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Ay, Chihuahua!!

Just when you thought the US law concerning judicial enforcement of annulled foreign arbitral awards was becoming relatively settled and predictable, if not very satisfactory, along comes the US Tenth Circuit Court of Appeals with a fresh and helpful perspective. That Court has held that a US district court did not abuse its discretion when it refused to vacate its initial judgment giving recognition and enforcement to such an award, and declined to give effect to a judicial annulment judgment thereafter sought and obtained from a court at the seat of arbitration in Bolivia. (Compañia de Inversiones Mercantiles S.A. v....
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The post Ay, Chihuahua!! appeared first on Marc J. Goldstein - Arbitration & Mediation.

In memoriam: David Lipsky

ADR Prof Blog - Fri, 2023-01-27 11:11
I am sharing the very sad news that Prof. David Lipsky of Cornell University, luminary in the world of labor and employment ADR and personal mentor to me earlier in my career, passed away last week at the age of 83. His obituary describes his many achievements both in our field and for Cornell University’s … Continue reading In memoriam: David Lipsky →

January: Freudenfreude

ADR Prof Blog - Tue, 2023-01-24 11:53
The word of the month for January is “freudenfreude.” Freudenfreude, as explained in this New York Times article, is the opposite of schadenfreude. Whereas schadenfreude is defined as “the pleasure we feel when witnessing someone’s misfortune” (presumably, someone we think deserves their misfortune), freudenfreude is rejoicing in someone else’s happiness. Freudenfreude is associated with numerous … Continue reading January: Freudenfreude →

Listening Exercise - A listening skills activity: 'Facts and Feelings'

Communication and Conflict Blog - Fri, 2023-01-20 10:18
A listening exercise which enables participants to reflect on the experience of listening and being listened to and what this tells us about effective listening.

2023 ADR Speaker Series at UC Law SF

ADR Prof Blog - Thu, 2023-01-19 18:53
The Center for Negotiation & Dispute Resolution (CNDR) at UC Law San Francisco (formerly UC Hastings College of Law), in collaboration with key institutional partners, is putting on an ADR Speaker Series with some terrific guests who will be presenting on cutting edge issues relating to negotiation, mediation, and international arbitration. All except two sessions … Continue reading 2023 ADR Speaker Series at UC Law SF →

How Not to Negotiate

ADR Prof Blog - Mon, 2023-01-16 20:43
Kevin McCarthy’s quest to become speaker of the House of Representatives is a master class in how not to negotiate.   He became what New York Times columnist Paul Krugman calls “speaker in name only” after fifteen ballots over five days.  Election of a speaker normally is a routine event, and this was the first time … Continue reading How Not to Negotiate →

New Book on Effectively Representing Clients in Family Mediation

ADR Prof Blog - Sun, 2023-01-15 06:40
Forrest (Woody) Mosten, Elizabeth Potter Scully, and Lara Traum’s book, Effectively Representing Clients in Family Mediation, was just published by the ABA.  This is particularly valuable because many parties rely on lawyers to represent them in mediation, and there probably are many more lawyers who act as advocates in mediation than those who mediate. The … Continue reading New Book on Effectively Representing Clients in Family Mediation →

Star Wars and Conflict Resolution

ADR Prof Blog - Fri, 2023-01-13 14:34
Noam Ebner (Creighton) and I are delighted to announce (1) our new co-edited book, Star Wars and Conflict Resolution; and (2) the CfP for the sequel (tentative title: Episode II)! From the Introduction: “Never upset a Wookiee.” “Be mindful of your thoughts.” “Surrender is sometimes a perfectly reasonable option. “Failure to listen may lead to … Continue reading Star Wars and Conflict Resolution →

Appellate Restraint and Commercial Reasonableness in Commercial Arbitration

International Arbitration Blog - Wed, 2023-01-11 09:42

The B.C. Court of Appeal’s recent decision in Spirit Bay Developments Limited Partnership v. Scala Developments Consultants Ltd., 2022 BCCA 407 highlights three important aspects of commercial arbitration appeals:

How The Real Mediation Systems Project Can Help Improve Mediation Quality

ADR Prof Blog - Mon, 2023-01-09 20:08
Improving mediation quality is tricky.  This post describes how the Real Mediation Systems Project can help. In Principles for Policymaking about Collaborative Law and Other ADR Processes, I argued that policymakers generally should consider non-regulatory policy options before adopting new rules. Non-regulatory approaches include training for disputants and professionals, dispute referral mechanisms, technical assistance for ADR … Continue reading How The Real Mediation Systems Project Can Help Improve Mediation Quality →

2022 Year in Review: Australia, New Zealand and the Pacific Islands

Kluwer Arbitration Blog - Mon, 2023-01-09 00:31

Introduction

In 2022, we witnessed the growth of efforts to understand and promote the use of arbitration across Australia, New Zealand and the Pacific Islands. These efforts largely took the form of empirical studies and reports, as well as the resumption of in-person events. Legal and policy developments in both commercial and investor-state arbitration have also continued through the work of judiciaries and legislatures. In this post, we highlight some of the key progress in the region last year.

 

Australia

Law Reform / Development

ACICA’s Reflections Report published in 2022 highlights that over the past decade, Australia has established itself as a “modern, progressive arbitral jurisdiction with a large and cohesive arbitration community”. This sentiment is also reflective of Australia in 2022.

In 2022, ACICA has continued to support the development of arbitration within Australia by launching a new survey to gather information in an attempt to foster a greater understanding of evidence in international arbitration and consequently use this data to advance arbitration practice in Australia (and abroad).

In the face of climate change, a common theme throughout 2022 across the globe has been renewable energy and green arbitration. This was also reflected in Australia via discussion of arbitration’s role in disputes concerning the decommissioning of oil and gas assets as Australia transitions to other energy resources. It is important that such conversations are taking place to ensure that arbitration is able to cater to the ever-changing disputes landscape and the various challenges that come with it. It also assists stakeholders by preparing them for matters prior to any dispute arising by outlining these projected challenges and issues.

In addition, we saw how Australia’s domestic arbitration legislation and its alignment with the Model Law is not only ensuring uniform decisions across states and territories but also assisting in Australia’s ability to contribute to international jurisprudence and pave the way to establishing itself as a hub for international arbitration. Still, there is room for improvement. In a recent interview with this blog, Caroline Kenny KC expressed the need for the Australian Government to provide more support to international commercial arbitration in order for it to be able to compete with other Asia-Pacific seats.

 

Events

The year 2022 saw a new wave of in-person events in Australia following the last few years of COVID-19 restrictions. These events often continued to cater for virtual attendance, manifesting an inclusive and timely shift to the modern arbitration world. Discussions centred around many of the current prominent themes in the arbitration community, including technology arbitration, emergency arbitration, expert evidence, foreign investors and government policy on investor-state arbitration. These discussions demonstrated the adaptability of arbitration and showcased the benefits of arbitration to its users while ensuring that Australia remains up to date with new trends and developments.

 

Case Law Developments

Last year a number of decisions rendered by Australia’s judiciary reflect the pro-arbitration stance of Australian courts. Among others, these included:

  • In Lee v Lin & Anor [2022] QCA 140, the Supreme Court of Queensland upheld that a dispute resolution clause providing for “final settlement by a single arbitrator” was in fact an arbitration agreement.
  • In WCX M4-M5 Link AT Pty Ltd v Acciona Infrastructure Projects Australia Pty Ltd (No 2) [2022] NSWSC 505, the Supreme Court of New South Wales determined that even though the negotiations and expert determinations mentioned in a multi-tiered dispute resolution clause had not taken place, the arbitration agreement was still operative.
  • In Power and Water Corporation v ENI Australia B.V [2022] WASC 376, the Supreme Court of Western Australia stayed judicial proceedings and referred them to arbitration where a party had brought such proceedings on the basis that the arbitration agreement permitted application to the courts for urgent declaratory relief and an urgent declaration of breach of contract had been sought. Essentially, the Court determined that as the arbitration was being conducted in accordance with ACICA’s Expedited Rules, the arbitration proceedings would be sufficiently expeditious.

Additionally, the Full Court of the Federal Court of Australia in Instagram Inc v Dialogue Consulting Pty Ltd [2022] FCAFC 7 looked at the competence-competence principle when deciding whether an arbitral tribunal should exclusively be able to determine whether a right to arbitrate has been waived. This Court’s decision evidenced that whilst the principle permits a tribunal to determine its own jurisdiction, courts will nevertheless retain discretion to exercise this power in totality in appropriate circumstances, i.e., finally determine the question and not just come to a preliminary view on the tribunal’s jurisdiction.

