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KluwerArbitration ITA Arbitration Report, Volume No. XX, Issue No. 9 (July 2022)

Fri, 2022-08-12 01:28

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.

 

Angle World LLC v. Jiangsu Beier Decoration Materials Co., Ltd., Intermediate People’s Court of Beijing, , 21 April 2022

Arthur X. Dong, JunHe LLP, ITA Reporter for China

An often-seen requirement to a valid and binding arbitration agreement is that the contract containing the arbitration clause must bind upon the parties. However in this case, in a separate proceeding the PRC court found that the arbitration clause in an contract, which provides CIETAC arbitration in Shanghai, was binding although it was only signed by one party. When the respondent applied to set aside the award by arguing the arbitration agreement was not binding, the PRC court dismissed the application by holding that the same issue had been determined in the previous proceeding. Nonetheless, it is noteworthy that when the claimant applied for recognition and enforcement of the award before the U.S. court, the U.S. court dismissed the application by holding that there is no binding arbitration agreement.

 

RoinvestCo UK Ltd v. The Russian Federation, Supreme Court of Sweden, Ö 2301-09, Case Date 12 November 2010

John Kadelburger, Advokat John Kadelburger AB, ITA Reporter for Sweden

After a tribunal had found itself having jurisdiction to try a dispute the Defendant-Appellee (Russia) had filed a negative declaratory action with a District Court seeking a declaration that the tribunal lacked jurisdiction to try the dispute. The case was appealed to the Svea Court of Appeals which found it has jurisdiction and that the arbitral tribunal lacked jurisdiction. The case was then appealed by the Claimant-Appellant (RosInvestCo) and the to the Supreme Court.

The Claimant-Appellant argued that the suit should be dismissed as the dispute had insufficient connection the Swedish legal system (lack of Swedish judicial interest). The Supreme Court confirming the principle of party autonomy, explained that the parties may freely agree on applicable law, which is normally done by agreeing on the place of arbitration. According to the Supreme Court, Swedish law is applicable to an arbitration if the arbitration agreement states Sweden as the place of arbitration, even if the dispute is international. If Sweden is the agreed place of arbitration it is of no consequence if the parties or the arbitrator convene elsewhere, if the arbitrators are not Swedes, do their work in another country or if the disputed agreement has no connection to Sweden. Because the parties had agreed on Sweden as the place of arbitration, Swedish law was applicable to the arbitration.

The declaratory action was, in the Supreme Court’s opinion, permissible as the only legal limitations preventing such an action are the ones given by Chapter 13, Section 2 of the Swedish Code of Judicial Procedure. With those limitations in mind, the Supreme Court discussed whether such an action is appropriate if it cannot be expected to be settled before the arbitral award is given. The Supreme Court noted that the legislative history assumes that such an action is allowed, concluding that the action should be allowed at least when the arbitral award is not imminent. As the action had been brought forth shortly after the tribunal’s decision, with no arbitral award imminent, the Supreme Court allowed the action.

 

NeuroVive Pharmaceutical AB v. CicloMulsion AG, Supreme Court of Sweden, T 796-18, 30 April 2019

John Kadelburger, Advokat John Kadelburger AB, ITA Reporter for Sweden

Issue of procedural irregularity and in particular the relevance of the requirement that the irregularity must have likely affected the outcome of the case. The tribunal set out its position in regard to an issue in a procedural order (PO) which it stated it would not change without the parties being given opportunity to comment. The tribunal changed its position in an award without having given the parties a possibility to comment. Whether alleged procedural irregularity regarding the changed position of the tribunal and not allowing the parties to comment.

 

Joint Stock Company Belgorkhimprom v. Koca Insaat Sanayi Ihracat Anonim Sirketi, Supreme Court of Sweden, T 5437-17, 20 March 2019

John Kadelburger, Advokat John Kadelburger AB, ITA Reporter for Sweden

Belgor’s request to set an award aside was denied in its entirety. Claims to set aside the final award. General Swedish principles of contract law  interpretation apply to arbitration agreements. Tribunal best placed to determine its jurisdiction and evaluate evidence which is the starting point for the review. Issues of scope of the arbitration agreement, alleged failure by tribunal to review disputed circumstance, right and opportunity to present one’s case and whether award not based on evidence adduced.

 

Kingdom of Spain v. Athena Investments A/S (ex Greentech Energy Systems A/S), Foresight Luxembourg Solar 1 Sarl, Foresight Luxembourg Solar 2 Sarl, GWM Renewable Energy II Srl, RM , GWB Renewable Energy SpA RM, Svea Court of Appeal of Stockholm, T 1626-19, 09 October 2020

John Kadelburger, Advokat John Kadelburger AB, ITA Reporter for Sweden

The Court of Appeal received a letter from the EU Commission of its intention to submit a written observation to the Court on its own initiative as well as to present observations at the oral hearing.

 

JSC Gazprom transgaz Belarus v. Energoprojekt Oprema a.d. Beograd, Svea Court of Appeal of Stockholm, T 8181-19, 17 April 2020

John Kadelburger, Advokat John Kadelburger AB, ITA Reporter for Sweden

Dismissal of new grounds for challenge raised after the expiration of the three month time limit for challenge and following which new grounds may not be invoked.

 

Städexia AB v. Oskar Berger Pension AB, Svea Court of Appeal of Stockholm, T 1151-19, 26 May 2020

John Kadelburger, Advokat John Kadelburger AB, ITA Reporter for Sweden

Jurisdiction of arbitral tribunal. Scope of arbitration clause in share purchase agreement (SAP) and issue of extension to claims under separate (loan) agreement between same parties specifically providing for court proceedings. Interpretation of arbitration agreement. Procedural irregularity for failure to consider motion for dismissal invoked by a party in the event of a certain conclusion of invalidity of an agreement. Time limit for challenge and invoking new grounds. Importance of party’s failure to object in the challenge proceedings.

 

Lifestyle Equities CV & Anor v Hornby Street (MCR) Ltd & Ors [2022] EWCA Civ 51, Court of Appeal of England and Wales, Civil Division, Case No. CA-2021-000460 (formerly A3/2021/0355), 28 January 2022

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

The question of who is a party to an arbitration agreement is a substantive question which depends upon the concept of contractual consensus. Under English conflicts of laws principles, it is to be determined in accordance with the governing law of the putative agreement. As a matter of English law, absent some provision for accession in an agreement, a person can only become a party to an existing arbitration agreement with the consent of all of the other parties – either by novation of the making of a new agreement.

There is a distinction between the law governing an arbitration clause and the law governing the substantive dispute. The choice of law applicable to the arbitration agreement is relevant to the question who decides the substantive dispute. The law applicable to the substantive dispute applies to the resolution of that dispute. As a general proposition, the law governing the validity of the arbitration agreement also governs the question who becomes a party to it. The same principle must apply to the question of who is bound by the arbitration clause. The applicable law for determining whether a party was bound by an arbitration agreement was not restricted to the law chosen by the parties to govern their agreement. In the present case, the parties had chosen California law to govern their contract, including the arbitration clause. That law is therefore the starting point.

 

Industrial Steel Construction, Inc. v. Lunda Construction Company, United States Court of Appeals, Eighth Circuit, No. 0:21-cv-2242, 13 May 2022

Julian Ranetunge, King & Spalding LLP, ITA Reporter for the United States

Defendant Lunda Construction Company (“Lunda”), as the general contractor for a bridge construction project, engaged Plaintiff Industrial Steel Construction, Inc. (“ISC”) to fabricate structural steel for the bridge.  In their contract, they agreed to submit any disputes to arbitration under the AAA Construction Industry Rules, and stipulated that those Rules would “govern all procedural matters not specified” in the contract.  In the contract itself, they also agreed that ISC “shall be liable for incidental and consequential damages (including attorneys fees and liquidated damages) resulting from delays,” i.e., they struck out the words permitting the recovery of attorneys’ fees from ISC.

A dispute arose, which was referred to arbitration.  The arbitrator issued a final award that ordered ISC to pay Lunda’s attorney’s fees.  After Lunda sought to confirm the award, ISC moved to vacate it on the basis that the arbitrator did not have authority to award Lunda attorney’s fees and expert costs.  The district court agreed, finding that the parties’ agreement addressed the availability of attorneys’ fees when they struck out the relevant wording permitting the recovery of those fees, and so there was no basis for “gap filling” by the AAA Rules.

On appeal, the Eighth Circuit stated that for a court to vacate an award under Section 10(a)(4) of the Federal Arbitration Act, the arbitrator would have to have clearly disregarded the terms of the contract, rather than erred in his application of it.  Here, the arbitrator at least arguably construed the agreement not to address Lunda’s fees; determined liability for fees to be a “procedural matter not specified” in the agreement; and then applied the AAA Construction Industry Rules to fill in the gap, as provided by the contract.  As there was a basis to infer that the arbitrator had reached his decision on attorney and expert fees by construing the agreement, the Court was bound to affirm the final award.

 

Cheim and Read LLC et al. v. Faurschou Project ApS, United States District Court, Southern District of New York, 21-CV-6540 (RA), 18 May 2022

Renzo Seminario Cordova, King & Spalding LLP, ITA Reporter for the United States

The United States District Court for the Southern District of New York confirmed current case law establishing that the burden of proof necessary to avoid confirmation of an arbitration award is very high and the award should be enforced as long as there is a barely colorable justification for the outcome reached. The standard is met when the parties are given a full and fair opportunity to present arguments and defenses and the arbitral award thoroughly details the factual and legal findings.

An unanswered petition to confirm an arbitration award is treated as an unopposed motion for summary judgment.

 

AlixPartners, LLP v. Fund for Protection of Investors’ Rights in Foreign States, Supreme Court of the United States, No. 21-401 and No. 21-518, 13 June 2022

Charles B. Rosenberg, King & Spalding LLP, ITA Reporter for the United States

On June 13, 2022, in a unanimous opinion delivered by Justice Amy Coney Barrett, the U.S. Supreme Court ruled that 28 U.S.C § 1782(a) (Section 1782) does not extend to proceedings before “private adjudicatory bodies.”  Section 1782 authorizes U.S. district courts to order discovery “for use in a proceeding in a foreign or international tribunal.”  The Court held that Section 1782 applies only to “governmental or intergovernmental” adjudicatory bodies and private adjudicatory bodies like private commercial arbitral tribunals and certain ad hoc investor-state arbitration panels do not qualify as “foreign or international” tribunals under Section 1782.

Previously, the only U.S. Supreme Court decision interpreting Section 1782 was Intel v. Advanced Micro Devices, which found that the statute conferred broad discretion to U.S. district courts and provided a list of factors to consider when determining whether to grant Section 1782 requests.  The opinion included dicta indicting that Section 1782 may include arbitral tribunals. However, since then, a Circuit split has developed, with the Second, Fifth, and Seventh Circuits holding that Section 1782 may not be used for discovery in aid of foreign private arbitrations and the Fourth and Sixth Circuits finding the opposite.  In 2021, the Court granted certiorari in two consolidated cases (ZF Automotive v. Luxshare and AlixPartners v. Fund for Protection of Investors’ Rights in Foreign States) to resolve the split.

 

William Attix v. Carrington Mortgage Services LLC, United States Court of Appeals, Eleventh Circuit, No. 20-13575, 26 May 2022

Emma Iannini, King & Spalding LLP, ITA Reporter for the United States

Plaintiff-Appellee William Attix brought suit in federal district court against mortgage servicer Carrington Mortgage Services LLC in May 2020 under the Fair Debt Collection Practices Act (FDCPA) and Florida law. Attix’s claims related to a mortgage payment he had made to Carrington using an automated pay-by-phone service operated by Speedpay, a third-party provider.

Before making his payment to Carrington, Attix had agreed to be bound by Speedpay’s terms of service; those terms of service—to which Attix, Speedpay, and Carrington were all parties—provided that “any dispute arising from” Attix’s use of Speedpay’s service “shall be” arbitrated by a sole arbitrator appointed under the American Arbitration Association (AAA) Rules. Speedpay’s terms of service also stated that the “arbitrator shall also decide what is subject to arbitration unless prohibited by law,” and that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction.”

Faced with Attix’s suit in the district court, Carrington moved to compel arbitration pursuant to Speedpay’s terms of service. dispute must be arbitrated according to the conditions to which Attix had agreed. Carrington argued that, by agreeing that the AAA arbitrator would decide “what is subject to arbitration” and would “rule on his or her own jurisdiction,” Attix and Carrington had consented to allow the arbitrator to decide whether Attix’s claims under Speedpay’s terms of service were arbitrable. Attix conceded that he had agreed to the arbitration clause included in Speedpay’s terms of service and that the claims he brought against Carrington were covered by those terms of service; however, he countered that a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibited enforcement of the parties’ arbitration agreement.

The district court denied Carrington’s motion to compel arbitration, accepting Attix’s assertion that the Dodd-Frank Act prohibited the court from ordering the parties to commence AAA arbitration. On appeal, the 11th Circuit overturned the district court’s holding, ruling that Attix and Carrington “clearly and unmistakably agreed that an arbitrator would decide all threshold claims about [] arbitrability, including whether the[] arbitration agreement is enforceable [despite the existence of allegedly contrary provisions in the Dodd-Frank Act].” Thus, explained the 11th Circuit, the “arbitrability dispute” between Attix and Carrington— i.e., whether the Dodd-Frank Act prohibited enforcement of the arbitration agreement—was solely for the AAA arbitrator to decide. The 11th Circuit reversed and remanded the case to the district court with instructions to compel arbitration and stay the district court proceedings.

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Arbitration Framework in Andorra: A Recent Law and a New Arbitration Institution

Thu, 2022-08-11 01:34

The history of arbitration in the Principality of Andorra began with two arbitration procedures in the years 1278 and 1288 which led to the signing, between the Bishop of Urgell and the Earl of Foix, of the Paréages which created the Principality. Despite this historical background and the fact that arbitration has been conducted in Andorra on an ad hoc basis ever since, it was only recently – on 18 December 2014 – that the Arbitration Law 47/2014 (the “Law”) was enacted, providing for state-of-the-art rules governing domestic and international arbitration.

This post provides for a succinct overview of the new Andorran legal framework on arbitration and of the recently created arbitration institution, the Arbitral Tribunal of the Principality of Andorra (the “ATPA”).

 

Features of the New Andorran Law on Arbitration

The Law governs all commercial arbitration proceedings conducted in the Principality of Andorra but can also be applied to supplement any provisions found in specialized types of arbitration. The Law applies to both arbitration in law and arbitration ex aequo et bono and provides for a choice between ad hoc arbitration and institutional arbitration. As is usually the case around the world, the parties can choose to adopt specific rules, directly or by reference to an arbitration institution, which shall prevail over the non-imperative provisions of the Law.

Following the dualist model of the French legal system, the Law draws a distinction between domestic and international arbitration, although most rules, if not all, are common to both. Under Article 4.2, an arbitration is “international” when:

  • At the time of conclusion of the arbitration agreement, the parties have their domiciles in different states;
  • The seat of arbitration is located outside the state of the parties’ domiciles;
  • The place of “fulfillment of a substantial part” of the obligations is located outside the State of the parties’ domiciles;
  • The legal relationship from which the dispute arises affect the interests of international trade;
  • The parties have expressly agreed that the subject matter of the arbitration agreement is related to more than one.

The legislators have decided not to lay down a comprehensive list of which matters can be referred to arbitration and have instead chosen to use a general formula which provides that can be submitted to arbitration any matters within the capacity of the parties to freely dispose of. However, according to Article 3.2, the Law does not apply to special types of arbitration such as employment and consumer arbitration, which are governed by specific legal provisions.

Among the provisions applicable to both domestic and international arbitrations, the following are worth mentioning, as being a little unusual:

  • appointment of arbitrator by the Andorran court (Batllia), if and when required, by draw from a list of three names (Articles 17 and 18);
  • specific powers granted to the Batllia for the recognition and enforcement of arbitral tribunal interim measures (Articles 36 to 38);
  • right to submit documentation in Spanish, French or English without translation (Article 43.2);
  • possibility for the Andorran court (Tribunal Superior), upon a request for annulment, to invite the arbitral tribunal to resume the proceedings and seek to remove the ground for annulment (Article 56.4).

Concerning international arbitration, defined under Article 4.2 following a classic mixed and comprehensive criterion, grounds for annulment of awards made in Andorra and for refusal to recognize and enforce awards made abroad (Articles 70 to 73) are very much in line with those found in the 1958 New York Convention. Also, it is worth noting that, pursuant to Article 67, if the parties wish the arbitration to be confidential, they must provide so expressly.

Finally, to promote the use of arbitration in Andorra, Article 15 of the Law provides for the creation of an institution that will encourage the use of arbitration, as an out-of-court alternative dispute resolution method and administer both domestic and international arbitration in the Principality.

 

Creation of the Arbitral Tribunal of the Principality of Andorra

In accordance with the Arbitration Law, the Arbitral Tribunal of the Principality of Andorra was created by the Law No. 13/2018, adopted on 31 May 2018. Completely independent from the public authority, this unique institution whose founding members are the Andorra Chamber of Commerce, Industry and Services and the Andorra Bar Association administers the arbitration cases entrusted to it.  These entities are responsible for the composition and functioning of the institution’s governing bodies. Furthermore, they are responsible for drafting the Arbitration Rules that will apply to the proceedings administered by the ATPA and for laying down its financial and accounting rules in accordance with the Law.

The ATPA’s governing bodies are the Assembly (“Ple”) and the General Secretariat.

The Assembly must be composed by at least seven members with the right to vote. Three of them are appointed by the Andorra Chamber of Commerce, Industry and Services and three by the Andorra Bar Association. The six members of the Assembly must appoint a seventh member, to act as President.

The General Secretary monitors the arbitration proceedings entrusted to the ATPA. Appointed by the Assembly, he attends and acts as the secretary of the Assembly´s meetings, without voting rights. Furthermore, the General Secretary is responsible for the ATPA’s financial accounts and for the control and safekeeping of its financial resources.

The Law No 13/2018 ends with a chapter devoted to the financial and accounting rules and provides that the ATPA’s By-laws must address its financial regime.

The By-laws, found in Annex I of the ATPA’s Arbitration Rules, recall in their first chapter the institution’s legal nature, highlighting that it is subject to private law, benefits from legal personality and financial autonomy, and has full power to own and dispose of assets in pursuance of its aims.

The By-laws provide for a specific body, the Arbitral Board, to assist the Assembly and the General Secretary. This body is composed of five members: one appointed by each of the ATPA’s founding members; one member appointed by the Assembly who must have a renowned experience in arbitration matters and is independent of the founding members; the President and the General Secretary. The Arbitral Board has exclusive competence to administer the arbitration cases and, by delegation from the Assembly, to appoint or confirm the arbitrators as provided for in the Arbitration Rules.

In addition to provisions relating to the running of the ATPA by the Assembly or ad hoc committees, the By-laws provide an express clause precluding ATPA members to be involved, either as arbitrator or counsel to one of the parties, in any cases administered by the ATPA, unless expressly agreed by the parties and if it is not considered improper by the Arbitral Board, in view of the circumstances of the case.

The By-Laws end with provisions relating to the appointment and requirements for being a member of ATPA and dealing with the independence and lack of conflict of interest of arbitrator. These provisions ensure that the ATPA operates in total neutrality as an institution and as an administrative body in the monitoring the arbitration proceedings entrusted to it.

 

The ATPA Arbitration Rules

The ATPA Arbitration Rules have been adopted by the Assembly and are in force since January 2021. Short and modern with only 27 provisions, they regulate the entire arbitral process.

The first title deals with the application of the Rules, notifications of disputes, and the calculation of time periods. The second title covers the start of the proceedings, i.e. the request for arbitration and the answer thereto, the effect of arbitration agreements, and third-party involvement in arbitration procedures. Article 6 makes it possible, at the Arbitral Board’s discretion, to consolidate proceedings conducted at the ATPA, even if they do not involve the same parties, and to have third parties joined in the proceedings.

Title four deals with the rules applicable to the procedure and to the merits, to the terms of reference, new claims, issues of proof, conservatory measures and the conduct of hearings. Article 10.4 entitles the arbitral tribunal to convene a meeting, after the first exchange of submission on the merits, to address issues which it considers in need of clarification.

The language provision found in Article 12 is another attractive characteristic of the Rules, as it allows the parties to submit documents or evidence in the four most spoken languages in the Principality – Catalan, French, Spanish and English – without having to provide a translation, unless otherwise decided by the arbitral tribunal or the parties. This results in time and money savings for the parties.

The fifth title lays down the form and effects of the award as well at the time limit for its issue which is 6 months as from the date of the signing of the terms of reference unless extension is granted by the Arbitral Board. A draft award must be submitted by the arbitral tribunal to the Arbitral Board which can require modification as to the form, not substance, but can also make any observations it deems necessary for the award’s effectiveness. It is worth mentioning that the late issue of an award will not affect its validity but that the arbitrators may be held liable for the delay.

Then, the parties have 30 days from the date of receipt of the award to ask the arbitral tribunal to correct or clarify one or more specific points of the award, to complete the award in respect of claims which have not been dealt with, or to rectify any ultra petita finding of the award. Finally, the last two titles lay down the rules on the costs of the arbitration and the waiver of the right to challenge the award.

