrators, work collectively to generate the most comprehensive analysis possible. Dr. Spiller noted that the presence of the counterparty and their respective expert places a utile degree of pressure on each expert to ensure that their analysis is as sound – and therefore impervious to criticism – as possible. That incentive to prove one another wrong, he further noted, leads each side to undertake considerable efforts to produce credible supporting or countering evidence, which adds value to the overall brainstorming process.

A sole tribunal-appointed expert, he conversely considered, is by corollary not under the same pressure as a party-appointed expert to produce a solid, comprehensive analysis. Moreover, in Dr. Spiller’s view, there is simply too much at stake in most arbitrations for the task of presenting a comprehensive economic analysis to fall upon the shoulders of one individual. The “randomness” of the selection process of such expert, and the possibility that a tribunal-appointed expert will be comparatively less receptive to challenge or criticism than a party-appointed expert were other factors he considered to count against the practice of retaining a sole expert.  This, however, must be differentiated from a Tribunal retaining an expert to help the Tribunal on complex matters.

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In terms of the presentation and examination of oral evidence, Dr. Spiller considered that party cross-examination is “fundamental” and, indeed, “the essence of a hearing”. In his opinion, there is a case to be made that direct examination could be avoided entirely; that is, that under some circumstances it could be more valuable to head straight to cross-examination. “Hot tubbing” can be important, in his view, however it requires a lot of active input from the tribunal to be used effectively. He analogized that often, passive tribunals allow “hot tubbing” to turn into “mud wrestling”, and that all this ultimately leads to is the spraying of mud into the tribunal’s eyes. Effective “hot tubbing”, he submits, is achieved where an active president of a well-prepared tribunal has carefully prepared specific questions and an organized structure for the session, focusing on the main areas of disagreements among the experts.

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However, for Dr. Spiller, the related concept of a joint expert report between the parties’ experts subsequent to the presentation of their individual reports is rarely illuminating, and seldom leads to a true meeting of the minds. Whereas insignificant divergences may be resolved in them, the central issues will hardly ever be. Moreover, Dr. Spiller noted that there is a risk that the joint expert report becomes a too summarized or incomplete version of the expert reports themselves, with the risk of the Tribunal misunderstanding the respective positions of the experts. Instead, he considers that experts should attempt to increase the quality of their reports by writing more succinctly and to the point (leaving all supporting analysis and material to footnotes and appendices), and clearly identifying the areas of agreements or disagreement with the opposing expert, so that such “joint report” is not required.

 

Greater Scrutiny for Experts?

As the discussion moved onto the pitfalls of the use of expert evidence in arbitration, Mr. Tan asked Dr. Spiller what he thought more arbitrators should be doing to get the most out of it. The key message from Dr. Spiller was that the arbitrator must optimally prepare for the hearing (“preparation, preparation, preparation”), as that is exactly what a good expert will have done. To best contribute to the collective brainstorming exercise, considerable time should be invested into the careful preparation of questions.

With respect to the shortcomings of the present system, Dr. Spiller considered a crucial issue to be the lack of sanctions for the presentation of baseless or untruthful expert evidence. In his view, given the sums usually at stake, it is unsatisfactory for evidence based exclusively on opinion to be presented without the potential for consequences. In this vein, Dr. Spiller suggested that the widespread adoption of a doctrine similar to the Daubert standard (as established in the 1993 US Supreme Court decision of Daubert v. Merrell Dow Pharmaceuticals Inc.) may be an important advancement for international arbitration. That is, Dr. Spiller submitted that international arbitration may benefit from the practice of being explicit when rejecting expert evidence because it considers it to lack scientific basis.

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His advice to arbitrators is not to shy away from giving their views on expert witnesses in their awards. Even if a tribunal’s conclusion is that it lost faith in an expert, Dr. Spiller considers that it would contribute to the advancement of the profession for that to be reflected in the award.

Dr. Spiller, in the subsequent Q&A session, also discussed cases where experts may undertake their economic analyses based on a presumption of a lesser or different liability to that which has been alleged by the claimant party.  That leads to expert testimonies “passing in the night” as each discusses a different claim. He observed, however, that aside from providing an opinion on the claim as presented, often it is best to present damages assessments based on different sets of instructions so as to assist the Tribunal should it decide to accept some claims and reject others.

In response to a question from Ana Gerdau de Borja Mercereau (Derains & Gharavi) concerning the saving of time and costs in situations where the experts adopt different assumptions and methods, Dr. Spiller mentioned that usually an integral part of the brainstorming process is for economic experts to consider and potentially present multiple methods as approaches to any given analysis, noting that there is usually no single foolproof method to tackle an economic question, and that all cases are different.

 

Conclusions

The RAI’s discussion with Dr. Spiller offered rare insights into the perspective of a seasoned economic expert witness in international commercial and investment arbitration. The overall impression left was that a system based on the adversarial process with opposing expert witnesses, that pits expert witnesses against one another, is no bad thing – indeed it is arguably essential to the integrity of the tribunal’s economic analysis. However, Dr. Spiller also warns that in order to ensure such integrity, the arbitrators must necessarily be well-prepared and active participants in the collaborative process. Perhaps most notably, he urges arbitrators not to shy away from criticizing experts in their awards when their work lacks scientific basis, a practice that would benefit the international arbitration practice akin to impact of the Daubert standard in US litigation.

 

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Interviews with our Editors: Crossing the Pacific with Kevin Nash and Adriana Uson of Singapore International Arbitration Centre

Kluwer Arbitration Blog - Fri, 2021-05-14 01:13

In December 2020, Singapore International Arbitration Centre (“SIAC”) launched its representative office in New York. In April 2021, SIAC announced in its Annual Report 2020 that United States (“US”) parties accounted for 545 of the approximately total 1,000 new cases filed in 2020. We, as Associate Editors for Southeast Asia and North America, are pleased to jointly interview Kevin Nash and Adriana Uson. Kevin is SIAC’s Deputy Registrar and Centre Director, and he assists with the administration of all cases filed with SIAC and the supervision of SIAC’s multinational Secretariat. Adriana is SIAC’s Head (Americas), and she oversees SIAC’s activities in North and South Americas.

 

KG: Thank you Kevin and Adriana for joining us, and hello from Washington D.C.! Please give us a few sentences introducing yourselves to our readers around the world.

KN: Thanks to you both. As a long-time reader of the Blog, it is really fun to get together for this discussion.

By way of background, I am a Canadian who has been based in Singapore and working with SIAC for nearly a decade. During that time, SIAC’s caseload has grown from 188 cases in 2011 to 1,080 cases in 2021. Looking back, I arrived at the most fortuitous time when SIAC’s caseload was ready to launch from the great work of all the founders. It has been an exciting journey for me and the time has passed very quickly.

AU: Thanks for inviting us. Prior to my current role as SIAC’s Head (Americas), I was a disputes lawyer at an international firm in Singapore where I advised and represented clients in international arbitrations and took sole arbitrator appointments. I was also a Case Counsel at the SIAC Secretariat where I administered cases and was involved in the drafting of the SIAC Rules and Practice Notes.

 

BL: What would you say to the observation that institutional rules, SIAC’s included, increasingly look alike? Can you give us any sneak peek at what SIAC is thinking of for its new rules? (*winks*)

AU: In my view, institutional rules are ‘same same, but different’. Institutional rules would inevitably have similarities because of the scope of services offered. There is also, without question, a great deal of institutional sharing and emulation. A good example of this is SIAC’s provisions on early dismissal, which were initially drawn from Rule 41(5) of the ICSID Rules and have thereafter become a standard feature across many sets of commercial rules. The same process occurred with the introduction of the modern emergency arbitrator provisions at ICDR (2006), SCC (2010), SIAC (2010), ICC (2012), HKIAC (2013), and LCIA (2014). That said, there are some differences among these rules depending on an institution’s philosophy on the best way to manage cases. Some institutions have a ‘light touch’ approach while others, such as SIAC, offer more structured administration with full oversight of the process from commencement to the scrutiny of the award. When we dive down into the details, there are also some appreciable differences under each set of rules. For instance, monetary threshold, time for rendering an award, and number of default arbitrator(s) for expedited procedure vary across institutions. Threshold requirements and timelines for appointment and issuance of an order or award also vary for emergency arbitrator provisions.

For any institution, there is always some risk with the promulgation of an entirely new provision but SIAC does have a history of being bold. As to the sneak peek into the future of SIAC Rules, Kevin is leading the SIAC Rules Revision Committee, and might be feeling daring.

KN: I have made this same observation when canvassing other sets of institutional rules and speaking with colleagues at other institutions. Convergence or divergence? Harmonisation or competitive advantage? These are important questions.

From my vantage point, there is an increasing amount of agreed best practice which is codified and given effect in institutional rules. This is a good thing. Of course, when we dive down into the details, as Adriana mentioned, there are some important differences under each set of rules which may be relevant depending on the colour and complexity of any transaction. For instance, Benson, if you are advising on a major infrastructure project, you might suggest SIAC on account of its consolidation provisions which do not require ‘identity of the parties’ across a suite of contracts. You might also propose SIAC and a three-member tribunal to preserve the option to apply for the expedited procedure before a sole arbitrator. No doubt, our friends at other institutions could make similar arguments with equal force.

SIAC’s charge is to strike a balance with these competing considerations in the 7th Edition of the SIAC Rules. We will, of course, find guidance and inspiration in the provisions that have been introduced by other institutions, particularly in view of the challenges brought on by the COVID-19 pandemic and the shift to the virtual space. But, because it’s SIAC, and with apologies for reading down to your question below, you can be sure that SIAC will have that iconic moment of ‘one more thing’ when introducing the 7th Edition of the Rules.

 

BL: SIAC regularly updates its Rules but businesses naturally like long-term certainty and predictability. Do you feel you are like Apple with its first iPhone insofar as you are making rule changes to create a need that users do not know exists or does not exist at all? Or are you addressing needs that don’t exist but are likely to surface in the near future?

AU: As a starting point, I should mention that I am typing this answer on a new iPhone which I firmly believe is both a want and a need. The SIAC Rules 2016 are enormously popular and have been used in the conduct of many thousands of arbitrations. We understand the value of stability and predictability for our users. The 7th Edition of the Rules will bring back many of the familiar features with amendments and tweaks to cater to increasingly complex disputes and the ever-changing commercial environment. Additionally, given the level of interest from the Americas, we are actively soliciting feedback from US, Canadian, and Latin American parties on the features to be included in the Rules (i.e., ‘must have’ and ‘nice to have’). Put differently, the Rules will ‘feel’ the same but will, hopefully, work even better.