Developments to watch in 2023 will include the result of appeals from the 2021 decision of the Supreme Court of Western Australia in Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323 (“Chevron”). There, the Court was confronted with issues regarding the challenge to an arbitral award on grounds that the tribunal inadvertently rendered itself functus officio by a decision to bifurcate issues of liability and quantum. More detailed insights on Chevron can be found here and here.

 

New Zealand

Arbitration Survey

The New Zealand arbitration scene saw several notable developments in 2022. The year saw the release of the inaugural New Zealand Arbitration Survey Report (“Arbitration Survey”), along with case law developments and insights gained from arbitration events and seminars.

The Arbitration Survey was compiled by leading New Zealand arbitrators Royden Hindle and Dr Anna Kirk in collaboration with the New Zealand Dispute Resolution Centre. It reflects responses from 56 arbitrators comprising 213 appointments.

The survey highlights that while the majority of arbitrations conducted in New Zealand remain domestic, a not insignificant percentage (15%) are international arbitrations. The industry expectation is that growth of international arbitration will continue as New Zealand-seated arbitration clauses become increasingly embedded into commercial contracts.

Finally, the Arbitration Survey made clear that work remains to be done in promoting diversity in arbitration, with 93% of respondents identifying as New Zealand European, and only 13% of arbitrators appointed being women.

 

Statutory class action and litigation funding regimes

On 22 June 2022 New Zealand’s Te Aka Matua o te Ture | Law Commission published its final report on the possible regulation of class action and litigation funding in New Zealand. The final report was the outcome of the Commission’s initial review in 2019. Of note was the Commission’s finding that no further regulation was required for arbitration clauses that served to prevent claimants from opting into a class action (or required them to opt out of a class action) in favour of pursuing their claim through arbitration.

The Commission’s finding was made on the basis that the New Zealand Arbitration Act 1996 contains special protections for consumers. The Commission also noted that evident policy is to discourage consumer arbitration, given the likelihood of inequality of bargaining power, standard form contracts, and the absence of true consent.

 

Events

As with elsewhere in the world, 2022 saw the return of in-person arbitration events in New Zealand. The Arbitrators’ and Mediators’ Institute of New Zealand (“AMINZ”) hosted events such as Arbitration Day, and a Gala Dinner (in place of the annual AMINZ Conference). Additionally, the New Zealand International Arbitration Centre launched its Young Practitioners’ Group. While the theme of these events remained peripherally focused on the impact of COVID-19, emphasis was firmly on how New Zealand can maximise its potential as a stable seat for arbitration, and promote the industry to the next generation of practitioners. Nicole Smith, the newly appointed president of AMINZ provided her insights on these topics and more in her interview with this blog in June 2022.

 

Enforcement and Recognition

In late 2021, the New Zealand High Court issued its decision in Sodexo Pass International SAS v Hungary [2021] NZHC 371 (“Sodexo”), which effectively functions as New Zealand’s counterpart to the Australian Federal Court’s decision in Kingdom of Spain v Infrastructure Services Luxembourg SARL [2021] FCAFC 3 (“Infrastructure Services”). These decisions identified the conceptual distinction between enforcement, recognition, and execution of arbitral awards in the context of the application of State immunity. However, they are unlikely to represent the last judicial word on the issue, with the High Court of Australia’s appellate judgment in Infrastructure Services expected in 2023.

This will be a space to watch, with the High Court of Australia likely to pronounce its views on issues around immunity and with the (in)famous Achmea decision affecting the enforcement of extra-EU arbitral awards involving European parties.

 

Pacific Islands

In 2022, this blog’s coverage of ongoing arbitration reforms in the Pacific Islands continued, highlighting how international arbitration can be an instrument of economic development.

In jurisdictions that have already ratified the New York Convention and passed legislative reforms, discussion has turned to the effective implementation of arbitration, including through greater capacity building. These themes and other reflections on emerging trends, challenges and opportunities were shared in our interview with the Lord Chief Justice of Tonga, Hon. Michael H. Whitten KC.

One example of capacity building is ACICA’s five-part hybrid webinar series on conducting arbitration in the Pacific, held in collaboration with Hemmant’s List. Session 1 provided an update on the state of play in the Pacific and an overview of when Pacific parties should arbitrate. Session 2 discussed the mechanics and best practice for Pacific parties when commencing an arbitration.

ACICA’s engagement with the Pacific will no doubt grow as its webinar series continues in 2023. According to ACICA’s Reflections Report, over the past decade, ACICA’s cases have involved parties from Papua New Guinea and Fiji, and 2% of arbitrations were seated in Papua New Guinea. Similar statistics emerged from SIAC’s Annual Report which revealed that across 469 new cases in 2021, 4 parties originated from Fiji, 2 from Tonga and 1 from Vanuatu.

Law societies and associations also collaborated to promote alternative dispute resolution in the region at the LAWASIA ADR Conference in Denarau, Fiji on 9-10 September. The conference attracted 52 delegates from 10 jurisdictions, and covered topics such as online dispute resolution, international commercial arbitration and emerging mechanisms for dispute prevention.

It remains to be seen whether momentum for arbitration reform in other Pacific jurisdictions will build as in-person meetings become possible once more, strengthening the potential for on-the-ground engagement with key stakeholders. As noted during ACICA’s series, Nauru and Samoa have expressed some interest in pursuing reforms. Work may also resume in Papua New Guinea where a draft Arbitration Bill was introduced in 2019. There may also be an appetite to modernise or create frameworks for domestic arbitration, as the focus to date has been on international arbitration reforms.

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Would You Like to Get the Benefit of the Real Practice Systems Project and Share Your Experiences?

ADR Prof Blog - Sun, 2023-01-08 20:00
I am doing a research study entitled “Assessment of Real Practice Systems Experience” to assess how well Real Practice Systems assignments and exercises have worked in courses, trainings, and continuing education programs as well as for individual practitioners.  I’m writing to invite you to participate in this study. In this document, I describe how faculty … Continue reading Would You Like to Get the Benefit of the Real Practice Systems Project and Share Your Experiences? →

KluwerArbitration ITA Arbitration Report, Volume No. XX, Issue No. 15 (December 2022)

Kluwer Arbitration Blog - Sun, 2023-01-08 00:29

The Institute of Transnational Arbitration (ITA), in collaboration with the ITA Board of Reporters, is happy to inform you that the latest ITA Arbitration Report was published: a free email subscription service available at KluwerArbitration.com delivering timely reports on awards, cases, legislation and current developments from over 60 countries and 12 institutions. To get your free subscription to the ITA Arbitration Report, click here.

 

The ITA Board of Reporters have reported on the following court decisions.

 

Megabar, S.A. v. Article 12.1 of the Law No. 489-08 on Commercial Arbitration, Constitutional Court of the Dominican Republic, TC/0333/21, 01 October 2021

Stephan Adell, Adell & Merizalde, ITA Reporter for the Dominican Republic

The Dominican Constitutional Court held that Article 12.1 of the Law No. 489-08 on Commercial Arbitration (“LCA”) complies with the constitutional requirements for its validity.  Article 12.1 provides that decisions by judicial courts declining jurisdiction (when presented with a dispute subject to an arbitration agreement) cannot be appealed.

 

A professional coach v. AC Kajaani, Court of Appeal of Rovaniemi, Decision No. 262, Case No. S 21/298, 27 September 2022

Ina Rautiainen and Anna-Maria Tamminen, Hannes Snellman Attorneys, ITA Reporters for Finland

The Court of Appeal of Rovaniemi evaluated the binding nature of an arbitration clause in an employment agreement. The employment contract i.e., the coaching contract was terminated on grounds related to the employee’s person without hearing the employee. The Court of Appeal stated that applying the arbitration clause would have led to unfairness and that the claim was admissible in a state court.

The Court of Appeal noted that, as a rule, arbitration clauses are binding on both parties. However, in an ordinary employment contract, unless there is a special reason to deviate from this starting point, an arbitration clause should often be considered an unfair contract term, as was held in this case. According to section 36 of the Finnish Contracts Act, a contract term can be adjusted or set aside if it is considered unfair. The Finnish Employment Contracts Act contains a similar provision on unfair terms or conditions.

The case is a good reminder that the applicability of the Finnish Employment Contracts Act is wide-ranging, with e.g. all managers apart from CEOs being typically considered employees under the Employment Contracts Act. In determining what is unfair in the context of an employment contract and whether an arbitration clause would be considered binding, regard should be had to the entire contents of the contract, the positions of the parties, the circumstances prevailing at and after the conclusion of the contract, and other factors.

(As of 10 October 2022, the quoted decision is still subject to an appeal period and is not res judicata.)