As the ATPA was inaugurated, on September 30, 2021, and arbitration clauses referring to it have found their way in contracts recently, it should not be long before cases are brought before this new arbitration institution.

In conclusion, it can be said with confidence that with its modern arbitration law and arbitration rules, the Principality of Andorra, a country of multicultural and neutral background, offers an appropriate seat for arbitral tribunals and an appropriate institution, the ATPA, for the Andorran and international business community to resolve its disputes.

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GSI v. Canada: Old Problems and New Take-Aways concerning Counsel Conflicts

Wed, 2022-08-10 01:35

Not so long ago, as a lawyer you started your career at the same firm from which you would later retire. Today, the opposite is true. Ambitious young lawyers and sometimes even entire practice groups move to new firms. Counsel switch between in-house and law firm positions, between public and private employers, and occasionally between firms and third-party funders (TPFs).

By now, we are all accustomed to arbitrator challenges based on these kinds of interconnections. But the increased mobility and connectivity among counsel is leading to a new breed of potential conflicts of interest—those between counsel and parties in international arbitration. Like arbitrator conflicts, counsel conflicts can directly hinder the integrity of the arbitral proceedings. However, unlike arbitrator conflicts, challenges based on alleged counsel conflicts of interest have not received the attention they deserve, even if they can be equally disruptive.

As alleged counsel conflicts become more frequent and more complex, tribunals must engage with these issues more substantively and more formally. There are, however, several fundamental questions with no clear answer. Are tribunals being asked to decide a procedural issue or one of professional ethics? Which rules or standards apply, or do multiple sources apply to the same conduct? What remedies are within the tribunal’s competence? All three of these issues are addressed in the recent decision issued in GSI v. Canada, an investment arbitration under UNCITRAL Rules and administered by ICSID. The case also raises interesting new questions about whether conflicts can exist as between third party funders (TPFs) and counsel, and how parties should manage allegations of conflicts, even as they contest them.

 

The Case and the Challenge

After filing their claim, but before the tribunal was constituted, GSI (Claimant) wrote to the Canadian Government (Respondent) alleging that an individual member of Respondent’s legal team (Counsel) had a conflict of interest with the Claimant. The allegation was that, during her prior employment with the Claimant’s TPF, Counsel obtained confidential information relevant to the arbitration. Based on (disputed) details about Counsel’s access, Claimant argued that Counsel had a conflict of interest that created a serious risk of prejudice to Claimant. In light of this risk, Claimant argued, the tribunal should disqualify Counsel and another member of the Respondent’s team with whom Counsel allegedly shared the confidential information.

Respondent refuted Claimant’s arguments that Counsel had received confidential information. Respondent also argued that, while employed by the TPF, Counsel was not acting as a lawyer and did not have an attorney-client relationship with Claimant. Consequently, according to Respondent, Counsel did not have any duty of loyalty to Claimant and could not have a conflict of interest with Claimant. Despite these arguments, upon notice of Claimant’s concerns, Respondent voluntarily cordoned Counsel off from the case with a so-called ethics wall until the disqualification issue could be formally resolved.

After this exchange, but still before the tribunal had been constituted, Claimants petitioned the Federal Court of Canada to provide relief by disqualifying Counsel. As discussed in a previous blog, the Court rejected the petition on both of the arguments raised.

First, the Court determined that the composition of the Trade Law Bureau’s (TLB) legal team was not a public issue and, as such, was not amenable to judicial review under the Federal Courts Act.

Second, the Court declined to intervene in an ongoing arbitration because Claimants had not demonstrated the arbitral tribunal’s lack of jurisdiction to deal with the conflict of interests issue. In the Court’s view, the tribunal was “the proper forum to deal with the issue.”

Claimant’s subsequent appeal was stayed pending the decision of the arbitral tribunal, before which Claimant had raised the challenge in the meantime.

 

The Tribunal’s Decision

Ultimately, the tribunal disqualified the Counsel. In reaching this decision, the tribunal first sought to distinguish between “(1) regulating the conduct of counsel in terms of their professional duties and applicable ethical rules or (2) ensuring the integrity of the arbitration process itself, including fundamental principles of fairness, natural justice and equality as between the parties.” (para. 91)

In the tribunal’s view, any request falling under the former category of issues would be beyond its powers. However, the tribunal interpreted GSI’s request, as falling within the second category—a request addressed to the tribunal’s obligation to maintain integrity of the proceedings and ensure fundamental fairness.

Having framed the key issues as ones of procedural fairness and integrity, the tribunal then looked to international investment jurisprudence and scholarship, as well as the provisions of NAFTA (the applicable treaty) and the UNCITRAL Rules, to determine that it had jurisdiction to decide the request for disqualification.  Both NAFTA and the UNCITRAL Rules grant arbitral tribunals broad discretion to conduct the proceedings in a manner that will ensure the equal treatment of both parties and their right to fully present their case. In declining to exercise its jurisdiction, the Federal Court of Canada also affirmed that arbitral tribunals have “wide latitude” in conducting the proceedings, without regard to national law.

The tribunal also looked to various cases cited by the parties, most notably Fraport, Khudyan, Hrvatska and Rompetrol. In all four of these cases, one party requested the removal of counsel representing the opposing party. In Hrvatska and Rompetrol, the alleged counsel conflicts related to members of the arbitral tribunal and not the broader notions of procedural fairness. The GSI tribunal took note of the distinction and primarily relied on Fraport due to the similar nature of the challenge and factual background. The tribunal did not consider itself bound by prior investment awards, but nevertheless applied them as a matter of due process (as both parties relied on the same cases in their submissions) and jurisprudence constante.

Emphasizing that disputing parties have a fundamental right to be represented by counsel of their choice, the tribunal reasoned that Fraport and Khudyan established a high standard for the removal of counsel in international arbitration. Under this standard, mere speculations do not suffice and there must be a real risk of prejudice to justify the removal of counsel.

In light of these standards the tribunal formulated the test warranting disqualification only if:

[T]here is clear evidence of a material risk that [the Counsel] and [the team member] have received confidential information from Claimants about the dispute that could be of significance in the present proceedings such that there would be prejudice to the fair disposition of the dispute in this arbitration if Respondent were allowed to continue being represented by them. (para. 143)

This test requires a tribunal to balance the risk posed by the presence of the allegedly conflicted attorney against the likelihood of prejudice to the other party. Applying this standard, the tribunal ultimately removed Counsel (but not her colleague with whom she may have allegedly shared confidential information).

The tribunal’s decision rested on a finding that a real risk existed that Counsel had been exposed to confidential information and that exposure could be prejudicial to Claimant. The tribunal also expressed concern about the risk that “latent memories” may be triggered by future events, making further information available to the Respondent’s team. The tribunal found no similar risk for Counsel’s colleague and dismissed the challenge against him.

 

Take-Aways from the Decision

Arbitral tribunals will continue to face challenges to counsel based on alleged conflicts of interest, and courts will also be called on to weigh in, either on an interim basis or as part of award review. Just recently, a US appellate court was presented with a public policy challenge to a Peruvian award based on allegations of attorney side-switching (Tecnicas Reunidas De Talara S.A.C. v. Ssk Ingenieria y Construccion S.A.C.)

Despite the increasingly obvious need for clearer guidance about applicable standards, tribunal competences, and the inter-relationship between national rules and international standards, little has been done to formally address these issues. Not even the IBA Guidelines on Party Representation in International Arbitration address the issue. As the complexity of these issues cannot be fully resolved in a blog post, we instead provide comments on some wholly original issues raised in GSI.

First, GSI appears to be the first case to identify the potential for counsel conflicts of interest with a TPF or a person employed by a TPF. Canada sought to side-step the issue by arguing Counsel was not serving as a lawyer while at the TPF and, as such, did not owe any duty of loyalty that would be the basis for a conflict once she joined the TLB.

Not so long ago, some TPFs raised a similar argument that they could not have conflicts of interest with arbitrators because funders were simply providing financing for the case. That argument has been summarily rejected as States, institutional rules, arbitral tribunals, and the IBA Guidelines on Conflicts of Interest have established clearer guidance for when a TPF’s participation must be disclosed and when that participation may give rise to a potential conflict. Similar clarifications will be needed with respect to counsel and TPFs.

Second, the Canadian court confirmed that arbitral tribunals are “the proper forum to deal with the issue” (para. 62, emphasis in the original) and characterizing any judicial disqualification is an  unnecessary interference.

This Canadian decision adds weight to one side of conflicting cases that considered whether arbitrators have the power to disqualify counsel. For example, in Malik v. Ruttenberg, the court reasoned that attorney disqualification “falls directly within the adjudicative functions of the arbitrator.” Meanwhile, in Wurttembergisch Fire Ins. Co. v. Republic Ins. Co., the court concluded any disqualification decision by a judge “would have only advisory effect upon the arbitrators” and interfere with the arbitrators’ ability “to control their internal procedures.”

A third take-away relates to Canada’s voluntary establishment of an ethics wall, even as it contested the existence of any conflict. An ethics wall is a series of protocols within an organization, designed to create a barrier to the exchange of information between a potentially conflicted individual and others in the organization. An ethics wall is more than just an informal agreement to avoid discussing a particular case or certain topics; rather, it is a precise set of formally acknowledged procedures to prophylactically cordon off the flow of information that otherwise naturally occurs among colleagues. This can be a difficult process, especially if a change in employment that may give rise to a conflict is contemplated but is still confidential.

TLB’s willingness to respond quickly and effectively to GSI’s challenge, despite its obvious disagreement, undoubtedly aided the tribunal in deciding that Counsel’s colleague had not received any confidential information. Indeed, it was the lack of this responsiveness in Hrvatska that influenced the tribunal’s decision to disqualify. The tribunal in that case had specifically noted that the party’s late revelation of and “subsequent insistent refusal to disclose the scope of [the allegedly conflicted lawyer’s] involvement” were “errors of judgment” that “created an atmosphere of apprehension and mistrust which it is important to dispel” (para. 31).

The GSI case demonstrates that even with uncomfortable and disputed allegations of counsel conflicts of interest, parties can minimize the harm by adopting a common sense approach as they seek formal resolution. Those solutions, however, should not be left entirely to the discretion of the person who is allegedly conflicted or later to a tribunal or court to sort out. As the 10th anniversary of the 2013 IBA Guidelines of Party Representation in International Arbitration approaches, perhaps it is time to consider formally clarifying these issues.

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KluwerArbitration ITA Arbitration Report, Volume No. XX, Issue No. 8 (May 2022)

Tue, 2022-08-09 01:25

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.

 

Al Alameya Company S.A.E. v. Party Not Indicated, Court of Cassation of Egypt, Case No. 13892 of JY 81, 22 February 2022

Noha Khaled Abdel Rahim & Mohamed S. Abdel Wahab, Zulficar & Partners, ITA Reporters for Egypt

The Commercial and Economic Circuit of the Court of Cassation rejected a challenge made against the Cairo Court of Appeal judgment, which rejected a nullity action brought against a CRCICA arbitral award. In its decision, the Court of Cassation explicitly referred for the first time to the IBA Guidelines on Conflicts of Interest in International Arbitration (2014) and quoted Clause 3.3.5 of the Orange list, to serve as guidance in determining the duty of disclosure and its impact on the independence and impartiality of an arbitrator. Furthermore, the Court reaffirmed well-established principles in international arbitration and beyond, which include the arbitrators’ duty of independence and impartiality, the capacity to conclude arbitration agreements, the prohibition of de novo review of the merits by nullity courts, and the award of interest with respect to Egyptian public policy and the principles of Islamic Shari’a.

 

Parties Not Indicated, Court of Appeal of Cairo, Case No. 43 of JY 138, 26 April 2022

Noha Khaled Abdel Rahim & Mohamed S. Abdel Wahab, Zulficar & Partners, ITA Reporters for Egypt

The 4th Commercial Circuit of the Cairo Court of Appeal has rejected a nullity action filed against an arbitral award. On this occasion, the Court has recognised WhatsApp as a valid means of communication in arbitral proceedings, so long that the fundamental principles of arbitration are guaranteed, such as confidentiality, due process, fair and equitable treatment of parties and the right of defence, etc. The arbitral tribunal informed the parties that it extended the time limit for issuing the final award because two members of the arbitral tribunal caught COVID-19 pandemic. The Court of Appeal has considered the illness of the two arbitrators as a force majeure event that automatically interrupts the period of the arbitration proceedings. Furthermore, the Court has also referred to the wide spread of virtual hearings in international arbitration and the increase in use of new means of communication to facilitate the conduct of arbitral proceedings and to minimise the costs. The Court also referred to the principle of estoppel stating that the plaintiff cannot object before the Court of Appeal on a procedural issue that took place during the arbitration proceedings, which the plaintiff accepted back at the time without objecting.

 

BGH – I ZB 13/21 (“Schiedsfähigkeit IV”), Federal Court of Justice of Germany, I ZB 13/21, 23 September 2021

Patrick Gerardy & Harry Nettlau, Cleary Gottlieb Steen & Hamilton LLP, ITA Reporters for Germany

The minimum requirements for the validity of arbitration clauses covering disputes over defects in shareholders’ resolutions, which the German Federal Court of Justice (“BGH”) developed for limited liability companies (GmbH), also apply to partnerships if the articles of partnership provide that such disputes shall not be litigated among the partners but with the partnership.  In case of doubt, an arbitration clause that covers “all” disputes arising from the partnership relationship indicates the partners’ intention not to completely abandon the clause in the event of its partial invalidity, but to maintain its validity to the extent legally permissible.

 

BGH – I ZB 16/21, Federal Court of Justice of Germany, I ZB 16/21, 17 November 2021

Patrick Gerardy & Harry Nettlau, Cleary Gottlieb Steen & Hamilton LLP, ITA Reporters for Germany

A provision in an intra-EU bilateral investment treaty (“intra-EU BIT”) that offers an investor to settle investment disputes through arbitration generally violates EU law and is invalid, with the effect that there is no arbitration agreement.  Accordingly, a German court not only will set aside, or refuse enforcement of, an arbitral award based on an intra-EU BIT arbitration clause, but also, when seized of a related jurisdictional dispute, declare arbitration proceedings inadmissible.  An exception to the invalidity of such an intra-EU BIT clause may apply where the (strict) requirements developed in the Achmea, PL Holdings, and Komstroy judgments by the Court of Justice of the European Union (the “CJEU”) are met.

 

BayObLG – 101 Sch 60/21, Highest Regional Court of Bavaria, 101 Sch 60/21, 18 January 2022

Patrick Gerardy & Harry Nettlau, Cleary Gottlieb Steen & Hamilton LLP, ITA Reporters for Germany

Neither the mere possibility of future set-aside proceedings against the arbitral award at the seat of arbitration, nor a set-aside proceeding already pending – in this case pursuant to Sec. 68 of the English Arbitration Act 1996 before the High Court of Justice  – establish grounds for refusal of enforcement under Art. V(1)(e) of the New York Convention (“NYC”).  Rather, in a proceeding to declare a foreign award enforceable in Germany, the court may exercise its discretion pursuant to Art. VI of the NYC and declare the award enforceable despite set-aside proceedings pending at the seat of the arbitration.

 

OLG Frankfurt am Main – 26 Sch 12/20, Higher Regional Court of Düsseldorf, 26 Sch 12/20, 21 April 2021

Patrick Gerardy & Harry Nettlau, Cleary Gottlieb Steen & Hamilton LLP, ITA Reporters for Germany

Applications before German courts to set aside or declare enforceable an arbitral award under Sec. 1059–1061 of the Code of Civil Procedure (Zivilprozessordnung, or “ZPO”) do not fall within the jurisdiction of specialized cartel senates, even if the invoked grounds for setting aside or refusing enforceability are grounded in antitrust law.  Rather, senates for arbitration matters remain competent.

The fact that mandatory provisions of antitrust law form part of public policy justifies neither an unlimited review of the arbitral award for conformity with antitrust law nor a summary or “plausibility” review in this regard.  Rather, a state court deciding on a public policy objection against an award may review only whether the award disregards fundamental notions of the legislator, as enshrined in the applicable antitrust law provisions (“minimalist approach”).

 

UAB Corolla Ventures v. Panevėžio statybos trestas, Supreme Court of Lithuania, 3K-3-228-823/2021, 15 September 2021

Denis Parchajev, Motieka & Audzevičius, ITA Reporter for Lithuania

In September 2021, the Supreme Court of Lithuania annulled the ruling of the Court of Appeal of Lithuania and ruled that a pathological arbitration clause, which refers a dispute to an arbitral institution that has been dissolved, is inoperable or incapable of being performed, and the parties‘ dispute must be brought before Lithuanian courts. This marks a departure from the previous liberal interpretation inspired, among others, by the likes of the Lucky Goldstar case.

 

Republic of Lithuania v. Veolia Energie International S.A. et al., Supreme Court of Lithuania, e3K-3-121-916/2022, 18 January 2022

Denis Parchajev, Motieka & Audzevičius, ITA Reporter for Lithuania

In January 2022, the Supreme Court of Lithuania ruled that the Ruling of the Court of Appeal of Lithuania shall remain unchanged, thus establishing that a perfected ICSID arbitration clause set out in the France-Lithuania BIT became invalid based on the CJEU Achmea judgment.

 

Kaunas Free Economic Zone and Management JSC, Knightsbridge Property Management Limited and Antwerpse Ontwikkelings- en Investeringsmaatschappij v. Channel Hotels and Properties Limited, Supreme Court of Lithuania, e3K-3-68-611/2021, 07 April 2021

Denis Parchajev, Motieka & Audzevičius, ITA Reporter for Lithuania

In April 2021, the Supreme Court of Lithuania reversed the ruling of the Court of Appeal of Lithuania and ruled that the avoidance of parallel arbitration and count proceedings constitutes part of international public policy, as the former undermines the principles of civil process and leads to conflicting and incompatible decisions.

 

Clube v. SAD, Court of Appeal of Lisbon, 22927/20.3T8LSB-B.L1-2, 27 January 2022

Iñaki Carrera, PLMJ Advogados & José Miguel Júdice, Independent Arbitrator, ITA Reporters for Portugal

The Lisbon Court of Appeal issued a decision that bluntly confirms the powers of the state court to assist the Arbitral Tribunal to order the party in breach of the obligation to produce evidence to submit such elements. This decision confirms the favourable arbitration trend of the Portuguese state courts and opens a relevant avenue to reinforce the conditions for compliance with the Arbitral Tribunal’s orders.

 

Advanced Aerofoil Technologies, AG. & Ors v. Todaro & Ors, United States District Court, Southern District of New York, 13 Civ 7181 (RWS), 15 April 2014

Inigo Kwan-Parsons

New York’s Southern District Court has affirmed its pro-arbitration stance in refusing to set aside an arbitral award which dismissed claims as to fraudulent representations regarding a termination agreement which had sought to settle ‘any and all claims, liabilities and obligations, both known and unknown’ between the parties, and applying principles enunciated by the New York Court of Appeals in Centro Empresarial Cempresa SA v. America Movil SAB, 17 NY 3rd 269 (2011).

 

Superior Energy Services Colombia S.A.S. & Superior Energy Services Inc. v, Premium Petroleum Services Corp., United States District Court, Southern District of New York, 18-CV-7704 (ALC), 08 July 2019

Inigo Kwan-Parsons

After receiving a favourable arbitral award, Superior Energy Services Colombia S.A.S. and Superior Energy Services Inc. (collectively, Superior), petitioned before the Southern District Court of New York, to enforce the arbitral award, which was opposed by the unsuccessful party to the arbitration, Premium Petroleum Services Corp. (Premium), who filed a petition seeking to vacate the arbitral award. In upholding the award, the Court reaffirmed its jurisdiction’s reluctance, and high threshold, to interfere with an arbitral award.

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Admissibility of Third-Party Funding in Arbitration Proceedings in Serbia: A Search for a Definitive Answer

Mon, 2022-08-08 01:30

Third-party funding is not directly addressed in Serbian legislation. Consequently, there is widespread debate as to whether third-party funding is allowed under Serbian law.

This post analyses whether third-party funding of arbitration costs and associated legal fees is admissible in Serbia. It further addresses the conditions that have to be met in order for such third-party funding arrangements to be carried out in accordance with Serbian law.

To this end, the post focusses on the following aspects of the topic: (i) whether the relevant domestic sources of law prohibit third-party funding contracts, (ii) the nature of the contractual relationship between the funder and the party’s counsel; and (iii) the relationship between the funder and the arbitration process.

Do the Relevant Sources of Law in Serbia Allow for Third-Party Funding Arrangements?

UNCITRAL defines third-party funding as:

“an agreement by an entity (the “third-party funder”) that is not a party to a dispute to provide funds or other material support to a disputing party (usually the claimant or a law firm representing the claimant), in return for a remuneration, which is dependent on the outcome of the dispute”.

Third-party funding may cover part or all of the costs associated with an arbitration proceeding, such as the cost of proceedings and legal fees.

As noted above, Serbian law does not directly address the permissibility of contractual arrangements being concluded by parties to arbitration proceedings to secure third-party funding arrangements in support of those proceedings.

In accordance with Art. 10 of the Law of Contract and Torts (“ZOO”), contracting parties may regulate their contractual relationship as they wish within the limits of mandatory rules, public policy, and good faith. As such, there are general conditions that contracts must comply with in order to be valid under Serbian law.