KN: This is my fourth rules revision and my third time working with Adriana on the Rules. From this experience, and having reviewed thousands of comments along the way, the best way to draft rules is to listen and really hear what users want from an institution. It is really that simple. For instance, and without tipping our hand to any new provision, the preponderance of user feedback might show that parties would like the ability to commence a single arbitration under multiple contracts. Our job, when we take out our drafting pens, is to come up with a construction that gets to this outcome in a way that is resilient, workable across a range of applicable laws and ‘future proof’.

At a more philosophical, blog-worthy level, when addressing the distinction between wants and needs, and needs that have not yet been realised, many institutional innovations are ultimately designed to preserve and remain faithful to the core tenets of arbitration in an increasingly complex and competitive dispute resolution marketplace. Speedy. Flexible. Cost effective. Choose your deciders. Confidential. Limited avenues for appeal. International enforceability. We are drafting with these first principles in mind (but perhaps with an innovative ‘flourish’).

 

KG: Let’s cross the Pacific and talk about SIAC Americas. Wow! The increase in US parties in new SIAC cases has been particularly sharp! US parties started ranking amongst the top 5 users in 2018. Do you have any insights into the types of disputes or industry sectors where parties in the Americas are increasingly using SIAC Rules? What do you think are the reasons for the success in the past years?

AU: Indeed last year’s numbers were incredible: 1,080 new cases, 1,063 administered cases, 545 US parties. US parties ranked second in SIAC’s top foreign users.

As a global institution, SIAC administers a wide band of disputes including, among many others, international trade, corporate and commercial, construction and engineering, energy, maritime/shipping, banking and financial services, IP/IT, and treaty interpretation. In 2020, for American parties, many of whom operate through subsidiaries in Singapore, we received a high number of cases involving international trade, corporate, and commercial disputes with a range of counterparties from Asia-Pacific and beyond. Additionally, given Singapore’s status as an IP hub, we are receiving more tech cases and disputes arising out of cryptocurrency and fintech.

The reason for this success with American parties really starts and ends with the unique ‘Singapore recipe’ as one of the best and easiest places to resolve disputes.

KN: My first thought is the midnight clause in a conference room. While the institution does not have sight of the negotiation of the dispute resolution clause, it is easy to see how a transaction between an American party and an Asian party would gravitate towards Singapore and SIAC. Many of the US’ top trading partners are jurisdictions which are already frequent users of SIAC such as India, China, Japan and the ASEAN. Singapore is a pro-arbitration, common law jurisdiction with a nearly unrivalled reputation for neutrality and applying the rule of law without fear or favour. And, once we are all travelling again, it is 30 degrees in Singapore every day and there is a gorgeous hearing facility at Maxwell Chambers. Surely, these surroundings would result in at least a few settlements.

 

KG: It is a competitive space amongst arbitral institutions in Asia and North America. What will SIAC do to keep from complacency?

KN: Institutions are judged by the quality of their case management and complacency is a path to Article 34 (UNCITRAL Model Arbitration Law) or Article V (New York Convention). From the standpoint of the SIAC Secretariat, and at the risk of sounding cliché, we are 16 disputes lawyers who love arbitration and work every day to ensure the procedural propriety of SIAC arbitrations.

Many times the Secretariat’s work will be unseen and the takeaway from users is that SIAC arbitrations ‘just work’ and are ‘really efficient’. Other times, in high-value cases of consequence with complex interlocutory applications or novel case management issues, the skill and experience of the Secretariat will be front and centre as we work to keep the arbitration on track. In the fast-moving SIAC Secretariat, we’ve been too busy to think about being complacent and compete against ourselves and timelines.

AU: We don’t really see ourselves in competition with other institutions. For SIAC Americas, we want to be part of the arbitration community in the Americas and work with arbitration stakeholders on capacity building and training, developing best practices, new reforms and policy initiatives, and fine-tuning case management. This is with a view to ‘growing the pie’ for international arbitration and making a bigger tent for diverse participants. We are cognisant that, while the global business community has overwhelmingly selected international arbitration as the preferred mechanism to resolve cross-border disputes, as we move through the COVID-19 pandemic, the competition may come from other forms of dispute resolution such as litigation, mediation, adjudication, expert determination as well as various tiered mechanisms.

 

BL: Finally, finish the joke: “an arbitrator, SIAC counsel, and arbitration counsel walk into an American diner …” 

AU: They order, eat, and split the bill 15/2/83.

KN: As part of SIAC’s robust determination of cost process, I confirm that the Tribunal’s share and SIAC’s share would account for 17 percent of the tab (not including the tip which may be categorised as reasonable out-of-pocket expenses for the Tribunal).

 

Thank you Kevin and Adriana for your time!

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

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LIDW 2021: Corporate Counsel Roundtable on the Top Priorities when Navigating Global Disputes

Kluwer Arbitration Blog - Thu, 2021-05-13 07:57

In line with LIDW’s promise to deliver exceptional events focusing on international dispute resolution (and London) and give a voice to inhouse lawyers, its eleventh session – on 12 May 2021 – concentrated on corporate counsel’s priorities when navigating global disputes. Kai-Uwe Karl and Loukas Mistelis elegantly moderated the discussion. The speakers – Stephan Balthasar, Glenn Baumgarten, Teresa Garcia-Reyes, Alison Pearsall – brought to the table their views and practical insights on different topics. The discussion focused on litigation, arbitration, and mediation; how to streamline arbitration proceedings to reduce costs and delays; London as an arbitral seat, and whether Brexit might impact it.1) There was another session focusing on the relationship of the in-house lawyer with external counsel and several other sessions also had in-house lawyers as speakers. jQuery('#footnote_plugin_tooltip_37404_18_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37404_18_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

As a starting point, in a comparative fashion, the panel discussed the choice between arbitration and court proceedings. For example, Teresa Garcia-Reyes discussed arbitration proceedings’ flexibility and predictability. In terms of flexibility, she referred to the parties’ ability to agree on procedural aspects – the confidential character of the proceedings being a good case on point. Concerning predictability, she mentioned the possibility of using known procedures, which leads to predictable results.

Stephan Balthasar focused on what disputes might be more suitable for arbitration than court proceedings. For example, court proceedings might be more suitable for small and less complex disputes, while more complex and bigger cases might require arbitration and the expertise arbitrators bring about. He also noted that in some instances, when drafting contracts, arbitration may be the only common denominator between the parties, who are willing to avoid their respective national courts. Similarly, Alison Pearsall mentioned that parties consider whether arbitration proceedings might be the best option for any potential future disputes at the time of drafting contracts – with the important insight that most contracts are drafted by business teams and not by in-house dispute lawyers. The possibility of selecting arbitrators with expertise in certain industries would very much weigh in favour of arbitration.

The discussion then moved to the role of mediation in the context of arbitration and why, notwithstanding the confidentiality of mediation proceedings, it appears a great deal of work needs to be done further to promote mediation for the settlement of business disputes. The panel considered whether mediation is only a formal step and when parties should use it. In answering these questions, Glenn Baumgarten suggested that measuring the success of mediation is not an easy task and that the success of a mediation might at times occur at a later stage of the proceedings. Indeed, attempts to mediate disputes early in the process might prove very useful at a later stage. However, this is a result, which is not in line with the need of settling disputes efficiently. Further, he touched upon advocacy in mediations and briefly considered how to incentivise external counsel to conduct meditation successfully.

Picking up on this point, Alison Pearsall discussed whether in-house counsel would need external counsel to mediate; mediation, indeed, does represent the last opportunity for business teams to retain any control over the negotiations and the dispute. Further, she touched upon a further practical point: negotiating proposals with external counsel on their involvement in mediations. A thorough case analysis at the beginning of the dispute is necessary to understand the goal of the business. If the objective is to settle, then providing an uplift for external counsel to conduct mediation within a certain period might be the key to incentivising external counsel. More in general on the use of mediation, Stephan Balthasar pointed out that complex multitier clauses providing mediation are not necessarily the solution and, in fact, might derail the arbitration proceedings. Also, Teresa Garcia-Reyes stressed the importance of lawyers focusing on mediation at the training stage.

Then, the panel discussed whether there is a need to streamline and standardise arbitration proceedings. The speakers answered this question in the affirmative. They all agree on the possibility for arbitral institutions or other organisations to provide a standardised procedural order no 1. Such a solution might offer parties a baseline. For example, Teresa Garcia-Reyes pointed out that such a solution might help bridge the differences between common law and civil law approaches. Although experienced arbitrators might have procedural orders templates, more in general – as noted by Kai-Uwe Karl – such a practice might serve as a helpful starting point to streamline the proceedings, reducing time and costs. Perhaps more importantly, it would help when parties are not familiar with arbitration proceedings. Furthermore, in answering a question from the audience, the speakers agree that inclusion of the possibility of mediating during arbitration proceedings in procedural order no 1 might be a good idea – along the line of the practice before English courts. Loukas Mistelis also noted that standardisation would be a baseline and would not limit the capacity of parties and arbitrators to develop bespoke proceedings, where necessary. Standardisation is a move to more efficiency and transnationalisation of arbitration.

A final point which the panel touched upon was the relevance of London as a seat for arbitration proceedings and whether Brexit will impact it. In line with the findings of the recently published Queen Mary University’s International Arbitration Survey, they confirmed that companies do consider London as one of the main seats for arbitration proceedings. If any, Brexit might improve its relevance in this sense. For example, Glenn Baumgarten noted that Brexit might increase the perception of London as a neutral seat. Stephan Balthasar echoed this point by noting, for example, that parties will not be able to allege breaches of European law in their attempts to set aside arbitral awards before English courts. However, he pointed out that, in general, the selection of the seat of arbitration depends on different factors; for example, one approach might be to look at the rule of law index and select a jurisdiction rather than aprioristically choosing a seat. Even under such standards, London would look very attractive to most parties. Finally, it was noted that given the competitiveness of the dispute resolution market, it is important for London to continue to innovate and remain competitive.

The programme of LIDW is available here, and some sessions are free of charge.

References[+]

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Stay Proceedings in the “Age of Zoom” – Is this the End of Forum Non Conveniens Arguments?

International Arbitration Blog - Wed, 2021-05-12 16:23

Why this case matters

“In the age of Zoom, is any forum more non conveniens than another?”

This was the opening line in the decision in Kore Meals LLC v. Freshii Development LLC, in which the Ontario Superior Court of Justice was tasked with deciding whether to stay a Court proceeding brought in Ontario in favour of an arbitration seated in Chicago, Illinois. 