 

Donna Wade v. Brian Wade [2022] NZHC 3254, High Court of New Zealand, CIV-2022-454-056, 06 December 2022

Stephen Hunter, Shortland Chambers, ITA Reporter for New Zealand

This decision concerned whether care of children disputes under the Care of Children Act 2004 (COCA) could be the subject of binding arbitration. The High Court held that it is not possible for parties to submit their care of children disputes to arbitration in a manner that is binding and enforceable by the courts. Care of children disputes are not “capable of determination by arbitration” under s 10 of the Arbitration Act 1996 because COCA creates a comprehensive care of children regime in respect of which the Family Court and High Court have exclusive jurisdiction. Arbitration clauses purporting to bind parties to an arbitrator’s decision on care of children matters are contrary to public policy.

(Note: The reporting of this proceeding is subject to ss 11B, 11C and 11D of the Family Court Act 1980. The parties’ real names have not been used.)

 

Rooney Earthmoving Ltd v. Infinity Farms Ltd and John Walton [2022] NZHC 2078, High Court of New Zealand, CIV-2022-412-67, 19 August 2022

Stephen Hunter, Shortland Chambers, ITA Reporter for New Zealand

This decision concerns the interpretation and application of the expert determination clauses in the Conditions of Contract for Building and Civil Engineering Construction NZS3915:2005 (NZS3915). The Court makes several observations as to the similarities and differences between arbitration and expert determination clauses. The Court held that, unlike arbitration clauses which carry a presumption that they are to be construed generously, expert determination clauses do not attract a presumption in favour of a wide interpretation. The Court also comments on the role of an expert and, subject to contract, the powers of an expert to determine the issue by following a similar process to an arbitrator.

 

Doral S.A. v. Club Olimpia, Court of Appeal in Civil and Commercial Affairs of Asunción, Sentencia 75/2022, 17 November 2022

José A. Moreno Rodríguez, Altra Legal, ITA Reporter for Paraguay

On November 17, 2022, an Asunción Appeals Court rejected an annulment request, as the Applicant did not prove that the alleged annulment ground found in Art. 40 (b) was met in the case at hand.

 

A. SA v. Y and Z. SA, Federal Supreme Court of Switzerland, 1st Civil Law Chamber, 4A_277/2021, 21 December 2021

Angelina M. Petti, von Segesser Law Offices, ITA Reporter for Switzerland

The Swiss Federal Supreme Court (the “Supreme Court”) dismissed an application to set aside an award rendered by a sole arbitrator in a domestic arbitration under the rules of the Swiss Arbitration Centre (“Swiss Rules”), finding that there had been no violation of the right to be heard where a party is refused the opportunity to file a reply to a simultaneously filed post-hearing submission.

 

Sun Yang v. World Anti-Doping Agency (WADA) and International Swimming Federation (FINA), Federal Supreme Court of Switzerland, 1st Civil Law Chamber, 4A_406/2021, 14 February 2022

Angelina M. Petti, von Segesser Law Offices, ITA Reporter for Switzerland

The Swiss Federal Supreme Court (the “Supreme Court”) dismissed an application to set aside an award of the Court of Arbitration for Sport which reversed an earlier ruling of the Antidoping Commission of the International Swimming Federation (“FINA”) and imposed a ban of four years and three months on Chinese swimmer Sun Yang. The Supreme Court confirmed that the timeliness of the appeal to the Court of Arbitration for Sport (“CAS”) does not pertain to questions of jurisdiction, but rather was an issue of admissibility. Furthermore, the Supreme Court ruled that Sun Yang’s right to be heard had not been infringed and the ban issued does not violate fundamental principles of public order.

 

A. v. B., Federal Supreme Court of Switzerland, 1st Civil Law Chamber, 4A_464/2021, 31 January 2022

Angelina M. Petti, von Segesser Law Offices, ITA Reporter for Switzerland

The Swiss Federal Supreme Court (the “Supreme Court”) dismissed an application to set-aside an award rendered by a sole arbitrator seated in Geneva based on an alleged violation of substantive public policy, or alternatively revise the award on the grounds of allegedly newly discovered facts.

 

A. AG v. B. SA, Federal Supreme Court of Switzerland, 1st Civil Law Chamber, 4A_600/2021, 28 February 2022

Angelina M. Petti, von Segesser Law Offices, ITA Reporter for Switzerland

The Swiss Federal Supreme Court (“Supreme Court”) dismissed an application to set-aside a sole arbitrator’s award for lack of jurisdiction and violation of the right to be heard. Although the decision arises in the context of domestic arbitral proceedings, the Supreme Court’s opinion on the doctrine of separability and its limitations are equally applicable to international arbitrations seated in Switzerland.

 

X v. Y, Court of Cassation of Abu Dhabi, Cassation No. 817 of 2021 [Commercial], 12 December 2021

John Gaffney and Malak Nasreddine, Al Tamimi & Company, ITA Reporters for the United Arab Emirates

This case involved an application before the Abu Dhabi Court of Cassation to challenge the Abu Dhabi Court of Appeal’s decision to annul an interim award issued by an arbitral tribunal (“ADCCAC Tribunal” or “Arbitral Tribunal”) under the Rules of Arbitration of the Abu Dhabi Commercial Conciliation and Arbitration Centre (“ADCCAC”). The Appellants argued that the Court of Appeal lacked jurisdiction to set aside the Interim Award. The Court of Cassation upheld the Court of Appeal’s decision to nullify the Interim Award and dismissed the appeal.

 

Aiteo Eastern E&P Company Limited v. Shell Western Supply and Trading Limited [2022] EWHC 2192 (Comm), High Court of Justice of England and Wales, Queen’s Bench Division, Commercial Court, Case Nos CL-2022-000187 and CL-2022-000457, 17 November 2022

Nicholas Fletcher, 4 New Square, ITA Reporter for England & Wales

While a dispute resolution clause could provide that an option to refer to arbitration a dispute which one party has brought to court can only be exercised by the commencement of an arbitration, it would require clear words to achieve that outcome. Whilst it will depend upon the wording of the clause, what matters is whether there is an unequivocal statement requiring a party to refer the dispute to arbitration, whether that takes the form of serving a Request for Arbitration, seeking a stay or some other communication. It is the message which matters, not the medium.

More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
by Arif H. Ali & David L. Attanasio
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The Contents of the Yearbook Commercial Arbitration, Volume XLVII (2022)

Kluwer Arbitration Blog - Sat, 2023-01-07 00:55

Subscribers to KluwerArbitration enjoy access to the ICCA Yearbook Commercial Arbitration.

The final upload of court decisions from the 2022 Yearbook Commercial Arbitration, shortly to be distributed in print, is now available from the KluwerArbitration database. It contains 15 decisions applying the New York Convention and one decision applying the 1975 Panama Convention, as well as two decisions from the highest courts of France and Switzerland that are of general interest. Here are some highlights.

First, in Kout v. Kabab Ji, the Cour de Cassation took the directly opposite approach to the UK Supreme Court on which law applied to determine the scope of an arbitration agreement and its application to a non-signatory. It held that, in the absence of the parties’ intention to the contrary, the law of the seat, that is, French law, governed the issue. On that basis, the French Supreme Court considered Kout to be bound by an agreement to arbitrate, whereas the UK Supreme Court had earlier decided to apply English law, the law chosen as applicable law to the main contract, and held Kout not to be bound as a non-signatory.

Second, the Swiss Federal Supreme Court addressed which procedural safeguards needed to be in place in cases of de facto “compulsory” arbitration before the Court of Arbitration for Sport (CAS). The Swiss Court held that in such cases the fair trial principle laid down in Art. 6(1) of the European Convention on Human Rights applied, requiring above all independence and impartiality of the dispute resolution body. Following the decision of the European Court of Human Right in Mutu, the Swiss Court found that CAS as an institution offered those safeguards.

Finally, the High Court of Justice of the British Virgin Islands rendered a decision dealing with the process of appointing arbitrators in a multi-party dispute. It held that the principle of equality meant that each side to a dispute, rather than each individual party, had the right to appoint an arbitrator, unless the interests of the parties on one side of the dispute diverged. Here, the ICC Court’s initial assessment that the arbitration respondents had the same interests was correct, resulting in them having the right to appoint one arbitrator, rather than several.

More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
by Arif H. Ali & David L. Attanasio
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2022 Year in Review: Technology

Kluwer Arbitration Blog - Fri, 2023-01-06 00:31

The year 2022 was a busy one at the intersection of technology and international arbitration, both for the arbitration community and for the Kluwer Arbitration Blog. Virtual hearings further cemented their status as a mainstay of arbitral practice; we saw a burst of guidance, soft law instruments and rule-setting activity; and our Arbitration Tech Toolbox grew to 12 posts, covering issues as diverse as enforcing automated arbitral awards, cybersecurity training and conducting arbitral proceedings in the Metaverse.