Art. 10 of the ZOO should be interpreted together with the relevant case-law of the Supreme Court of Cassation, especially for present purposes Decision No. 223/2010(2) dated 04 March 2010. In this decision, the Court concluded that uniform rules represent codified customs, meaning that the parties can incorporate them into their contract via Art. 10 of the ZOO.

Templates and good practices concerning third-party funding are being increasingly standardized by stakeholders, including by bodies such as UNCITRAL. However, it is questionable whether the current standardization efforts in this area would constitute “codified customs” in the sense understood by this decision of the Supreme Court of Cassation.

Nevertheless, even if they do not amount to “codified customs”, such standards may become relevant under Art. 10 of the ZOO via its references to public order and good faith. These represent subjective criteria that are prone to constant change, and which may negatively impact the validity of unnamed contracts (those not listed in or regulated by the relevant legislation), insofar as such contracts must be in line with the relevant mandatory rules at the time of their signing.

Therefore, one must analyze the relevant mandatory rules concerning legal fees and costs of arbitration proceedings through the lens of the contractual relationships between, on the one hand, the funder and the party’s counsel and, on the other, the relationship between the funder and the arbitration process.

The Contractual Relationship Between the Funder and the Counsel of the Litigant

Art. 30.2 of the Ethical Code for Lawyers allows the counsel of the client to seek and receive payments for their fees and costs or arrange acceptance of payments by contractual means from a third-party funder, but only if the client approves of this and provided also that the client is represented by counsel in the proceedings. Art. 30.2 in its current form would allow a funder to pay the legal fees of the parties’ counsel under the condition that the counsel receives confirmation from their client to do so.

In addition to the question of admissibility of such a payment, there is also the lingering question of the disclosure of attorney-privileged information. More precisely, is the counsel allowed to disclose attorney-privileged information in the event that the funder asks for case-sensitive information prior to or at the moment of signing the third-party funding agreement?

The Ethical Code for Lawyers possibly provides guidance on this matter. It stipulates that counsel may disclose attorney-privileged information if the client provides an unequivocal confirmation to this end through a power of attorney.

Thus, a party seeking to have its arbitration funded by an external entity would be well advised to define within the relevant power of attorney the scope and the content of information that would be disclosed to the latter. For the sake of comparison, the Code of Conduct for Litigation of Funders of the Association of Litigation Funders of England and Wales dictates that, before requesting or receiving any documents from the litigant or their counsel, the funder is required to sign either a confidentiality or non-disclosure agreement with the litigant.

Relationship Between the Funder and Arbitration Process

The Serbian Arbitration Act is only applicable if the seat of arbitration is in Serbia, and it provides strict rules for costs of arbitration. Art. 18 of this Act states that arbitration costs fall on the disputing parties. Given that the question of third-party funding is not directly or indirectly addressed or even prohibited by this Act, we must direct our attention to the arbitration rules of the major arbitral institutions in Serbia. Presently, both the Rules of the Belgrade Arbitration Center and the Rules of the Permanent Arbitration Court of the Chamber of Commerce and Industry of Serbia contain no references to third-party funding. Thus, it is questionable if these arbitral institutions would even accept such funding arrangements. Theoretically, if they end up accepting them, two questions will arise.

The first question is: Does the party who has obtained external funding have the duty to disclose the third-party funding arrangement to the arbitral tribunal, and consequently, to the opposing party as well? In tackling this question, the optimal solution for Serbian arbitral institutions would be to follow the ICC Note to Parties and tribunals on the conduct of arbitration under the ICC Rules of Arbitration. The ICC approach imposes an obligation on the funded party to provide evidence of such an agreement to the ICC, and further requires that the legal document in question must be deemed satisfactory by the ICC’s bank. Moreover, the litigant must report it to the relevant regulatory authorities. By implementing this note, the Serbian arbitral institutions would ensure that all of the parties’ interests will be protected and that there would be a high level of legal certainty and transparency. The most relevant regulatory authorities for these matters in the Republic of Serbia would be the tax administration and the National Bank of Serbia.

The second question will most certainly be whether the arbitrators would be under an obligation to disclose possible conflict of interests in connection to the funder? One way for the Serbian arbitral institutions to approach this issue would be to heed the ICC Rules of Arbitration, and thus to introduce an obligation to arbitrators whereby they are obligated to determine if the disclosed third-party funding agreement presents a potential conflict of interest for them. This approach would most certainly reassure all the parties of the transparency of the disclosing procedure, and these additional steps would also ensure that the chosen arbitrator is neutral and free of conflicts of interests.

Conclusion

The relevant sources of law in Serbia at first glance may not give definitive answers as regards the admissibility of third-party funding. However, having in mind the above-mentioned definition of third-party funding agreements as well as the relevant provisions of the Ethical Code for Lawyers, these kinds of funding arrangements could theoretically be accommodated within the existing legal framework. The question of a separate third-party funding agreement that would cover the costs of arbitration proceedings solely depends on the will of the arbitral institutions in Serbia. If the said institutions were to accept such a contractual arrangement, the parties and the arbitral institution would be well advised to apply the best arbitration practices and the necessary screening tests concerning third-party funding due to them not regulating this matter in their respective rules.

To further deepen your knowledge on third-party funding, including a summary introduction, important considerations, practical guidance, suggested reading and more, please consult the Wolters Kluwer Practical Insights page, available here

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What The Functus? Setting Aside Awards for Lack of Jurisdiction in Chevron Australia Pty Ltd v CBI Constructors Pty Ltd

Fri, 2022-08-05 01:53

Winston Churchill said in 1942 that the war was not at the end, adding: “It is not even the beginning of the end. But it is, perhaps, the end of the beginning”. When it comes to international arbitration, the beginning is easy enough to discern from the notice of arbitration. Divining the end can be more difficult, especially if issues are split or the case is bifurcated.

The Supreme Court of Western Australia is grappling with a 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. The case provides a cautionary tale for parties and tribunals about the need for care in formulating applications and orders for bifurcation; and lessons for reviewing courts called upon to second-guess the procedural course charted by arbitral tribunals.

Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323 involved a dispute between Chevron and a joint-venture contractor engaged to perform certain work on Chevron’s Gorgon offshore gas project in northern Western Australia. In essence, the contractor was paid on a reimbursable basis, and the parties fell into dispute over the scope of the reimbursement entitlement and the sum owed.

The tribunal, comprised of Mr Phillip Greenham, the Hon Christopher Pullin QC, and Sir Robert Akenhead, made orders bifurcating liability and quantum. That seemed like a sensible idea. But the tribunal’s orders provided that “all issues of liability” would be the subject of a first hearing, followed by a second phase to address “all matters outstanding in issue between the parties including quantum and quantification issues”. The ambiguity in the orders prefigured the dilemma that later emerged: was the second phase limited strictly to quantum, or did it include quantum and any other residual issues, including residual liability issues?

The parties proceeded to exchange submissions and complete the first phase, leading to a partial award styled somewhat confusingly an “interim award”. The central liability issue in the first phase was, in simplified terms, whether the contractor was entitled to reimbursement on the basis of rates (the contractor’s position) or actual costs (Chevron’s position). The tribunal found broadly in Chevron’s favour.

The matter then proceeded to the second phase. Here the problem with the bifurcation orders reared its head. The contractor sought to raise an issue about the meaning and scope of “actual costs” under the terms of the contract. Chevron objected on the basis that this was a liability issue that should have been addressed in the first phase. Chevron asserted that the tribunal was therefore estopped or alternatively functus officio on the issue.

The debate spilled over to the tribunal. The tribunal had to ask itself: what did we do when we bifurcated liability and quantum? The tribunal rendered a second partial award, again styled an interim award. But the tribunal was split 2:1. The majority held that the tribunal was only ever concerned with liability in the sense of the binary choice between rates and actual costs: the tribunal was not charting the metes and bounds of “actual costs”, and the contractor’s interpretation point remained live in phase two. The dissenting arbitrator took a different view. He concluded that the tribunal had resolved to decide “all issues of liability”. In the dissentient’s mind, those iron-clad words had the consequence, consciously or not, of excluding the contractor’s argument about actual costs from phase two.

Chevron applied to the Supreme Court of Western Australia, at the seat of the arbitration, to set aside the second partial award. The question was, really, who had it right about the effect of the tribunal’s orders: the majority arbitrators or the dissenting arbitrator?

The approach of the judge at first instance was to be “respectful” to the arbitrators, but to conduct a de novo review to decide the question for himself. There was no submissive deference to the tribunal, in the manner of the faithful at the altar of authority. This yielded a lengthy decision, exceeding 130 pages, analysing the procedural record of the arbitration. The judge’s ultimate conclusion was to agree with the dissenting arbitrator and to disagree with the majority: he found that the tribunal was functus officio on all questions of liability following the first partial award, including the issue about the scope of actual costs.

The consequence is that the contractor’s argument about the meaning of actual costs disappeared into the ether. It was not raised in the first phase and was not decided there, and it could not be raised and determined in the second phase. So much for the wisdom of bifurcation from the perspective of the contractor.

The judge’s decision has since been taken on appeal. The decision of the appellate court remains pending at the time of writing.

Taking stock, this case contains lessons for all quarters.

  • For courts, there is the question of who knows best about procedural decisions taken by arbitral tribunals: the tribunal itself, or a reviewing court? Like most construction cases, this particular case involved a massive procedural record spanning over 30 procedural orders, hundreds of pages of submissions and documents, and fractured interlocutory disputation. In the context of that quagmire, one wonders whether the tribunal is best placed to say what it meant to do, and did, when making orders for bifurcation in the interests of procedural economy and the management of the proceedings before it. It is a hard task for a reviewing court to wade in. Deference seems like an attractive position in most cases.
  • For tribunals, arbitrators must be especially attentive to the consequences of bifurcation and the formulation of orders for bifurcation, or else they may accidentally make themselves functus. This was an example of loose language deployed in a procedural order for bifurcation, creating a later controversy about what had been achieved in fact. And, ultimately, the position here was that the tribunal’s procedural order had an effect contrary to what the majority of tribunal members had themselves understood.
  • For parties and their representatives, the case is a reminder of the need for care when identifying and presenting all pertinent arguments at all stages, whether those arguments be primary, alternative, or contingent, and to make appropriate reservations to avoid an inadvertent waiver. Otherwise, the outcome may well be as here, where a potentially viable alternative argument is lost.

In the end, the starting point for any orders for bifurcation or the splitting of issues must be absolute clarity. Where such clarity seems unattainable, the best course may be just to start the hearing on all issues and finish at the end.

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Beyond the Old Rule: Should Cavendish Come to India?

Thu, 2022-08-04 01:00

Arbitral tribunals are often faced with questions concerning the interpretation and enforcement of liquidated damages clauses; in such cases, the law governing the contract can significantly affect what damages can be claimed, the standard for proving such damages, and consequently the outcome of the dispute. This blog post examines the differences between English law and Indian law on liquidated damages to assist parties in determining which of the two may be most appropriate to govern their contracts. These differences may impact not only the choice of governing law in their agreement but perhaps even the seat of arbitration they choose.

In 1915, the House of Lords in Dunlop Pneumatic Tyre v. New Garage & Motor Co. Ltd. (“Dunlop”), found that for a liquidated damages clause to be enforceable, it must be a genuine pre-estimate of damages. In contrast, Indian law provides that where a contract contains a liquidated damages clause, a party suffering a breach of contract may receive “reasonable compensation” but acknowledges that if the clause stipulates an amount that is a genuine pre-estimate of damages, then this may be considered to be reasonable compensation.

However, in the recent case of Cavendish Square Holdings BV v. Talal El Makdessi and ParkingEye Ltd. v. Beavis (“Cavendish”), the United Kingdom Supreme Court (“UKSC”) found that Dunlop’s distinction between “genuine pre-estimate” and “penalty” was artificial and unsatisfactory. It found that merely because a provision was not a pre-estimate of loss, did not necessarily mean that it is penal. Rather, the true test was if the impugned provision was out of all proportion to the party’s legitimate interest in the enforcement of the relevant obligation. Thus, one may argue that arbitral tribunals examining contracts governed by English law are more likely to enforce liquidated damages clauses than in contracts governed by Indian law, as the former’s “disproportionality” standard is more liberal than the latter’s “reasonableness” standard.

 

The Old Rule: Genuine Pre-Estimates and Reasonable Compensation

In Dunlop, the House of Lords examined if a clause requiring payment of £5 “by way of liquidated damages and not as a penalty” for each unit sold below the agreed-upon resale price was enforceable. It found that:

The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage.

It examined a number of criteria that may assist in evaluating if the damages were penal or not and accordingly found that the damages agreed upon were reasonable and thus were not a penalty.

Decades later, in Fateh Chand v. Balkishan Das, the Supreme Court of India (“SCI”) examined a sale deed which provided that if the vendee failed to have the sale deed registered by a stipulated date, then the INR 1,000 of “earnest money” and INR 24,000 towards the sale price paid by the vendee, would be forfeited. The SCI noted the common law standard of “genuine pre-estimate of damages” and found that the INR 24,000 stipulation was “manifestly a stipulation by way of penalty”. It found that under Section 74 of the Indian Contract Act if a liquidated damages clause is penal, the Court could provide reasonable compensation not exceeding the amount stipulated. It thus found that in addition to the earnest money, the vendor was entitled to retain compensation of INR 140 per month at a monthly interest of 6 percent till the date the breach was cured.

Subsequently, in Maula Bux v. Union of India, the SCI further added that if it is not able to ascertain reasonable compensation, the sum agreed upon by the parties – if it is a genuine pre-estimate of damages – can be considered as reasonable compensation, so long as it is not a penalty. Finally, in Kailash Nath v. Delhi Development Authority, the SCI found that a liquidated damages clause may be enforced as “reasonable compensation” only if it is a genuine pre-estimate of damages; in other cases, only reasonable compensation not exceeding the stipulated amount may be paid.

Thus, it may be argued that initially, a tribunal governed by Indian law and a tribunal governed by English law could reach similar conclusions on liquidated damages, due to the prevalence of the “genuine pre-estimate” condition in both, albeit with the caveat that if the clause did not stipulate a genuine pre-estimate, then an Indian law governed tribunal could award reasonable compensation. However, with Cavendish, this somewhat narrow divergence expanded substantially, as explained below.

 

Widening the Gap: The Effects of Cavendish

Cavendish was comprised of two appeals: Cavendish Square Holding BV v. Talal El Makdessi, and ParkingEye Limited v. Beavis. In Cavendish v. Makdessi, Makdessi had agreed to sell to Cavendish a controlling stake in a company. The agreement provided that on breach of certain restrictive covenants, Makdessi would not be entitled to receive the final two instalments of the price payable by Cavendish, and could be required to sell his remaining shares to Cavendish at a price which excluded the value of goodwill of the business. Makdessi breached these covenants but subsequently claimed that the clauses Cavendish sought to enforce were penalty clauses.

In ParkingEye v. Beavis, ParkingEye had been engaged to run a car park and had displayed signs in that park indicating that failure to comply with a two-hour time limit would result in a charge of £85. Beavis exceeded the time limit by nearly an hour, but upon ParkingEye’s demand of the fine, argued that the £85 charge was an unenforceable penalty.

The UKSC called the penalty rule an “ancient, haphazardly constructed edifice which has not weathered well”, and noted that “penalty” and “genuine pre-estimate of loss” are not natural opposites or mutually exclusive; a clause that is not a pre-estimate is not necessarily penal, nor is a deterrent clause necessarily penal. The Court said:

The true test is whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation.

In Cavendish v. Makdessi, the UKSC found that both impugned clauses were primary obligations not subject to the penalty rule. In contrast, in ParkingEye v. Beavis, the penalty rule was engaged, but the £85 charge was not a penalty, as ParkingEye had a legitimate interest in efficiently managing the parking spaces. The charge was also not extravagant or unconscionable. Accordingly, it did not violate the penalty rule.

 

Cavendish and Indian Law: Dunlop Stands Strong

Several recent Indian decisions have referred to Cavendish. In Dishnet Wireless v. Union of India1) (2016) 1 TLR 10 jQuery('#footnote_plugin_tooltip_42307_21_1').tooltip({ tip: '#footnote_plugin_tooltip_text_42307_21_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });, the Tripura High Court referred to Cavendish as establishing the “true principle” in respect of such clauses, but found that the “dominant test” in India was that of “[genuine] pre-estimate of reasonable compensation.” In Electronics Corporation of Tamil Nadu v. ICMC Limited, the Madras High Court (“HC”) had to adjudicate upon the imposition of liquidated damages due to a supplier’s failure to adhere to a delivery schedule. The Madras HC, referring to Indian law, Dunlop and Cavendish found that there was “proportionality as between the extent of delay and the amount of liquidated damages”, and thus it could be concluded that the liquidated damages clause reflected a genuine pre-estimate of loss. To a degree, this may indicate reliance on Cavendish’s “proportionality” standard, though this may also be attributable to the Courts’ freedom to determine reasonable compensation. Finally, in LIC Housing Finance Ltd. v. Commissioner of ST, the Custom, Excise and Service Tax Appellate Tribunal found that Cavendish clearly laid down the law on penalty clauses, but it did not substantively discuss how this affected Indian law on the subject. Accordingly, though Cavendish has been acknowledged in several Indian legal decisions, the Indian and English positions remain substantially different.

The Indian legal position essentially provides the arbitral tribunal with the power to award lower damages than those stipulated in the contract, if the liquidated damages clause are construed as penal. This may arguably diminish party autonomy and is likely to foment and prolong unnecessary disputes, as breaching parties may seek to diminish their liability from that stipulated in the liquidated damages clause to what the arbitral tribunal thinks is reasonable. In contrast, the Cavendish test strengthens party autonomy by narrowing the scope of intervention in liquidated damages clauses, and by ensuring that such clauses are more likely to be enforced (due to disproportionality being a more liberal standard than reasonableness or genuine pre-estimates) may diminish unnecessary disputes.

The importance of this choice of law is well demonstrated by investor-promoter disputes, in which investors often seek sweeping rights in the underlying agreements, to protect against breach and act as a safety net for the value of the investment. To that extent as Cavendish correctly identifies, every clause that may not be a genuine pre-estimate may also not be a penalty. Whether something is a penalty or a commercially negotiated position to protect the interest of a party that has more monetary exposure, will have to be carefully examined on a case by case basis. It must also be noted that often, identifying what is a genuine pre-estimate of damages is very difficult, especially if there are multiple factors that contribute to such calculation. In such a case this standard does not apply. Cavendish provides a more commercially relevant standard for today’s contracts, which Indian law ought to move towards.

Once attribution has been determined, it is often left to the arbitral tribunal to make the difficult decision on damages and quantification. Indian law provides a framework but may not always neatly assist when determining where a particular amount sits between a pre-estimate and a penalty. In that gap, it will do well for arbitral tribunals governed by Indian law to apply the Cavendish standard and move towards enforcing bargains. Such an evolution would also improve the perception of the Indian legal landscape as being reasonable and practical, as opposed to overly tied to the letter of old (and somewhat outdated) precedent.

 

The views expressed in this blog post are personal to the authors. 

References[+]

References ↑1 (2016) 1 TLR 10 function footnote_expand_reference_container_42307_21() { jQuery('#footnote_references_container_42307_21').show(); jQuery('#footnote_reference_container_collapse_button_42307_21').text('−'); } function footnote_collapse_reference_container_42307_21() { jQuery('#footnote_references_container_42307_21').hide(); jQuery('#footnote_reference_container_collapse_button_42307_21').text('+'); } function footnote_expand_collapse_reference_container_42307_21() { if (jQuery('#footnote_references_container_42307_21').is(':hidden')) { footnote_expand_reference_container_42307_21(); } else { footnote_collapse_reference_container_42307_21(); } } function footnote_moveToReference_42307_21(p_str_TargetID) { footnote_expand_reference_container_42307_21(); 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_42307_21(p_str_TargetID) { footnote_expand_reference_container_42307_21(); 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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ECT Reform: The Final Countdown

Wed, 2022-08-03 01:40

Negotiations towards a modernized Energy Charter Treaty (ECT, Treaty) ended on 24 June 2022, with the States Parties reaching an agreement in principle following discussions towards reform that began in November 2017. While the final text of the modernized Treaty has not yet been published, the Secretariat of the ECT in June issued a public communication summarizing the main proposed changes to the Treaty. The final text will be released in August 2022, and the proposal will be voted on by the Conference in November 2022. If approved by three-quarters of the Contracting Parties, the modernized ECT will enter into force 90 days after its ratification. At KAB, we have been closely monitoring the ECT reform and modernization process. Building on the Blog’s prior coverage of the ECT modernization process, this post highlights a few of the most noteworthy modifications to the ECT proposed through the agreement in principle and considers their implications for investment disputes moving forward.

 

1. Investment Protection

Some of the core changes brought about in the proposed amendments relate to the substantive standards of protection afforded to investors and their investments under the ECT. The agreement in principle targets changes for several such standards. This section discusses the key changes proposed related to the fair and equitable treatment (FET) obligation in the ECT, the States Parties’ right to regulate, and the most-favoured-nation treatment clause.

