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New York Arbitration Week 2022 Redux: Who’s in Charge? — 37th AAA-ICDR/ICC/ICSID Joint Colloquium on International Arbitration

Sat, 2022-12-03 00:43

The 2022 New York Arbitration Week opened on 14 November 2022 with the Joint Colloquium co-organized by AAA-ICDR, ICC, and ICSID.  The Colloquium tipped its hat to the Week’s overarching theme “who is in charge?”  That is, why and how the objectives and expectations of various parties involved in international arbitration — such as clients, arbitrators, counsel, arbitral institutions, third party funders, and expert witnesses — could, and often do, diverge.  The panelists also touched on how that impacts the legitimacy of international arbitration.  For instance, one panel explored the role of codes of conduct in addressing conflicts of interest and attendant disclosure expectations.  Another explored variance in approaches adopted by governmental and private clients, and potential differences within those two broad classifications of clients.  The theme was brought into sharp focus by the last panel discussing how theory and practice diverge amongst participants in the arbitration community, depending on whether one dons the hat of a counsel, arbitrator, or an arbitral institution.  This post presents a few highlights from the program.

 

Opening Remarks and Institutional Updates

The day’s proceedings launched with an opening address delivered by the AAA-ICDR’s Senior Vice President, General Counsel & Corporate Secretary Eric P. Tuchmann.  The first panel presented updates from each organizing arbitral institution, reporting on major developments over the last year.

Meg Kinnear (Secretary-General, ICSID) provided a brief overview of the 2022 revisions to the ICSID Rules and Regulations (“the Rules”), achieved after a 5-year long, comprehensive and transparent amendment process that involved publishing numerous working papers explaining the draft amendments and undergoing extensive consultations with Member States and other stakeholders.  The legitimacy of the process and of the end-product was evident from the smooth passage of the Rules, which were adopted on 21 March 2022, with 85% of the Member States supporting the revisions and no delegation voting against them.

Building on the theme of legitimacy, the next speaker, Claudia Salomon (President, ICC International Court of Arbitration) drew inspiration from the genius American photographer and conservationist, Ansel Adams, who developed the idea of “making” photography (versus merely taking them, denoting a more intentional, effortful process) as part of his advocacy to recognize photography as a legitimate art form.  In turn, Ms. Salomon advocated for turning to one’s unique experience and perspective when leading authentically.  In particular, Ms. Salomon spoke of bringing to the table her “client mindset,” thus enabling her to serve the interests of a key demographic for the ICC Court, i.e. the disputing parties.  To better serve them, one must identify opportunities that deepen the involvement of in-house counsel and devise methods to assist resolving parties’ disputes beyond employing (standard) pre-arbitral procedures.  (For instance, it would be useful to keep open avenues to negotiate and mediate disputes even after arbitration proceedings commence.)

Mr. Tuchmann closed the panel with an overview of the AAA-ICDR’s activities over the past year, including amending the ICDR IA Rules, making brick-and-mortar investments in upgrading hearing facilities to better serve remote or hybrid hearings, further developing proprietary online platforms (AAAWebfile and Panelist e-Center), and deepening initiatives by the ICDR Foundation, which in 2022 provided USD 1.1 Million in scholarships and in support of various causes aimed at supporting D&I initiatives and reducing community conflicts.

 

Conflicts of Interest & Disclosures: Codes of Conduct

The second panel of the day was moderated by Julie Bédard (Skadden, Arps, Slate, Meagher & Flom, NY), who opened by querying the utility of soft law norms by way of, for instance, the draft Code of Conduct for Adjudicators in International Investment Disputes, especially given the widespread use of the 2014 IBA Guidelines on Conflicts of Interest in International Arbitration and the 2013 IBA Guidelines on Party Representation in International Arbitration.

Chiann Bao (Arbitration Chambers, Singapore) suggested that the draft Code, especially because it was a joint initiative of UNCITRAL and ICSID, would conceivably have implications outside of the main area of application, i.e. investor-state arbitration.  The draft Code brings the added utility of addressing issues that are unique to investor-state arbitration, which are not specifically addressed in the IBA Guidelines and need separate attention.  More generally, the framework provided in such soft law norms offers a starting point for dialogue and introduces the baseline expectation when discussing conflicts and disclosures.  Aisha Nadar (Advokatfirman Runeland AB, SE) added that the framework in the draft Code allows parties to take comfort in the integrity of the system as a whole by addressing all players, including counsel and experts, pointing out that the IBA Guidelines address a limited set of issues and that for other issues, such as expert disclosures, one needs to look elsewhere.  The systemic implications of double hatting was underscored by pointing out that in investor-state arbitration, if a party loses confidence in the independence and impartiality of an arbitration, then any resultant award is subject to annulment, which in turn chisels away at the foundation of the system as a whole, and not just the arbitral award alone.  Oliver Armas (Hogan Lovells, NY) admitted that while it is hard to argue against the basic premises that inform the draft Code, it runs the risk of over steering when setting out strictures that don’t comport with practical realities.  However, the exercise overall would be useful to prevent ceding valuable policy space to tribunals or annulment committees, which might otherwise be tempted to address larger policy questions going beyond the immediate dispute at hand.