 

Use of technology in arbitrations: to the Metaverse and beyond!

We witnessed a further normalization of the use of videoconferencing technologies to conduct arbitration proceedings and hold meetings of arbitral institutions. In May, ICCA released the findings of its Right to a Physical Hearing Project. Notably, of the 78 jurisdictions surveyed, no lex arbitri expressly provided parties to an arbitration with the right to a physical hearing. Most national reporters further found that the right to a physical hearing is in fact implicitly excluded. As one panelist commented at the 17th ICC New York Conference on International Arbitration, “virtual hearings are here to stay.” Our contributors noted the May 2021 launch of the Protocol for Remote or Virtual Arbitration Hearings by the Latin American Arbitration Association, a tool that incorporates best practices to ensure that procedural rights of arbitration users are protected. Addressing this theme at the 2022 Taipei International Conference, panelists stressed that while virtual hearings may not lead to annulment of an award, arbitrators will place due process and access to technology front and center in assessing the role of technology in arbitral proceedings.

 

As parties, counsel, arbitrators, and institutions came to terms with videoconferencing, technophiles charged ahead with nascent technologies: avatars in the Metaverse and holograms for witnesses. In February, the first-ever international arbitration gathering in the Metaverse was held. The ArbTech-supported event included a mix of video participants and virtual reality (VR) headset-enabled avatars. It sparked several observations on the use cases of VR in international arbitration. In October, our contributor covered a panel at the Future of Technology in Arbitration (#FOTA22) conference, aptly titled “Help me Sophie Wan Kenobi, You’re My Only Hope”. The panel featured a hologram participant who reported being able to see, face and address both the audience and fellow panelists physically present on stage. The tech-minded audience were so impressed that, in a vote, a majority found appearance by hologram to be appropriate for remote hearings and predicted that by 2030 we will have hologram witnesses.

 

One thing is clear. Technology is moving at an increasingly accelerated rate. As new technologies are developed, emerging members of the arbitration community appear poised to take full advantage of the opportunities presented.

 

Technology disputes: nomenclature, rules, and arbitration prospects

Top of mind for many practitioners this year was the role of arbitration in the resolution of technology disputes. UNCITRAL held a Colloquium that explored such issues and provided a forum for debate on a potential set of arbitral rules specifically catered to technology disputes. Key considerations were the need for clarity on the sphere of application for the rules, effective and expeditious case management, and a default rule on confidentiality as between the parties. The value of conceptual clarity in the term “technology disputes” was further underscored during Australian Arbitration Week, where a panel discussed an array of disputes that could fall within the term, including joint venture agreements to co-develop technology, licensing disputes, and tort and compliance actions for massive data breaches.

 

Our contributor provided an overview of the Digital Dispute Resolution Rules (“DDRR”), one of the first major efforts to establish rules for the resolution of digital asset disputes. Created by the UK Jurisdiction Taskforce, our contributor noted that the DDRR are designed to be incorporated into on-chain digital relationships and smart contracts, and they are a welcome addition to other rule-setting efforts, such as the JAMS Rules Governing Disputes Arising out of Smart Contracts, and tech-bespoke dispute resolution mechanisms, such as Kleros and Codelegit.

 

The Metaverse held great interest, with many contributors considering what impact the alternate virtual universe would have on arbitration, in theory and in practice. One contributor noted that arbitrating claims in the Metaverse – particularly through the use of self-executing arbitration agreements – may pose recognition and enforcement challenges under the New York Convention, but saw the “more favorable rule” in Article VII(1) as a way forward, possibly by allowing the incorporation of digital-friendly provisions in the UNCITRAL Model Law on Electronic Commerce and United Nations Convention on the Use of Electronic Communications in International Contracts.

 

Another contributor mused that the Metaverse may enable Julian Lew’s dream of autonomous arbitration to come to fruition, with decentralized arbitration platforms providing greater access to justice in the Metaverse. A further contributor explored the first ever court decision to enforce an arbitral award which relied on a blockchain arbitration protocol.

 

Greater guidance on technology and cybersecurity

2022 was also a busy year for the development and implementation of soft law instruments and other guidance on the use of new and emerging technologies in international arbitration. We began the year with an interview with Dr. Gordon Blanke, lead drafter of the CIArb Framework Guideline on the Use of Technology in International Arbitration. The Guideline seeks to introduce a number of general principles of guidance on the use of technology in arbitration, and serves as a stepping stone for more detailed guidelines on the use of specific technologies in arbitration both now and in the future. Key principles include proportionate, fair, transparent, and secure use of technology.

 

The ICC’s Commission on Arbitration and ADR issued its Report, Leveraging Technology for Fair, Effective and Efficient International Arbitration Proceedings, which identifies prevalent technology used to support international arbitration, describes features and functionality that may enhance the arbitral process, and discusses useful procedural practices and pitfalls to be avoided.

 

The importance of cybersecurity was stressed in both publications and was taken up in an Arbitration Tech Toolbox post which introduced a new CyberArb training on the topic.

 

At the ICCA Congress in Edinburgh in September, the ICCA-NYC Bar-CPR launched its updated Protocol on Cybersecurity in International Arbitration, which aims to increase cybersecurity awareness in international arbitration and provide a framework for incorporating cybersecurity measures in arbitral proceedings.

 

Crypto disputes: surviving the Crypto Winter

The Crypto Winter’s chilling effect on the sector encouraged an assessment of the types of legal, practical or valuation challenges that arise in disputes related to crypto assets. Our contributors noted the heterogeneous approaches taken by regulators with respect to cryptocurrencies and other crypto assets, giving rise to concerns of arbitrability and denial of enforcement based on public policy grounds. A host of other issues affect crypto-related arbitration, including difficulty (i) securing interim measures over crypto assets; (ii) identifying the proper counterparty; (iii) valuing crypto assets; and (iv) enabling class actions to resolve mass-disputes. The post, published September 29th, came one month before the dramatic collapse of FTX and related entities, a development that made the Crypto Winter look like a balmy Spring and injected further uncertainty, both into the long-term viability of the sector and regulatory acceptance of arbitration as a means to resolve crypto asset disputes.

 

Conclusion

It was a busy year for technology and arbitration, but 2023 will no doubt bring more advancements, opportunities, and challenges. Having recently expanded our technology editorial team to include two new assistant editors, we welcome your submissions on the intersection of technology and international arbitration and thank you for your readership this year.

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ADR Scholarship Projects (Jan. 2023 edition)

ADR Prof Blog - Thu, 2023-01-05 12:07
From FOI Peter Reilly (Texas A&M), a round-up of recent scholarly projects from ADR profs: Ava Abramowitz (GW Law) and Ken Webb (Kenn Webb Consulting, LLC) Planned Research:  Our research builds on Neil Rackham’s and John Carlisle’s 1978 paper “The Behaviour of Successful Negotiators” (which can be found here). We asked ourselves, can the same … Continue reading ADR Scholarship Projects (Jan. 2023 edition) →

More Than a Facelift? – New Hungarian Arbitration Rules Take Off in 2023

Kluwer Arbitration Blog - Thu, 2023-01-05 01:10

The Permanent Arbitration Court attached to the Hungarian Chamber of Commerce and Industry (The Hungarian Commercial Arbitration Court or ‘HCAC’) has recently adopted its revised rules of proceedings that went into effect on 31 December 2022. This development is particularly significant for the Hungarian arbitration landscape given that HCAC has exclusive competence over commercial, financial and energy arbitrations in Hungary. Does this revision count as a mere facelift of the former regime, or will the new provisions increase speed and effectiveness in HCAC arbitral proceedings? This post introduces the context surrounding the revision of the rules before focusing on five of the key novelties that they will introduce from 2023 onwards.

 

Background

In 2018, the Hungarian dispute resolution landscape changed radically. In addition to the entry into force of the new Hungarian Arbitration Act and the former arbitration rules (“Former Rules”) of the HCAC, the new Hungarian Code of Civil Procedure (“CPC”) went into effect in that year as well.

The new CPC entirely reshaped the first instance court procedure, by splitting it into preparatory phase and evidentiary phase, significantly restricting the modification of the claim in the latter. As a result, the length of civil and commercial litigations has been significantly decreased in the last several years in Hungary. This, in turn, exerted pressure on arbitration, which is always considered by dispute resolution users as an alternative to litigation.

With a track record of practice for almost 5 years in this new framework, in late 2022 the time became ripe for the HCAC to review what soon will be the Former Rules.