Maryland Carey Law hiring staff attorney-mediator

ADR Prof Blog - Wed, 2021-05-12 11:12
From the list serv – The Center for Dispute Resolution at Maryland Carey Law (C-DRUM) is hiring a staff attorney-mediator to support the mediation clinic and some of C-DRUM’s broader initiatives. Applications are due by May 27 and must be submitted within the University of Maryland, Baltimore system. A direct link to the position description … Continue reading Maryland Carey Law hiring staff attorney-mediator →

Germany: Frankfurt Court Permits a Tribunal’s Search for the Truth on the Internet

Kluwer Arbitration Blog - Wed, 2021-05-12 01:54

“I want the truth!  … You can’t handle the truth!” – Hollywood’s infamous shouting match in “A Few Good Men” may have forever ruined every client’s expectation of a measured cross-examination. But the struggle to ascertain the truth remains real in international arbitration. Tribunals and counsel frequently face the tough question of what exactly they may, or must not, do on their quest for finding the truth. A decision of the Higher Regional Court Frankfurt from 25 March 2021 (26 Sch 18/20) now provides practical guidance.

An Austrian pharmaceutical company specialising in orphan drugs (i.e. drugs for the treatment of particularly rare diseases) had applied for an award to be declared enforceable. The dispute with the defendant, a Taiwanese biotech company, arose from a license and manufacturing agreement regarding a drug for rare forms of blood cancer. In the ICC arbitration, the applicant sought lost profits due to delays in the drug’s approval and market entry. The tribunal found that the defendant had not validly terminated the agreement and ordered it to pay approximately €140 million in damages to the applicant.

In upholding the contested award, the Frankfurt court dismissed no less than seven allegedly grave violations of the defendant’s right to be heard, instructively setting out the German courts’ high standard of review: it is generally presumed that a tribunal has observed its duty to acknowledge and consider a party’s submissions even if it does not expressly address all individual aspects. Where, however, a tribunal does not address the essential core of a party’s submissions on an issue of central importance, there may be a violation, unless the tribunal deems that specific submission legally irrelevant or unsubstantiated.

Beyond that, the Frankfurt court’s decision merits attention because it carefully balances competing considerations of the right to be heard and efficiently establishing the truth: How to deal with late submissions in post-hearing briefs? Is a tribunal permitted to search for information on the internet? At which point does assessing damages turn from a legal into a (forbidden) equitable decision?

 

“I want the truth!” … even if it arrives late

The defendant alleged that the tribunal violated the defendant’s right to present its case when the tribunal ordered that a recently surfaced report questioning the drug’s added therapeutic benefit was not to be discussed at the hearing.

The court dismissed the defendant’s allegation, emphasising that the right to be heard did not encompass the right to be heard at the earliest opportunity, as long as such opportunity was eventually provided. As directed by the tribunal, the parties addressed the contentious report in the two rounds of post-hearing briefs. The court found that the tribunal had thereby preserved the parties’ right to be heard as well as the “equality of arms” principle, as the order had affected both parties in the same manner.

The defendant further argued that it should have been granted an opportunity to respond to a legal opinion on the contentious report, which the applicant had submitted with its rebuttal post-hearing brief.

The Frankfurt court held that it was not entitled to review whether the tribunal had wrongly admitted belated evidence. The court drew an analogy to a corresponding rule of civil procedure restricting such review of lower court judgments. The court explained the rationale for this analogy as follows: the admission of belated evidence serves the purpose of finding the truth; and the general interest in finding the truth trumps the general interest in observing procedural rules regarding delayed evidence. The court found that this reasoning should analogously apply to its review of the award, absent a divergent agreement of the parties.

At first sight, the court’s analogy could be seen to invalidate cut-off dates, and as doing a disservice to efficiency: one party could be incentivised to make belated submissions to save its case at the final hour; the other party might do the same expecting that its opponent’s belated evidence will not be struck.

But that is not the case: tribunals can address belated submissions with the tools already available to them, including rejecting any belated evidence. Yet, once belated evidence has been admitted, the reviewing state court cannot retroactively achieve the failed purpose of the delay rules. (Only) in this situation, the interest in a correct decision indeed outweighs adhering strictly to procedural timetables.

A more questionable aspect of the court’s reasoning is its suggestion that parties can escape the analogous application of domestic procedural law by agreement. In fact, parties to an arbitration agreement consent to applying the lex arbitri (e.g. the 10th book of the German Code of Civil Procedure, GCCP), but not other domestic civil procedure rules. It is thus neither legally necessary nor realistic that parties ever reach a more express agreement to not draw analogies. Ultimately, this additional safety valve provided by the court may be impractical, but it does not undermine an otherwise reasonable analogy.

 

“I want the truth!” … even if I have to search for it on the internet

Next, the defendant alleged that its right to be heard was violated because the tribunal had – more than a month after it had declared the proceedings closed (under Article 27(1) of the ICC Rules) – visited a website of a public health services association. In its damages assessment, the tribunal had then relied on information available on that website regarding “blended price”-calculations for orphan drugs.

The court rejected this objection, citing the tribunal’s mandate “to establish the facts of the case by all appropriate means” (Article 25 of the ICC Rules) and the tribunal’s statutory discretion on procedural rules absent an agreement between the parties (Section 1042(4) 1st sentence GCCP). The court thus confirmed that the tribunal had the power to conduct investigations on its own volition. Emphasising that the defendant itself had referred the tribunal to the website in its submissions, the court pointed out that it was neither alleged by the defendant nor otherwise apparent that the website’s content had changed in the meantime.

The court thereby affirms the power of tribunals to independently establish the facts, which is provided in many modern arbitration rules (see e.g. Article 28 DIS Rules), but is under-used and often overlooked. On close consideration, the Frankfurt court cannot be understood to have written a blank cheque for tribunals googling their reasonings on the internet. Where parties have not referred to a specific website, tribunals should carefully consider whether they need to reopen proceedings to allow parties to comment on their findings.

In fact, the defendant also complained that it had not been aware of the tribunal’s independent investigation and was not given an opportunity to respond. The tribunal’s damages determination should therefore be considered a “surprise decision” in violation of its right to be heard.

Again, the court was not sympathetic to the defendant’s position: a surprise decision could only be assumed where the tribunal had – without prior notice – relied on an aspect that even a conscientious and knowledgeable litigant ought not have expected. Such a litigant had to anticipate that the tribunal could rely on the “blended price”-concept in determining damages, because the concept had recently been recognised by Germany’s Federal Social Court.

Arguably, the reasoning by the Frankfurt court sets a high standard that requires counsel to be aware of all pertinent decisions by any of Germany’s five highest federal courts. The court emphasised that this standard applies regardless of whether either party mentioned that jurisprudence in any submission. The decision thus serves as a reminder to counsel to comprehensively research all relevant jurisprudence (if need be, by engaging local counsel).

 

“I want the truth!” … I do not want any guessing

Finally, the defendant also argued that by arbitrarily estimating damages, the tribunal had unlawfully rendered a decision in equity (rather than law). While the defendant acknowledged that estimating damages was in principle permissible, the estimate had to be grounded on robust and verifiable data – which, in its view, was not the case.

Although the court acknowledged that the parties’ express consent would be required to render an award based on equity (Section 1051(3) 1st sentence GCCP), it did not find the tribunal’s damages assessment to be an equitable decision: by considering all pertinent circumstances and explaining its approach over 19 pages, the tribunal had properly exercised its discretion to engage in fact-finding (Section 1042(4) 2nd sentence GCCP) and ultimately rendered a legal decision.

The court pointed out that the tribunal had methodologically proceeded in accordance with the corresponding rule of German domestic civil procedure that permits courts to estimate damages under certain circumstances (Section 287 GCCP). At the same time, the court confirmed that it was not entitled to further review whether the factual basis for estimating damages had been sufficient or whether the resulting damages were substantively correct.

By drawing this distinction, the court walked the fine line between the permissible review of unauthorised decisions in equity and the impermissible review of a tribunal’s factual and legal assessment. The message to tribunals is thus clear: As long as damages assessments are diligently reasoned and guided by legal principles, they will not be set-aside as decisions in equity.

In summary, the Frankfurt court has not only provided helpful guidance to practical issues but reaffirmed its pro-arbitration stance in enforcement and set-aside matters – that some had doubted after its recent obiter dictum on dissenting opinions (see prior Kluwer Arbitration Blog posts). We will continue to report, as the defendant has appealed the decision to the Federal Supreme Court (I ZP 21/21).

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Dwight Golann on a Year of Zoom Mediations

ADR Prof Blog - Tue, 2021-05-11 18:29
Dwight Golann just wrote a nice article about mediators’ experiences mediating on Zoom: “I Sometimes Catch Myself Looking Angry or Tired …”  The Impact of Mediating by Zoom, published in CPR’s Alternatives to the High Cost of Litigation. Dwight solicited mediators’ reactions on the International Academy of Mediators listserv as well as in two focus … Continue reading Dwight Golann on a Year of Zoom Mediations →

2021 Resource Share Materials

ADR Prof Blog - Tue, 2021-05-11 15:22
From Sharon Press and Noam Ebner: Greetings everyone! We hope that the end of the term is wrapping up well for all.  We are pleased to share with you the 2021 Legal Educators’ Resource Share and Appendices which are attached to this message.  As a reminder, the Resource Share is the compilation of resources and … Continue reading 2021 Resource Share Materials →

Efficiency in Arbitration in Australia: A Many Faceted Approach

Kluwer Arbitration Blog - Tue, 2021-05-11 01:43

Efficiency in arbitration is an area that is discussed so often it almost feels inefficient to discuss it. Indeed, when the Australian Centre for International Commercial Arbitration (ACICA) (in conjunction with FTI Consulting, and with the support of the Australian Bar Association, Francis Burt Chambers and the WA Arbitration Initiative) launched the results of the inaugural Australia-wide arbitration survey, the Australian Arbitration Report (Report) on 9 March 2021, the primary intention was not starting a discussion focussed on efficiency in arbitration. It is the first empirical study of its kind on the use of commercial arbitration in Australia. The culmination of analysis of survey results yielded from information provided by 111 respondents, including data in relation to 223 unique arbitrations with an Australian connection comprising AU$35 billion in disputed value, a copy of which can be found here.

However, the data provides real insight into how Australian parties, arbitrators, legal representatives and companies with Australia-based projects are conducting arbitrations, drafting arbitration agreements, and their sentiments about arbitration. It is clear from the Report that many factors affect the overall efficiency of arbitration, and in turn, users’ sentiment of the arbitration process. The conclusions drawn from the Report and this article are not limited to Australia – they can apply to other jurisdictions.

 

Australian arbitration – increasing the regional focus

At the launch of the survey’s results, the Honourable Amanda Stoker, Assistant Minister to the Attorney General of Australia, noted the developments leading to Australia becoming an attractive seat for international arbitration in the Asia-Pacific region. The Report indicated that many of the users of arbitration with an Australian connection recommend seating their arbitrations in Singapore, London, Hong Kong and Australia, in that order. While some of this preference might be due to Australian-connected parties desire to choose a neutral seat, it may also be part of what is often called the ‘tyranny of distance’ that Australia faces due to its location.