 

The In-House and Government Counsel’s Roundtable – Discussion on their Approach to an International and Investment Arbitration

The third panel was steered by the inimitable John M. Townsend (Hughes Hubbard & Reed, Washington, D.C.), who peppered the panel with more than a dozen short, punchy questions to precipitate discussion.  The first issue explored how to manage a dispute with a counterpart where the disputing parties are engaged in a long-term relationship.

The first speaker, Effie D. Silva (Fresh Del Monte Produce, FL), noted it was better to engage in preventative dispute resolution by approaching the other side as if it were a long-term relationship and not a one-off incident, and that doing so was easier at the contract conclusion stage than later in the relationship.  The second panelist, Charles  N. Juliana (IPS-Integrated Project Services, PA) agreed that the longer a dispute festers, the more difficult it is to continue the relationship.  Introducing the idea of a “3-layered cake” approach, he discussed agreements that allowed for three levels of escalation.  The first layer requires working-level employees who are closest to the potential dispute to liaise with their counterparts without the involvement of counsel, a process that mostly leads to a full resolution.  The second layer envisages discussions that go from the relationship management team right up to the C-suite, which are more protected and involve counsel.  It is only after those two processes fail that arbitration. the third layer, is considered.  Under this approach, projects are typically monitored throughout their lifecycle based on key performance indicators that identify potential issues early.  The third panelist, Shane Spelliscy (Trade  Law  Bureau, Government of Canada) echoed the sentiment that clients do not want to find themselves in a dispute and observed that this preference is even stronger with governments.  Because of peculiarities of litigating with a government, there is limited time to settle in the beginning of the dispute before it catches momentum.  Governments tend to be slower to react, especially when the dispute implicates larger policy issues, and so there is limited scope to reach settlement once the arbitration is underway.  Governments often look to forms of ADR other than arbitration — increasingly, mediation — to preserve both the relationship and the investment.

Other issues explored included: (i) how to deal with time-sensitive disputes, (ii) how arbitrator nominations are decided and whether those factors differ when selecting mediators, (iii) what issues the panelists wish were addressed in the arbitration agreement (unanimously, limiting discovery), and (iv) what the panelists most appreciate when interacting with outside counsel (unanimously, counsel who do not shun from admitting a certain issue under consideration does not fall within their area of expertise and are reliably able to find and refer to a true expert on the subject).

 

What Would You Do?

Finally, the last panel of the day, enigmatically titled “What Would You Do?” was guided by Jose Astigarraga (Reed Smith, Miami), with three panelists propelling discussions: Mélida Hodgson (Arnold & Porter, NY), Abby Cohen Smutny (White & Case, Washington, D.C.) and John A. Terry (Torys, Toronto).  The underlying idea was to explore hard questions that yield no clear answers and where reasonable people can disagree on the preferred approach, based on whether one adopts the view of an arbitrator, counsel, or arbitral institution.  Navigating that remit, the panel placed before the audience for voting by a show of hands numerous hypotheticals, and subsequently addressed those hypotheticals in greater detail, providing their tentative view on the suggested outcomes.  While a full recap is outside the scope of this post, the questions included “what would you do” when faced with: (i) a co-arbitrator who evidently comes prepared to a hearing and indeed proceeds to pose many, often lengthy questions aimed solely for witnesses of the party that did not appoint them; (ii) the aged, male, white president of a tribunal demonstrates impatience with a young, female counsel of color and is much more polite when interacting on the same issue with the older, white male counsel leading the case; (iii) a dispute where you are the sole arbitrator and the dispute cries out for settlement, the inquiry being the outer bounds of how far one could go in suggesting the parties settle; (iv) an arbitration agreement that allocates costs for the prevailing party and to what extent policing costs would be justifiable in that context; and (v) an impecunious party from a developing country that suffers serious problems with internet connectivity, where that party can’t afford costs of an in-person hearing and the opposing party insists on in-person hearings.

 

Conclusion

Given the sheer practical expanse and academic rigor of the Colloquium — boasting a high pedigree and now in its 37th iteration — this post necessarily aims at the modest goal of covering a high-level summary of panel discussions alone, with the usual caveats that any omission or mistake should be solely attributed to my individual (and this format’s) limitations.  Undoubtedly deserving a separate mention, but unfortunately not much more due to space constraints, the stirring luncheon address by the President of the American Bar Association, Deborah Enix-Ross (Debevoise & Plimpton, NY), on “International Arbitration as a Cornerstone for Democracy and the Rule of Law,” was received with much admiration and thunderous applause.  The Colloquium provided a start to both New York Arbitration Week, and the conversation surrounding the question of “who is in charge.” By way of an epilogue, I would note that the Week’s central theme of “who is in charge?” is a topic that would benefit from greater participation from other key stakeholders beyond the Colloquium.  Think national courts, third party funders, academia, civil society (especially on issues of legitimacy in investor-state arbitration), and perhaps more voices from the international arbitration bar.

 

Kluwer Arbitration Blog’s full coverage of New York Arbitration Week is available here

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Ukrainian Supreme Court Corrects Deficiencies in the Enforcement of ICSID Awards

Fri, 2022-12-02 00:37

Despite the ongoing Russian full-scale invasion of Ukraine and constant terror, Ukrainian courts continue to function and deliver justice. Recently, the Supreme Court has adopted a landmark judgment regarding the enforcement of ICSID awards in Ukraine, which is set to change judicial practice going forward.