The objective of the revised arbitration rules (‘Revised Rules’) is to accelerate arbitral proceedings and increase the effectiveness of arbitral awards in order to cope with the competition from domestic courts.

As already noted, the Revised Rules have entered into force on 31 December 2022, and will be applied in arbitral proceedings started after this date. Instead of presenting an exhaustive list of all of the changes under the Revised Rules, this post sheds light on the reasons behind the 5 key changes, and it evaluates the possible effects of the Revised Rules.

 

Accepting Arbitral Appointments – Deadline

Article 5 of the Former Rules set forth a general rule in relation to the duration of the arbitral proceedings by providing that arbitral proceedings shall be closed within 6 months as of the formation of the arbitral tribunal, to the extent possible. At the same time, the Former Rules failed to impose any express obligation for arbitrators to act promptly during the formation of the arbitral tribunal.

While the Revised Rules do not change the general 6 months rule, by leaving it as a soft-law obligation for the tribunal to close the arbitral proceedings within the abovementioned time frame, Article 22 (1) introduces a 30 days’ time limit for arbitrators to accept their appointment.

It is not clear how the failure to respect the new 30 days deadline will be sanctioned in practice, since the mandate of arbitrators comes into existence upon accepting the appointment. By regulating the period before that point, the Revised Rules raise the issue of retroactive application of a legal norm. This issue aside, the new provision sends a clear policy message to would-be arbitrators in Hungary to act diligently under the Revised Rules.

 

Case Management Conference – More Flexibility

Inspired by the arbitration rules of leading arbitral institutions, case management conferences had already been used on an ad hoc basis in Hungarian arbitrations in the past, with the introduction of this procedural technique being one of the most important novelties of the Former Rules.

At the same time, a firm obligation that the Former Rules imposed on arbitrators to hold a case management conference within 30 days after the formation of a tribunal proved to be a rule that is too rigid in practice.

It was not unusual for respondents, after appointing an arbitrator, to request an extension of the 30-day deadline for submitting their statement of defence. In case the time extension would be granted by the tribunal, this would occasionally lead to a situation whereby, at the time of the case management conference, the statement of defence would either not be submitted by respondent, or it would be submitted only a few days prior to the case management conference date. This would in essence result in information asymmetry, since at the time of the case management conference, it was only the respondent who really knew the standpoint of both parties to the proceedings.

In such cases, the vast majority of tribunals acting under the Former Rules decided to set a new case management conference date, which lengthened the proceedings.

To avoid the above, Article 36 (1) of the Revised Rules provides for a more flexible rule, enabling the arbitral tribunal to hold the case management conference within 30 days after the respondent has filed the statement of defence, or after the deadline for the statement of defence has expired.

 

Remote Hearings – Expressly Addressed

Being adopted before the COVID19 pandemic, the Former Rules did not expressly address the possibility to hold arbitral hearings remotely through means of modern telecommunication.

Even if the parties’ right to a physical hearing could not be inferred either from the Hungarian Arbitration Act or from the Former Rules, this gap had the potential to lead to legal uncertainty. This prompted considerations whether tribunals should obtain the parties’ preliminary consent before holding hearings remotely, or not.

This regulatory loophole was posing a risk to the effectiveness of arbitral awards delivered under the auspices of HCAC, as it could not be fully excluded that the tribunal’s decision to hold a remote hearing without preliminary party consent could be invoked as a ground for setting aside the award.

The modified Article 37 (1) of the Revised Rules now expressly sets forth that the arbitral hearing can be held through means of telecommunication “in justified cases”, making it clear that this issue falls into the discretionary powers of the arbitral tribunal.

Besides the effectiveness of the award, the new provision contributes to the speeding up of the arbitral proceedings especially in cases, involving parties and busy arbitrators from different jurisdictions.

 

Unjustified Delay in Rendering the Award – Possibility to Decrease Arbitrator’s Fee

Probably the most debated provision of the Revised Rules will be Article 53 (4) that allows the HCAC to decrease the fee of the arbitral tribunal in case it fails to respect the 45-day deadline for delivering a written arbitral award, counting from the closing of the arbitral proceedings. The HCAC can decrease the arbitrators’ fee, save in case the tribunal requested the prolongation of the said deadline.

While it cannot be questioned that assigning cost consequences to the unjustified delay of the arbitral tribunal can place a pressure on arbitrators to deliver the award in a timely manner, which can prevent the unreasonable lengthening of the arbitral proceedings, the absence of any clear regulations as to the exact amount of the reduction creates legal uncertainty.

In addition, the lack of transparency can easily lead to a diverging practice in relation to the day-to-day application of fee reductions, which can undermine the integrity of the whole institution.

 

Truncated Tribunals and Dissenting Opinions – Detailed Regulation

The Former Rules allowed arbitrators to attach dissenting opinions to the award, expressing a disagreement with the reasoning and the result of the award adopted by the majority of the tribunal, but neither the possible content of the dissenting opinion nor the rules governing the parties’ right to get insight into such opinion were clarified.

The above gap in the Former Rules led to situations where dissenting opinions were attached to the award, and the award-debtor used the opinion to fuel its court action for setting aside the award, by utilizing the arguments of the dissenting arbitrator in the litigation.

In another case, the dissenting arbitrator failed to sign the award. Later on, after the award was delivered and signed by the two remaining members of the truncated tribunal, the dissenting arbitrator made handwritten notes on the award, expressing his dissenting opinion.

To avoid the above situations, capable of undermining the integrity of the arbitral institution, two new provisions have been introduced by the Revised Rules.

First, Article 43 (2) of the Revised Rules clarifies that the absence of the signature of any arbitrators on the award delivered by the truncated tribunal shall be indicated and certified by the HCAC itself.

Second, Article 44 (3) of the Revised Rules clarifies that only the arbitrator, who signs the award can provide a dissenting opinion.

In addition, Article 44 (3) provides that the dissenting arbitrator cannot divulge any information in relation with the in-camera deliberation of the award in its dissenting opinion. Finally, it sets forth that the dissenting opinion shall be put in a closed envelope among the files of the case, and only the President of the HCAC can allow access to the dissenting opinion in justified circumstances.

 

Concluding Remarks

Based on the above, the changes entering into force on the very last day of 2022 are certainly more than a mere facelift of the former regime.

While it is doubtful whether the deadline for accepting appointment, or the blanket rule about decreasing arbitrators’ fees will have the desired positive impact, the more flexible new provisions regarding the timing of the case management conference, the express regulation of remote hearings and the more sophisticated regime regarding dissenting opinions will presumably contribute to the effectiveness of awards and will potentially increase the speed of arbitral proceedings.

Hopefully, due to these minor, but nonetheless, important modifications, HCAC administered arbitrations will be able to stand up to the competition from the Hungarian state courts.

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2022 Year in Review: Key Developments in East and Central Asia

Kluwer Arbitration Blog - Wed, 2023-01-04 00:30

East and Central Asia made further strides to promote arbitration, including through legislative reforms and enhancement of judicial assistance, as well as the accession, ratification, and creation of treaties.  Some domestic courts clarified views on fundamental issues in arbitration.  On the user side, East and Central Asian parties continued to be active as both claimants and respondents in investment treaty disputes.  In the arbitration community, the resurgence of in-person interactions rejuvenated the cross-pollination of ideas.

 

Domestic Reforms

Several jurisdictions made efforts to update arbitration acts or other arbitration-related laws.

  • In late 2021, the Japanese Ministry of Justice’s Legislative Council outlined proposals to amend Japan’s Arbitration Act (Act No. 138 of 2003) to reflect the 2006 amendments to the UNCITRAL Model Law. In 2022, the same council published proposed legislation for the enforceability of settlement agreements arising out of international and domestic mediation, either through a new law or an amendment of the Act on Promotion of Use of Alternative Dispute Resolution (Act No. 151 of 2004).  Our contributor observed that this enhances prospects for Japan’s adoption of the Singapore Convention on Mediation.
  • Following the amendment of the Law on International Commercial Arbitration in 2021, Uzbekistan amended certain related legislative acts. Our contributor noted that these amendments further align the Uzbek arbitration law with international norms, including the 2006 UNCITRAL Model Law.
  • In December 2021, the Hong Kong Law Reform Commission published its report on Outcome Related Fee Structures for Arbitration (ORFS), as analyzed by our contributors (here, here, and here). The ORFS regime came into full operation in December 2022 and legalized three types of ORFS: conditional fee agreement; damages-based agreement; and hybrid damages-based agreement.
  • Data protection laws enacted in recent years are also impacting arbitration practice. Our contributors discussed the potential delays caused by the PRC’s data protection laws and strategies for the tribunal to minimize their impact.  Such strategies include addressing the issue at the outset of the proceeding and, if appropriate, imposing adverse inferences or cost consequences on a party for failure to comply with required document disclosures or releasing both parties from document disclosure obligations to level the playing field.