The increased use of technology and virtual hearings arising out of the COVID-19 pandemic is enabling Australia to overcome this ‘tyranny of distance’. Together with Australia’s newfound accessibility, as Minister Stoker said, the Report highlights that ‘geopolitical developments have provided a pathway for Australia to increase its profile in the Asia-Pacific region’. Not only will the opportunity for Australia to better engage with its regional neighbours have a profoundly positive impact on its status as an attractive seat for international arbitration, it would also allow specialisation of Australian arbitration users in disputes of this kind.

 

The type of case – a key element of efficiency

The type of disputes most prevalent in Australia is likely influenced by the fact that Australia and some neighbouring nations have natural resources that are located at a distance from ports, requiring large construction projects to access them. As a result, the profile of Australian cases is often thought to be construction and engineering focussed. This is reflected in the data, with construction cases accounting for almost half of all the arbitrations reported by the respondents. However, the Report’s data reinforces the prevalent status of oil and gas, mining and resources, and transport expertise (Fig. 9).

Separately, the data shows that arbitration in the oil and gas industry consists of a relatively small number of cases with large values in dispute, while arbitrations in the construction industry consist of a relatively large number of cases with relatively smaller amounts in dispute.

For these disputes, parties with an Australian connection are using institutions and rules that are both global, like the ICC (~ $10 billion AUD) or UNCITRAL rules (~ $9 billion AUD), or more regional such as SIAC (~$8 billion AUD), ACICA (~$2 billion), HKIAC (~$1 billion AUD).

The characteristics of the arbitrations are important because they help to frame how parties and arbitrators conduct their disputes. The institution administering the dispute may have an effect on the composition of the tribunal.  Parties are influenced in how they run their dispute by the value (either monetary or otherwise). Certain industries have higher value disputes (among these being construction, oil & gas, which are both prevalent in Australia and the region).

 

The arbitration process – the effects of matter size

One of the outcomes that we learned from the Report was the relationship between mediation and settlement. The propensity to settle appears to correlate with the amount in dispute, whereby the probability of settlement substantially dropped as matters approached AU$100 million in disputed value. As there was a limited subset of data, the tendency of matters with smaller amounts in dispute to settle does not necessarily correlate to matters that are conducted through a mediation process having a greater likelihood of settlement. However, the data showed that mediation during the arbitration process did not correlate to settlement.

When parties did reach the award, for the most part, these awards were satisfied, at least partially.

Similarly, the Report indicates a correction between value of dispute and number of hearing days (with the average number of hearing days being less than two for a dispute worth $500,000 AUD, and an average of 15 for disputes worth $500,000,000 AUD. The number of hearing days correlates to costs, both tribunal costs, and external legal costs (which, according to the Report, account for almost half of the costs of arbitration). All of these factors are heavily influenced by who has been appointed as arbitrator.

 

Tribunal composition – the Tribunal’s influence on proceedings

Some of the respondents commented in the survey that they felt that the pool of arbitrators was too shallow. Additionally, respondents indicated that they chose arbitrators based on previous experience, familiarity, and reputation.

The Report also highlighted the room for improvement for diversity in arbitration, particularly as regards female arbitrators. While the data revealed an overwhelming proportion of party appointments going to male arbitrators, institutional appointments were substantially more likely than party appointments to be female arbitrators. The survey did not cover other points of diversity.

This choice is likely linked to the value of the dispute and type of dispute. The higher the value of dispute and or amount of factual analysis required, the more likely there will be numerous witnesses (expert and lay), thereby creating a longer hearing. The value in dispute will also make parties consider arbitrators with certain experience levels who they think can handle the voluminous material and complexity. Many of these arbitrators may be experienced in subject matter areas or be experts in legal analysis rather than arbitration procedure itself. If an arbitrator is not as familiar with the flexibility and options available within arbitration, then the choice in arbitrator likely impacts the length and cost of the overall proceeding.

 

User sentiment and the reasons why arbitration is chosen

Interestingly, the freeform comment field in relation to common complaints with arbitration indicated that arbitration too often resembled litigation.  By participating in such proceedings, respondents were losing one of the key values, flexibility, which they felt arbitration added.

This sentiment is consistent with the circumstances in which arbitration is chosen by users with an Australian connection. The Report indicated that respondents view the key benefits of arbitration to be enforceability, confidentiality, and flexibility (in that order). Arbitration has provided parties the autonomy to choose how and with whom they resolve their disputes, tailoring procedures to their requirements without compromising the fundamental principles of due process, natural justice, and finality. However, if the proceedings were more flexible and less expensive, then these factors might not have been as low on the list on why arbitration was chosen in the first place.

 

 Conclusion

The Report indicates that the issue of efficiency is one that spans the entire process of arbitration and is influenced not just by the choices parties make (eg how they run their case, who they choose as arbitrator) but also the market within which they operate.

What is incumbent upon arbitration practitioners is to search for efficiency in every matter that they are involved in: to try to minimise costs, encourage settlement and choose the right arbitrator for the dispute.

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LIDW 2021: London and the New, Decentralised Disputes Resolution Landscape

Kluwer Arbitration Blog - Mon, 2021-05-10 07:13

London International Disputes Week (LIDW) 2021 commences today and promises to deliver – in an online format, this time – a week full of exceptional events focused on dispute resolution (and London). As such, and as in 2019, LIDW focuses on more than just arbitration.

The second session of the first day of LIDW 2021, 10 May 2021, discussed London and the new, decentralised disputes resolution landscape and was chaired by Dame Elizabeth Gloster DBE. The speakers, Julian Acratopulo, Clifford Chance; Maria Gritsenko, VEON; Professor Dr Jacomijn van Haersolte-van Hof, LCIA; John Howell OBE, MP; Oliver McClintock, Opus 2, brought comprehensive and unique views on the topic. The discussion covered how litigation, arbitration, ADR and other dispute resolution methods have adapted to the new decentralised landscape. Furthermore, the panel explored whether the venue of the court, tribunal or seat matters and what, in particular, London offers to the global disputes community in the new, decentralised landscape.

One question to the panellists focused on the types of disputes heard or dealt with in London and the dispute resolution methods used. In answering this question, Jacomijn van Haersolte-van Hof highlighted that London is not only big, but also fragmented and there are various arbitration centres in London. For LCIA, the top three sectors that populate the arbitration case load are banking and finance, commodities and energy related disputes. This is partly because of the popularity of English law and secondarily of London as a seat of arbitration. Julian Acratopulo explained that when it comes to litigation, the English courts, in addition to the types of disputes mentioned before, see aviation and insurance related disputes, as well as M&A disputes, in particular in the context of covid-19 pandemics. London, Julian Acratopulo added, also remains the preferred choice for disputes involving CIS and former CIS countries. Jacomijn van Haersolte-van Hof added that the 2020 LCIA statistics, to be released soon, show that 1/3 of the cases involve Russian parties. Maria Gritsenko made the point that companies prefer London, irrespective of the type of dispute, and English law is also widely used. John Howell OBE referred to the Parliamentary Group on Alternative Dispute Resolution and the need to extend ADR to different areas, such as planning, as well as the implementation of conflict avoidance boards.

Another question addressed by Dame Elizabeth Gloster DBE to the panellists focused on the changes in the past months in the aftermath of Brexit and covid-19, and whether it is a change for better or for worse. Oliver McClintock referred to these changes as being to the better, at least from a technology point of view. There have been two major swifts in technology adoption: increased use of technology by legal teams and the wider adoption of virtual or hybrid hearings at an unprecedented scale. On the latter point, Oliver McClintock highlighted that the UK courts, at the early stages of the pandemic, committed to remain open and that proceedings would continue through the use of technology, including in complex trials. As a direct consequence of the increased use of technology, one could see in the past months significant investment in technology, from courts to arbitration centres and law firms, and also new hearing venues becoming fully prepared for online or hybrid hearings. The prediction is that smaller matters, such as case management conferences, will remain fully virtual, and that hybrid hearings, with few participants in the room and the majority joining remotely, will become the new normal. Because of this, venue or hearing centres will continue to be relevant and the sophistication of the venue becoming even more important, to be able to address the complexities of the technical requirements for this type of hearing. Nonetheless, larger, more complex hearings will be conducted in person. For Maria Gritsenko, some return to in person contact is important for meeting clients and experts, while work can continue remotely in most of its part. John Howell OBE highlighted the difference between arbitration and mediation in this online setting, mediation being more difficult to conduct, as it is a more intimate process in which the live, direct reaction of people is very important.

On the question of what London has to offer to the global disputes community and how this differs from other jurisdictions, Maria Gritsenko pointed out that London remains a preferred seat because of a combination of various factors, such as familiarity with London, the competence and integrity of London arbitration and courts, as well as the constant innovation of the processes. For John Howell OBE, the Parliament works to improve the position of London on the international disputes map, one example being the recent private international law act which would enable the UK to sign related international instruments, such as the Singapore Convention on Mediation. For Julian Acratopulo and Professor Dr Jacomijn van Haersolte-van Hof, it is important that London benefits from the support of the government and judiciary, in particular in developing arbitration and mediation.

 

The programme of LIDW 2021 is available here and some sessions are free of charge.

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Regulating Party-Appointed Experts: How to Increase the Efficiency of Arbitral Proceedings

Kluwer Arbitration Blog - Mon, 2021-05-10 01:46

Arbitration proceedings most often involve complex disputes, where technical issues require specific technical, scientific, legal or financial expertise, leading parties to appoint one or more experts to support their position and assist the arbitral tribunal. The 2018 LCIA Note on Experts in International Arbitration reported that, out of some 300 new arbitrations registered each year by the LCIA, “[m]ost, if not all, involve the use of experts”.

This post focuses exclusively on party-appointed experts and has been triggered by an observation of the lack of specific regulatory framework and the inefficiency to which it leads. The proposed solution is to have a series of specific duties and obligations applicable to party-appointed experts in order to enhance their role in international arbitration and increase said efficiency.

 

The Lack of a Regulatory Framework Applicable to Party-Appointed Experts

Most national laws and institutional arbitration rules set out specific provisions for tribunal-appointed experts but these rules do not apply to party-appointed experts.

Party-appointed experts are acknowledged by most arbitral institution rules, which either allow parties explicitly to appoint them or refer to this right implicitly, by reference to the possibility to have witnesses (e.g., Article 27(2) of the 2013 UNCITRAL Rules, Article 25(2) of the 2021 ICC Arbitration Rules, Article 20(1) of the 2020 LCIA Arbitration Rules, Article 33(1) of the 2017 SCC Rules, Article 25(1) of the 2016 SIAC Rules 2016). However, such acknowledgement is not accompanied by a list of duties and obligations of party-appointed experts, offering no guidance as to how experts should be managed effectively.

National laws do not contain more detailed provisions on party-appointed experts either. They solely refer to tribunal-appointed experts (the 2006 UNCITRAL Model Law 2006, the Singapore International Arbitration Act 1995, or the UK Arbitration Act 1996).