Our colleagues previously highlighted the deficiencies of the Ukrainian court practice on the enforcement of ICSID awards, namely, the erroneous application of the New York Convention. In this blog post we examine the legal framework and previous judicial practice relevant to the enforcement of ICSID awards in Ukraine and examine the consequences of the Supreme Court’s most recent judgment on ICSID award enforcement.

 

Previous Contradictory Framework for the Enforcement of ICSID Awards in Ukraine

The primary acts in Ukraine regulating the enforcement of arbitral awards are the Civil Procedure Code of Ukraine (the “CPC of Ukraine”) and the Law of Ukraine “On International Commercial Arbitration” (the “ICA Law”). They provide for identical grounds for refusal of enforcement of arbitral awards to the ones set out in the New York Convention.

The ICSID Convention, however, establishes different mechanisms. Article 52(1) of the ICSID Convention states that “either party may request annulment of the award by an application in writing addressed to the Secretary-General”. Article 53(1) of the ICSID Convention further stipulates that “the award shall be binding on the parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention”. Finally, Article 54(1) of the ICSID Convention provides that “[e]ach Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce [it] as if it were a final judgment of a court in that State”.

The ICSID enforcement landscape is quite distinct to the one under the New York Convention. The ICSID Convention prescribes that annulment requests shall be directed to the Secretary-General and does not allow for any other recourse other than that provided in the ICSID Convention. According to the ICSID Convention, ICSID awards shall be treated as final judgments of a court in a state of enforcement. Thus, the ICSID Convention does not establish any grounds for the local courts to refuse the enforcement of ICSID awards, unlike the New York Convention.

Ukrainian law does not reflect this difference and does not contain any specific procedural provisions dealing with the enforcement of ICSID awards.

This has previously led to the cases where Ukrainian courts (mistakenly) applied the New York Convention to the enforcement of ICSID awards. For instance, in the case No. 824/138/19 (the enforcement of the award in the City-State N.V. and others v Ukraine case) the Kyiv Court of Appeal referred to Article 53 of the ICSID Convention and concluded that “the arbitral award is final and binding for all the parties”. At the same time, the court mostly relied on the provisions of the New York Convention, which, luckily, has not influenced the result and the award has been duly recognised and enforced in Ukraine.

This erroneous practice is set to change following the Supreme Court’s judgment dated 2 September 2022 in case No. 824/182/21 related to the award in Eugene Kazmin v. Republic of Latvia, ICSID Case No. ARB/17/5.

 

The Supreme Court Corrects the Approach to Enforcement of ICSID Awards in Ukraine

Latvia applied to Ukrainian courts for recognition and enforcement of the ICSID Case No. ARB/17/5 award dated 17 March 2021 against Eugene Kazmin (a Ukrainian citizen).

The Kyiv Court of Appeal, which was a court of first instance hearing the application, duly granted enforcement on 18 October 2021 and observed that the terms of the ICSID Convention prevail over the terms of the New York Convention. However, the Kyiv Court of Appeal still applied Ukrainian law, namely the CPC of Ukraine and the ICA Law, to assess whether there were any grounds for refusal to recognise the ICSID award.

Appealing the ruling of the Kyiv Court of Appeal, Mr Kazmin claimed that the costs award should be refused recognition and enforcement based on Article V(1)(d) and Article V(2)(b) of the New York Convention. In response to the reliance of Mr Kazmin on the terms of the New York Convention, the Supreme Court reached the following conclusions:

  1. The Supreme Court referred to Article VII(1) of the New York Convention, namely that “[t]he provisions of the present Convention shall not affect the validity of multilateral or bilateral agreements concerning the recognition and enforcement of arbitral awards entered into by the Contracting States”. Considering this provision and the fact that Latvia did not rely on the New York Convention in its application but instead relied on the ICSID Convention, the Supreme Court decided that the New York Convention does not apply and that recognition and enforcement of the ICSID award should be governed by the ICSID Convention.
  2. The Supreme Court further analysed the applicability of the provisions of Ukrainian law, namely of the CPC of Ukraine and the ICA Law, which establish the grounds to refuse the recognition and enforcement of an award. The Supreme Court highlighted that, within the hierarchy of legal acts in Ukraine, international agreements are placed above domestic laws and below the Constitution of Ukraine. Thus, in respect of the grounds to refuse the recognition and enforcement of an award, the ICSID Convention should apply, but to the extent it is in line with the Constitution of Ukraine.
  3. The Supreme Court highlighted that Ukrainian domestic law, including the provisions of the CPC of Ukraine and the ICA Law, apply to regulate the procedural issues connected to the hearing of a party’s application. In turn, these acts are not applicable to establish the grounds to refuse the recognition and enforcement of an ICSID award.

 

The Supreme Court: ICSID Enforcement Can Still be Refused on Grounds of Public Policy

Given that the Constitution of Ukraine takes precedence over the ICSID Convention, the Supreme Court considered that Ukrainian courts could refuse the recognition and enforcement of ICSID awards if such awards are contrary to the Constitution of Ukraine. By virtue of this reasoning, the Supreme Court reserved a right of Ukrainian courts to review whether an ICSID award contradicts Ukrainian public policy, even though the ICSID Convention does not prescribe such possibility.