The PRC in particular has continued to enhance judicial assistance of arbitration.

  • Following the 2019 Mainland China–Hong Kong Interim Measures Arrangement, Mainland China and Macau signed a similar agreement in February 2022, permitting parties in institutional arbitration seated in Mainland China or Macau to request interim measures from courts in the other jurisdiction.
  • In June 2022, HKIAC became the first arbitral institution outside of Mainland China to be included in the China International Commercial Court (CICC)’s “One-Stop” Platform for Diversified International Commercial Dispute Resolution, allowing parties in certain HKIAC-administered cases to directly request interim relief or enforcement of arbitral awards from the CICC.

Almost all jurisdictions in East and Central Asia are contracting States to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”).  Our contributors reported on some of the last frontiers.

  • In May 2022, Turkmenistan acceded to the New York Convention. This follows Turkmenistan’s other recent efforts to promote arbitration, such as a presidential order in 2021 to create an international arbitration center. With that, all jurisdictions in Central Asia have acceded to the New York Convention.
  • Our contributors also espoused the benefits of enabling Taiwan to join the New York Convention system. They suggested remedying Taiwan’s exclusion at the international level through amendment of the New York Convention, adoption of a new treaty, or adoption of a series of bilateral (or multilateral) treaties, rather than through domestic legislative solutions.

 

National Court Cases

Our coverage featured domestic court cases that provided clarity on fundamental questions in arbitration.

The PRC: In late 2021, the Supreme People’s Court published a lower court decision that recognized the validity of a nonbinding arbitration agreement and struck down the accompanying litigation agreement as violating the principle that arbitration precludes court jurisdiction.  Our contributor inquired as to whether the two agreements are truly separable but also highlighted the decision’s supportive attitude toward foreign-related arbitration, especially when Shanghai (where the lower court is located) is accelerating its efforts to become an arbitration center in the Asia-Pacific region.

Hong Kong: In June 2022, the Hong Kong Court of Appeal clarified in C v D that compliance with procedural pre-arbitration conditions is a matter of admissibility (not jurisdiction), so the tribunal’s decision in this regard is not subject to judicial review.  Our contributor commented that this distinction between admissibility and jurisdiction is in line with international best practice.

South Korea: Our contributors analyzed the Korean Supreme Court’s landmark decision from March 2022 that enforced a Hawaiian court judgment that awarded treble damages, observing that it has positive implications for parties seeking to enforce awards with exemplary damages in Korea.  While the Korean legal system has historically rejected punitive damages, the Court recognized that recently enacted laws allow them.  Thus, the Court found that enforcement was not contrary to Korean damages law principles.

Another post highlighted an under-the-radar 2018 Supreme Court decision that presents a rare instance of a successful “public policy” challenge to enforcement.  The at-issue award involved tax liability that, after the award was rendered, was reduced by the Korean tax authorities.  The Supreme Court remanded the case, and the High Court accordingly partially refused enforcement of the award by subtracting the excluded tax amount.

 

Investment Treaty Disputes

Several East and Central Asian jurisdictions entered into new investment treaties.  Our contributors observed that the Mexico–Hong Kong BIT, which entered into force in June 2021, may be especially useful for PRC investors utilizing Hong Kongese vehicles.  Mexico had previously entered into the Mexico–PRC BIT, which has been in force since 2009.  Another contributor highlighted that, in contrast to some countries, Japan has increasingly concluded BITs since 2011.  In June 2022, Japan signed the Bahrain–Japan BIT.  The Kazakhstan–Qatar BIT was signed in October 2022.

Case activity by Central and East Asian claimants and respondents has been steady.  In September 2022, the ICSID registered the request for arbitration in International Mining Company Invest, Inc. v. Kyrgyz Republic (ICSID Case No. ARB/22/25), instituted under the U.S.–Kyrgyz Republic BIT.  The case is the first to be filed under the ICSID Convention since the Kyrgyz Republic ratified the Convention in April 2022.  PRC claimants have brought several claims in 2022, including Huawei Technologies Co., Ltd. v. Kingdom of Sweden (ICSID Case No. ARB/22/2) (regarding exclusion of Huawei from the 5G network); PCCW Cascade (Middle East) Ltd. v. Kingdom of Saudi Arabia (ICSID Case No. ARB/22/20) (regarding telecommunication enterprise); PowerChina HuaDong Engineering Corporation and China Railway 18th Bureau Group Company Ltd. v. Socialist Republic of Vietnam (ICSID Case No. ARB(AF)/22/7) (regarding construction project).

Other cases have reached the award stage.  The private equity fund Lone Star received the award over the sale of its stake in the Korea Exchange Bank in LSF-KEB Holdings SCA and Others v. Republic of Korea (ICSID Case No. ARB/12/37), bringing the decade-long case that was at the time the first publicly known investment-treaty case against Korea one step closer to conclusion.  A quantum award was also issued in Eurus Energy Holdings Corporation v. Kingdom of Spain (ICSID Case No. ARB/16/4) over Spain’s reform of the renewable energy incentive regime.  Final awards were issued for the treaty-based Gardabani Holdings B.V. and Silk Road Holdings B.V. v. Georgia (ICSID Case No. ARB/17/29) and the contract-based Gardabani Holdings B.V. and Others v. Government of Georgia and Others (ICSID Case No. ADM/18/1 & SCC Case No. V2018/039), both alleging that Georgia failed to uphold its commitment to increase electricity tariffs.

Annulment and enforcement actions across the globe are in progress for several awards.  For example, see JGC Holdings Corporation v. Kingdom of Spain (ICSID Case No. ARB/15/27); Edmond Khudyan and Arin Capital & Investment Corp. v. Republic of Armenia (ICSID Case No. ARB/17/36); and Zhongshan Fucheng Industrial Investment Co. Ltd. v. Federal Republic of Nigeria (UNCITRAL).

 

HK Arbitration Week and Other Events

In-person events resurged in 2022.  The Blog covered several major events.

We continued our live coverage of the Hong Kong Arbitration Week for the fifth year, kicking off with an interview of HKIAC Secretary-General Dr. Mariel Dimsey, who assumed office in August 2022.  We covered panels on the implications of the PRC’s recent data protection laws on arbitration; global debt recovery strategies for creditors and enforcement actions involving parties in financial distress; and the impact of ESG on international arbitration, including climate disputes and industry efforts for greener behaviors.

Our coverage of the Seoul ADR Festival included a session on procedural innovations, as well as one on trends and disputes in the energy marketYonsei Arbitration Day considered the power and challenges of arbitration in connection with armed conflict.

Finally, the third Taiwan International Week included discussions on the challenges and opportunities afforded by the pandemic, digital economy, and ESG.

 

Conclusion

We are grateful for the continued engagement of our contributors and readers, which allows this Blog to cover the numerous jurisdictions of East and Central Asia.  While each jurisdiction may be at a different stage of maturity in terms of its exposure and approach to arbitration, one can sense a sustained shared interest among the jurisdictions to ensure that arbitration remains effective and dependable.  We look forward to continuing and expanding our collaboration in the New Year and to providing up-to-date coverage of the East and Central Asia region.

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Has ISDS Become a Tool for Promoting Business Sustainability? 

Kluwer Arbitration Blog - Tue, 2023-01-03 00:47

Investor-State dispute settlement (ISDS) has been widely criticized for being a tool in the hands of multinational companies, used to challenge domestic public policy measures even when legitimately adopted in the public interest. Critiques have been notable concerning the asymmetrical nature of international investment agreements (IIAs). While IIAs were concluded to afford protection to foreign investors against host States’ abuses, thereby encouraging foreign investments, it is a fact that IIAs have not been traditionally conceived to hold investors internationally accountable for social or environmental damage caused in the course of their activities.

Yet, recent ISDS decisions and newly concluded IIAs are increasingly supportive of business sustainability. Recent literature further seem to put faith in the ability of ISDS to ensure compliance with principles of corporate social responsibility (CSR). This blog post explores ISDS’s potential to endorse and promote business sustainability within the limits of the existing system and the challenges posed to its ongoing reform.

 

Business Responsibilities under International Law 

Intergovernmental organizations have been at the forefront of promoting responsible business conduct, originally through soft law norms. These include norms focusing on specific areas of CSR, such as the United Nations Guiding Principles on Business and Human Rights (UNGPs), the International Labour Organisation’s Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, or the standards published by the International Organization for Standardization (ISO). International Standard ISO 26000,  for instance, addresses social responsibilities that are relevant to an organization’s mission and vision, while the ISO 14000 family of standards provides practical tools for enterprises to manage their environmental responsibilities. Other norms such as the OECD Guidelines for Multinational Enterprises, cover broad areas of CSR including human rights, social rights, or environmental protection.