The notable exception is Rule 35.3 of the UK Civil Procedure Rules which expressly states that

1. [I]t is the duty of an expert to help the court on the matters within its expertise.

2. This duty overrides any obligation to the person from whom he has received instructions or by whom he is paid.

 

Although the guidance offered by this provision is limited, to the best knowledge of the authors it is the most detailed national provision to date.

 

A Multitude of Soft Law Instruments containing Specific Provisions applicable to Party-Appointed Experts

By contrast, the above vacuum within arbitral rules and national laws is not mirrored within soft law instruments. Indeed, there are several soft law instruments which include more detailed provisions applicable specifically to party-appointed experts.

Among the most relevant such instruments are the 2021 IBA Rules on the Taking of Evidence (IBA Rules), the 2006 ALI / UNIDROIT Principles of Transnational Civil Procedure (ALI/UNIDROIT Principles), the 2007 CIArb Protocol for the Use of Party-Appointed Expert Witnesses in International Arbitration (CIArb Protocol), the 2019 Code of Best Practices in Arbitration of the Spanish Arbitration Club (SAC Code).

Professional organizations to which experts belong have also been publishing code of conducts  setting out ethical rules for their members when serving as witnesses in dispute resolution proceedings. For example, the Academy of Experts, the Expert Witness Institute and Euro Expert, have jointly promulgated 2001 Code of Practice for Experts, which imposes duties on experts, whether tribunal- or party-appointed, of “impartiality, objectivity and integrity” as well as the duty to “take no act that would compromise the expert’s duty to the arbitral tribunal”. Also, the American Society of Civil Engineers, the American Institute of Certified Public Accountants, the American Society of Appraisers have all published such codes of conduct.

Some of the most often encountered duties and obligations of party-appointed experts provided for in these soft-law instruments are detailed below.

 

Duty of objectivity and independence

Art. 22(4) of the ALI/UNIDROIT Principles states that “[a]n expert, whether appointed by the court or by a party, owes a duty to the court to present a full and objective assessment of the issue addressed.” Equally, the Commentary to Article 3 of the CIArb Protocol, which closely follows the practice of the CPR Art. 35, states that “experts should be instructed by the parties that their overriding duty is owed to the tribunal and not to the instructing party”. Article 4 then goes on to state that “[a]n expert’s opinion shall be impartial, objective, unbiased and uninfluenced by the pressures of the dispute resolution process or by any Party”, and that “[a]n expert’s duty, in giving evidence in the Arbitration, is to assist the Arbitral Tribunal to decide the issues in respect of which expert evidence is adduced”.

The most elaborate provisions in this sense are found Arts. 133 – 134 of SAC Code which requires that “[e]xperts must be objective and independent”, explaining further that “[t]he qualities of objectivity and independence require that experts possess the willingness and capability to perform their role, are guided by the truth and report, not only aspects that are favourable to the party that has appointed them, but also those adverse to it, and maintain an objective distance from the appointing party, the dispute, and other persons involved in the arbitration”.

 

Duty to submit a declaration of objectivity and independence

Article 5 (2) of the IBA Rules lists the elements that should be contained in the expert report, among which, letter c) “a statement of his or her independence from the Parties, their legal advisors and the Arbitral Tribunal” clarified in the Commentary to the IBA Rules “for example in the sense that he or she has no financial interest in the outcome or otherwise has relationships that would prevent the expert from providing his or her honest and frank opinion”.

The template for the expert declaration in Article 8 of the CIArb Protocol also requires that the party-appointed expert submits a declaration attesting to the latter’s objectivity. The SAC Code also refers to the party-appointed expert’s ‘declaration of objectivity and independence’ (Article 137) and contains a template statement.

 

Duty of disclosure

Under Article 5.2(a) of the IBA Rules, a party-appointed expert is required to describe “his or her background, qualifications, training and experience”, and also to disclose “any and all relationships he or she may have with the parties, their legal advisers and the arbitral tribunal”. In similar terms, Article 4.4(b) of the CIArb Protocol also requires that the expert should “state any past or present relationship with any of the Parties, the Arbitral Tribunal, counsel or other representatives of the Parties, other witnesses and any other person or entity involved in the Arbitration”.

The disclosure obligations in SAC Code are particularly elaborate and are contained in Articles 139-145. Party-appointed experts must “disclose any circumstance which … may give rise to justifiable doubts as to their objectivity and independence” (Article 140). Such duty is “ongoing” (Article 141), requires that experts “carry out an inquire into their past and present relationships with the persons involved in the arbitration and with the dispute” (Article 144), and there is a preference in favour of disclosure should an expert be “unsure whether a circumstance can reasonably give rise to justifiable doubts about his or her objectivity and independence” (Article 143).

 

Mandatory elements to be included in the expert report

A minimum set of elements to be included in the expert report is identified in Article 4(4) of the CIArb Protocol (elements numbered from (a) to (l)), Article 5.2 of the IBA Rules (elements numbered from (a) to (i)), and Article 146 of the SAC Code (elements numbered (a) to (g)).

 

An obligation of confidentiality

An obligation of confidentiality is also imposed in Articles 152-153 of the SAC Code, which oblige party-appointed experts to “keep confidential any information that they learn in the arbitration proceedings”.

 

References to Fees

 The ALI/UNIDROIT Principles include the party-appointed expert’s fees in the costs of the arbitration which may be awarded to the winning party (Article 25.1). From a different perspective, Article 4(2) of the CIArb Protocol specifies that “[p]ayment by the appointing Party of the expert’s reasonable professional fees for the work done in giving such evidence shall not, of itself, vitiate the expert’s impartiality.”, while under Articles 150-151 of the SAC Code the professional fees which the parties pay to the party-appointed expert shall in no case “have a variable component that depends upon the outcome of the arbitration”.

 

Available Remedies against Party-appointed Experts

The role of party-appointed experts is to assist the arbitral tribunal in its reasoning and ultimately its decision-making process. Although one could assume that on technical issues there could hardly be any room for interpretation, in practice each party appoints an expert able to reach a different conclusion than the expert of the other party. Parties have an opportunity to test the other party’s expert during the cross-examination at the hearing, but the arbitral tribunal is left with the delicate and often challenging task of assessing the value of two wildly different professional opinions on the same nucleus of operative facts.

If a party intends to formally challenge an expert appointed by the other party, in the absence of any specific duties and obligations, the grounds upon which it may mount a successful challenge are unclear; it is ultimately left to the arbitral tribunal to assess the evidence brought by the parties and decide if a disqualification measure is appropriate. As a matter of fact, and to the best knowledge of the authors, there are no successful disqualifications of expert witnesses in the public record.

Among the grounds invoked by the parties in their requests are the following: access to confidential and privileged information (Bridgestone v. Panama, para. 8; Flughafen v. Venezuela, para. 13), and failure to disclose such access (Bridgestone v. Panama, para. 9), failure to disclose professional relationships (Italba v. Uruguay, para. 135, Bridgestone v. Panama, para. 6), bias (Luxtona Limited v. Russia (PCA), para. 14), lack of qualifications (Luxtona Limited v. Russia (PCA), para. 15; von Pezold v. Zimbabwe, para. 804), lack of independence (von Pezold v. Zimbabwe, paras. 804, 806; Mobil Exploration v. Argentina, para. 2), impartiality (Mobil Exploration v. Argentina, para. 2). The threshold of breach for each of these grounds is not yet clear, although in the case of challenges of bias, actual bias as opposed to apparent bias is required (Luxtona Limited v. Russia (PCA), para. 26).

Parties and tribunals found guidance in soft law instruments such as the IBA Rules Article 5(2)(a) and (c) (Italba v. Uruguay, paras. 135 and 156; Bridgestone v. Panama, para. 19) or reports – the claimant in Flughafen v Venezuela referred for example to the 2015 ICC report on Issues for Arbitrators to Consider Regarding Experts 2015 (Flughafen v. Venezuela, para. 18).

In practice, arbitral tribunals either acknowledge their competence to decide on disqualification requests (often on general provisions such as ICSID Convention Article 44) or decide to tackle this issue as part of the assessment of evidence presented by the parties. Tribunals have based their competence to decide on requests for disqualification of expert witnesses under Rules 19 and 34(1) of the ICSID Arbitration Rules (Flughafen v. Venezuela, paras. 22 and 34, see also Bridgestone v. Panama, endorsing the approach adopted by the tribunal in Flughafen v Venezuela, para. 13). However, one tribunal considered the disqualification of an expert witness to be a disproportionate measure (Mobil Exploration v. Argentina, para. 39).

Most tribunals have opted to consider any parties’ arguments related to party-appointed experts at the stage of  assessing the evidentiary value of  the experts’ reports (Bridgestone v. Panama, para. 16; von Pezold v. Zimbabwe, para. 807; Flughafen v. Venezuela, paras. 34 and 40). It is worth mentioning, at a different level, an interesting decision rendered by an ICSID Annulment Committee which annulled for the first time an award on grounds of improper constitution of the tribunal, finding that one of the arbitrators failed to disclose a relationship with the claimant’s damages expert, creating a manifest appearance of bias (Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36, paras. 225, 228, 256). Importantly, the Committee abstained from expressing any view on whether the expert owed a concurrent duty of disclosure, since even if the expert had done so, this would not have relieved the arbitrator from his disclosure obligations as an arbitrator (para. 228). A similar application for annulment was made in the case of TECO Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, for which however the Annulment Committee’s decision has not yet been made public.

 

Concluding Remarks

A few conclusions may be drawn from the above:

  • the use of expert-witnesses is growing, as a result of the increased complexity and technicality of arbitral disputes;
  • the role of party-appointed experts is to assist the tribunal in reaching a decision on complex and technical issues beyond its expertise;
  • accordingly, experts – even when appointed by a party – should be objective and independent and present an unbiased view to the tribunal, otherwise tribunals risk grounding their decisions on flawed opinions or disregarding the expert report altogether;
  • just like tribunal-appointed experts, party-appointed experts should therefore conform to certain standards of conduct. Few provisions however refer to party-appointed experts and no clear duties and obligations could be identified in the institutional rules or national laws. By contrast, many soft law instruments exist;
  • as a result, the remedies against experts appointed by the parties are limited and tribunals are left with the delicate and often challenging task of assessing their competence to decide such issues, as well as assessing disqualification requests or the weight of two different professional opinions against no clear duties and obligations;
  • when in doubt, tribunals often prefer not to rely on experts’ testimonies or reports, thus rendering fruitless the parties’ efforts to resort to experts, both in terms of time and costs.

 

In this context, a clear body of rules addressing the duties and obligations of party-appointed experts would result in more remedies for the parties and as a consequence, strengthen their role and the value of their testimonies and reports which tribunals could safely rely upon.