The Supreme Court also elaborated on the essence of public policy. It stated that “public policy means the legal order of the state, defined principles and grounds that form the basis of the existing order (related to its independence, integrity, autonomy and inviolability and basic constitutional rights, freedoms, guarantees, etc.)”. The Supreme Court further declared that “[t]he category of public order is used not only to protect the state from such international arbitration awards that violate the fundamental principles of fairness and justice in the country of recognition and enforcement of such awards. An obviously incorrect application by the arbitral tribunal of the fundamental rules of national substantive law or a gross violation of the rules of procedural law can also lead to a violation of the public order of Ukraine and is subject to assessment by the national court”.

Hence, the concept of public policy is likely to remain an important issue for Ukrainian courts in cases regarding recognition and enforcement of ICSID awards. At the same time, over the years Ukrainian courts have developed a rather strict interpretation of public policy. The above cited definition by the Supreme Court is an example of such approach. It is therefore unlikely that many ICSID awards might be refused recognition and enforcement on public policy grounds in the future.

 

Positive Future Impact of the Supreme Court’s Judgment

Ukrainian law does not reflect the peculiarities of the status of ICSID awards established in the ICSID Convention. This has led to situations where Ukrainian courts have reviewed such awards through the lens of Article V of the New York Convention and equivalent provisions of domestic Ukrainian law to decide whether to grant or refuse the recognition and enforcement of ICSID awards.

The Supreme Court’s judgment should put an end to such practice. The Supreme Court has clearly established that neither the provisions of the New York Convention, nor equivalent provisions of domestic Ukrainian law are applicable to establish grounds for refusal of recognition and enforcement of ICSID award. Still, given that the Constitution of Ukraine has the highest legal force in Ukraine, the Supreme Court allowed the courts to review ICSID awards for conformity with the public policy of Ukraine.

Although the legal position of the Supreme Court is not binding for Ukrainian courts in other cases, they usually tend to follow the reasoning of the Supreme Court in similar cases. Thus, it is quite likely that Ukrainian courts will not rely on Article V of the New York Convention (or equivalent provisions of Ukrainian domestic law) in future cases of the recognition and enforcement of ICSID awards.

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The Mutually Reinforcing Relationship between the VCLT & ISDS: A Roundtable hosted by the Permanent Court of Arbitration

Fri, 2022-12-02 00:01

In the last two decades, the Permanent Court of Arbitration’s (PCA) overall docket has seen a rapid growth in mixed arbitrations between States and private parties. Today, over 180 arbitrations are currently pending before PCA tribunals, of which more than 100 are investor-State disputes brought under bilateral and multilateral investment treaties and national investment laws.

In just a short time working at the PCA, one grows accustomed to the great significance that the Vienna Convention on the Law of the Treaties (VCLT) has on the work of PCA-supported arbitral tribunals. It seemed fitting, therefore, that the PCA hosted a launch of the recently-published book, edited by Esmé Shirlow and Kiran Nasir Gore, titled The Vienna Convention on the Law of Treaties in Investor-State Disputes: History, Evolution and Future, through a day-long series of roundtable discussions led by the Book’s contributing authors and attended by individuals at the PCA’s headquarters in The Hague and online. The event was opened through an address by PCA Secretary-General Marcin Czepelak and bookended by introductory and concluding remarks by the Book’s editors, Esmé Shirlow and Kiran Nasir Gore. This post provides an overview of several of the key themes examined during the day’s discussions.

 

The VCLT & ISDS – A Reinforcing Relationship

The day’s first session focussed on the existence of a “reinforcing relationship” between the VCLT and investor-State dispute settlement (ISDS), examining on the role of the VCLT in investor-State disputes and the ways in which invocation of the VCLT’s rules by arbitral tribunals contributes to the strength and development of ISDS and international investment law.

To begin, Anna Crevon-Tarassova and Barton Legum presented their research in the Book on VCLT Article 33, which governs the interpretation of treaties authenticated in two or more languages. Crevon-Tarassova first described the curious work of three separate arbitral tribunals constituted under the Turkey-Turkmenistan bilateral investment treaty (‘BIT’). Each of the three tribunals was tasked with untangling an ambiguity between the English and Russian versions of the same BIT provision. However, despite all employing the VCLT Article 33, the three tribunals reached quite different conclusions. As was pointed out in the ensuing discussions, this contradiction in the three decisions suggests that treaty interpretation undertaken by independent arbitral tribunals may not produce harmonious results when cases, albeit brought pursuant to the same treaties, involve differing factual circumstances.

Next, Legum led a fascinating discussion of the policy considerations underpinning VCLT Article 33. The Mexico-Slovak Republic BIT, Legum explained, is authenticated in Slovak and Spanish. However, no member of either State’s delegation spoke the other’s respective language during their negotiations, which were instead conducted solely in English. Legum noted that the VCLT appropriately gives weight to authenticated texts that are produced, presumably by translators, from negotiation discussions taking place in a different language. In the example given, Article 33 places weight on the Slovak and Spanish versions of the BIT. For Legum, these are the versions which, one must assume, best embody the treaty provisions that the Mexican and Slovak governments understood and sought to ratify.