Often used by brands as part of their marketing strategies, international guidelines and standards may incentivize businesses to adopt more sustainable conduct. However, because they are not binding, the ability of soft law norms to address violations of CSR-related standards at the international level is rather limited. Further, while investors can be bound by certain obligations contained in international treaties and instruments concluded by States, the application of such principles has been restrained outside the domestic arena by the absence of specific international fora for their implementation.

 

The Role of ISDS Tribunals in Applying CSR Principles  

In the context of this legal vacuum, tribunals resolving investment disputes may increasingly become relevant to ensuring investor compliance with social responsibility principles. This section focuses on key CSR-related findings which could set the ground for the promotion of responsible investment through ISDS.

One important doctrine relevant to the enforcement of CSR standards is the ‘clean hands’ doctrine, albeit not approached homogeneously by ISDS tribunals. Some tribunals have declined jurisdiction to hear claims related to foreign investors’ acts of fraud, bribery, or money laundering, or rejected the admissibility of such claims (e.g., World Duty Free v Kenya, Metal-Tech v Uzbekistan, Niko Resources v Bangladesh). Other tribunals have refused to consider these types of issues at the jurisdiction or admissibility stage, preferring to address claimants’ alleged violations at the merit or quantum stages. For example, in the Yukos and related cases, the tribunals took into account the claimants’ tax avoidance in their analyses of contributory fault, by agreeing to a 25 percent reduction of the damages awarded.

In the last decade, arbitral tribunals have tended to broaden the scope of their findings on CSR violations. In Copper Mesa v Ecuador, the tribunal, following a line of arbitral decisions on contributory fault, assessed for the first time the contribution of the foreign investor’s human rights violations to its own losses. The tribunal determined that the claimant had initiated a ‘reckless escalation of violence’ (para 4.265), thus contributing to the loss of its investment in Ecuador and, therefore, reduced the damages awarded to the investor by 30 per cent (para 6.133).

Furthermore, arbitral tribunals have considered CSR obligations in their decisions on counterclaims for social or environmental damage raised by States against foreign investors. Although rarely successful in practice — damages were awarded based on counterclaims in only two publicly known cases: Burlington Resources Inc v Ecuador, and Perenco Ecuador Ltd v Ecuador and Empresa Estatal Petroleos del Ecuador — tribunals have shown an increased willingness to admit such claims within the limitations imposed by the underlying IIAs or contracts, and the procedural rules applicable to the cases in question.

Several reasons explain the limited incidence and success of counterclaims in investor-State arbitration proceedings. First, most IIAs do not expressly provide for the possibility of claims being brought by States, and some expressly limit claims to those from investors (e.g. article 26(2) of the Energy Charter Treaty (1998) or article XII(3) of the Canada-Venezuela BIT). Often, the underlying IIA neither expressly authorizes nor excludes counterclaims. In this case, the host State has to prove either the existence of a separate agreement to arbitrate counterclaims (see Burlington case), or an implied consent to counterclaims (see Goetz v Burundi, Al Warraq v IndonesiaUrbaser v Argentina and Aven v Costa Rica), for a treaty-based tribunal to establish its jurisdiction over a counterclaim. In addition, counterclaims have to meet admissibility requirements, which include requirements that they be closely related to the investment and the claimant’s claim (e.g. Al Warraq v Indonesia) and that the host State itself, rather than third parties, was damaged as a result of the harm caused by the foreign investor (e.g. Chevron v Ecuador II). Finally, counterclaims shall be based on the violation of either an international obligation directly applicable to the investor, or an international or domestic obligation applicable under the underlying IIA. In the Burlington and Perenco cases, for instance, both tribunals awarded damages to Ecuador resulting from the investors’ violations of Ecuador’s domestic environmental law, which was applicable under article 42(1) of the ICSID Convention. 

 

The Development of More Balanced Approaches in New Generation IIAs

The decisions issued by ISDS tribunals likely have inspired a new generation of IIAs increasingly including standards applicable to foreign investors. However, reform efforts have been too slow and fragmented to mark a significant evolution of the ISDS system.

A number of multilateral and bilateral instruments have reaffirmed the host State’s right to regulate in the public interest and included ‘soft’ standards in their preambles or in discrete provisions. For instance, in the CETA’s Preamble, enterprises operating within the territory of the Parties or subject to their jurisdiction, are encouraged “respect internationally recognised guidelines and principles of corporate social responsibility, including the OECD Guidelines for Multinational Enterprises, and to pursue best practices of responsible business conduct”. More rarely, treaties impose binding obligations on foreign investors.

At the regional level, African States have been particularly innovative in creating investor obligations for CSR. The Economic Community of Western African States (ECOWAS) Supplementary Act on Investments, for instance, requires that investors refrain from corrupt practices (article 13), respect and uphold human rights principles (article 14), and comply with standards of corporate governance (article 15) and CSR (article 16). Other multilateral initiatives have led to the adoption of model instruments imposing CSR obligations that should serve in future negotiations of IIAs. Thus, the Pan-African Investment Code (PAIC) provides inter alia that investors shall meet accepted standards of corporate governance (article 19), refrain from corruption (article 21), contribute to the economic, social and environmental progress of the host State (article 22.3) and comply with business ethics and human rights (article 24).

The new Africa Arbitration Academy (AAA)’s Model BIT for African States goes even further in its definitions of foreign investors’ obligations. These include obligations to respect the principles of human dignity and equality including in their dealings with indigenous people (article 1), to comply with environmental and social assessment processes in the host State (article 9), to respect labour and human rights obligations and promote gender equality (article 10), to abstain from corruption, money laundering and terrorism financing (article 12), to ensure that investments meet or exceed accepted standards of corporate governance (article 13), and to adopt high degrees of socially responsible practices in accordance with the OECD Guidelines for Multinational Enterprises (article 18). All these instruments allow for counterclaims (article 18, ECOWAS Agreement; article 43, PAIC; article 22 G., AAA’s Model BIT).

At the bilateral level, the Morocco-Nigeria BIT, marks an interesting development in the history of investment treaties, by specifically providing for obligations relating to the respect of human rights, environmental, labour, anti-corruption and CSR standards (articles 13 to 19). The treaty notably provides for the mandatory completion of impact assessments (article 14) and requires certain companies to maintain a certification to ISO 140001 or equivalent environmental management standard (article 18). Other recent BITs require that investors “strive to achieve the highest possible level of contribution to the sustainable development” of the host State and engage in responsible business conduct (article 9, Brazil-Malawi BIT; article 14, Brazil-Ethiopia BIT).

 

From the Promotion of Foreign Investments to the Promotion of Responsible Foreign Investments

The ability of ISDS to promote sustainable business is naturally limited as it generally relies on foreign investors’ prerogative to initiate proceedings against host States. However, recent decisions of arbitral tribunals and the new generation IIAs tend to limit investors’ prospects of success if they have not complied with sustainable principles of business conduct.

If ISDS practice continues to evolve in this direction, foreign investors may be both encouraged to respect corporate responsibility norms and dissuaded from bringing claims against host States if they have failed to follow such norms. ISDS would thus still serve its original purpose of promoting foreign investments, with the caveat that it would only promote investments that conform to basic principles of business sustainability.

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MOL v. Croatia Saga: A Two-Faced Janus in the ISDS Reform Debate

Kluwer Arbitration Blog - Mon, 2023-01-02 01:58

The current debate on the future of the Investor-State Dispute Settlement (ISDS) system seems not to leave anyone indifferent. Two camps can be discerned in the debate; the first comprising those who would argue that ISDS is in need of reform, and the second those who defend the ISDS system as is. The MOL v. Croatia saga, which has been dragging on since 2013, seems destined to further divide the debate, with its peculiarity lying in the opportunity for both camps to use the dispute to their advantage.

 

1. Factual Background

The origin of the dispute between MOL (a Hungarian multinational oil ang gas company) and Croatia can be traced back to 2008 when MOL managed to increase its shares in INA (Croatian multinational oil company) to 47.16 %. This was followed in 2009 by amendments to the Shareholder Agreement between the Government of Croatia and MOL. As per the amendments, MOL was given control over INA, and the Government agreed to take over INA’s gas storage facilities and to take over the business of gas sales. The former Prime Minister of Croatia Ivo Sanader was subsequently arrested on allegations of bribery. When the amendments to the Shareholder Agreement were concluded, Sanader was still in office, and he allegedly accepted bribes from MOL in order to facilitate their conclusion.