 

 

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Costa Rican Supreme Court Enforces against Non-Signatory

Kluwer Arbitration Blog - Sat, 2021-05-08 01:42

On February 28, 2021, the First Chamber of the Costa Rican Supreme Court (“the Court”) confirmed a US$ 23 million ICC award won by Panama-registered Hidroeléctrica San Lorenzo S.A. against Saret de Costa Rica S.A.

When it comes to the recognition and enforcement of foreign arbitral awards, Costa Rica is party to relevant international conventions, but has also recently enacted domestic legislation that regulates this matter further. Costa Rica ratified the Inter-American Convention on International Commercial Arbitration (the “Panama Convention”) in 1998, and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) in 1988. Additionally, Costa Rica’s International Commercial Arbitration Law is based on the UNCITRAL Model Law with the 2006 amendments.

In 2018, Costa Rica enacted a new Code of Civil Procedure in which it included provisions related to the recognition and enforcement of foreign arbitral awards. These provisions added a thin layer of confusion to the legal interpretation because these new provisions seemed to forget the regime already in place via the instruments mentioned above.

The Costa Rican Supreme Court, as the judicial authority in charge of deciding all applications for recognition and enforcement of foreign awards, has the prerogative to decide how the interplay between all of these legal instruments will play out. In certain decisions, such as the one discussed here, the Court limited its analysis to the Civil Procedure Code, and did not mention the other (very) relevant instruments pertaining specifically to the enforcement of foreign arbitral awards.

 

Background to the Dispute

Hidroeléctrica San Lorenzo S.A. filed a request for arbitration in December 2014 for breach of contract against Saret de Costa Rica S.A. and Grupo Corporativo Saret de Panamá S.A. The case was decided by an ICC tribunal – sole arbitrator Fernando del Castillo – seated in Panama City.

Hidroeléctrica San Lorenzo (HSL) and Saret de Panamá entered into a contract to construct and exploit the San Lorenzo Hydroelectric Central located in the Fonseca River in the Province of Chiriquí, Panama. The dispute related to various claims for breach of contract.

Hidroeléctrica San Lorenzo alleged that the Respondents willfully breached the contract, intentionally harming HSL. Additionally, HSL submitted that Saret de Panamá and Saret de Costa Rica acted together in the execution of the works, which is why their actions should be considered as a unit.

On April 11, 2016, the tribunal issued a Partial Award on Jurisdiction (the “Partial Award”) in which it decided that it had jurisdiction and could hear claims against both Saret de Panama and Saret de Costa Rica. Saret de Costa Rica argued that it was not a party to the contract, and therefore, had not agreed to be bound by the underlying arbitration agreement.

In its decision, the tribunal explained that in general terms, Panama’s Arbitration Law expressly established the competence-competence principle. Additionally, the tribunal pointed that the “Sala Cuarta de Negocios Generales” of the Panamanian Supreme Court had previously allowed the extension of the effects of an arbitration agreement to non-signatories in other cases.

In particular, the tribunal decided that the following elements were necessary in order to determine its jurisdiction over Saret de Costa Rica: i) the existence of a corporate group, ii) the non-signatory’s participation in the preparation and negotiation of the contract, iii) the non-signatory’s participation in the drafting of the documents on which the dispute was based, iv) the non-signatory’s participation in the performance of the contract, and, if applicable, in its termination, and v) the presumption that the non-signatory had previous knowledge of the arbitration agreement. Ultimately, the tribunal considered that Saret de Costa Rica met all the requisites.

Saret de Costa Rica sought to set aside the Partial Award before the Supreme Court of Panama, but the challenge was ultimately rejected.

On October 20, 2017, the tribunal issued the Final Award in which it granted Hidroeléctrica San Lorenzo S.A. approximately US$ 23 million in damages plus interest. Saret de Costa Rica tried to set aside the Final Award before the Supreme Court of Panama, but the Court also upheld the Final Award.

 

Costa Rican Proceedings

Hidroeléctrica San Lorenzo S.A. requested the enforcement of the Partial Award and the Final Award mentioned above before the First Chamber of the Costa Rican Supreme Court.

In its analysis, the Court highlighted the fact that it did not have jurisdiction to reopen the discussion on the merits of the case, but rather its reach was limited to the verification of the requirements established in Article 99.2 of the Civil Procedure Code.

Saret de Costa Rica opposed the enforcement by alleging: i) the incorrect application of the arbitration clause; ii) the lack of consent to the arbitration agreement; iii) lack of due process; iv) infringement with respect to the constitution of the arbitral tribunal and the arbitral procedure; and v) the existence of a pending litigation in Costa Rica.

With respect to the first two claims, Saret de Costa Rica argued that it was not a party to the arbitration clause, and that it never expressed consent in a way that would allow the tribunal to extend its effects to it. The Court explained that this point was already studied and decided by the arbitral tribunal in the Partial Award and by the Supreme Court of Panama, so it was not up to the Court to review it again.

As to the lack of due process argument, Saret de Costa Rica submitted that Hidroeléctrica San Lorenzo S.A. did not comply with the conflict resolution phase provided for in the contract before submitting a claim to arbitration. Here, the Court again explained that this pertained to the merits of the case and was an argument that was already rejected by the Panamanian judicial authorities. The Court also used this explanation to reject the fourth claim, that also had to do with the general arbitration procedure.

As for the final claim regarding a pending litigation in Costa Rica, the Court rejected it because the complaint for the parallel litigation was filed by Saret de Costa Rica against Hidroeléctrica San Lorenzo S.A. on the same day that that it filed its response to the petition for enforcement. The Court added that in order for this to be an obstacle for the recognition and enforcement of an award, the parallel procedure must be filed before, not after, the petition to enforce.

 

Conclusion

The Court finally rejected Saret de Costa Rica’s arguments and enforced the Partial Award and the Final Award in Hidroeléctrica San Lorenzo S.A.’s favor. This decision shows that Costa Rica’s Supreme Court is respectful of international arbitration and of the relevant authorities in charge of addressing matters such as the ones raised by Saret de Costa Rica. In its decision, the Court limited the scope of its analysis and generally deferred to the arbitral tribunal’s and the Panamanian courts’ decisions.

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Straus Institute’s ADR at the Roots Symposium: Updates and Video Links

ADR Prof Blog - Fri, 2021-05-07 14:19
Agenda – Straus ADR at the Roots Symposium Dear Readers, On Friday, April 23, the Straus Institute for Dispute Resolution hosted ADR at the Roots: Exploring Diversity and Equity in the Field, a virtual symposium that convened scholars to consider the role of dispute resolution in advancing fairness and justice within the legal system and … Continue reading Straus Institute’s ADR at the Roots Symposium: Updates and Video Links →

Arbitration and Public Contracts in Brazil: The New Government Procurement Act

Kluwer Arbitration Blog - Fri, 2021-05-07 01:43

Introduction

On April 1st, the new Government Procurement Act (“GPA”) came into force (Law n. 14,133/2021). The new Act brings many positive changes to the processes of tendering and bidding conducted by state entities. Its legal provisions intend to bring greater legal certainty for those who want to invest in large projects in Brazil led by the Federal, State or Local Governments. A remarkable novelty within the Act is a chapter exclusively dedicated to dispute resolution (ss. 151 to 154), which reinforces Brazil’s arbitration-friendly framework.

As many readers may know, Brazil has not yet signed the ICSID Convention, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or BITs with investor-state dispute settlement mechanisms. Unlike the vast majority of countries, Brazil believes that it does not need to sign any investment treaties to attract foreign investment. Therefore, the new GPA is designed to establish most of the rights of investors interested in playing a part in a market that generated roughly USD 72 billion from 2017 to 2020.

The new Act expressly encourages parties to public contracts to solve their disputes by non-judicial methods, notably conciliation, mediation, dispute boards, and arbitration. The legislator wanted to make explicit that parties may deploy these different mechanisms for resolution of conflicts arising from public tenders and contracts based on Law n. 14,133/2021. It is important to note that such methods can be used not only in new public contracts, but also in pre-existing public contracts. An express provision makes it clear; therefore, that mediation can be initiated, for example, to resolve any outstanding issue. Likewise, arbitration can be adopted to solve a dispute related to a state contract signed before the enactment of the new GPA.

 

Particular features of arbitration in public contracts

With regard to matters that can be taken to arbitration (i.e., objective arbitrability), the sole para. of s. 151 limits them to negotiable and pecuniary matters, which means, for example, non-performance of obligations, economic imbalance of contracts, assessment of damages due to breach of contracts etc. Basically, the only limitation rests on matters in connection with the narrow concept of acta iure imperii.

Unlike arbitrations between private parties, arbitrations involving public contracts must be decided by applying statute law, as set forth in the first part of s. 152 of the GPA. In other words, parties to public contracts are prohibited from adopting ex aequo et bono arbitration. Likewise, arbitral tribunals cannot render their decisions based on usages of trade or general principles of law or lex mercatoria. The same provision can be found in para. 2 of s. 2 of the Brazilian Arbitration Act (“BAA”).

In addition, arbitrations involving public contracts are not confidential, but public, pursuant to the second part of s. 152 of the GPA. Indeed, publicity is a principle provided for in s. 37 of the Brazilian Constitution, which seeks to safeguard better control of the Public Administration, i.e., public accountability. Again, the same requirement is set forth in para. 2 of s. 2 of the BAA. It is important to say, however, that in some circumstances the law imposes confidentiality, as for example when the arbitration involves contracts containing national security issues.

As for the arbitrators, the GPA does not demand any specific personal requirement, not even nationality, years of experience, or qualification in Brazilian law. In other words, it is a market open to foreign arbitrators, not only Brazilian ones. In this regard, s. 154 only mentions that the process of choosing arbitrators or arbitral tribunals should be based on technical, fair and transparent criteria. In practical terms, this process will follow the provisions contained in institutional rules of arbitration, where, in general, one arbitrator is nominated by the claimant, the other one is nominated by the defendant, and the presiding arbitrator is chosen by the co-arbitrators already appointed.

The GPA does not address the choice of the arbitral institution in charge of administering the arbitral proceedings. As a rule, in arbitrations involving public entities in Brazil, parties are free to choose the arbitral institution, as long as the institution is registered with the federal, state or local attorney’s general office. Currently, not only well regarded local arbitral institutions (CAM-CCBC, Ciesp/Fiesp, Camarb, CBMA, Amcham etc.) are registered, but also the International Chamber of Commerce – ICC.

Unlike other Brazilian statutes governing the public sector, the GPA is silent regarding the seat of the arbitration, the applicable law to the merits, and the language of the arbitral proceedings. It is our understanding that nothing prevents a state entity from entering into an arbitration agreement where the seat is outside of Brazil, the applicable law is not Brazilian, and the language is not Portuguese. In practical terms, however, it is very likely that state entities in Brazil will try to favour domestic features in negotiating/drafting the public contracts.