Malgosia Fitzmaurice and Agnes Rydberg next introduced some of the analysis in their chapter, which covers among other things VCLT Article 28’s rule against retroactivity in the application of treaties. They explained that arbitral tribunals have been presented with a range of unique problems relating to the scope of VCLT Article 28. Ordinarily, Article 28 states that parties are not bound by acts and facts that predate a treaty’s entry into force, but complexity arises when what were originally pre-treaty disputes continue indefinitely (or, indeed, at least past the treaty’s entry into force). Specifically, the case of Berkowitz v. Costa Rica was raised, wherein the tribunal determined that pre-treaty facts may be treated as circumstantial evidence to bolster claims based on post-treaty events. This sort of arbitral finding serves to strengthen established international law rules, such as the ILC’s Articles on State Responsibility, and other international jurisprudence, such as the Liechenstein v. Germany case.

For the final segment of the first session, Michael Waibel spoke to his and Esmé Shirlow’s research on the role of past decisions under a “sliding scale approach” to interpretation pursuant to VCLT Article 32 (indeed, elements of this research have been published on the Kluwer Arbitration Blog previously, as part of the VCLT Golden Jubilee series which inspired the Book). Waibel noted that, whilst prior arbitral decisions are sometimes thought to hold little precedential weight, investor-State tribunals frequently make reference to prior decisions. Waibel connected this practice to the VCLT’s interpretive rules, in the sense that prior arbitral awards might be relied on by a tribunal as a source of interpretive guidance when undertaking a VCLT Article 32 analysis. As Waibel pointed out, this may have the effect of reifying the VCLT’s rules, by promoting consistent decision-making and/or uniformity in treaty interpretation across BITs.

 

The VCLT & ISDS – A Restraining Relationship

The next session focused on the ways in which the VCLT’s rules restrain or regulate the approaches of investor-State tribunals and/or treaty parties in protecting foreign investment.

Judge Charles N. Brower and Devin Bray introduced their chapter in the Book, which focuses on competing theories of treaty interpretation and the application of Articles 31 and 32 of the VCLT by investor-State tribunals. Bray explained that the approach of investor-State tribunals to treaty interpretation could be classified into two principal styles. The first was termed the “hierarchical approach”, whereby a tribunal would first apply VCLT Article 31, and only resort to VCLT Article 32 if the meaning of the provision under scrutiny remained unclear. The second, by contrast, was titled the “crucible approach” and envisaged dealing with both VCLT Articles 31 and 32 together. Bray added that the “hierarchical approach” may serve as the more predictable of the two, and lies the closest to the VCLT drafters’ intentions as expressed in Articles 31 and 32.

The discussion continued with Judge Brower’s insightful historical analysis of the VCLT. He explained that the division between Articles 31 and 32 was not necessarily a logical decision by the VCLT drafters since it was a result of a compromise between the advocates of the so-called ‘intentional school’ (personified by Sir Hersch Lauterpacht) and the advocates of ‘textualist’ school (represented by Sir Gerald Fitzmaurice). On the “crucible approach” of treaty interpretation, Judge Brower explained that this approach was a result of counsel in international arbitration cases incorporating every possible argument on treaty interpretation into their memorials, thus presenting Articles 31 and 32 holistically. He concluded by highlighting that the VCLT has not been a success in promoting a uniform approach to treaty interpretation.

Next, Aikaterini Florou addressed the possible evolution of the VCLT’s interpretive tools. Florou discussed how the VCLT’s tools could be deployed to secure interpretive consistency and enhanced multilateralism in investment law – key goals of current ISDS reform efforts. She also raised the Tokios Tokelés v. Ukraine award, wherein the tribunal looked into third-party international investment agreements (‘IIAs’) to interpret the scope of protected ‘investors’ under the disputed BIT. From this point, Florou hypothesised that ‘cross-treaty interpretation’ may help deepen multilateralization in international investment law, a regime that is frequently subject to allegations of fragmentation. Florou discussed at length the proposed Multilateral Investment Court (‘MIC’), and particularly the possibility that the MIC may be empowered to consult non-disputing parties on interpretative issues of systemic importance. Finally, Florou also proposed that a provision may be added to the MIC statute allowing the MIC’s consistent decisions to qualify as ‘subsequent practice’ under VCLT Article 31.

 

The VCLT & ISDS – A Relationship of Replacement?

The final session focused on how IIAs, and the approaches of investor-state tribunals, may be diverging from the approaches to treaty law established in the VCLT (for example through lex specialis) or from the approaches to treaty law adopted by other international courts and tribunals.

First, Ashwita Ambast discussed how States and tribunals utilize bespoke regimes and special rules such as interpretative maxims in the interpretation process under Articles 31 and 32 of the VCLT. Ambast highlighted four areas in which lex specialis may be said to exist in the realm of ISDS: (i) the territorial application of treaties; (ii) rules of priority between treaties in instances of conflict; (iii) the rules of interpretation in VCLT Articles 31-33; and (iv) the termination or amendment of treaties. Noting the all-important question mark in the session title “A Relationship of Replacement?”, Ms Ambast left the audience with the question of whether special rules in these four areas are indeed deviating from the VCLT framework, or whether this is more reflective on the VCLT’s in-built flexibility.