Fair And Equitable Treatment (FET)

FET is the most frequently invoked protection in ECT claims and the most frequent standard under which tribunals have found ECT breaches. As of June 2022, investors have filed FET claims in 24.7% of the 83 ECT publicly available awards. Further, of the 43 cases in which ECT tribunals found Treaty breaches, 65% were for FET violations. Hence, any change to this standard will have important impacts in future ECT cases.

Prior to the modernization of the ECT, commentators and tribunals noted that the language of Article 10(1) of the ECT was unclear, producing debates as to the scope of protection provided to investors and their investments under this clause. For some commentators, the current language of Article 10(1) may be interpreted as a catch-all provision that encompasses legitimate expectations and non-discrimination, among others, thus, trumping a State’s right to regulate and causing regulatory chill. Tribunals on the other hand, have discussed whether Article 10(1) sets forth an objective and self-contained FET standard or refers instead to a narrower protection corresponding to the minimum standard of treatment under customary international law (see Belenergia v. Italia, ¶¶567-69).

As a response to the lack of clarity of the FET protection, the modernized ECT proposes to refine the FET standard by providing a list of specific measures that infringe this protection. The proposed amendments would also clarify the situations in which legitimate expectations can be protected under the FET clause, thus potentially restricting the grounds under which investors can bring claims for the breach of this standard. Such adjustments are consistent with reforms being undertaken by States outside of the ECT context, which have seen States increasingly specify more clearly what exactly FET clauses will apply to including through similar list approaches.

Right to Regulate

States commonly invoke their right to regulate to justify changes to their internal legal framework. Some commentators, such as Ortino, describe the interpretation of the right to regulate under FET – including the ECT’s current Article 10(1) – as “muddy” (p.33). He argues that tribunals have failed: (a) to take a clear position on whether the FET requires regulatory stability in the strict sense; (b) to address the precise conditions from which the obligation to provide a stable legal framework arises; and (c) to clarify the kind of regulatory change that would qualify as a breach of the FET provision (p.33).

This is exemplified by the 51 ECT cases in which Spain has been a respondent, which have seemingly adopted different interpretations of the scope of the right to regulate under circumstances that involve similar facts. While some tribunals have ruled that an investor is not entitled to have a legitimate expectation to a stable regulatory framework (see e.g. Charanne v. Spain, at ¶499), other tribunals have noted that certain actions and assurances by the government create legitimate expectations, that if infringed, imply FET breaches. (see e.g. Masdar v. Spain at ¶¶494, 521)

The modernized ECT aims to clarify the Contracting Parties’ right to regulate by including a stand-alone article that refers to a state’s power to regulate vis-à-vis investors in the interest of legitimate public policy objectives, including climate change, protection of public health, safety, public morals, and the maintenance of peace and security. While the vast majority of treaties refer to the right to regulate as a regulatory carveout (see e.g., TPP at art. 9.16, Netherlands Model BIT at art.2 ), very few investment agreements – like the modernized ECT – directly affirm the parties’ right to regulate (though see also, EU- Vietnam FTA at art. 13.2). Under the second category, States have broader regulatory space that will likely limit future investment disputes related to regulatory measures similar to those filed against Spain. Arguably, the language of the modernized ECT asserting the host State’s right to regulate will also limit arbitral discretion to interpret am investors’ legitimate expectations vis-à-vis the stability of the State’s legal framework, thus again reaffirming domestic regulatory power and autonomy.

Most Favoured Nation (MFN) Clause

The MFN clause has been invoked in several ECT cases to import more favourable investment or substantive standards from other treaties. The proposed revisions to the ECT narrow the scope for such arguments by clarifying that the MFN standard does not extend to dispute settlement procedures and that substantive provisions in other international agreements do not constitute “treatment” to be accorded under the modernized ECT. Hence, the revised MFN protection would allow states to retain the capacity to make distinctions between investors for legitimate purposes (see MNSS v. Montenegro, at ¶362) and will further limit the use of comparator treaties to import either substantive protections (see Accession Mezzanine v. Hungary, at ¶73-4) or dispute settlement procedures (Plama v. Bulgaria at ¶223), and will only apply where there is proven discriminatory treatment.

 

2. Exceptions for Regional Economic Integration Organizations

In the last decade, the European Union (EU) has taken steps to regulate investment law between EU Member States. From the mandatory termination of all intra – EU BITs, to the complete ban of ad hoc investment agreements among EU Member States, the relationship between EU law and investment arbitration has been controversial.

The modernized ECT proposes to address this fragmentation by expressly modifying the application of certain provisions of the ECT in relation to Regional Economic Integration Organizations (REIO) such as the EU and/or their members.

First, a proposed exception to the application of Article 7 (freedom of transit of energy materials) prevents further clashes between EU Law and the ECT. In principle, this article of the ECT would collide with the principles of the EU single market enshrined in article 26 of the TFEU; hence, this exception would apparently overcome such friction. Similarly, Article 29 of the ECT on trade with non-WTO members does not apply in the mutual relations among parties that are members of the same REIO, thus again, respecting the EU internal single market.

Second, a proposed exception to the application of articles 26 (investment dispute settlement) and 27 (disputes between Contracting Parties) would allow the EU to carve out arbitration among its members under the ECT, thus, in principle, rendering ECT ISDS consistent with the intra-EU ISDS ban set forth by the Court of Justice of the European Union (CJEU) in Slovakia v. Achmea,  Moldova v. Komstroy and Poland v. PL Holdings (coverage here, here, here and here).

 

3. Transparency in Dispute Settlement

The modernized ECT intends to provide for enhanced transparency in the conduct and outcome of proceedings. It incorporates the 2014 UNCITRAL Rules on Transparency as part of the Treaty and adds supplementary measures to enhance disclosure of proceeding documents and full access to hearings of investment proceedings. Moreover, as with the amended ICSID rules, the modernized ECT will require mandatory disclosure of third-party funding.

 

4. Towards Greener Investment

The ECT has been criticized for allegedly protecting fossil fuels investments (coverage here). Interestingly, of the 150 cases brought under the ECT, 60% refer to protection of renewable energies and only 33% concern fossil fuels. Of the fossil fuel cases, in 50% tribunals have found ECT breaches, while the rest have been either dismissed or settled. Whether or not the criticisms are valid, the modernized ECT is intended to further advance environmental objectives in the following ways.

First, the modernized ECT proposes to protect new energy materials through its investment protection provisions, including among others, materials such as hydrogen, biomass, biogas, and synthetic fuels.

Second, the modernized Treaty will establish a “flexibility mechanism” that allows the Contracting Parties to exclude the protection of fossil fuel investment within their territories. This exclusion does not operate ipso lege, but depends on the will of Contracting Parties, which may opt to carve out fossil fuel protection depending on their energy and climate goals, with the UK and the EU being the first contracting parties to exercise this right.

Third, the modernized ECT will introduce a review mechanism that will allow Contracting Parties to review the flexibility mechanism and the list of protected investments every five years to react to technological and policy developments in the energy sector.

Fourth, the modernized ECT will introduce additional treaty language that reaffirms the obligations of the Contracting Parties under the UNFCCC and the Paris Agreement.

Fifth, it will introduce a particular dispute settlement mechanism applicable to disputes between the Contracting Parties regarding the interpretation and application of the provisions on sustainable development, with the possibility of referring this matter to a conciliator.

The addition of sustainable development provisions in the modernized ECT is a unique feature that separates the Treaty from other multiparty agreements and addresses civil society’s criticisms of the existing approach to ISDS in the instrument, with some commentators even arguing that the modernized ECT is the “greenest investment treaty of them all”. 

 

Conclusion

With countries from Africa and Asia joining, the ECT is turning into a global charter. The modernized ECT aims to redefine some of the most common investment protection standards in ISDS and narrow the circumstances in which investors can seek protection under the Treaty, in order to address the Contracting Parties’ concerns and civil society’s resistance against ISDS. The modernized Treaty also will encourage transparency and sustainable development, arguably granting higher legitimacy to ISDS under the ECT. Yet, it is still to be seen whether the Contracting Parties will approve the modernized version and how investment disputes develop under these new rules.

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NYIAC Grand Central Forum: Double-Hatting and the ICSID-UNCITRAL Draft Code of Conduct for Adjudicators in International Investment Disputes

Tue, 2022-08-02 01:51

The New York International Arbitration Center’s (“NYIAC”) annual Grand Central Forum took place on 13 July 2022. The event coincided with the 55th session of the United Nations Commission on International Trade Law (“UNCITRAL”) held in New York which, among other topics, focused on the recent fourth draft of the joint ICSID-UNCITRAL Code of Conduct for Adjudicators in International Investment Disputes (“Code”) issued for informal consultation in June 2022 and currently under discussion in UNCITRAL Working Group III (“WGIII”).

Under the guidance of Donald Donovan (Arbitration Chambers, New York), the panel composed of Andrea Bjorklund (McGill University, Montreal), Lauren Mandell (WilmerHale, Washington D.C.), Kate Brown de Vejar (DLA Piper, Mexico City), and Andrés Jana (Jana y Gil, Santiago) discussed how the Code attempts to regulate the issue of so-called “double-hatting,” i.e., where an arbitrator concurrently has a role as counsel or expert in a related proceeding. In particular, the panelists addressed the relationship between double-hatting and the concepts of independence and impartiality, the prohibited multiple roles and temporal scope of the ban, the proposed three-year tail and disclosure as a solution to the double-hatting challenge.

 

The Regulation of Double-Hatting in the Current Draft of the Code of Conduct

The conference opened with words by Louis B. Kimmelman (Independent Arbitrator, New York), Anna Joubin-Bret (UNCITRAL, Vienna), and Martina Polasek (ICSID, Washington D.C.) on the ongoing efforts of UNCITRAL Working Group III in drafting the Code and the significant innovations it offers to address concerns surrounding arbitrators in international investment disputes (“IID”).

The limits on an arbitrator acting in multiple roles are set by Article 4 of the draft Code (“Limit on Multiple Roles”). Article 4(1) requires an arbitrator to refrain from acting concurrently (and potentially for a period of three years “following the conclusion” of the proceeding) as a legal representative or an expert witness in another investment dispute involving the same measures, the same or related parties, or the same provisions of the same treaty; while Article 4(2) contains a prohibition on serving as arbitrator where she/he is acting as a legal representative or an expert in another case involving “legal issues which are substantially so similar” that accepting such a role would be in breach of the independence and impartiality obligations regulated in Article 3. Under the current draft, the disputing parties may exclude the application of Article 4(1), but not Article 4(2).

 

Independence and Impartiality  

In his introductory remarks, Donald Donovan posited that the discussion of double-hatting is most properly framed in terms of independence and impartiality; that is, whether and to what extent taking on multiple roles compromises an adjudicator’s ability to decide a case in an independent and impartial manner. Viewed that way, the Code’s goal should be to achieve a practical consensus on how those fundamental principles apply in the particular context of double-hatting.

Andrea Bjorklund addressed the interplay between these principles and double-hatting in the draft Code, an issue that was further commented on by Lauren Mandell and Kate Brown. Article 3 tries to bypass the discussion of whether the independence and impartiality standards should be objective or subjective and instead seeks to find non-exhaustive proxies of situations the community might perceive as problematic, such as nationality bias. The current version of Article 4 attempts to do the same in the specific case of double-hatting, proposing a list of circumstances in which double-hatting by an arbitrator can be a potential source of concern.

The draft raises three important questions. First, whose perception is the Code trying to address? If it is the parties’, then the possibility of waiver under Article 4(1) is sensible; however, if the Code seeks to address the legitimacy of the IID system, then the rule may be inadequate. Second, if concerns with double-hatting are in essence related to predispositions an adjudicator might have, then why can an arbitrator take on multiple cases involving the same issue as long as they only act as an arbitrator and not take other roles (i.e., as counsel or an expert)? Third, is the list in Article 4 exhaustive or exclusive? Further discussion might be required to ensure the provision properly addresses the concerns raised by double-hatting.

 

Multiple Roles and Time Limitations

The panel then discussed the “tailor-made” ban the Code attempts to create, in a discussion headed by Lauren Mandell, with interventions by Kate Brown and Andrés Jana. Some delegations of WGIII have raised concerns that an outright ban of double-hatting would limit party autonomy, decrease the pool of available arbitrators, and adversely affect diversity. The Code attempts to minimize such effects by tailoring the ban to address only the conflicts of interest that are of greatest concern. But the current draft creates at least two issues in this regard.

First, it is unclear how the obligations in Article 4 can be adhered to in practice. It might not be possible for an adjudicator – or, for that matter, for counsel – to fully comprehend all the contours and minutiae of the dispute at the time of appointment. As a result, it will be difficult to assess, at the outset, whether a case will involve issues under Article 4(2) that are substantially similar with another case in which the adjudicator is involved.

The second concern deals with the duration of the ban under Article 4. If an adjudicator cannot act concurrently in multiple roles (and potentially for three years “following the conclusion” of the dispute), then when is the proceeding “concluded” and when does the three-year-tail commence? Many alternatives are arguably possible: when the time to petition for annulment elapses, when enforcement proceedings end, when an arbitrator resigns or is successfully challenged, among others.

If the Code is to provide a practical test, further work is required to bring certainty in relation to these issues, either by modifying the language of Article 4, by providing further commentary, or by leaving the issue to be developed by tribunals in the light of the obligations of independence and impartiality under Article 3.

 

The Three-Year Tail Under Article 4 of the Draft Code

Kate Brown then headed a discussion on the three-year tail, with interventions by Andrés Jana and Andrea Bjorklund. The likely goal of establishing a three-year tail introduced into Article 4 of the Code is to address the concern of whether counsel can advocate for a particular issue and then, within a short period of time, advance an independent position on that same issue as an arbitrator. But enforcement of Article 4 would be problematic. First, for the reasons already mentioned surrounding when the proceeding “concludes.” Second, although double-hatting by an arbitrator candidate can be controlled by way of a challenge, control over an arbitrator who subsequently takes a role as counsel or expert is more problematic. In the latter case, Article 4 seems to be self-enforcing and the consequences for breaching the rule are unclear.

A helpful comparison can be made with current treaties. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the United States–Mexico–Canada Agreement (USMCA), the 2019 Netherlands Model Investment Agreement, the 2019 Slovakia Model BIT, and the 2012 South-African Development Community Model BIT support prohibiting an arbitrator’s concurrent role as counsel when the disputes involve the same agreement or any other international agreement. However, these instruments do not show a consensus among the States on whether an arbitrator can concurrently take a role as counsel in a non-IID proceeding, nor do any of these contain a three-year tail. The panel agreed that the rationale for, and utility of, the three-year extension of the prohibition is unclear.

 

Disclosure as a Solution to the Double-Hatting Challenge

Finally, the last portion of the debate, led by Andrés Jana and with primary interventions by Andrea Bjorklund and Lauren Mandell, focused on the shift from the disclosure requirement in earlier drafts of Article 4 toward the narrower prohibition in the current version. The current draft represents a compromise between, on one hand, states that support a full prohibition as double-hatting creates an appearance of bias that affects the legitimacy of the system and, on the other, states that advocate for full disclosure because double-hatting creates a problem of independence and impartiality.

A portion of the panel welcomed the departure from disclosure as a solution to the double-hatting challenge while others stressed that disclosure, captured in Article 10 of the draft Code, still has a role to play in the issue. Although the current draft shows a compromise between states, one must bear in mind that the drafting process was conducted entirely remotely, which led to fewer interventions than typically seen at in-person debates. One can hope that the in-person meeting of WGIII scheduled for September 2022 will help assess whether there is a consensus on the role of disclosure. In any event, the Code would benefit from clearer links between Articles 4 and 10, especially Article 4(2) which is (for now) not subject to party autonomy.

 

What Comes Next for the Code of Conduct

The current draft was released for public consultation and will be further discussed in the next Working Group III session, tentatively scheduled for 19 to 23 September 2022 in Vienna. The panelists anticipate preparing a submission to WGIII capturing the night’s discussions in an effort to drive consensus. The Code is expected to be finalized in 2023.

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Are Investment Treaties “Zombies”, Unfit for Decarbonization Purpose?

Mon, 2022-08-01 01:02

States’ international obligations to reduce emissions, on the one hand, and to protect foreign investment, on the other, suggest a collision course between climate activists’ desires and foreign investors who rely on treaty protection to safeguard their investments.

Recent investment treaties, especially bilateral investment treaties (BITs) have tended to expand the rights of States to police environmental and labor harms. Whether they have kept up with the Environmental Social Governance (ESG) movement, the Paris Agreement, and post-Conference of Parties (COP) 26 developments raises considerable questions. Specifically, to what extent are past treaties themselves Zombies, unfit to accomplish the Paris Agreement’s Objectives of reducing emissions to reduce climate change to less than 2° Celsius?

Background

The 2022 agreed-upon-in-principle modernization of the Energy Charter Treaty (ECT) has attempted to address this costly dilemma. Two key elements stand out:

One, a “flexibility mechanism” whereby Contracting Parties – based on an ECT Conference’s decision – could “exclude investment protection for fossil fuels in their territories, considering their individual energy security and climate goals”. Two, a stand-alone clause reiterating and strengthening “the right of Contracting Parties to regulate within their territories (…) in the interest of legitimate public policy objectives (which) may include the protection of the environment, including climate change mitigation and adaptation”, etc. It is not clear whether this right to regulate will exonerate a host State from liability. Absent an express exclusion of liability, clauses reiterating the State’s power to regulate in certain areas may not carry such effect.

This starkly raises questions as to whether numerous existing BITs and other Treaties with Investment Provisions (TIPs) should be assessed for perceived structural defects or extant conflicts. Such exercise could create conflict or tensions with foreign investment protection, given the Paris Agreement and related laws, as well as climate and ESG movement awareness and related events.

Importantly, recent treaties (and model treaties) already appear to be more inclusive of States’ concerns regarding protecting the environment and mitigating climate change, although the two aspects may not be identical concepts. Earlier investment protection treaties (or rules), however, typically impose no or few environment or climate change-related obligations on foreign investors. Climate change mitigation and adaptation laws and norms may therefore clash with protected rights of foreign investors. This could raise two potentially central issues for arbitral tribunals to potentially contend with, i.e.,  jurisdictional maneuvering and applicable law positioning.

Lastly, it highlights the fact that the discussion on the supremacy of international law over domestic law or, generally, the interaction of these two systems, is an ongoing one, and of strong potential relevance.

From Old to Modern

The interrelated law and public policy aspects point to two questions: How will investment treaties hold up as an instrument under the scrutiny of climate activists? Are these treaties indeed fit for purpose in a world in which social costs are argued to require recalibration to include climate protection?

Prior treaties, with a range of generations and language choices within each reflect more consideration of climate-related aspects over time. How this plays out in individual cases depends, and is likely to become more contentious as climate costs loom larger.

Reformed treaty drafts, given varying bargaining and costs, could also default to the middle path of constructive ambiguity to position themselves between alignment and arbitrage. This may accommodate various interests in architecture, but also potentially leave troubling gaps for arbitral tribunals to fill. This may even apply to the ECT modernization reform, depending on language and interpretative rules used.

In ISDS practice, notions of economic harm are impacted by evolving understandings of the environmental and climate interplay, and laws regarding the scope and definition of what is considered materially relevant.

Alignment, Ambiguity, Arbitrage in Treaty Architecture

Treaties are structured as compromises between competing interests. Earlier generation BITs typically focused more on safeguarding legal certainty so that capital flows of foreign investment could thrive in the host State. The assumption was that the host State’s judicial institutions could treat foreign investors in an unfavorable manner and was also based on concerns about various expropriation types and fair and equitable treatment over the life of an investment. Recent investment treaties (i) expand the host State’s regulatory powers, in order “to achieve legitimate policy objectives”, which expressly includes regulations “addressing climate change and (ii) dissuade States from relaxing domestic health, safety or environmental measures in order to attract foreign investment. Some model BITs, such as the Colombia Model BIT 2017, go further, by expressly designating as mandatory rules all “prohibitions established in international instruments, to which any Contracting Party is or becomes a party, pertaining to human rights and the environment”.

Still, this challenges the evolving concerns of climate activists as harm is typically foreseeable in the future, but – it is argued – may not have been contemplated in past “deals”. On the other hand, a narrower concern of the host State’s right to regulate could restrict State action to varying degrees, causing regulatory chill.

Public Policy: Interpretations, and the End Game

Much of the climate agenda is about how society absorbs the social costs of paying for decarbonization (Who pays?). At present and for many years, ISDS has increasingly come under scrutiny as a legal and economic institution that may not produce just societal outcomes. If treaties are viewed only or primarily as vehicles for compensation to corporations, it becomes open to the view that it is structurally speaking, a protection racket for MNC’s or a creature of dependent development. On the other hand, host States’ arbitrary and harmful conduct against foreign investment has been proven time after time, and MNCs may consequently draw inward toward friendlier locales, ignoring jurisdictions with too high a financial cost, if perceived as too geopolitically risky.

The persistent tension between foreign investment protection and a costly decarbonization is likely to expand. The challenge for decision-makers is how to maintain the relevance of the former as a remedy to facilitate investment that serves both States’ interests and those of foreign private investors. Absent specific rules/guidelines concerning interpretation and application of  BITs, such as interpretative protocols signed by the parties to a BIT, for example, or “subsequent practice” between two given States, as per Article 31.3(b), Vienna Convention on the Law of Treaties (VCLT), a “gap” seems presented.