Needless to say: such domestic preferences run against foreign investors’ interests for neutrality, who will manage this risk by simply increasing the financial return for the projects. Maybe it is time for Brazilian state entities to start weighing up the advantages of offering investors more options in terms of law, seat and language, as happens in some investment treaty arbitrations.

 

Conclusion

The GPA represents another welcome initiative taken by Brazil, which is strengthening its arbitration-friendly legal framework, and promoting arbitration as a means of solving disputes arising from public contracts. Other specific statutes already contained provisions in the same sense, but it is the first time in the country that the main Procurement Act expressly adopts arbitration.

The provision of arbitration and other alternative dispute resolution methods in the GPA has the potential to bring many benefits to state entities and to those looking to invest in Brazil, whether Brazilian or foreign investors, with the main benefits being efficiency and speed in the resolution of contractual conflicts with state entities. Efficiency is favoured by the flexibility of arbitration in comparison to court proceedings. Also, arbitral tribunals are specialists in the subject matter of the case, which increases the chances of having a highly technical decision. In addition, speed speaks for itself when Brazilian courts sometimes take 10 years to render a final decision (by the end of 2019, the last official national report informs that there are currently more than 77 million ongoing cases before Brazilian courts).

In the end, arbitration will reduce transaction costs in public contracts, which represents a more cost-effective solution for state entities (and, of course, for the taxpayer) and potential investors.

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The Annulment of Eiser v. Spain: A Call for Improvements to the System?

Kluwer Arbitration Blog - Thu, 2021-05-06 01:21

In 2017 Spain was ordered to pay Eiser €128 million on account of its failure to afford fair and equitable treatment. This award was subsequently annulled because the claimant-appointed arbitrator omitted to disclose a professional relationship with the claimants’ damages expert which led to, inter alia, the tribunal being improperly constituted. The full costs of the proceedings, including Spain’s legal fees and expenses, were shifted to Eiser.

The Annulment Decision reignited conversations about arbitrator impartiality, disclosure requirements and double hatting (including on this blog, here, here and here). Without addressing the correctness of the Annulment Decision,1) See e.g. Gary B. Born, International Commercial Arbitration, 3rd ed. (Kluwer Law International, 2021), Chapter 12, fn 1476, who states that the Annulment Decision is “an unrepresentative and clearly erroneous decision in the investment arbitration context.” jQuery('#footnote_plugin_tooltip_37299_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); it highlighted the lack of (i) uniform decision-making; and (ii) appropriate mechanisms for dealing with non-disclosure in an international setting, neither of which contributes to certainty or legitimacy of ISDS.

This post takes a closer look at these two issues, before concluding with some concrete solutions.

 

Lack of Uniformity

Compared to the total number of ICSID awards ever rendered, a rather small portion are annulled. Applications for annulment on the ground of improper constitution of the tribunal have been extremely rare and, up until the Annulment Decision in Eiser v. Spain, unsuccessful.

Despite the infrequent reliance on this ground, several Committees have analyzed Article 52(1)(a) of the ICSID Convention rather extensively. Yet, many Committees interpreted this provision almost anew because they did not consider themselves bound by earlier annulment decisions and contrary views expressed therein.2) See, e.g. Suez 03/19, para. 76; Eiser, para. 158  jQuery('#footnote_plugin_tooltip_37299_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

In Azurix v. Argentina the latter’s annulment request was refused because Article 52(1)(a) could only give rise to annulment “if there had been a failure to comply properly with the procedure for challenging members of the tribunal set out in other provisions of the ICSID Convention.” If the grounds for disqualification became known only after the issuance of the award, such newly discovered fact could provide a basis for revision under Article 51 of the ICSID Convention, but not annulment.

Although in Vivendi v. Argentina (Vivendi II) the ground for disqualification became known only after the issuance of the award, the Committee deemed that the facts in question could give rise to annulment.

Similarly, in EDF v. Argentina the Committee held that “changes in the circumstances of an arbitrator may mean that a tribunal which was properly constituted at the outset may cease to be so during the course of the proceedings.”

If there was a decision on a proposal for disqualification, a Committee could only find a ground of annulment if the refusal to disqualify the arbitrator in question was “so plainly unreasonable that no reasonable decision-maker could have come to such a decision.” This approach was subsequently followed in annulment proceedings in Suez 03/19 and Suez 03/17.

In the absence of a tribunal’s disqualification decision, the Committee would, after ensuring that there was no waiver under Rule 27, examine, de novo, “whether there exist grounds which a reasonable third party would consider give rise to reasonable doubts whether a member of the tribunal was sufficiently independent and impartial.” If so, the Committee would finally determine whether the lack of impartiality or independence on the part of the arbitrator could have had (and not whether it actually had) a material effect on the award.

The Committee in OI European Group B.V. v. Venezuela reverted to the Azurix approach, holding that the lack or loss of qualities listed in Article 14(1) were to be dealt with through provisions on disqualification, found in Articles 57 and 58 of the Convention, and not through annulment.

As appears from the above, two schools of thought have developed: whereas one addressed newly discovered facts through revision (Azurix and OI European Group B.V.), the other allowed for annulment (EDF and the others). If the latter view is followed (as the Eiser Committee did), is a tribunal to be considered in statu nascendi throughout the proceedings? How is this reconciled with the provisions of the ICSID Convention and the ICSID Rules that refer to tribunal constitution as a specific point in time?3) See, e.g. Article 56 of the ICSID Convention and the following Rules of the ICSID Convention Arbitration Rules: 6, 13, 20, 30 and 41(5). jQuery('#footnote_plugin_tooltip_37299_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Considering that the statement of ICSID’s founding Secretary General, Mr. Aron Broches (“if the grounds for disqualification only became known after the award was rendered, this would be a new fact which would enable a revision of the award”) was disregarded, has the drafting history become an obsolete source of guidance? Since the view of the EDF Committee is that “it is difficult to imagine a rule of procedure more fundamental than the rule that a case must be heard by an independent and impartial tribunal”, what is the value of Article 52(1)(a), in light of Article 52(1)(d)?

Regardless of one’s views on the correctness of the outcome in each of these cases, the fact remains that the same provision was applied differently, causing parties to spend valuable resources only to end up, years later, in the same or even worse position than before. Though a plurality of interpretations is sometimes desirable, fundamental questions such as “what is ‘constitution’ and when is a tribunal deemed ‘constituted’” should not be debatable.

 

Unenforceability of Disclosure Duties

The Eiser Annulment Decision also casts doubt on the effectiveness of disclosure duties. Undisputedly, arbitrators must be neutral and must disclose facts or circumstances that may (or may be perceived to) cloud their judgment.4) See, e.g. the CCAC Code of Ethics, Art. 11. jQuery('#footnote_plugin_tooltip_37299_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Many codes and rules specify that this duty is continuous.5) See, e.g. BCDR Arbitration Rules, Art. 10.6; LCIA Notes for Arbitrators, Section 2, para. 9; WTO Rules of Conduct, Section III, para. 1 and Annex 2; Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, Art. 10(4), and other codes of conduct: CETA (Art. 3(3)), HKIAC (Rule 2), NAFTA (Section II, para. C), SIAC (para. 2), Vietnam International Arbitration Centre (para. 3). jQuery('#footnote_plugin_tooltip_37299_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Yet, the vast majority of these instruments envisage no consequence for non-disclosure. This, coupled with the fact that arbitrators enjoy immunity from legal process pursuant to Article 21 of the ICSID Convention, leaves room for nonchalance when disclosing potential conflicts.

Though the Eiser Committee stated that “even a disclosure by [the expert] would not have absolved [the arbitrator] from his disclosure obligations,” one cannot help but notice that neither the expert, nor the Claimants’ counsel saw fit to disclose the existing relationship, though both arguably have this duty. In its Article 4(4)(b), the CIArb Protocol for the Use of Party-Appointed Expert Witnesses in International Arbitration, requires the expert to state in their written opinion “any past or present relationship with any of the Parties, the Arbitral Tribunal, counsel […] other witnesses and any other person or entity involved in the Arbitration” (admittedly, the CIArb Protocol did not apply in Eiser). Lawyers likewise have a duty of candor to the tribunal, as appears from both international 6) e.g. the IBA International Principles on Conduct for the Legal Profession, Principle 2 jQuery('#footnote_plugin_tooltip_37299_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and national 7)e.g. the ABA Model Rules of Professional Conduct, Rule 3.3; the Québec Code of Professional Conduct of Lawyers, Art. 112 jQuery('#footnote_plugin_tooltip_37299_30_7').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_30_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); authorities. Whatever the reasons for non-disclosure were in Eiser v. Spain, it remains that there is no satisfactory way to address non-disclosure in the international context.

 

Solutions?

The creation of a multilateral investment court, which has been suggested as a better alternative for resolving investor-State disputes, appears to enjoy little support, at least among the respondents to the latest Queen Mary Survey. Asking the Secretary-General to scrutinize annulment decisions before their issuance to the parties is also unlikely, as the Secretary-General ought to perform “purely administrative” duties.8) Gabriel Bottini, “Present and Future of ICSID Annulment: The Path to an Appellate Body?”, 31(3) ICSID Review –FILJ 712, p. 726, citing the History of the ICSID Convention, p. 108. jQuery('#footnote_plugin_tooltip_37299_30_8').tooltip({ tip: '#footnote_plugin_tooltip_text_37299_30_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Perhaps, what the system needs to achieve uniform interpretation of the ICSID Convention is an initiative similar to the CISG Advisory Council. This private initiative comprised of leading experts promotes a uniform interpretation of the UN Convention on the International Sale of Goods by issuing opinions on specific subjects/articles. Taking this a step further, during the ongoing revision of the ICSID Rules, provisions on annulment could be supplemented to provide for something similar to the preliminary reference procedure to the European Court of Justice. Persons who are already on the ICSID Panel of Arbitrators, from which members of Committees are selected, could provide opinions to Committees regarding the Convention’s specific provisions, thus ensuring their uniform interpretation and consistent application.

The consequences of non-compliance with disclosure duties could be written into the Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement (“Draft Code”). A provision similar to Article 13 of the Code of Ethics of the Milan Chamber of Arbitration, which empowers the Chamber of Arbitration to replace or refuse to confirm the non-complying arbitrator in subsequent proceedings by taking into consideration the seriousness and the relevance of the violation, may prove helpful. The SIAC Code of Ethics for Arbitrators, which in paragraph 1.3 enables the Registrar of SIAC to consider an arbitrator’s failure to ensure a fair determination of the dispute when fixing the quantum of their fees, may likewise serve as inspiration. Though not precisely in this context, several institutional rules (e.g. the Rules of the ICC, Appendix III, Article 2, and the Vienna International Arbitration Centre, Articles 16(6) and 44(7)) link the arbitrators’ fees to the performance of their duties. Envisaging any kind of consequence for a breach of disclosure obligations would likely increase the effectiveness of the Draft Code.