Next, Dirk Pulkowski explained that a number of rules in IIAs perceived to be ‘special’ in nature are best understood as the States’ attempts to ‘clarify’ the application of VCLT framework to IIAs. Pulkowski then described that the VCLT had exerted a unifying force for treaty practice in the IIAs despite the adoption of many ‘special rules’ that differ from the general VCLT framework. In support, he noted that the concept of ‘supplementary means of interpretation’ in Article 32 of the VCLT confirmed the VCLT’s unifying force. He concluded by providing the round table participants food for thought that the international law could be used as the grammar to unify different legal regimes.

The last speaker of the round table, Dimitrios Papageorgiou, offered insights from his chapter – co-authored with Wesley Pydiamah, Julien Fouret and Athina Fouchard – into the application of Article 29 of the VCLT by investor-state tribunals. He began by briefly exploring the treaty practice on territorial application by illustrating the United Kingdom’s treaty practice. He pointed out that many UK BITs allowed the protection under the BIT to be extended to the UK overseas territories (e.g., the British Virgin Islands and the Cayman Islands) and the crown dependencies (e.g., Isle of Man) through diplomatic exchanges of notes. Lastly, Papageorgiou discussed the cases of Sanum v. Laos and Menzies v. Senegal to underscore the interpretative complexities that the arbitral tribunals may face while determining an IIA’s territorial application.

 

Conclusion

The VCLT is one of the most important treaties in international law. As ISDS has developed into one of the busiest sites of international litigation, it is perhaps no surprise that significant emphasis has been placed on the VCLT to assist with the interpretative issues arising in such cases (over 350 investor-State decisions of various forms containing references to the VCLT are included in an appendix to the Book). What is a continual surprise, however, is the complexity of the legal and policy debates that spring from the issue of treaty interpretation. This blog post has covered a number of such debates that took place during the PCA-hosted roundtable, but the Book’s chapters contain many other important ideas which will no doubt continue to shape our understanding of the law of treaties in the ISDS field.

 

The promo code 20VCLT22 offers a 20% discount on the retail price of The Vienna Convention on the Law of Treaties in Investor-State Disputes: History, Evolution and Future in the Wolters Kluwer eStore. The code is valid through to 28 February 2023. 

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2022 Taipei International Conference: Past, Present and Future of International Dispute Resolution – Part 1

Thu, 2022-12-01 00:38

The Chinese Arbitration Association, Taipei and Asian Center for WTO & International Health Law and Policy co-hosted the annual Taipei International Conference on Arbitration and Mediation during the Taiwan Arbitration Week on 5 October 2022. With onsite and online moderators and speakers, three sessions of the Conference explored how the pandemic, digital economy and ESG (environment, society and governance) affect the evolution and adaptation of international dispute resolution in the past, present and future. This Part reports on Sessions I and III, while Part 2 pertains to Session II.

 

Session I: Pandemic

Moderators: Pijan Wu (LCS & Partners) and Dr. Yueh-Ping (Alex) Yang (National Taiwan University College of Law)

Zachary Sharpe (Jones Day) focused on two questions in his presentation entitled “Dispute Resolution and Due Process Amidst Global Pandemics”. The first was whether the right to be heard entails the right to a physical hearing in arbitration. According to the ICCA Project, none of the surveyed national laws expressly provides for the right to a physical hearing, although such a right may be inferred from the law of the seat in a handful of jurisdictions. This led to the second and more difficult question of whether, absent the right to a physical hearing, due process nevertheless requires a physical hearing. Due process requires the arbitral tribunal to balance competing interests, including equality between parties, expediency, efficacy, enforceability and procedural flexibility. This balancing act is both fact-intensive and normative (i.e., rooted in domestic legal traditions that may not transcend borders). However, the ICCA Project did not find any reported cases in which the denial of a physical hearing was a ground for annulling an award or disqualifying an arbitrator.

The presentation of Leng Sun Chan (Duxton Hill Chambers) entitled “Will Virtual Hearings Remain After the Pandemic?” confirmed that the arbitral tribunal’s main concerns remain compliance with the applicable arbitration rules and laws together with due process. Responses to the challenges for virtual hearings during and after the pandemic include: access to technology, connectivity and facilities for equal opportunity to participate; tighter time management to accommodate time zones and screen fatigue; professional platforms for hearings and document management to alleviate security concerns; pre-hearing conferences and virtual breakout rooms for integrity of witness testimony; procedural orders and virtual hearing protocols after consultation with all stakeholders. In Singapore, a hybrid of virtual and in-person court hearings has continued because of perceived convenience and cost-time efficiency.

Prof. Janet Walker, CM (Osgoode Hall Law School York University) advocated in her presentation entitled “The Future of Arbitration is Hybrid” that, in the coming years, in-person arbitrations will regularly include remote participants. This will considerably benefit party representatives who wish to observe the proceedings remotely with minimal disruption to their business and provide them with ready access to real-time explanation of the proceedings by counsel who are also offsite; it will facilitate the presentation of evidence by witnesses for whom the forensic benefit of in-person attendance does not justify the expense; and it will increase the capacity of counsel to collaborate during the hearing with team members offsite. Hybrid hearings will, however, create new criteria for counsel in weighing and adjusting the composition of their case presentations in terms of impact, e.g., which witnesses do we wish to cross-examine – and which of them do we wish to have there in-person? And, with the bewildering array of screens and other forms of media in the hearing room, hybrid hearings will challenge our traditional understanding of the oral hearing as an occasion in which all those present share the same observations and perceptions at the same time. Thus, despite the return to the rich immersive experience of hybrid hearings, the next new normal will present fresh challenges for us to the taking of evidence in the arbitral process.