Treaty architects and arbitrators must consider the risks of this evolving situation from their own perspectives. Issues such as sunk costs, rents/corruption, foreseeable harm and treaty language, the scope of ESG, parent-subsidiary relationships and liability, and evolving concepts of attribution science, and of legal, accounting, and sustainability components of material economic harm are implicated here.

The 1969 VCLT, which favors harmonization and systemic integration of applicable international rules, may offer a way out. This is provided arbitrators adopt an expanded notion of public international law, by applying treaties and sources of international law other than the BIT at hand.

Such sources, together with other agreements and practices between the State parties on the interpretation of the BIT in question, form part of “the relevant rules of international law applicable in the relations between the parties” to which Article 31.3(c) of the VCLT refers when it provides such rules must be taken into account when interpreting a treaty.

In practice, however, arbitrators tend to adopt a narrower, more conservative, approach, to avoid overstretching their jurisdiction under the applicable BIT. Indeed, to promote legal certainty, arbitral panel decisions should be narrowly tailored; otherwise, the bargained-for interests and expectations of the corporations investing in foreign, especially developing countries, for example, can be violated.

Public policy considerations may pose important consequences for investors. Climate change mitigation / adaptation obligations undertaken by States may be deemed to be part of the host State’s international public policy, or even transnational public policy. As such, could  it be ignored by arbitrators, with increased risk that their awards are set aside or not enforced against the host State? This can create genuine legitimacy dilemmas between traditional strict constructionists and those arguing legitimacy is threatened if public policy is not even considered.

In addition, States’ counterclaims, as allowed by Article 46 of the ICSID Convention, are tools that may be used to restore some balance in ISDS, by enforcing investors’ sustainability obligations, as some cases show. Pending any possible reform of ISDS, systemic integration of international investment law by arbitrators could help achieve this goal.

Exit, Voice, or Loyalty     

States are grappling more with climate change. The arbitration community and policy makers must strongly consider investments and capital flows that are incentivized and balanced, given legacy agreements, and reconcile them with greater awareness and demands for climate and environmental protection.

Consideration of alternate remedies and limits therein may be crucial, including litigation for various stakeholders who may have interests allied with climate but may not have standing or interests that can best, or indeed at all, be pursued through investment arbitration.

This increasingly poses the question whether litigation, which was once the alternative to avoid which arbitration was established for, becomes an inescapable route to redress. The arbitration community should ask itself whether it wishes that investment arbitration becomes more relevant or continues to be perceived by some as an asymmetrical tool that is useful for MNCs, but perhaps less so for the population.

Sum  

Our objective has been to show that investment treaties can pose “Zombie risk” as to ongoing decarbonization concerns. Arbitrators, together with party counsel, corporate foreign investors and climate activists should consider the implications of this, including the ECT modernization law reform approach.

Foreign investment protection should not be demonized, nor should it be foregone at the expense of climate change mitigation/ adaptation policy.

Key investment and climate law actors must also consider how climate has already and will in future impact treaties and ongoing disputes, so that each set of legitimate interests, i.e., those of foreign investors and those of respective affected population groups, as well as collective actors, have a voice to better resolve sometimes diverging energy investor and climate policymaker concerns.

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The Contents of the Yearbook Commercial Arbitration, Volume XLVII (2022), Upload 2

Fri, 2022-07-29 01:00

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

The second upload of materials for the 2022 volume of ICCA’s Yearbook Commercial Arbitration is now available on the KluwerArbitration website. It consists of 33 court decisions from 14 countries and includes, among others, 11 decisions rendered by the courts of the People’s Republic of China on the 1958 New York Convention. Here are some of the highlights.

In an extensively reasoned decision, the Constitutional Court of Colombia scrutinized the constitutionality of the 2014 Bilateral Investment Treaty (BIT) between Colombia and France. It found the BIT to be constitutional on the condition that a joint interpretative declaration be adopted to ensure that the BIT complies with the principles of equality, legal certainty, and maintenance of the State’s regulatory power contained in the Colombian Constitution. The Court also indicated that it would monitor continuously whether the BIT’s interpretation by arbitral tribunals remained within constitutional limits.

Six decisions in four countries concern the enforcement of the SCC award in Stati v Kazakhstan, in which the tribunal, almost 10 years ago, had found Kazakhstan to have breached the Energy Charter Treaty. Kazakhstan since then is opposing enforcement, arguing that the award was obtained through fraud. In Belgium, the Brussels Cour d’appel found in favour of Kazakhstan. In Luxembourg, the Supreme Court reversed the Court of Appeal, which had affirmed the grant of exequatur for the award, finding that certain evidence should have been discussed in adversarial proceedings. The Court of Appeal subsequently decided to stay the proceedings pending a criminal action on the falsity or authenticity of certain documents used. In Italy, by contrast, the Corte di cassazione found that the SCC award could be enforced and was not contrary to Italy’s public policy. Similarly, in the Netherlands, the Hoge Raad allowed enforcement of the award, setting aside the decisions of the Amsterdam Court of Appeal, which had first stayed enforcement proceedings in order to await the outcome of parallel proceedings pending in England.

Finally, a decision of the Supreme Court of the Czech Republic is of note. In it, the Court found that arbitration agreements could be concluded in an exchange of emails even without qualified electronic signature. Emails, the Court explained, fulfilled the requirement that the agreement be in writing within the meaning of Art. II(2) of the New York Convention. The reference to “letters” and “telegrams” in Art. II(2) was illustrative rather than exhaustive and included other forms of communication.

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Can a Legacy Investment Claim Be Made under the USMCA for Measures that Were Adopted after the Termination of NAFTA?

Thu, 2022-07-28 01:01

This question of first impression under the United States-Mexico-Canada Agreement (USMCA) has been brought to the fore with the spring 2022 publication of the Request for Arbitration (“Request”) submitted by TC Energy Corporation and TransCanada PipeLines Limited against United States (dated November 22, 2021) and the Notice of Intent (“Notice”) submitted by Alberta Petroleum Marketing Commission against the United States (dated February 9, 2022). These claims relate to the revocation, on January 20, 2021, of the presidential permit for the building of the Keystone XL pipeline, a measure adopted after the termination of the North American Free Trade Agreement (NAFTA) on June 30, 2020.

Whether an investor-State arbitration tribunal has jurisdiction to hear a “legacy investment claim” brought by investors under these circumstances has particular significance in relation to claims made by Canadian investors against the United States and claims made by U.S. investors against Canada. Indeed, after a transition period of three years such claims will no longer be permitted.1)The issues raised by legacy investment claims are somewhat different with regard to the United States-Mexico relationship, as new provisions apply to investor-State arbitration brought by their respective investors under the USMCA going forward, in some cases during as well as beyond the three-year transition. The Canada-Mexico relationship has yet different implications, as investor-State claims are covered under the CPTTP. jQuery('#footnote_plugin_tooltip_42240_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_42240_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Annex 14-C of the USMCA providing for “legacy investment claims and pending claims” addresses some aspects of temporal application, but it does not explicitly address its coverage of measures adopted only before or also after NAFTA’s termination. Paragraph 1 of Annex 14-C provides that:

“1. Each Party consents, with respect to a legacy investment, to the submission of a claim to arbitration in accordance with Section B of Chapter 11 (Investment) of NAFTA 1994 and this Annex alleging breach of an obligation under: (a) Section A of Chapter 11 (Investment) of NAFTA 1994; (…)” (footnotes omitted)

In turn, the term “legacy investment” is defined at paragraph 6 of Annex-C as follows: “means an investment of an investor of another Party in the territory of the Party established or acquired between January 1, 1994, and the date of termination of NAFTA 1994, and in existence on the date of entry into force of this Agreement”.

The time limitation to the States’ consent is provided at paragraph 3 of Annex-C: “A Party’s consent under paragraph 1 shall expire three years after the termination of NAFTA 1994.” In other words, for claims submitted up to June 30, 2023.

As such, the Claimants in relation to the Keystone XL project, for instance, have emphasised in their respective Request and Notice the existence of their investments at the relevant times (to meet the definition of legacy investment claim) and the timing of the claims themselves. Nothing is said on the time of adoption of the measures.

Yet, a tribunal’s jurisdiction over such a legacy investment claim would depend on a determination of this question.

In this case, one might say that the “silence” is in the eye of the beholder. Indeed, much can be brought to bear on the issue, as a matter of treaty interpretation and in reliance on general principles of international law.

First, the USMCA Parties were clearly mindful of the principle of non-retroactivity of treaties (see Article 28 of the Vienna Convention on the Law of Treaties (VCLT)), when they provided the temporal scope of application of Chapter 14 (Investment) at Article 14.2(3) as follows: “For greater certainty, this Chapter, except as provided for in Annex 14-C (Legacy Investment Claims and Pending Claims) does not bind a Party in relation to an act or fact that took place or a situation that ceased to exist before the date of entry into force of this Agreement.” (emphasis added)

This provision indeed clarifies the extent to which the Parties consented to be bound for acts (in this context for measures adopted) before the entry into force of the USMCA (e.g. Koch v. Canada would fall under this category of claims).

The principle of intertemporal law also finds application as a matter of State responsibility, as reflected in Article 13 of the Draft articles on Responsibility of States for Internationally Wrongful Acts (ILC Articles), which provides that: “An act of a State does not constitute a breach of an international obligation unless the State is bound by the obligation in question at the time the act occurs.” For our purposes, however, the issue is not whether the State Parties were bound to respect the provisions of Chapter 14 in relation to measures adopted after the entry into force of the USMCA (they are),2)Indeed, the United States or Canada could have recourse to Chapter 31 (State-State) Dispute Settlement in relation to such measures. jQuery('#footnote_plugin_tooltip_42240_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_42240_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); but whether the United States and Canada provided their consent to have investors from the other State bring claims against them under the terms of Annex-C for legacy investment claims. (For recent discussions at the International Court of Justice regarding jurisdiction ratione temporis and lapses in instruments of consent, see the case of Alleged Violations of Sovereign Rights and Maritime Spaces in the Caribbean Sea (Nicaragua v. Colombia), in particular the dissenting opinions of Judge Nolte, and Judge ad hoc McRae).

Second, if the USMCA Parties had wanted to minimise discussion regarding measures adopted after the termination of NAFTA, they could have made their intentions more explicit, as was done in the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) in relation to bilateral investment treaties (BITs) applicable between Canada and Member States of the European Union after the entry into force of CETA. Chapter 30 (final provisions) provides as follows:

Article 30.8 – Termination, suspension or incorporation of other existing agreements

  1. The agreements listed in Annex 30-A [i.e. the BITs] shall cease to have effect, and shall be replaced and superseded by this Agreement. Termination of the agreements listed in Annex 30-A shall take effect from the date of entry into force of this Agreement.

  2. Notwithstanding paragraph 1, a claim may be submitted under an agreement listed in Annex 30-A in accordance with the rules and procedures established in the agreement if:

      • the treatment that is object of the claim was accorded when the agreement was not terminated; and

      • no more than three years have elapsed since the date of termination of the agreement. (emphasis added)

While this text might not prevent all debates (as one can imagine arguments related to continuing or composite acts playing out), it has the benefit of addressing the issue explicitly.

In our case, tribunals facing the question of temporal application would rely on principles of treaty interpretation to ascertain the intentions of the USMCA Parties, considering “the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose” (under Article 31 VCLT).

Potential considerations for tribunals when interpreting Annex 14-C:

  • In relation to the definition of “legacy investment” provided at para. 6 (cited above):
    • What should be read into the fact that the Parties focused on investments made between the entry into force of NAFTA on January 1, 1994 and its termination on June 30, 2020 and in existence as of July 1, 2020? Presumably, the Parties wanted to respect the expectations created in NAFTA investors that their investments would benefit from protection for the duration of the agreement, including access to ISDS (while limiting the protection to current as compared to past investments).
  • In relation to the Parties’ consent with respect to legacy investment claims provided at para. 1 (cited above):
    • What should be the import of footnote 21 providing that: “Mexico and the United States do not consent under paragraph 1 with respect to an investor of the other Party that is eligible to submit claims to arbitration under paragraph 2 of Annex 14-E (Mexico-United States Investment Disputes Related to Covered Government Contracts).” Consistent with the Article 14.2 scope provision at paragraph 3 (cited above), for an investor to be “eligible” to submit a claim under Annex-E, the challenged measures would have to be adopted after the entry into force of the USMCA. This text would seem to imply that such challenges can be made also under Annex-C, otherwise there would be no need for the exclusion in the footnote. However, this interpretation puts into question why investors under Annex-D (Mexico-United States Investment Disputes) would have a choice of recourse (between Annex-C and D) for three years, while those under Annex-E do not? Put differently, since Annex-E provides broader and fuller protection to admissible investors than Annex D, why would those falling under the latter have access to the preferable mechanism of Annex-C (i.e. NAFTA) in the transition period?
  • In relation to the three years time limitation to the States’ consent provided at paragraph 3 (cited above):
    • What should be read into the fact that the three years time-bar mirrors the architecture for claims provided under NAFTA Chapter 11? One reading is that the Parties wanted to reproduce the same mechanism as operated under NAFTA Articles 1116 & 1117. In other words, whether an investor became aware of the breach and damages arising from it on June 30, 2017 or June 30, 2020, it would have the same period of three years to submit its claim. This would seem internally consistent with the objective of the provision. However, if the provision is read to allow claims for legacy investments to be made for measures adopted after the termination of NAFTA for a period of three years, this would mean that an investor would have less time to make its claim with every passing day. For example, an investor could complain of a measure that has yet to be adopted, say in late 2022, and as long as it respects the deadlines under NAFTA Articles 1119 (90 days) & 1120 (6 months), it could still validly submit a legacy claim.
    • Contrary to the point made above in relation to the (legitimate) expectations of existing investors, in the case of United States-Canada claims, the effect of such an interpretation would be to provide investors protections for measures adopted after ISDS was no longer supposed to apply between the Parties, i.e., after the termination of NAFTA.

 

Conclusion

The tribunal or tribunals constituted to hear the legacy investment claims related to the Keystone XL pipeline may be the first to have to rule on a ratione temporis jurisdictional objection based on the fact that the revocation of the presidential permit at issue occurred after the termination of NAFTA. As discussed, recourse to applicable rules of international law, including the VCLT, will help the tribunal(s) interpret the silence left by the Parties. As needed, recourse could be had to supplementary means of interpretation under VCLT Article 32, including consideration of the circumstances of the USMCA’s conclusion. The USMCA Parties could also adopt a binding interpretation of Annex-C via the Free Trade Commission (FTC). Such a prospect raises politically and legally sensitive issues, as the NAFTA Parties found out with the FTC’s 2001 Interpretation of NAFTA Article 1105.

So much for the wish expressed by the USMCA Parties in their transitional provision from NAFTA 1994 at Article 34.1 that: “The Parties recognize the importance of a smooth transition from NAFTA 1994 to this Agreement.”

 

* The author would like to thank Christian Schmid for his research assistance and the LLM students in her 2022 International Economic Law Case Studies Course for lively discussions of this topic.

References[+]

References ↑1 The issues raised by legacy investment claims are somewhat different with regard to the United States-Mexico relationship, as new provisions apply to investor-State arbitration brought by their respective investors under the USMCA going forward, in some cases during as well as beyond the three-year transition. The Canada-Mexico relationship has yet different implications, as investor-State claims are covered under the CPTTP. ↑2 Indeed, the United States or Canada could have recourse to Chapter 31 (State-State) Dispute Settlement in relation to such measures. function footnote_expand_reference_container_42240_30() { jQuery('#footnote_references_container_42240_30').show(); jQuery('#footnote_reference_container_collapse_button_42240_30').text('−'); } function footnote_collapse_reference_container_42240_30() { jQuery('#footnote_references_container_42240_30').hide(); jQuery('#footnote_reference_container_collapse_button_42240_30').text('+'); } function footnote_expand_collapse_reference_container_42240_30() { if (jQuery('#footnote_references_container_42240_30').is(':hidden')) { footnote_expand_reference_container_42240_30(); } else { footnote_collapse_reference_container_42240_30(); } } function footnote_moveToReference_42240_30(p_str_TargetID) { footnote_expand_reference_container_42240_30(); 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_42240_30(p_str_TargetID) { footnote_expand_reference_container_42240_30(); 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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The Pechstein Saga Continues: The German Federal Constitutional Court Grants Another Round on the Rink

Wed, 2022-07-27 01:05

The arbitration world’s most famous ice skater, Claudia Pechstein, has won a stage victory in her long-lasting and widely discussed struggle against the international sports arbitration system. On June 3, the German Federal Constitutional Court (Bundesverfassungsgericht (BVerfG), Beschluss vom 3.6.2022, 1 BvR 2103/16) sided with Pechstein in her constitutional complaint against a ruling of the German Federal High Court of Justice. In essence, the BVerfG ended up reviving a more than ten-year-long legal dispute that so far was already heard by the Court of Arbitration for Sport (CAS), six state courts in Switzerland and Germany and the European Court of Human Rights (ECtHR). This post offers a brief background to this protracted legal saga, diving first into the history of the dispute (I), then turning to her ECtHR and BVerfG actions (II) before commenting the BVerfG decision (III).

 

I) A Brief History

Claudia Pechstein is a well-known German speed skater and a five-time Olympic champion. Following a doping test at the 2009 World Allround Speed Skating Championship in Hamar (Norway), the International Skating Union (ISU) suspended her for two years from international competitions. The test had revealed an elevated reticulocyte count in her blood, which can point to blood doping with EPO. Pechstein contested her suspension at the CAS, claiming that the count was elevated due to an inherited blood disease. The CAS first dismissed Ms Pechstein’s request for a public hearing (the CAS procedure did not provide for that at the time), and then it dismissed her claim. Pechstein’s attempts to have the CAS award set aside by Swiss courts were unsuccessful. She then sued the ISU for damages before German courts, claiming that the ISU had abused its monopoly for major ice-skating competitions by making her sign an arbitration clause in favour of the CAS, which, as she claimed, was not independent.

The case got interesting when the German District Court of Munich (LG München I) declared a part of Pechstein’s action admissible instead of rejecting it on the spot, as art. 1032 para. 1 of the German Code of Civil Procedure (ZPO) would so require if the parties have signed a valid arbitration agreement. In the eyes of the court, the agreement was void for violating competition law (Sec. 19 GWB, German Restriction of Competition Act) as Pechstein had to sign it in order to participate in Hamar, putting the ISU in a dominant market (or rather monopoly) position. The court found that the ISU had abused this position by requiring athletes to sign an arbitration agreement in favour of the CAS, stating that this was not a neutral forum because the appointment procedure for CAS arbitrators put athletes at disadvantage over their opponent, the ISU. It therefore threw out the arbitration agreement and allowed Pechstein to pursue her case in state court. The court did, however, reject Pechstein’s damage claim on the merits, leading her to appeal to the Higher Regional Court of Munich (OLG München), where the judgment (including its controversial part on the arbitration agreement) was confirmed.

The OLG München decision set off alarm bells in the arbitration community, with some voices (especially her lawyer) even predicting the demise of international sports arbitration. Relief came when the German Federal Court of Justice (Bundesgerichtshof) (BGH) decided on final appeal to quash the earlier judgment, to enforce the arbitration agreement and thus to declare Pechstein’s claim inadmissible. The court did criticise a certain imbalance in the rules of the CAS. It, however, held that the CAS was neutral enough to be deemed an arbitral tribunal in the sense of Sec. 1032 (1) ZPO and that its award therefore had to be respected. Pechstein’s journey into the foundations of international sports arbitration seemed to be over at this point.

 

II) First the ECtHR Had Its Say, 4 Years Later the BVerfG

Setbacks did not stop Pechstein, being every bit as competitive as she probably must be, from taking the case to the BVerfG and to the ECtHR. The ECtHR ruled first and, on the one hand, awarded Pechstein a minor compensation for not having been granted a public hearing before the CAS (in violation of Art. 6 European Convention on Human Rights (ECHR)), but rejected all other claims. The BVerfG, on the other hand, took much longer to decide, with the case pending before it for more than six years. This is somewhat surprising, as the standard of scrutiny of the BVerfG is very limited. Not being an appellate court, the BVerfG only verifies whether preceding courts have violated constitutional law (i.e., the German Basic Law, Grundgesetz) while rendering their decision. For this und other reasons, constitutional complaints are rarely successful. In Pechstein’s case, it all came down to the question whether the preceding BGH had misapplied Sec. 1032 ZPO (and therefore violated its obligation to adhere to the rule of law, Art. 20 (3) Grundgesetz) and, as a consequence thereof, had denied Pechstein her access to justice guaranteed by Art. 19 (4) Grundgesetz.

In its long-awaited ruling, the BVerfG quashed the judgment of the BGH and remanded the case to the OLG München.

 

III) BVerfG’s Decision: Analysis and Implications

The linchpin of this decision is, somewhat unexpectedly, the public nature of court proceedings. The BVerfG found that the preceding court had failed to give this principle sufficient consideration when balancing freedom of contract, the autonomy of associations like the ISU and access to justice (para. 34 of the judgment). Like the ECtHR, the BVerfG found that Ms Pechstein was denied the right to a public hearing in violation of Art. 6 EChHR (para. 35). Instead of awarding a small compensation however, the BVerfG found that this throws the decision of the preceding court out of balance, necessitating its vacation.