 

In the meantime, law firms and states could guard against Eiser-like situations by keeping centralized records of all experts retained in any past or present matters.

 

 

*The views expressed herein are those of the author and do not necessarily reflect the views of Woods LLP or its partners.

References[+]

↑1 See e.g. Gary B. Born, International Commercial Arbitration, 3rd ed. (Kluwer Law International, 2021), Chapter 12, fn 1476, who states that the Annulment Decision is “an unrepresentative and clearly erroneous decision in the investment arbitration context.” ↑2 See, e.g. Suez 03/19, para. 76; Eiser, para. 158  ↑3 See, e.g. Article 56 of the ICSID Convention and the following Rules of the ICSID Convention Arbitration Rules: 6, 13, 20, 30 and 41(5). ↑4 See, e.g. the CCAC Code of Ethics, Art. 11. ↑5 See, e.g. BCDR Arbitration Rules, Art. 10.6; LCIA Notes for Arbitrators, Section 2, para. 9; WTO Rules of Conduct, Section III, para. 1 and Annex 2; Draft Code of Conduct for Adjudicators in Investor-State Dispute Settlement, Art. 10(4), and other codes of conduct: CETA (Art. 3(3)), HKIAC (Rule 2), NAFTA (Section II, para. C), SIAC (para. 2), Vietnam International Arbitration Centre (para. 3). ↑6 e.g. the IBA International Principles on Conduct for the Legal Profession, Principle 2 ↑7 e.g. the ABA Model Rules of Professional Conduct, Rule 3.3; the Québec Code of Professional Conduct of Lawyers, Art. 112 ↑8 Gabriel Bottini, “Present and Future of ICSID Annulment: The Path to an Appellate Body?”, 31(3) ICSID Review –FILJ 712, p. 726, citing the History of the ICSID Convention, p. 108. function footnote_expand_reference_container_37299_30() { jQuery('#footnote_references_container_37299_30').show(); jQuery('#footnote_reference_container_collapse_button_37299_30').text('−'); } function footnote_collapse_reference_container_37299_30() { jQuery('#footnote_references_container_37299_30').hide(); jQuery('#footnote_reference_container_collapse_button_37299_30').text('+'); } function footnote_expand_collapse_reference_container_37299_30() { if (jQuery('#footnote_references_container_37299_30').is(':hidden')) { footnote_expand_reference_container_37299_30(); } else { footnote_collapse_reference_container_37299_30(); } } function footnote_moveToAnchor_37299_30(p_str_TargetID) { footnote_expand_reference_container_37299_30(); 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 * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Is there Room to Hope for Non-Treaty-Based ISDS in the EU? Remarks on AG Kokott’s Opinion in Case C-109/20 Poland v. PL Holdings

Kluwer Arbitration Blog - Wed, 2021-05-05 01:26

Many have long feared that the end of intra-EU BIT arbitration brought about by Achmea would soon be followed by the end of contract-based intra-EU ISDS. Although Advocate General (AG) Kokott’s recent Opinion in Case C-109/20 Poland v. PL Holdings allows for a glimmer of hope for non-treaty-based investment disputes, a closer reading of the Opinion reveals that this fear may in fact be justified.

 

Background

On 4 February 2020, the Supreme Court of Sweden requested a preliminary ruling from the CJEU on whether Articles 267 and 344 TFEU require it to set aside an arbitral award rendered in a dispute between an EU Member State and an EU investor where the Member State was found to have consented to the arbitration proceeding through its conduct, due to its belated objection to jurisdiction (Case No. T 1569-19, see here and on this blog here).This question arose in the setting aside proceedings commenced by Poland in Sweden against the PL Holdings awards (here and here) that had been rendered on the basis of the BLEU-Poland BIT in the summer of 2017 and awarded close to 180 million EUR in compensation for the forced sale of the investor’s shareholding in a Polish bank.

The Stockholm Court of Appeal accepted that Achmea rendered Poland’s consent to arbitration contained in the BLEU-Poland BIT invalid but found that Poland’s belated EU law objection to the tribunal’s jurisdiction in the arbitration (raised for the first time some 1.5 years after the proceedings had begun) could be understood as new and valid consent to arbitrate. The Stockholm Court therefore refused to set aside the challenged awards (Svea Court of Appeal, Cases T 8538-17 and T 12033-17, 22 February 2019). Poland appealed these findings to the Supreme Court of Sweden, which sent a reference for a preliminary ruling to Luxembourg.

 

The Kokott Opinion

In answering the Swedish Supreme Court’s question, AG Kokott begins by recalling the CJEU’s finding in Achmea – that investor–State arbitration provisions in a BIT between Member States is incompatible with EU law – and applies the three-prong test developed by the CJEU:

First, the AG points out that although the PL Holdings tribunal did not apply EU law, the dispute was nevertheless an “EU law dispute” because EU law applied to the case as part of Polish law. In such cases, there is a risk that the arbitral award will fail to have regard to EU law and will result in an infringement of EU law.

Second, the AG notes that arbitral tribunals are not part of the EU judicial system and are not entitled to make a reference for preliminary ruling. Individual arbitration agreements therefore allow EU law disputes to be removed from the EU judicial system in the same way as arbitration agreements formed on the basis of an offer to arbitrate contained in intra-EU BITs.

Third, according to the AG, the risk that arbitral awards will infringe EU law can be countered only if Member State courts can “comprehensively verify compliance with EU law and refer the matter to the Court if necessary”. Although the AG accepts that only the Swedish courts can assess whether Swedish law allows for such “comprehensive” review of arbitral awards, she finds it “doubtful” that Swedish law does. In this regard, the AG notes that if an award infringes EU law, the full effectiveness of EU law cannot be ensured by infringement proceedings or claims for compensation because they are “relatively cumbersome” proceedings.

The AG then discusses the CJEU’s case law on commercial arbitration, which accepts the limited review of commercial awards for their compliance with EU law, and the distinction drawn by the CJEU in Achmea between commercial arbitration, which is permissible under EU law, and intra-EU BIT arbitration, which is not. She recalls that, according to Achmea, commercial arbitration between private parties “originates in the freely expressed wishes of the parties”, adding that in commercial arbitration, not only the “arbitration agreement but also the disputed legal relationship itself … is based on the autonomous will of the parties” who “operate on an equal footing”.

Applying these criteria to the case at hand, the AG finds that the PL Holdings dispute is not a commercial dispute between parties on an equal footing, but one where “there can be no question of free will” because it relates to the exercise of “sovereign measures for enforcing EU law” by the Polish authorities. Therefore, the exemption allowed for commercial arbitration in Achmea is inapplicable to the PL Holdings case.

The Kokott Opinion further states that individual arbitration agreements between Member States and investors must be compatible with the principle of equal treatment and confirms that the temporal effect of Achmea is not limited.

AG Kokott concludes that individual arbitration agreements between investors and Member States concerning the “sovereign application of EU law” are compatible with Articles 267 and 344 TFEU only if national courts can comprehensively verify the award’s compliance with EU law and refer the matter to the CJEU if necessary.

 

Remarks

Against the need for greater clarity and certainty on the contours of permissible intra-EU investment arbitration following Achmea, the Kokott Opinion may perhaps come as a disappointment. While identifying the precise implications and consequences of the Opinion will require more time, the following preliminary remarks can be made.

First, any dispute involving a Member State is an “EU law dispute”, and a non-treaty-based arbitration agreement (whatever its form) concluded with the Member State to settle that dispute will have to comply with Articles 267 and 344 TFEU. Recent attempts by the arbitration community to limit the reach of Achmea to intra-EU BIT disputes in which EU law was part of the applicable law or the tribunal in fact applied EU law may therefore be futile.

Second, arbitrations involving Member States do not automatically qualify as “commercial” merely because they arise on the basis of an individual arbitration agreement rather than a treaty. Therefore, they do not automatically come under the commercial arbitration exemption confirmed in Achmea. In order to qualify as commercial, they must arise from the “free will” of the parties operating on an “equal footing”. It is regrettable that the AG hangs on to the – rather unconvincing – distinction drawn by the CJEU between commercial and investment arbitration based on the parties’ “free will”. Not only is “free will” a philosophical concept rather than a legal criterion, but contrary to the CJEU’s and AG Kokott’s finding, Member States do exercise “free will” both when they conclude BITs containing offers to arbitrate and when they enter into non-treaty-based arbitration agreements. The AG’s new “equal footing” criterion is equally unconvincing (and surprisingly naïve). Furthermore, it is also unclear why the alleged risk of undermining the uniform application of EU law is acceptable if it is based on the “free will” of “equal parties” but unacceptable otherwise. It is perhaps for these reasons that the AG adds that arbitrations involving “sovereign measures for enforcing EU law” are in any event not “commercial”. By defining such “sovereign measures” very broadly, the Opinion may be seen as casting doubt over the Member States’ ability to enter into arbitration agreements that will automatically qualify as “commercial” and thus as compatible with EU law.

Third, for such non-treaty-based arbitrations over “sovereign measures for enforcing EU law” to comply with Articles 267 and 344 TFEU, the resulting award must be open to “comprehensive” review by the Member State courts as to its compatibility with EU law. This is so, inter alia, because infringement proceedings are ineffective and cumbersome and cannot ensure compliance with EU law, according to the AG. It is noteworthy that in the aftermath of Achmea, the Commission attempted to reassure EU investors that in the absence of intra-EU BITs their cross-border investments will be protected by EU law which will be enforced via such infringement proceedings. It is unclear what the AG means by “comprehensive” review of arbitral awards, although she seems to suggest that the Swedish courts should have comprehensively examined the compatibility of the PL Holdings awards with EU law of their own accord, including by reviewing the correctness of the tribunal’s application of the Polish banking supervision rules derived from EU law. The limited review of non-ICSID awards under Member States’ arbitration laws excludes the review of awards on their substance, and ICSID awards are exempt from review by Member State courts altogether. The AG has left it to the Swedish Supreme Court to decide whether the review of awards allowed for under Swedish law is comprehensive enough to ensure their compliance with EU law (rather than deciding that it is not, as the CJEU did in Achmea in respect to German law). Therefore, if the CJEU follows the Kokott Opinion in this regard, and the Swedish Supreme Court answers the question in the affirmative, there may be grounds to hope that at least a narrow category of intra-EU ISDS proceedings will survive Achmea.

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Conflict Resolution Professionals as Politicians – Gary Friedman’s Experience

ADR Prof Blog - Tue, 2021-05-04 13:09
Have you ever thought about how different things would be if high level conflict resolution professionals were more involved in politics?  Have you ever thought about what you would do if you were in the political world?  If so, you’ll be interested in this piece in Politico that chronicles Gary Friedman’s dip into the waters … Continue reading Conflict Resolution Professionals as Politicians – Gary Friedman’s Experience →
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