As a bridge between Sessions I and III, the presentation of Dr. Helena Chen (Chen & Chang) entitled “The Pandemic as a Push Toward Greener Arbitration” reminded us that virtual hearings can and should become part of our pursuit of ‘net zero arbitration’, along with other institutional endeavours, including electronic submissions and electronically stored information.

Presenting on “The Covid Pandemic’s Lasting Impact on Arbitral Authority”, Dr. Joshua Karton (Queen’s University Faculty of Law and National Taiwan University) explained his sociolegal perspective on arbitral authority: that arbitration is recognised and accepted by parties and states not because of any inherent legality, but because of its practicality and utility, just like money. Nothing actually empowers arbitrators beyond the broad social acceptance of their authority to bind the parties. Exploring the impact of the pandemic beyond the hearing room, he noted the shift from a Western conception of due process towards a true blending of processes and perspectives, traditions and techniques. International arbitration’s centre of gravity is also shifting from the West towards the East, with less need for physical access and evolution away from any one geographical centre of gravity. The social model of arbitral authority suggests that the pandemic will make arbitration ‘more international but less global’, as globalisation will no longer be equated with harmonisation or unification, while localisation and regionalisation will no longer be equated with old-fashioned or dogmatic practices. Instead, localisation and globalisation can coexist, with increasing diversity of procedures, arbitrators and linguistics.

 

Session III: Environment, Society and Governance

Moderators: Dr. Tsai-fang Chen (National Yang Ming Chiao Tung University (NYCU) School of Law) and Dr. Ana María Daza Vargas (Edinburgh Law School)

In her presentation entitled “Investment Arbitration and Human Rights: Workable Arrangement”, Dr. Crina Baltag (Stockholm University Department of Law) focused on the intersection between investment law, investor-State dispute settlement (ISDS) and environmental protection and, relatedly, the right to a clean, healthy and sustainable environment as a human right. Drawing on the United Nations General Assembly Resolution of 28 July 2022 on this subject, she argued that there is a solid basis for a workable agreement between investment law and dispute settlement on the one hand, and human rights law, including environmental law, on the other. This means having adequate, detailed treaty provisions in place that allow arbitral tribunals to give due consideration to environmental concerns raised in arbitration proceedings. In this respect, it makes a difference for interpretation purposes whether such provisions are part of the preamble or mentioned explicitly in relation to the right to regulate. While arbitral tribunals have tools available in the form of treaty provisions and interpretation, there is still work to be done to solidify a framework in which human rights and environmental issues may be addressed in ISDS proceedings.

Dr. Stephan Wilske (Gleiss Lutz) and Annemie Heubach (IE University and the University of Law) jointly delivered a presentation on “The Global Goals of ESG (Environmental, Social and Governance) – Are Arbitral Institutions Doing their Part?” Zooming in on the environmental pillar of ESG, they considered the increasing importance of climate change and the need to limit adverse impacts on the environment. With this in mind, they asked why should ESG goals not apply to arbitral institutions? Dr. Wilske and Ms. Heubach surveyed current measures taken by arbitral institutions in pursuit of ESG goals and identified additional measures that can be adopted to limit adverse environmental impacts. These include: (i) amending their rules to make electronic filing the default rule, to limit document production, and to provide cost consequences for environmentally relevant behaviour; (ii) providing encouragement such as guidelines for arbitral tribunals to reduce superfluous long-haul flights, and cost incentives for conducting arbitration in a more environmentally friendly manner; and (iii) creating a ‘green ambassador’ for arbitral institutions to implement small day-to-day changes.

Emily Hay (Hanotiau & van den Berg) presented a paper entitled “Under my Umbrella: Seeking Shelter under an ESG Clause”. Looking at increasing regulation in the ESG space beyond corporate disclosures and reporting requirements, she highlighted the EU’s Proposal for a Directive on Corporate Sustainability Due Diligence which may soon impose concrete ESG due diligence obligations on companies for environmental and social matters. These and other ESG regulations increasingly influence or require companies to put in place ESG clauses with their contractual partners which contain assurances or targets on ESG issues. The relative novelty of ESG clauses and challenges associated with their drafting are likely to lead to future disputes over issues such as interpretation of broad and imprecise language, determination of applicable laws, the measurability of ESG metrics, challenges associated with responsibility over supply chains and value chains, and new impacts upon contractual remedies.

Yun-Ru Leu (National Taiwan University College of Law) spoke on “Exploring the Possible Role of Investor-State Arbitration for Climate-related Disputes”. She explored the gap between expectation and reality in climate-related investment disputes. In this respect, climate change might be considered a ‘community interest’, and ISDS could evolve into a dispute settlement regime with a better capability to address community interests such as climate change. Specifically, she argued that to incorporate competing community interests in an investment treaty dispute, we can adopt new climate clauses or interpretative tools. In addition, procedural measures that may be of assistance include transparency, amicus curiae participation in the proceedings and recognising the use of counterclaims.