While it emphasized that the access to (state court) justice does not preclude arbitration per se (para. 39), the BVerfG found that the specific setting of sports arbitration had to be considered, especially the imbalance of power between associations and athletes that triggers the application of competition law (para. 41). Given that under these circumstances a public hearing would have been mandatory according to Art. 6 ECHR (paras. 42-50), an arbitration clause that provided for proceedings without such a hearing was void for violating German competition law (Sec. 19 GWB) and could not be invoked in state court proceedings (Sec. 1032 (1) ZPO (para. 51)). Having declared the arbitration agreement void for this reason, the BVerfG refrained from deciding on the question of neutrality of the CAS that had concerned the preceding courts. It merely stated that neutrality is “part of the nature of judicial activity”, whether in state court or in international arbitration (para. 53).

Although the BVerfG vacated the judgment for a slightly different reason than was to be expected after the judgments of the preceding courts, it drew upon the same juxtaposition of party (and association) autonomy and access to justice, with competition law serving as a link between the two: An arbitration agreement is invalid, if it is imposed on one party in a way that constitutes an abuse of a dominant position (Art. 102 TFEU/Sec. 19 GWB). The agreement is abusive, if the arbitral proceedings do not provide for a public hearing although this would be required by Art. 6 ECHR.

Does this mean that from now on, public hearings will become mandatory in sports arbitration? Probably yes, and the CAS has already amended its rules to allow public hearings if the dispute is of a disciplinary nature (R57, CAS Rules 2021). Will public hearings also be mandatory in commercial arbitration? Rather not, given the required imbalance of powers and the narrow scope of Art. 6 ECHR. In the Pechstein case, the ECtHR considered that Pechstein was “penalised for doping”, that “the facts were disputed and the sanction imposed on the applicant carried a degree of stigma and was likely to adversely affect her professional honour and reputation” (ECtHR judgment, para. 182). A comparable situation is unlikely to present itself in commercial arbitration.

 

IV) Concluding Remarks

Whether or not the next court (OLG München again) will finally enter into the (long forgotten) merits of the case, namely the question whether Pechstein was wrongfully suspended 13 years (!) ago, there is already an important takeaway from the Pechstein saga: If arbitration proceedings are to be regarded as equal to state court proceedings, they must provide for due process. Due process requirements increase when the parties do not have the same bargaining power. The “weaker” party has to be protected, whether in state court proceedings or in arbitration proceedings. After all, such a party is just as likely to win the case as a party that brings more bargaining power to the table. A recent example for this truism is Pechstein herself: Although participating in Beijing 2022 as the oldest female athlete ever to compete at the Winter Olympics (aged 49), she still managed to outrun most of her younger competitors, finishing 9th on the Women’s Mass Start as the best German participant.

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Arbitration Meets M&A Transactions in Difficult Times: 6th Edition of the “Dispute Resolution in M&A Transactions” Conference in Warsaw

Tue, 2022-07-26 01:53

On 26-27 May 2022, a record turnout of over 200 experts from around the world gathered in Warsaw for the sixth iteration of the “Dispute Resolution in M&A Transactions” Conference. It has become the world’s largest event on M&A dispute resolution – thanks to the involvement of Prof. Beata Gessel-Kalinowska vel Kalisz, the Conference chair. Over two days, legal professionals were debating complex subjects, including: recent changes in M&A landscape, consolidation and de-consolidation in M&A arbitration, the idea of procedural and substantive justice as well as M&A issues in investment arbitration. The topics were legally challenging and of considerable practical relevance, supported by interesting case law.

 

Meeting in Difficult Times

This year’s edition was exceptional for several reasons. It was one of the first in-person arbitration events after the COVID-19 pandemic. Of course, the joy of the ‘live’ meeting was dampened by the current situation in Ukraine. Welcoming remarks for the Conference participants were recorded by Olena Perepelynska, President of the Ukrainian Arbitration Association.

Claudia Salomon, the President of the ICC International Court of Arbitration, discussed the need for mutual assistance and support within society, also in crisis situations such as the war in Ukraine, in her inspirational opening speech. She reminded us that the very roots of civilization comprise of looking out for one another and talked about the values on which the ICC dispute resolution mechanism is based – inclusion of marginalised groups, such as people with disabilities, and promoting a culture of equality in all possible areas.

 

Hot Topics in M&A Arbitration

The first panel of the Conference, moderated by Prof. Dr. Kasper J. Krzemiński (NautaDutilh), provided a round-up of hot topics in M&A arbitration around the world. The panellists (Dr. Galina Zukova, ZUKOVA Legal; Edward Poulton, BakerMcKenzie; Dr. Nicolas Wiegand, CMS Hasche Sigle; and Tunde Ogowewo, King’s College London) discussed the changing M&A landscape, starting with many failed negotiations and aborted deals as the COVID outbreak wreaked havoc, proceeding into the 2021 M&A boom, which might now be followed by a wave of disputes. The audience was also provided with partial results of an interesting survey conducted by Baker McKenzie on M&A arbitration disputes. Some of the conclusions were highly surprising. For instance, the examination of arbitration awards identified no MAC clause disputes. Are MAC clauses so watertight these days? Or, maybe, we are in for a deluge of MAC disputes soon?

The speakers did not hold back from complex procedural topics, including the controversial issue of whether a tribunal should share its preliminary views with the parties and, if so, in what circumstances. It seems that any reasonable answer must include the very lawyerly phrase “it depends”.

 

To Consolidate or not to Consolidate?

The second panel, led by Justyna Szpara (Łaszczuk & Partners), focused on an issue characteristic to M&A disputes: consolidation and de-consolidation of arbitration proceedings. The panel featured Dr. Ioana Knoll-Tudor (Jeantet), Anna Guillard Sazhko (Shearman & Sterling), Nikolaus Pitkowitz, M.B.L.-HSG (Pitkowitz & Partners) and Rostislav Pekař (Squire Patton Boggs). The discussion centred around a case study involving three contracts (a guarantee agreement, an IP transfer agreement, and an SPA) with three different arbitration clauses. The case study was initially straightforward, but acquired successive layers of complexity from each speaker during the panel preparation. The panel considered inter alia situations in which: (i) the seller initiated an arbitration for payment against the target, which made a counterclaim and requested joinder of other parties; or (ii) two buyers were about to initiate arbitration against the seller, which, in turn, had a potential claim under the guarantee agreement. We were able to consider many scenarios for possible consolidation under, inter alia, ICC and VIAC Rules.

 

Do Principles of Equity Colour M&A Arbitration Jurisprudence?

Next, Prof. Beata Gessel-Kalinowska vel Kalisz (GESSEL) made a compendious introduction to the third panel, presenting differences between the notion of procedural and substantive justice and opening the way for a discussion between the panellists Prof. Ilias Bantekas (Hamad bin Khalifa University), Prof. Dr. Stefan Kröll (Bucerius Law School), and James Menz (rothorn legal). The speakers discussed how much the principles of equity colour M&A arbitration jurisprudence. This subject, seemingly theoretical, has significant practical meaning in arbitration proceedings. What is the role of substantive law in decision-making process? What are the parties’ expectations in this regard? How can arbitrators without legal training apply substantive law? During the discussion, it was even considered that, even if the arbitrators are required to apply substantive law, there are no sanctions for not complying with this requirement.

 

Multiparty Multicontract Arbitrations

The first Conference day ended with a keynote speech of a true arbitration star – Bernard Hanotiau (Hanotiau & van den Berg). The subject of the keynote perfectly reflected the complexity of M&A disputes and concerned two main issues: (i) to what extent can an individual / a company which is not a signatory to an arbitration agreement be a party to arbitration; and (ii) when arbitration is initiated under several agreements, to what extent does the tribunal have jurisdiction to decide issues arising under these various agreements? Mr Hanotiau discussed the questions by going through a selection of case law, coming to some interesting conclusions, e.g. that the determination of whether an arbitral clause should be extended to other companies of a group or to its directors / shareholders is more focused on facts than on law. The law does not necessarily play a major role in the final determination of non-signatory issues. There is also an agreement that the existence of a group of companies is not per se a sufficient element to allow the extension of an arbitration agreement to a non-signatory.

Mr Hanotiau emphasized that courts and arbitral tribunals, in the absence of an agreement between the parties, will generally refuse to join proceedings under one arbitration clause, when several proceedings contain truly incompatible dispute resolution clauses, unless it undoubtedly appears that all the disputes fall within the scope of the relevant arbitration clause.

 

Investment Arbitration: Recoverability of Reflective Loss

On the second day, the first panel kicked off with introductory remarks by Agnieszka Zarówna (White & Case) who presented the concept of reflective loss in investment treaty law. The discussion revolved around awards in Strabag SE v. Libya and Bilcon of Delaware et al v. Government of Canada. Prof. Marcin Kałduński (General Counsel to the Republic of Poland) led the panel discussing this issue with Christina Beharry (Foley Hoag) and Dr. Crina Baltag (Stockholm University). Prof. Beharry spoke about the current treaty practice in bilateral and multilateral investment protection treaties concerning the efforts to exclude and/or limit the recovery of reflective loss. She also commented on the general unavailability of recovery of reflective loss in domestic legal systems and considered remedies currently available under investment protection mechanisms and outside international law. Dr. Baltag presented the current work of the UNCITRAL Working Group III on this topic and pointed out that the multilateral investment court is a response to the perceived shortcomings of the judicial systems in many countries.

 

New Type of M&A Investment Arbitration: Emerging Energy Transition Disputes

The second panel revolved around emerging energy transition disputes. The discussion was introduced by Agnieszka Ason (Oxford Institute for Energy Studies), followed by a panel moderated by Prof. Dr. Yarik Kryvoi, LL.M. (British Institute of International and Comparative Law) with the participation of Steven Finizio (WilmerHale) and Dr. Boaz Moselle (Compas Lexecon). The panellists discussed how energy transition disputes are now considered to be the new type of cases in M&A investment arbitration. The speakers highlighted that there is a growing number of disputes related to investments in carbon reduction technologies and linked to carbon offset credits. The discussion revolved around (1) environmental taxes and regulatory changes, (2) measurement, reporting, and verification of GHG emissions, (3) emission reduction technologies such as carbon capture and storage, and (4) protection of investments linked to carbon offset credits. The panellists explained that there is growing pressure on energy players to improve their environmental performance. They highlighted the fact that stranded fossil-fuel assets translate to major losses for investors in advanced economies and made clear that, in the M&A context, the push towards decarbonization creates an incentive to make certain moves, such as divesting legacy oil and gas assets or acquiring cleaner energy business. Many of these transactions involve foreign investment and government support. Therefore, they are exposed to the risk of regulatory changes and, likely, are a breeding ground for disputes.

The discussions during the Conference were accompanied by four case studies presented by White & Case, Dentons, Quantuma and Queritius with a convincing illustration of how multi-stranded M&A disputes can be. They picked up on a variety of topics, ranging from emergency arbitrators, through the multiple roles of an expert, ending with the issue of arbitrating with sanctioned entities.

The participants seemed to agree on one thing: the event was an excellent opportunity to deepen their arbitration knowledge and hone a practical approach to M&A disputes, benefit from inspiration and invigoration by invited experts, and to network with arbitration practitioners from around the world (finally in person!).

 

The 7th edition of the Conference will be held in Warsaw on 23-24 May 2024 – mark your calendars now!

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Balancing Interests in the Renewable Energy Sector Through a Radical Change Criterion: Let the Wolf Guard the Hen House?

Mon, 2022-07-25 01:00

The Spanish Cases Saga illustrates the arduous task of balancing the host state’s right to regulate and an investor’s economic interests. This post summarizes the tribunal’s reasoning in Novenergia v. Spain and Stadtwerke nchen v. Spain regarding FET breaches in the energy sector. The post argues that the latter case adopts a clearer analysis of FET breach which should be adopted for renewable energy related cases going forward. In particular, the analysis in Stadtwerke concerning legitimate expectations and radical legislative  policy changes, offers a viable method for balancing investor and state interests regarding renewable energy investments. To develop this argument, this post first explains the difference between expected and unexpected or radical changes in a host state’s legal framework under the FET obligation. Second, it introduces the theory of efficient breach to explain how this concept assists in explaining how tribunals should balance competing interests. Third, the post exemplifies this theory in practice by reference to the reasoning of the tribunal in Stadtwerke nchen v. Spain.

 

 

I. FET Breach: Expected versus Radical or Unexpected Changes

The investment dispute in Novenergia v. Spain derives from the changes implemented by the Country in its renewable energy sector. In 2007, in reliance to Spain’s regulatory incentives, Novenergia built eight photovoltaic projects in the country. Later, in 2014, Spain rolled back on its Feed-in Tariff (FiT) incentives arguing that this measure was necessary to achieve economic sustainability of the market. Novenergia claimed that it had legitimate expectations of regulatory stability and that this sudden change to the regulatory framework violated the fair and equitable treatment (FET) standard under the Energy Charter Treaty (ECT, Treaty). (paras.153-155). The Tribunal engaged with similar cases, namely Isolux, Eiser and Charanne, and sided with Spain, concluding that Article 10(1) of the ECT does not grant investors, ipso lege, a legitimate expectation for a regulatory framework of a particular industry to remain unchanged (paras. 685-688). Despite this initial assertion, the tribunal in Novernergia ruled against Spain, arguing that the investor had legitimate expectations of stability that arose from other government actions and assurances (para.695, 697, 860)

The ruling in Novenergia v. Spain is consistent with that of Antaris v. Czech regarding the expectations of an investor to a fixed regulatory framework. In the latter case, the tribunal determined that the investors in the solar energy market in Czech Republic should have known that they were investing in a bubble market and, thus, could not have expected the regulation of the market to remain unchanged. Instead, the tribunal noted that press and industry discussions indicated that a change was likely, such that any specialist professional would have been aware that eventually the host state might withdraw their initial incentives (para 434).

In both Novenergia and Antaris, the tribunals held that a prudent investor cannot have legitimate expectations for an absolutely stable regulatory regime. Instead, investors must anticipate expected changes” in the form of regulatory measures (Antaris para. 360, Novenergia para.688)

The arbitral tribunal in Novenergia went further than that in Antaris and outlined the limits of a state’s right to regulate. It attempted to determine whether the host state measures constituted a fundamental, radical, or unexpected change. Ultimately, the tribunal held that “radical or unexpected changes” causing severe economic impacts for investors, despite not entirely obliterating the claimant’s investment, would constitute an FET breach. Nonetheless, the tribunal also noted that the economic effect on the claimant’s investment, while an important factor, is not the only factor to consider when conducting a balancing test under the FET standard (para. 694).

 

II. Efficient Breach: Balancing Interests to Assess Whether a Change is Radical, Unexpected, or Efficient

In his most recent book, Federico Ortino explains that a balancing test is often used by arbitral tribunals to clarify what constitutes a radical or unexpected change (see p. 40). Ortino draws a sharp distinction between an “unreasonable or disproportionate change versus a “strict sense regulatory change”. The author notes notes that these distinctions arise from the different notions of legal stability, where a strict notion of legal stability would entail that any regulatory change would amount to an FET breach, whereas a soft notion of regulatory stability demands the tribunal to conduct a balancing test on the merits of the regulatory reform to determine the fairness and reasonableness of the measure under review (see p.41).

At this point, it is necessary to consider why a balancing approach is even desirable. In terms of efficiency, according to the theory of efficient breach, a host State’s measure leading to an investor’s “sacrifice” must bring about a greater benefit to be considered legitimate. Even if there is no adequate compensation (which Kaldor-Hicks calls hypothetical compensation), the host State’s measure is still efficient in terms of net benefits if the benefits outweigh the costs. This efficiency approach leads to a cost-benefit analysis and encourages the consideration of implementing less intrusive measures, and thus, fosters a balancing of different competing interests. In this regard, Thorge F Leander Ketelhodt argues that the FiT framework in the renewable energy sector provides the highest incentive scheme for foreign investors by creating a low-risk regulatory environment through a market-independent fixed FiT price of long duration, commonly, for the entire life of the project. However, as the author notes, the flip side is that the initial circumstances are likely to vary fundamentally throughout the life of the investment. The contract equilibrium may decline, and the host State should have the right to modify the circumstances relevant to the contract within a reasonable limit. That limit cannot purely originate from the investor’s expectations but must be based on an overall balancing of multiple factors.

For these reasons, the Tribunal’s decision in Novenergia v. Spainregarding the need to balance competing interests- is not convincing; since it ultimately favored a test that focused on the economic impact of the measure on the investor, while ignoring the pressing needs of policy adjustment in the name of public interest in Spain at the time. The FET language in Article 10(1) of the ECT suggests that the Treaty favors a strict notion of legal stability. Nevertheless, in Novenergia, the tribunal seems to interpret the FET clause as favoring a soft notion of legal stability, requiring the tribunal to conduct a balancing test. Yet, it is still questionable the extent to which the ECT calls for a balancing test and to what extent an ECT tribunal should consider competing interests. Nevertheless, the balancing test in the ruling of Novenergia, assigned the heaviest weight to the economic impact on investor, affecting its initial intention to commit to the soft notion of legal stability.

 

III. Efficient Breach and Balancing Interests in Practice: Stadtwerke München v. Spain

The tribunal in Stadtwerke München v. Spain carried out a comprehensive balancing test to evaluate the economic impact of the regulatory measures on the foreign investor, beginning with the analysis of whether Spain had acted in bad faith when modifying its FiTs scheme. Since the investor has “asset specificity”, the host country  has a dominant position to change its regulatory framework. This may lead to a classic bait and switch” behavior. The Tribunal discussed Spain’s behavior thoroughly and ruled that Spain did not modify its FiT regime in bad faith. (para 319-323)

Further, considering the investor’s plea, Spain could have increased electricity prices to protect the renewable energy sector. In this case, the Tribunal carried out a subtest of the proportionality test to determine whether – considering the Spain’s domestic context – was there a less damaging alternative it could have adopted?

By indirectly assessing two measures – (i) increasing electricity prices or (ii) cutting off incentives (FiT) – the Tribunal rejected the investor’s argument and held that Spain’s measures were reasonable. The latter outweighed the former. Presumably, the marginal benefits generated for electricity consumers (in addition to the benefits of reducing the host country’s budget deficit) were more important than the marginal costs to foreign investors due to modifying FiT incentives.

As Ortino argues, under a soft notion of legal stability, an FET violation would not be established because of a detrimental change in the host State’s legal framework but because such legal change will be deemed “unreasonable”(p.32). The reasonableness analysis will thus examine the merits of the regulatory change. The Tribunal in Stadtwerke found that Spain’s regulations from 2010 did not radically change the legal and business environment in which investments were initially made, and that many initial incentives for foreign investors in the renewable energy sector were still maintained. Thus, the Tribunal determined that the Spanish regulatory measures were not “unreasonable” and were the only available at the time.

 

IV. Final Remarks

In renewable energy sector, due to the lack of adequate information, FiT prices may be initially set too high, creating an excess supply that will need to be adjusted sooner or later. In this regard, it is reasonable for investors to expect that they will benefit from high FiT prices only for a short-term, subject to a high probability of regulatory changes. If understood in a narrow sense, a “radical change”– such as to sustain an FET claim – would only occur when it results in severe damages to investors due to unreasonable measures taken by a host state.

The tribunals in the cited cases determined that the Spanish regulatory changes were last-resort measures; that finding, added to the reasonableness of these measures, subject to their non-retroactive application would derive in a non-breach of the FET standard. Such a comprehensive analysis in Stadtwerke v. Spain is well suited to balance competing interests in renewable energy sector.

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A Brief Comment on ALArb’s Protocol for Virtual Arbitration Hearings

Fri, 2022-07-22 01:25

While prior to the COVID-19 pandemic it was usual for international arbitration practitioners to conduct videoconferencing or telecommunications remotely for certain procedural events (i.e., initial case management conferences or witness examinations), pandemic restrictions imposed in early 2020 led to a substantial change in the way international arbitration proceedings are conducted—forcing practitioners to hold any kind of hearing exclusively on a virtual basis in order to avoid the suspension of proceedings (among countless others, the excellent articles of Maxi Scherer, Sophie Nappert and Mihaela Apostol and Sang Jin Lee and Michael van Muelken, reflect on the deep change produced by the sudden shift to virtual hearings in international arbitration).

In this context, in July 2020 the Latin American Arbitration Association (“ALArb”) chaired by Claus von Wobeser, established the Observatory on the State of Arbitration in Latin America (“Observatory”), chaired by Guido Tawil and Eduardo Zuleta Jaramillo, to monitor the development of arbitration in the region and make recommendations, propose courses of action and, in general terms, help solve pandemic-related problems related to arbitration proceedings.

Having identified a growing concern on guidance of how virtual hearings should be conducted, the Observatory launched the Protocol for Remote or Virtual Arbitration Hearings (the “Protocol”) in May 2021.

The aim of the Protocol is to serve as a guide for holding virtual hearings and to provide arbitrators, parties, arbitration centers and any other arbitration practitioner in the region, a useful tool incorporating best practices for virtual and remote hearings.