In 2013, MOL initiated arbitration proceedings against Croatia before ICSID, claiming that Croatia’s actions were in breach of the Energy Charter Treaty (ECT). Croatia responded in 2014 by initiating arbitration proceedings based on the Shareholder Agreement under the UNCITRAL Rules, arguing that, on account of the alleged corruption on the part of Sanader, the amendments to the Shareholder Agreement were null and void. The two arbitration proceedings were conducted in the shadow of the criminal trial of Sanader before the Croatian courts.

 

2. Croatian Criminal Trial of the Century

The lower court found Sanader guilty and sentenced him to 10 years in prison.1)Please note that this was an aggregate sentence that also covered another criminal offense, that of abuse of position. jQuery('#footnote_plugin_tooltip_43904_24_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43904_24_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The Supreme Court of Croatia confirmed the verdict, but reduced the sentence to 8 years and 6 months in prison.2)Ibid. jQuery('#footnote_plugin_tooltip_43904_24_2').tooltip({ tip: '#footnote_plugin_tooltip_text_43904_24_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The case then reached the Constitutional Court of Croatia which set aside the decision and ordered retrial, which culminated in a guilty verdict and a sentence of 6 years in prison. The Supreme Court then confirmed this verdict. In addition, the Croatian courts tried the CEO of MOL Zsolt Hernádi in absentia, finding him guilty of bribing Sander and sentencing him to 2 years in prison (the Hungarian authorities refused to extradite Hernádi).

While the trial was closely followed in Croatia by the media and the public at large, though largely did not become a divisive or politically-charged affair. That being said, two independent monitors of the trial –Judge Kai Ambos (Chair for Criminal Law at the University of Göttingen and Judge at the Kosovo Specialist Chambers in the Hague) and Lord David Anderson QC (British barrister and judge who was the Independent Reviewer of Terrorism Legislation in the United Kingdom) – wrote a Report in which they expressed concern that the prosecutors and the Croatian judiciary had exhibited bias in favour of Croatian national interests, and that, in the process, Article 6(1) of the European Convention of Human Rights (Right to fair trial) had been violated. This included not giving sufficient time to Sanader’s legal team to prepare the defence, and exclusion of the public from crucial points in the trial while omitting those points from being covered in the court minutes.

 

3. UNCITRAL and ICSID Arbitrations 

While the Croatian courts found the evidence of corruption convincing enough to hand out prison sentences to Sanader and Hernádi, the arbitral tribunals were not convinced.

The UNCITRAL proceedings, while starting later than the ICSID proceedings, resulted in a final award much sooner, in 2016. The arbitral tribunal arrived at a “confident conclusion that Croatia […] failed to establish that MOL did in fact bribe […] Sanader” as it failed to satisfy the standard of proof that the tribunal had deemed applicable, that one of ‘reasonable certainty.’ The tribunal considered that the testimony of the key witness in the case, Robert Ježić, suffered from various implausibilities. The tribunal concluded that it had no choice but to deem Ježić as “a witness unworthy of belief, who had a strong motive to shift the blame onto […] Sanader.” The amendments to the Shareholder Agreement were thus left standing.

The ICSID proceedings wrapped up only this year. The ICSID tribunal found that the act of bribery was not proven, apparently basing its finding on the same grounds as the UNCITRAL tribunal, i.e., that Ježić was an unreliable witness. The ICSID tribunal also found that Croatia violated the ECT as a result of its failure to liberalise the gas market between 2011 and 2014 and owing to the regulations that Croatia had introduced in 2014 to further regulate the gas market.

Unfortunately, the final award from the ICSID proceedings has not been made public as the parties had agreed to keep the text of the award confidential. However, MOL and the Government of Croatia did provide press releases, both of which seem to have been drafted by their respective ‘spin doctors’. While Croatia was the losing party in the ICSID arbitration, the fact of the matter was that the ICSID tribunal granted approximately US$235 million in damages to MOL (including interest), which was a far cry from approximately US$1.1 billion that MOL was seeking to obtain. This allowed the Government of Croatia to portray the outcome of the arbitral proceedings as not entirely unfavorable to the country’s interests while MOL’s take on the matter was, although somewhat more reserved, a proud announcement to the market they had won the case.

One rather interesting question that inevitably arises in these kinds of cases is the extent to which arbitral tribunals should heed the decisions of national criminal courts. The general approach to this has been that a verdict rendered by a national court is in no way mandatory for an arbitral tribunal, but may be taken into account when the arbitrators assess the evidence.

 

4. The Standard of Proof in Corruption Cases

The MOL v. Croatia saga is yet another illustration of just how challenging it is to prove corruption, something that was at the heart of the dispute at hand.

A major challenge in proving corruption – either in arbitration or in court proceedings – is the fact that the act of corruption itself generally leaves little to no trace. As a result, setting the bar too high in terms of the standard of proof – e.g., ‘beyond reasonable doubt’ – would in essence mean that the vast majority of corruption cases would end with a finding that corruption was not proven. Given the universal condemnation of the very practice of corruption and its detrimental impact on all the aspects of a society, coupled with the difficulty of proving it, one may argue that the applicable standard of proof should lie somewhere below ‘beyond reasonable doubt’.

At the same time, the finding of corruption generally results in very serious consequences for the party that has engaged in such an act. For example, in investment disputes, the investor’s claim will generally be dismissed if the state proves that the investment had been procured through corruption. In criminal cases, the person found guilty of corruption may face a prison sentence. Thus, it is the very severity of corruption that lends itself to an argument that the standard of proof in corruption cases must be set higher than the mere ‘balance of probabilities.’

In the world of arbitration, these opposing considerations have been a catalyst for lack of uniformity, with some tribunals applying ‘a high standard of proof’ or the standard of ‘clear and convincing evidence’. One tribunal found the appropriate standard to be ‘higher than the balance of probabilities but less than criminal standard of beyond reasonable doubt.’ Some tribunals have gone for ‘comfortable satisfaction standard,’ while some, cognizant of the sheer difficulty of proving corruption, have adopted the ‘balance of probabilities’ standard. In the UNCITRAL proceedings involving Croatia and MOL, the arbitral tribunal seems to have fallen in the category of those requiring more than the mere ‘balance of probabilities’ by noting that its standard – that of ‘reasonable certainty’ – “is a matter of persuasion, and it may well be that for most minds becoming persuaded of something requires more than accepting that it is more likely than not.”

 

5. Looking at the Bigger Picture

Given the duration and the high stakes involved in this case, it is only natural to ask if the MOL v. Croatia saga could have ramifications for the ISDS system in general, and especially so because of the existence of two opinionated camps as regards the legitimacy of the ISDS system.

Those coming to the defence of the ISDS system will point to the fact that, in contrast to the Croatian courts, two independent arbitral tribunals have not found the presented evidence sufficient for a finding that the bribery had taken place. Coupled with Judge Ambos’s and Lord Anderson’s Report, proponents of ISDS may use this to advance two arguments: (1) that this saga illustrates the importance of ensuring that investors have access to a neutral forum outside of the purview of the host state’s national courts, and (2) that this is relevant also in the intra-EU context, given the fact that both Croatia and Hungary are EU Member States. And as for the staunch critics of the ISDS system, they may use this saga as a case in point that the ISDS system is skewed in favour of the investors. After all, the courts of a full-fledged EU Member State had found the bribery had taken place, and instead of severe consequences for the investor, the ICSID tribunal ended up granting damages to the investor.

The diametrically opposed conclusions of the arbitral tribunals on the one side, and those of the Croatian courts on the other, seem to position this saga as a two-faced Janus looking towards both camps, giving each something to work with.

References[+]

References ↑1 Please note that this was an aggregate sentence that also covered another criminal offense, that of abuse of position. ↑2 Ibid. function footnote_expand_reference_container_43904_24() { jQuery('#footnote_references_container_43904_24').show(); jQuery('#footnote_reference_container_collapse_button_43904_24').text('−'); } function footnote_collapse_reference_container_43904_24() { jQuery('#footnote_references_container_43904_24').hide(); jQuery('#footnote_reference_container_collapse_button_43904_24').text('+'); } function footnote_expand_collapse_reference_container_43904_24() { if (jQuery('#footnote_references_container_43904_24').is(':hidden')) { footnote_expand_reference_container_43904_24(); } else { footnote_collapse_reference_container_43904_24(); } } function footnote_moveToReference_43904_24(p_str_TargetID) { footnote_expand_reference_container_43904_24(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_43904_24(p_str_TargetID) { footnote_expand_reference_container_43904_24(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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