The Observatory concluded that, beyond the difficulties that may arise in a particular case, a hearing held virtually is a suitable, appropriate and safe venue for the conduct of arbitration proceedings and, to the extent organized and carried out in an orderly manner, holding a hearing virtually adequately protects the procedural rights of arbitration users — a conclusion which is consistent with the main findings of the General Report of ICCA’s project on whether the right to a physical hearing exists).

Considering the disparity of laws, provisions and regulations in the region, the Observatory sought to ensure that the Protocol contained rules capable of adjusting to the provisions and regulations in force in various jurisdictions. Since its release and a testament to its success, the Protocol has been increasingly applied in arbitration proceedings throughout Latin America.

On June 7, 2022, over a year after the release of the Protocol, ALArb held a webinar (the “Webinar”) with several leading international arbitration practitioners in the region (Guido Tawil, José Astigarraga, María del Carmen Tovar, Valeria Galíndez, Julián Bordaçahar and Sara Marzal) to review the application of the Protocol and discuss their personal experiences.

In this article, we review briefly the structure and content of the Protocol and analyze the most relevant conclusions from its practical application (as discussed in the Webinar).

 

The Protocol, its Structure and Main Provisions

The Protocol is structured in three chapters which mirror the chronological steps of any virtual hearing: (1) the preparation for the hearing and technical standards; (2) the conduct of the hearing, including the identification of the participants, rules of conduct, and examination of witnesses and experts; and (3) the post-hearing stage (mainly related to its transcription and record).

The Protocol also contains three annexes: (i) a checklist of the main issues to be considered during the different stages of a virtual hearing; (ii) a model clause to be included in agreements to prevent award challenges on the basis that the hearing was held virtually; and (iii) additional advice for successful virtual hearings.

Among its many provisions, it is worth mentioning that (i) Article I.2 (which referred to the determination of the requirements contained in the legal or conventional rules applicable to the case to held a virtual hearing) sets forth that the arbitral tribunal should discuss the possibility of holding a virtual hearing in light of the lex arbitri, the arbitration agreement and the applicable procedural rules in accordance with its obligation to issue a valid and enforceable award; (ii) Article I.3 (regarding the minimum recommended content for a procedural order or decision concerning a virtual hearing) notes, inter alia, that the arbitral tribunal should: (a) make reference to the parties’ agreement to hold the hearing virtually or to the procedural order in the absence of such agreement; (b) determine the internet connection specifications; (c) set the list of participants admitted to the hearing, their respective emails and location; and (d) make reference to the application of the Protocol; (iii) Article I.7 (related to confidentiality, privacy and security for the virtual hearing) specifies that the hearing platform shall guarantee the confidentiality of the communication, as well as the privacy and security of the information exchanged, and all the participants admitted to the hearing shall undertake, in the terms and conditions to be established by the arbitral tribunal, to keep confidential all information related to the hearing; and (iv) Articles II.2, II.3 and II.4 (regarding the moderation of the hearing, rules of etiquette and examination of witnesses and experts, respectively) provide a detailed set of rules and recommendations for the development of the virtual hearing.

While all these provisions are intended to be used as a guide and are in fact meant to be adjusted by arbitration practitioners to the particular circumstances of each case, the rules set forth in the Protocol are designed to encompass established best practices in this field.

 

Difficult Situations Posed by Virtual Hearings and Recommendations to Avoid Them

One of the first issues discussed at the Webinar related to the potential problems that different time zones may cause. Guido Tawil illustrated the problem by explaining that he was recently involved in a case in which there were more participants from more than ten different time zones. The tribunal decided to have only a few hours of hearing per day and, in some cases, to have a participant attending the hearing in very late or early hours (like at 2:00 or 3:00 am). In order to avoid these kinds of situations, it was suggested that arbitrators and parties should try to reduce their time zone differences as much as possible (for example, by having all the participants of the same party gather in a single location).

José Astigarraga pointed to another challenge of virtual hearings: The difficulties in both perceiving and expressing body language.  It was suggested that, despite the convenience of having an entire legal team gather in one place, each counsel or speaker should have his or her own camera and microphone in order to communicate as directly as possible with the arbitrators, witnesses and/or experts attending a hearing.

The matter of the location of witnesses and experts and the use of devices other than computers during virtual hearings was also addressed. Guido Tawil and Julián Bordaçahar stated that in some cases witnesses testified while driving a car or stopped at the side of a road. In one case, counsel to one of the parties shared his screen in a way that allowed all participants to see the conversations he was having through chat. With respect to these kinds of issues, it was suggested that individuals exercise additional caution when using devices other than computers during virtual hearings to ensure that all witnesses and experts are able to testify from an appropriate location if at all possible.

 

Where We Are Headed: The Future of Virtual Hearings in International Arbitration

The Webinar also addressed the future of virtual hearings. It seemed clear from all the speakers that the world will not return to the way it was before the COVID-19 pandemic and that the lifestyle changes brought by it have not sidelined legal practice. Virtual hearings are certainly here to stay, but they won’t be the rule—at least for a while.

There is no doubt that virtuality has brought many advantages to international arbitration, especially in saving travel expenses, saving time, organizing agendas, as well as being an eco-friendly option that has helped create awareness of the sheer amount of documents and resources the arbitration community uses at in-person hearings. Nevertheless, the practitioner view is still that in-person hearings and face-to-face meetings are preferred. And thus the question remains: what will international arbitration look like in the near future?

For starters, some procedural aspects that used to be in-person will probably not be held face-to-face again. This will be done with quick virtual meetings and hearings that need to be expedited such as initial procedural conferences or interim measures hearings. While expeditious, Guido Tawil noted in the Webinar that this may affect the learning process of younger practitioners in international arbitration.

However, for complex cases and hearings involving multiple testimonies and arguments, practitioners believe that in-person presence remains an advantage regarding the assessment of witness credibility and the sheer ease of human interaction. This conclusion was highlighted by Valeria Galíndez and María del Carmen Tovar, who agreed that it is reasonable to expect that in-person hearings will continue to be held principally for complex cases and for the examination of witnesses and experts.

With this scenario in mind, arbitration practitioners have learned the importance of preparation before a hearing. Today, it is necessary to anticipate the possibility of virtual hearings or at least hybrid procedures. Therefore, there is a fundamental need for the parties to discuss a protocol on the preferred conduct of any hearing.

As it was explained at the Webinar, it is a common practice in the region to have a draft prepared by the Tribunal that is submitted to the parties for their review and approval. The Protocol, as mentioned, covers most aspects of the preparation and conduct of virtual hearings. Therefore, it is strongly suggested to implement it as a set of guidelines in the initial procedural conference. Once this initial framework has been implemented, the parties will have the opportunity to tailor their arbitration and consequent virtual settings to the needs of their particular case.

 

Conclusion

Two years of online practice have left us with a variety of interesting experiences, but it has also left the international arbitration community with much-needed technological expertise. The uncertainty of knowing when a virtual hearing will be needed has become incredibly common, to the point of assuming that virtuality will be required at least once during any arbitral proceeding. Therefore, arbitrators and counsels must be prepared for the virtual environment moving forward.

As we are still learning, we can all agree that preparation is key. Practitioners are now facing tactical decisions about whether to agree to a virtual hearing and how that may impact the outcome of an arbitration. Clearly, due process, effective persuasion and cost-time efficiency are factors that come into play when tailoring the procedural aspects of both virtual and in-person hearings. As discussed in the Webinar, the Protocol has been developed to be the ‘go-to tool’ for arbitration users by providing them with guidance on the new virtual reality of legal practice. For that reason, it remains an invaluable tool for international arbitration practitioners in the region and throughout the world moving forward.

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Berlin Court Finds that ICSID Arbitrations Are Immune from Achmea and Komstroy – At Least While They Are Ongoing

Thu, 2022-07-21 01:23

Germany found itself as the hotseat of the “battle” between EU law and investment arbitration in May 2016 when the Federal Court of Justice (Bundesgerichtshof) referred questions relating to the compatibility of EU law with the arbitration clause in the Slovakia-Netherlands BIT to the Court of Justice of the European Union (“ECJ”) in Slovakia v. Achmea BV. Now the Higher Regional Court Berlin has entered the ring by issuing a legally sound but politically surprising judgment finding that neither local courts in EU members states, nor the ECJ, have any supervisory authority over arbitrations administered by the International Centre for the Settlement of Investment Disputes (“ICSID”).

The court declined on 28 April 2022 Germany’s request to declare that the Respondents’ (Mainstream Renewable Power Ltd. and five of its subsidiaries, the claimants in ICSID Case No. ARB/21/26, “Mainstream et al”) claim against Germany under Article 26 of the Energy Charter Treaty (“ECT”) was inadmissible as it concerns an intra-EU dispute (KG Berlin, Decision 12 SchH 6/21 of 28 April 2022).

Germany has appealed the decision to the Bundesgerichtshof (BGH I ZB 43/22), the highest court in Germany. A decision can be expected in the spring or summer of 2023.

 

1. Basis of the Application

Mainstream et al submitted their Request for Arbitration with ICSID on 30 April 2021 after having invested in wind and solar energy in Germany. Mainstream itself and two of its subsidiaries are incorporated in Ireland. One of these subsidiaries holds 100% of the shares in the other three claimants, which all have their seats in Berlin.

Germany invoked Section 1032 para. 2 of the German Code of Civil Procedure (“ZPO”), which allows a request to be filed in court to determine the admissibility of arbitral proceedings.

Section 1032 is part of Book 10 of the ZPO governing arbitral proceedings. Book 10 applies if the place of arbitration is located in Germany according to Section 1025 para. 1 ZPO. Section 1032 ZPO is included in a sub-chapter on the arbitration agreement.

Germany argued that it should be allowed to exhaust all legal remedies in order to avoid an initiation of infringement proceedings by the European Commission. A request under Section 1032 para. 2 ZPO is not barred by the ICSID Convention, Germany submitted (for a fuller account of the findings of the court as a matter of German law see here).

 

2. Decision of the Higher Regional Court of Berlin

The court first established its competence to decide requests under Section 1032 para. 2 ZPO in general. The link of the case to Berlin was established by three of the claimants in the arbitration having their seat in Berlin, and a fourth one owning them (KG decision, p. 5, para. 2).

The court then turned to consider the relevance of the ICSID framework and whether Germany’s request was admissible. The court found that Section 1032 para. 2 ZPO is not applicable in an ICSID arbitration.

 

a. The ICSID Convention Sets Up a Closed System of Procedural Rules Precluding Other Legal Remedies

The court first established that the ICSID Convention was applicable to the arbitration, as both Germany and Ireland are contracting states. The court then considered the particular features of the ICSID system, citing Articles 25, 26, 41, 53 and 54 of the ICSID Convention (KG decision, p. 6, para. 3 a).

The court further considered the InvStreitÜbkG, the law implementing the obligations arising from the ICSID Convention in Germany, which only references the German ZPO regarding requests for declarations of enforceability. According to the court, the special character of ICSID arbitrations also manifests itself in the lack of court decisions on ICSID arbitral awards and arbitrations in Germany. In the only decisions cited, German courts had refused to intervene procedurally in ICSID arbitrations (KG decision, p. 8, para. 3 a).

The Higher Regional Court of Berlin concluded that, as the ICSID Convention itself provides in Article 41 that the tribunal has the “Kompetenz-Kompetenz” to decide on its jurisdiction, Section 1032 para. 2 ZPO is not applicable to ICSID arbitrations (KG decision, p. 11, para. 3 c).

 

b. Prior Decisions of the ECJ or Domestic Courts Do Not Influence the Question of Admissibility of A Request Under Sec. 1032 para. 2 ZPO

After re-iterating the ECJ’s decisions in Achmea and Komstroy, the court also referenced the ECJ’s decision in Micula from January 2022. Yet the court held that these decisions do not deal with the procedural rules of the ZPO and their applicability in ICSID arbitrations. The question whether the expressions of consent are valid in an intra-EU investment dispute are to be determined by the arbitral tribunal according to Article 41 of the ICSID Convention.

The court further found that the non-application of Section 1032 para. 2 ZPO to an ICSID arbitration does not violate EU law as the decision on the admissibility of Germany’s request does not require an appraisal of the ECJ’s case law. Section 1032 para. 2 ZPO is exclusive to German law. Section 1040 ZPO, giving German courts the power to overrule an arbitral tribunal’s decision on its jurisdiction, does not apply to ICSID arbitrations (KG decision, p. 11).

The Court did not address the question of whether EU case law could be sufficiently considered in potential annulment proceedings if an ICSID tribunal fails to correctly take into account EU case law as part of the law binding both parties to the arbitration.

Finally, the court declared recent domestic court rulings based on the ECJ decisions in Achmea and Komstroy irrelevant, as they did not concern ICSID arbitrations and were thus subject to the supervisory jurisdiction of the court of the seat (KG decision, p. 11, para. 3 c). First, two decisions of the Cour d’Appel de Paris of 19 April 2022, setting aside arbitral awards obtained by (a) Cec Praha and Slot Group; and (b) Strabag and Raiffeisen Centrobank against Poland. Secondly, the Bundesgerichtshof’s decision on 17 November 2021 in an investment case between Raiffeisen Bank and Croatia under Section 1032 para. 2 ZPO (commented on here).

 

3. Conclusion

The Higher Regional Court of Berlin will not have the last word on this issue. The Bundesgerichtshof may refer the matter to the ECJ, which is likely to disagree with the findings of the Berlin court. Not because there is anything legally unsound with that court’s analysis, but because of precedent: German courts in Achmea (discussed in more detail here), French courts in Komstroy (discussed in more detail here) and Swedish courts in PL Holdings (discussed in more detail here) all found investment law and EU law to be compatible until they were told by the ECJ that they were wrong.

The most interesting comparison with the present case is provided by Micula. As an ICSID arbitration, the case had proceeded without judicial oversight. Because Romania had set off the damages awarded to the claimants against the tax debt some of them owed to the state treasury, the matter ended up before EU courts once the European Commission ruled this to be illegal state aid and ordered Romania to recover it. The ECJ had no hesitation in finding that Achmea applied to the case and appeared to consider the fact that the arbitration had been conducted within the ICSID system irrelevant or worse: the ICSID award not being subject to oversight of (EU member state) domestic courts was given as an additional reason for the court to find that Achmea applied to it (paragraph 142). The Higher Regional Court of Berlin focused on German procedural law to ground its decision, but it will not be difficult for the ECJ (or indeed the Bundesgerichtshof) to ignore or dismiss this, if it so wishes. The distinction did not appear to be relevant for the Bundesgerichtshof in Raiffeisen Bank when it approved Croatia’s application under Section 1032 para. 2 ZPO.

The Berlin court’s decision finds itself in the middle of a Venn diagram where on the one side is a circle in which reside decisions on procedural issues relating to the supervision of arbitration proceedings. On the other side is a circle for ICSID arbitrations. Only where these two circles overlap does an investor have a chance of escaping the impact of Achmea and Komstroy before an EU member state court.

Where decisions on enforcement of ICSID awards fall in this diagram is open to debate. The UK Supreme Court’s decision on the Micula claimants’ application to enforce the ICSID award (discussed here) suggests that the question may be determined by the date on which the enforcement state became party to the ICSID Convention – creating yet another fine distinction to make this area of law more complex.

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Fit for Print: the “El Clarín” Saga Leads to US$ 550 Million Enforcement Order by Spanish Courts

Wed, 2022-07-20 01:30

The case involving Mr. Víctor Pey Casado, the President Allende Foundation, the 1960s Chilean newspaper “El Clarín” and the Republic of Chile – once the longest-running dispute in ICSID history – is certainly a complex one. The dispute has spanned more than twenty years, encompassing three different arbitration proceedings with three separate arbitral awards issued in 2008, 2016 and 2019, court proceedings in Chile and Spain, multiple requests for annulment and also an ongoing effort by a persistent group of claimants to obtain compensation.

This post will provide an overview of the background to the dispute and the multiple arbitration proceedings, the history of the dispute before the Spanish courts including the most recent enforcement order made against Chile and finally, possible outcomes and considerations in light of Spanish procedural law.

 

Background to the Pey Casado Proceedings

The dispute concerns the newspaper “El Clarín”, a publication established in Chile in 1960. After the newspaper became an outspoken supporter of President Salvador Allende during his mandate, it was seized on 11 September 1973 as part of Augusto Pinochet’s coup d’état in the country. “El Clarín” was shut down, its assets were transferred to the State by a 1975 decree; and its owner, Mr. Victor Pey Casado, was exiled from the country and returned to his native Spain, where he founded the President Allende Foundation.

Upon his return to Chile in the 1980s, Mr. Pey Casado sought compensation from the Chilean courts for his loss suffered as a result of the expropriation of the newspaper. When this was unsuccessful, he turned to the 1991 Spain-Chile bilateral investment treaty (“BIT“), commencing what would become a more than twenty-year long and complex battle to obtain compensation for his investment that has recently culminated in a Spanish judge’s order against Chile for US$ 430 million plus interest of US$ 122 million.

 

First arbitration

Mr. Pey Casado and the President Allende Foundation initiated the first arbitration in 1997 under the BIT seeking compensation for the expropriation of the newspaper in 1973.

In its 2008 award, the tribunal found it lacked jurisdiction over most of the claims, including the expropriation claim as the alleged measures took place before the BIT entered into force. However, it awarded US$ 10 million in damages as it found that Chile had breached its fair and equitable treatment (“FET”) obligation by refusing to compensate the Claimants after shutting down “El Clarín.”

After the decision, both parties sought to annul the award and, in December 2012, an ICSID ad hoc committee annulled parts of the award relating to damages, including the US$ 10 million estimation, holding that Chile had been denied the opportunity to present arguments on the issue of damages.

 

Second arbitration

The Claimants resubmitted the dispute to a new ICSID tribunal seeking US$ 150 million in damages for Chile’s alleged breaches of the BIT. However, the tribunal rejected the claims and issued an award in September 2016, finding that the Claimants had failed to prove that Chile’s FET breach caused damages. In 2017 the Claimant applied for annulment of the 2016 award. Nevertheless, in January 2020, the ad hoc committee rejected the Claimants’ application noting that the circumstances alleged were insufficient to succeed in the annulment of the award.

 

Third arbitration

The Claimants did not give up. In 2017—while the annulment proceedings of the 2016 award were taking place—they initiated a third arbitration, this time administered by the Permanent Court of Arbitration under the UNCITRAL Arbitration Rules. The Claimants argued that this proceeding was distinct from the previous proceedings, as they brought claims related to Chile’s lack of compliance with the 2008 award, as well as a series of claims related to domestic law, and sought restitution, damages, and moral damages, as well as the costs relating to the first arbitration and the enforcement proceedings in Spain in 2013.

This arbitration also was unsuccessful. In its 2019 award, the tribunal declined jurisdiction over all claims, noting, among other reasons, (i) that the BIT did not allow the Claimants to bring claims under domestic law; (ii) that the Claimants did not have an investment when Chile refused to comply with the 2008 award, and (iii) that the Claimant’s right to arbitrate, as well as their 2008 award, did not qualify as investments under the BIT.

 

Enforcement Proceedings in the Spanish Courts and Next Steps

In the most recent twist to the case and one that has grabbed headlines, on 7 December 2021, a Spanish judge ordered Chile to pay approximately US$ 430 million to Ms. Coral Pey (daughter and successor of Mr. Pey Casado) and the President Allende Foundation.1) This latest decision is not the first time that the Spanish Courts had become involved in the “El Clarín” saga. At the request of the Claimants, in July 2013 the First Instance Court of Madrid no. 101 issued an order to enforce the costs portion of the 2008 award issued in the first arbitration proceedings, which became the first case of direct enforcement of an ICSID award in Spain.  See, José Ángel Rueda García, Primera ejecución forzosa conocida de un laudo arbitral CIADI en España (Víctor Pey Casado y Fundación Presidente Allende v República de Chile): sin exéquatur.” jQuery('#footnote_plugin_tooltip_42148_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_42148_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The December 2021 decision relates to the continued enforcement of the 2008 award. While the 2008 award was annulled in regard to the damages awarded by the Tribunal, subsequent awards and decisions had reiterated the Tribunal’s finding that Chile breached the BIT and had an obligation to repair the damage caused.  Pursuant to Spanish procedural law (Ley de Enjuiciamiento Civil) the lower courts have jurisdiction to hear enforcement of foreign arbitral awards.  Reportedly, the Claimants turned to the Spanish courts to determine the amount owed by Chile for its breach of Article 4 of the BIT.

Judge Pedro José Puerta ordered Chile to pay almost US$ 430 million to the Claimants, along with US$ 122 million provisionally fixed as “the interest that could arise from the enforcement and procedural costs.2) Spanish procedural law does not allow interest from enforcement proceedings to exceed 30% of the principal amount; in this instance, interest is almost at that limit, constituting approximately 28% of the amount awarded to the Claimants. jQuery('#footnote_plugin_tooltip_42148_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_42148_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

While Spanish law does not prima facie allow court judgments or awards to order the payment of unspecified amounts, it does allow for quantum to be determined at the stage of enforcement when the judgment or award clearly identifies the amounts that should be compensated and quantified. To this purpose, the Claimants reportedly provided the court with a quantum expert report directed at quantifying the compensation sought in enforcement for the breach of Article 4 of the BIT, which is likely to be the source for the quantum granted by the judge.3) Except for the 7 December 2021 decision, all orders related to the “El Clarín” case currently before first instance court no. 101 are confidential and not available to the public. jQuery('#footnote_plugin_tooltip_42148_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_42148_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Under Spanish procedural law, decisions ordering enforcement are notified to the parties and while they are not open for appeal, the aggrieved party may file its opposition to the enforcement within ten days from notification. In this case, Chile had the possibility to oppose enforcement based on a number of limited grounds, namely, and if applicable: (i) that the amount for which enforcement is sought has already been paid; (ii) that Chile has already complied with the award, with adequate justification of how this compliance has taken place; (iii) that the period in which the Claimants had to request enforcement had expired; or (iv) that there is an agreement to the contrary by the parties contained in a public document.

To ensure enforcement, if the party seeking enforcement has not designated assets with sufficient value to cover the quantum, the court would issue an order requiring the party against whom enforcement is sought to show sufficient assets to cover the amount claimed. This order can include sanctions and fines in the event the party does not comply. Typically, if the party against whom enforcement is sought does not comply with the court’s requirements, the court may order the seizure of any assets of which it is aware. In this case, the fact that the respondent, Chile, is a sovereign State implies the rules of immunity and their assets also come into play.

No publicly available information has been found to confirm whether Chile opposed enforcement and/or provided proof of its assets to cover enforcement. However, according to news reports the Spanish Courts ordered the seizure of the debts of Nexans Iberia, the Spanish subsidiary of French cable manufacturer Nexans, to Codelco, the National Corporation of Copper of Chile. News reports also advise that Nexans Iberia has reportedly confirmed receipt of the order and informed the Court that it does not have any outstanding debts with Codelco.

 

Conclusion

Given the long track record and battle between the parties, it is not unlikely that we have seen the end of this case and that the Claimants will continue with its efforts for compensation and that Chile will continue to oppose such efforts.  One other interesting issue to watch is to see how the recently elected President of Chile, Gabriel Boric manages this issue and any enforcement order issued against Chile, and specifically, if news reports are correct, Codelco. While his predecessor, Sebastián Piñera, declared in 2012 his intention to comply with any final decision reached in the case (which at the time, was still in the stage of arbitration), President Boric has not made any public statements to that effect. Again, this opens the door to more twists and turns in the long running saga of the “El Clarín” dispute.

References[+]

References ↑1 This latest decision is not the first time that the Spanish Courts had become involved in the “El Clarín” saga. At the request of the Claimants, in July 2013 the First Instance Court of Madrid no. 101 issued an order to enforce the costs portion of the 2008 award issued in the first arbitration proceedings, which became the first case of direct enforcement of an ICSID award in Spain.  See, José Ángel Rueda García, Primera ejecución forzosa conocida de un laudo arbitral CIADI en España (Víctor Pey Casado y Fundación Presidente Allende v República de Chile): sin exéquatur.” ↑2 Spanish procedural law does not allow interest from enforcement proceedings to exceed 30% of the principal amount; in this instance, interest is almost at that limit, constituting approximately 28% of the amount awarded to the Claimants. ↑3 Except for the 7 December 2021 decision, all orders related to the “El Clarín” case currently before first instance court no. 101 are confidential and not available to the public. function footnote_expand_reference_container_42148_30() { jQuery('#footnote_references_container_42148_30').show(); jQuery('#footnote_reference_container_collapse_button_42148_30').text('−'); } function footnote_collapse_reference_container_42148_30() { jQuery('#footnote_references_container_42148_30').hide(); jQuery('#footnote_reference_container_collapse_button_42148_30').text('+'); } function footnote_expand_collapse_reference_container_42148_30() { if (jQuery('#footnote_references_container_42148_30').is(':hidden')) { footnote_expand_reference_container_42148_30(); } else { footnote_collapse_reference_container_42148_30(); } } function footnote_moveToReference_42148_30(p_str_TargetID) { footnote_expand_reference_container_42148_30(); 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_42148_30(p_str_TargetID) { footnote_expand_reference_container_42148_30(); 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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Brazilian Superior Court of Justice (STJ) and the exceptions of the Competence-Competence Principle

Tue, 2022-07-19 01:12

This article addresses the Brazilian Superior Court of Justice (STJ) ‘s precedents on the exceptions to the Competence-Competence principle due to pathological arbitration agreements present in contracts of adhesion. In addition, it approaches the Court’s position on the enforcement of a pathological (empty) arbitration clause.

The decisions below are landmark precedents and clarify crucial points differentiating franchise contracts from consumer contracts (both contracts of adhesion) and establishing when state courts must decide about the existence and validity of an arbitration clause (exceptions to the Competence-Competence principle). The decisions discussed below are the foundations of recent jurisprudence created by the Brazilian Superior Court of Justice (STJ) (e.g. 1. Special Appeal nº 1.854.483-RJ – Third Panel – Minister Nancy Andrighi– SPE Orla 1 LTDA v. Maria Vilma Rodrigues de Lima – September 9, 2020 – 2.  Specific Appeal in Appeal in Special Appeal nº 1.809.792-SP – Fourth Panel – Minister Raul Araújo – Regina Celia Matheus Crizza v. Franquia Show Assessoria em Negócios LTDA. – February 15, 2022 – 3. Specific Appeal in Motion for Clarification in Appeal in Special Appeal – Third Panel – Minister Marco Aurélio Bellizze – Missoni SPA v. MMR Investimentos e Participações S.A – March 14, 2022).

 

The Court’s Analysis

Competence-Competence Principle – general rule, specific rule and more specific rule

On November 6, 2012, a decision rendered by the Third Panel of the Brazilian Superior Court of Justice in the Special Appeal nº 1.169.841-RJ (CZ6 Empreendimento Comerciais LTDA e Outros v. Davidson Roberto de Faria Meira Júnior) was published under the opinion of Minister Nancy Andrighi. The decision addressed the validity of an arbitration clause in a real estate purchase agreement held by CZ6 Comercial Entrepreneurs Ltda and Davidson Roberto de Faria Meira Júnior. The Court of Justice of Rio de Janeiro had confirmed the trial court’s decision which considered the state’s jurisdiction inescapable in consumer contracts even with an arbitration agreement.

The Superior Court of Justice sided with the consumer and the inescapability of state jurisdiction not because it is a contract of adhesion but because it is, specifically, a consumer contract. The Court established the following guidelines differentiating generic contracts of adhesion and consumer contracts of adhesion:

In fact, with the enactment of the arbitration act, three rules came to coexist harmoniously with different degrees of specificity: (i) a general rule that binds the parties to follow the arbitration agreement; (ii) a specific rule, applicable to generic adhesion contracts, which restrains the effectiveness of the arbitration agreement; and (iii) an even more specific rule applicable to the contracts protected by the Brazilian Code of Consumer Protection, may they be adhesion contracts or not, that imposes invalidity to the mandatory arbitration agreement even if in perfect compliance with the requirements established by article 4º, §2º of the Brazilian Arbitration Act. (Translation by the author)

The rule established by article 4º §2º of the Brazilian Arbitration Act (Act º 9.307/1996) states that

In adhesion contracts, an arbitration clause will only be valid if the adhering party takes the initiative to initiate an arbitration proceeding or if it expressly agrees with its initiation, as long as it is in an attached written document or boldface type, with a signature or special approval for that clause.(translation by the author)

According to the decision, this rule applies to generic contracts of adhesion. Nevertheless, even if a consumer contract complies with this rule, the consumer can still tacitly renounce arbitration and seek the state courts’ aid. The Court added that the Brazilian Code of Consumer Defense and Protection (Act nº 8.078/1990) forbids only the mandatory use of arbitration, leaving it at the consumer’s discretion to waive arbitration and seek the judiciary.

 

Contracts of Adhesion, pathological arbitration agreement, and the Competence-Competence Principle

On November 15, 2016, another decision was rendered by the Third Panel of the Brazilian Superior Court of Justice in the Special Appeal nº 1.602.076-SP (Odontologia Rister de S. Lima v. GOU – Grupo Odontológico Unificado Franchising LTDA), published under the opinion of Minister Nancy Andrighi. The Court analyzed whether a franchise agreement should be considered a consumer contract or not and whether the judiciary had the competence to assess its arbitration clause’s validity mitigating the Competence-Competence Principle, established in the Brazilian Arbitration Act’s Article 8, sole paragraph.

The claimant (Odotonlogia Noroeste LTDA) requested the annulment of the franchise agreement and the refund of the franchise and royalties’ fees paid to the defendant (GOU – Grupo Odontológico Unificado Franchising LTDA). In addition, the claimant pleaded for the invalidation of the arbitration agreement, alleging that the franchise contract was, in fact, a consumer contract of adhesion that did not comply with the requirements set out in Article 4º, § 2º of the Brazilian Arbitration Act.

The Court ruled that the franchise contract should not be considered a consumer contract “since there is no consumption relationship but a simple economic fostering goal. That means a contract to stimulate the entrepreneurial activities of the franchisee”. However, the Court decided, franchise agreements ought to be considered generic contracts of adhesion.

In this case, the arbitration clause did not comply with Article 4º, §2º of the Brazilian Arbitration Act (in adhesion contracts an arbitration clause must be “an attached written document or in boldface type, with a signature or special approval for that clause”) and, therefore, was regarded as a pathological arbitration clause. Thus, the judiciary was entitled to examine the validity of this clause if, on its face, it seemed invalid. Moreover, because it was a contract of adhesion, the Competence-Competence Principle had to be disregarded in the case. Therefore, although the general rule is to always favor the arbitral tribunal’s power, the empty arbitration clause stipulated in a contract of adhesion would be an exception to this rule and allows the judiciary assessment of its validity.

In the same direction, on June 11, 2019, in the Internal Appeal in the Special Appeal nº 1.431.391-SP (Alex César Rodrigues Alves v. Companhia de Bebidas das Américas – AMBEV), Minister Antonio Carlos Ferreira overruled a previous decision  that claimed that only the arbitral tribunal had the power to assess an arbitration agreement in a franchise contract. Under said decision, courts were only entitled to an eventful and future (after the arbitral award) analysis. In this case, the Court reconsidered and ‎declared void the arbitration agreement of a franchise contract, concluding that the latter was considered a contract of adhesion that must comply with Article 4º, § 2º of the Brazilian Arbitration Act. Therefore, such a clause is pathological, and the Competence-Competence principle does not apply to the case.

 

Enforcement of a pathological arbitration agreement

On November 20, 2012, a decision was rendered by the Fourth Panel under the opinion of Minister Luis Felipe Solomão in the Special Appeal nº 1.082.498-MT, addressing the enforcement of a pathological arbitration agreement that failed to specify an arbitral institution. The appellee Antônia da Silva Barbosa requested that the arbitration proceeding be administered in her arbitration chamber of choice (Mediation, Conciliation and Arbitration Tribunal of Cuiabá). However, the Appellant, Condomínio Civil do Cuiabá Plaza Shopping, did not agree with the appellee’s choice.

In the case, two hearings were held before the arbitral institution. In the first hearing, the parties were unable to reach an agreement, and in the second hearing, the appellant declared its opposition to the arbitration center chosen by the appellee.

The Court considered that:

The agreement of the parties concerning the arbitrator or institution is an essential requirement. If that is not possible, the State Court should solve the matter. The Court must necessarily accept such a job to help commence the arbitration proceedings. In this case, although I recognize the competence of the arbitral tribunal, the appellant refused to sign an arbitration commitment for finding the arbitral tribunal chosen by the other party biased.

Therefore, the Brazilian Superior Court of Justice considered that the judiciary is entitled to render a decision to fill in the gaps of an empty arbitration clause according to Article 7 of the Brazilian Arbitration Act. In short, the judiciary shall be responsible for establishing the elements necessary for the commencement of the arbitration proceedings.

 

Conclusion

The Superior Court of Justice favors the Competence-Competence principle as a general rule. However, as noted, the pathological clauses in consumer adhesion contracts or generic contracts of adhesion (such as the franchise agreement) mitigate this principle and allow for the judiciary assessment of the arbitration agreement validity.

In the case of a pathological clause that makes it impossible to commence the arbitration proceedings, the interested party shall plead to the judiciary so that the state judge renders a decision. This decision’s role (an arbitration commitment per se) is to fulfill all the arbitration’s agreement gaps and contradictions.

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Making Expert Evidence Engaging: ACICA45 Panel Discussion

Mon, 2022-07-18 01:06

Expert evidence is a feature of almost every arbitration. At the very least, parties will likely need to adduce expert evidence concerning the quantification of a claim for damages. However, depending on the subject matter of the dispute, a party may need to adduce expert evidence on any number of topics, ranging from aerodynamics to zoology. The expert’s precise area of expertise notwithstanding, identifying, briefing, and preparing experts for arbitration is never a simple task.

On 12 May 2022, KordaMentha and ACICA45 – a community for young and emerging arbitration practitioners organised by the Australian Centre for International Commercial Arbitration – held its first in-person session in Sydney since the outbreak of Covid-19. The session, moderated by Domenico Cucinotta (Senior Associate, King & Wood Mallesons), explored various aspects of the appointment and instruction of expert witnesses in arbitration proceedings. The panel, made up of John Temple-Cole (Partner, KordaMentha), Jacqueline Koo (Associate Director, KordaMentha), Professor Chester Brown (University of Sydney and 7 Wentworth Selborne Chambers) and Tim Ash (Director, TBH Consultancy) provided valuable insight based on their experiences as testifying expert, counsel, and second chair to a testifying expert.

 

A needle in a haystack – how to choose the right expert?

The evening started by discussing one of the most challenging tasks: how to identify the right expert with relevant expertise and experience. Speaking from his experience as both counsel and expert, Professor Brown observed that identifying the right expert was crucial, otherwise the evidence would be of little evidentiary value or inadmissible. Professor Brown posed a number of practical questions for an expert to consider in assessing whether they are the right match for the engagement, including: (a) whether the issue(s) are within an expert’s expertise; (b) whether an expert has any conflict of interest; (c) understanding the scope of work; (d) understanding the deadlines; (e) setting expectations on fee arrangements; and (f) confirming the expert’s independence from the client and instructing counsel.

Mr Temple-Cole explained that counsel and experts should prepare for an initial conference in a similar way that one might prepare for an interview: setting out clearly the reasons for engaging an expert, what matters the expert is required to address and being unafraid to enquire and challenge a candidate on the relevance of their qualifications to the task being instructed.

 

“Dirty” experts v “clean” experts

The panel then discussed the necessity of engaging a ‘dirty’ expert in addition to any ‘clean’ or testifying expert they have already engaged for the proceedings.1)For the avoidance of doubt, the dichotomy is not used to impugn the character or morality of an expert. The words “clean” and “dirty” simply distinguish the roles assumed by different experts. A “clean” expert is a testifying expert, whose role is independent to their instructing lawyers and the paramount duty is to the court or tribunal before whom they appear. By contrast, a “dirty expert” will not give evidence to a tribunal and play more of a consultancy role to the legal team, helping them understand the subject matter better. jQuery('#footnote_plugin_tooltip_42128_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_42128_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Mr Ash recounted some of his experiences acting as a “dirty” or “consulting” expert. Mr Ash advised that a “consulting expert” could be involved in various circumstances and equipped with different tasks. For example, a “consulting expert” might be engaged early to assist in setting case strategy or testing various case theories. A “consulting expert” might also assist in identifying a suitably qualified “clean expert” and helping the counsel team prepare instructions, assumptions, and questions for the “clean expert”. Mr Ash explained that the value of a “consulting expert” is more obvious when a matter involves highly technical details, with which the legal team is not necessarily familiar.

Agreeing that a “consulting expert” can be helpful in upskilling the legal team on technical matters, Professor Brown warned that it is important to strictly observe the distinction between the “clean” and “dirty expert”, and to avoid them from meeting or discussing the matter together, so as not to compromise the independence of the “clean” expert.

 

Preparing the letter of instruction and brief of documents

Another common issue that arises when briefing an expert is how much (and what) information to give to the expert and how it ought to be presented. The panel agreed that briefing an expert is usually an iterative process whereby an early engagement letter is followed by a formal instruction letter with detailed assumptions closer to the time the final report is delivered. The panel also agreed that a well-prepared brief assists an expert in understanding the scope of engagement and what further documents might be helpful.

Drawing on her experience, Ms Koo opined that instructing lawyers should be tactical in selecting the documents to provide an expert in the first instance. She explained that a balance needs to be struck between providing the expert with enough information to progress the engagement, without overwhelming the expert with unnecessary documents that achieve little other than forcing the client to incur further costs in having the expert review such documents.

On the same topic, Professor Brown noted that while there could be some frustration from repeatedly requesting more documents by an expert from instructing lawyers, it would be preferable to start the briefing with a smaller universe of key documents and responding to requests for further documents as the engagement progresses. Professor Brown also cautioned against the practice of putting detailed questions to an expert in writing too early, as that carries the risk of opposing counsel questioning the reason for the changed instructions or questions over time.

 

Dealing with draft reports

The panel turned next to the issue of draft reports and, specifically, the different approaches to the level of review or input counsel should have on draft reports, and the potential discoverability of draft expert reports.

Ms Koo considered it good practice to assume that all drafts are discoverable. Based on that assumption, Ms Koo expressed a preference for experts only providing a near-final draft to avoid any wholesale changes by counsel. Such a draft should also include appropriate disclaimers as to the finalisation of calculations and quality assurance checks.

Although it is not improper for experts and counsel to discuss the content of a draft report, Ms Koo and Mr Ash considered it important for the expert to maintain their independence and to look upon any comments from counsel as suggestions only, rather than directions to make changes.

From a legal perspective, Professor Brown recognised that the possibility of drafts being disclosed was a serious issue. Professor Brown explained that privilege often attaches to draft expert reports since they are usually prepared for the dominant purpose of an ongoing proceeding. However, the applicability of privilege must be determined on a case-by-case basis. For example, a draft prepared for the expert’s own purposes (akin to a working paper) may not necessarily be privileged, even if it is communicated to the instructing lawyer.

 

Joint expert conferences and joint expert reports

The panel observed the recent trend in both arbitration and domestic litigation to require experts engaged by opposing parties to meet and produce a joint expert report identifying areas of agreement and disagreement.

Mr Temple-Cole and Mr Ash recounted some experiences of attending expert conclaves and agreed that a joint expert meeting could be productive, allowing the experts to narrow the matters in dispute, present to the tribunal/court in a neat and simple way the precise differences between experts, and put the experts on notice of potential areas for cross-examination.

Mr Temple-Cole and Mr Ash suggested that a successful joint expert meeting relied upon: (a) experts not raising new topics or issues during the conclave; (b) clarifying the key elements of the case with counsel prior to the meeting; and (c) taking a proactive approach in preparing the first draft of the joint expert report.

 

Preparing for and being subject to cross-examination at a hearing

Finally, the panel discussed their experiences of being cross-examined, the styles of cross-examination they considered to be (in)effective and how to best prepare for oral examination.
Mr Ash reflected on his experiences as a testifying expert in construction disputes and explained that instructing counsel would be well-served by taking the time to explain the hearing process, dramatis personae, and hearing logistics with the expert to ensure their familiarity with the environment and settle any potential nervousness. Mr Ash explained that it can be dangerous for a lawyer to try and challenge an expert directly on their subject matter expertise, and so frequently the focus of cross-examination is trying to parse out potential inconsistencies in the expert report(s). Accordingly, it is critical that the testifying expert is intimately familiar with their report and is prepared to explain to the tribunal or court their opinion, and the reasons for the conclusions reached.

Mr Ash and Mr Temple-Cole warned testifying experts against arguing with opposing counsel, or volunteering answers to questions that were not asked. Experts ought to (as best as possible) be alive to counsel’s cross-examination tactics and should be prepared to ask counsel to repeat or clarify their questions, if necessary. Mr Temple-Cole explained that, to a certain degree, the only thing a testifying expert can do is to keep calm and carry on.

References[+]

References ↑1 For the avoidance of doubt, the dichotomy is not used to impugn the character or morality of an expert. The words “clean” and “dirty” simply distinguish the roles assumed by different experts. A “clean” expert is a testifying expert, whose role is independent to their instructing lawyers and the paramount duty is to the court or tribunal before whom they appear. By contrast, a “dirty expert” will not give evidence to a tribunal and play more of a consultancy role to the legal team, helping them understand the subject matter better. function footnote_expand_reference_container_42128_30() { jQuery('#footnote_references_container_42128_30').show(); jQuery('#footnote_reference_container_collapse_button_42128_30').text('−'); } function footnote_collapse_reference_container_42128_30() { jQuery('#footnote_references_container_42128_30').hide(); jQuery('#footnote_reference_container_collapse_button_42128_30').text('+'); } function footnote_expand_collapse_reference_container_42128_30() { if (jQuery('#footnote_references_container_42128_30').is(':hidden')) { footnote_expand_reference_container_42128_30(); } else { footnote_collapse_reference_container_42128_30(); } } function footnote_moveToReference_42128_30(p_str_TargetID) { footnote_expand_reference_container_42128_30(); 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_42128_30(p_str_TargetID) { footnote_expand_reference_container_42128_30(); 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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