Prof. Chang-Fa Lo (Permanent Representative of Taiwan, World Trade Organization) presented on “War-Related International Commercial Disputes and Arbitration’s Peace Facilitating Role”. He emphasised that human life and health should be considered as the human values of the highest degree in all legal contexts, including in the management of international arbitration cases by institutions and tribunals. The aggressive military action by Russia against Ukraine was raised as a concrete example of a war without moral justification. In this context, giving priority to the value of human life and health in arbitral proceedings may have implications for the selection of arbitrators (e.g., to avoid a national of the invading country in certain circumstances), the selection of a legal seat (e.g., to avoid selecting the invading country), and the procedural rules (e.g., to be interpreted flexibly to accommodate needs related to a war). Support for human life and health is not inconsistent with independent and impartial decision-making, but it requires objective interpretations of concepts such as force majeure which incorporate these fundamental values.

 

Conclusion

The pandemic and ESG have challenged and enabled arbitration to be more diverse, efficient and environmentally friendly. Digital economy is another accelerator for evolution and innovation (see Part 2). Our past and present discussions continue to contribute to future development and improvement in international dispute resolution.1)The authors thank all speakers and assistants (Kevin Hou, Tsung-Lin (Joe) Tsai and Julian Hsiang Luo) for their contribution to this blog post. jQuery('#footnote_plugin_tooltip_43458_12_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43458_12_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

References[+]

References ↑1 The authors thank all speakers and assistants (Kevin Hou, Tsung-Lin (Joe) Tsai and Julian Hsiang Luo) for their contribution to this blog post. function footnote_expand_reference_container_43458_12() { jQuery('#footnote_references_container_43458_12').show(); jQuery('#footnote_reference_container_collapse_button_43458_12').text('−'); } function footnote_collapse_reference_container_43458_12() { jQuery('#footnote_references_container_43458_12').hide(); jQuery('#footnote_reference_container_collapse_button_43458_12').text('+'); } function footnote_expand_collapse_reference_container_43458_12() { if (jQuery('#footnote_references_container_43458_12').is(':hidden')) { footnote_expand_reference_container_43458_12(); } else { footnote_collapse_reference_container_43458_12(); } } function footnote_moveToReference_43458_12(p_str_TargetID) { footnote_expand_reference_container_43458_12(); 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_43458_12(p_str_TargetID) { footnote_expand_reference_container_43458_12(); 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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2022 Taipei International Conference: Past, Present and Future of International Dispute Resolution – Part 2

Thu, 2022-12-01 00:05

The Chinese Arbitration Association, Taipei and Asian Center for WTO & International Health Law and Policy co-hosted this year’s Taipei International Conference on Arbitration and Mediation during the Taiwan Arbitration Week on 5 October 2022. With onsite and online moderators and speakers, three sessions of the Conference explored how the pandemic, digital economy and ESG (environment, society and governance) affect the evolution and adaptation of international dispute resolution in the past, present and future. This Part focuses on Session II, while Part 1 reports on Sessions I and III.

 

Session II: Digital Economy

Moderators: Dr. Winnie Jo-Mei Ma (The Arbitration Chambers and Bond University) and Jeffrey Li (Lee & Li)

The speakers’ topics will be addressed thematically as follows: (1) issues relating to dispute resolution involving novel technologies; (2) tokenised funding; and (3) data protection.

Issues relating to dispute resolution involving novel technologies

(i) The types of disputes that may arise involving novel technologies

Joyce Chen (Lee & Li) in her presentation entitled “Dispute Resolution in the New Digital Era” noted the existence of high-profile disputes involving crypto assets, including the alleged theft of Jay Chou’s Bored Ape Yacht Club Non-Fungible Token (NFT), worth about 133 ETH / US$550,000. More broadly, she noted that disputes arising from crypto assets touched on issues including ownership, copyrights, trademarks, phishing scams, breach of contract, and data protection. These types of disputes will require resolution.

(ii) The different types of ADR methods suitable for resolving these disputes

As to the appropriate methods for resolving such disputes, Dr. Yueh-Ping (Alex) Yang (National Taiwan University College of Law) in his presentation entitled “The Crowd’s Wisdom in Smart Contract Dispute Resolution: Is Crowd-Sourced Smart Contract Dispute Resolution Arbitration?” addressed the use of crowd-sourced Smart Contract Dispute Resolution (SMDR). In sum, this form of dispute resolution generally involves parties staking tokens to initiate the dispute resolution and interested network users also staking tokens to be selected as voters. Voters vote on the proposed resolutions for the matter, and the majority opinion is the final resolution.

Dr. Yang raised the definitional question of whether this form of dispute resolution even constitutes arbitration at all. Even if it does, he raised some practical questions about SMDR, including the risk of parallel proceedings, res judicata issues, the enforceability of eventual “awards” and the (ir)revocability of such awards.

(iii) A focus in particular on blockchain arbitrations

Building on Dr. Yang’s research, Jun Hong Tan (Duxton Hill Chambers) in his presentation titled “Blockchain Arbitration for NFT-Related Disputes”1)The abstract on which this presentation was based was the runner-up of the 2022 Call for Conference Abstracts. jQuery('#footnote_plugin_tooltip_43605_15_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43605_15_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); took a deep dive into how Kleros, a decentralised dispute resolution process using blockchain technology and economically incentivised voting, works in practice:

  • After the Kleros jurors are “appointed” (which is based on whoever stakes the most tokens), the parties have the opportunity to submit evidence. Jurors are incentivised to vote in line with the majority as they will lose a percentage of their tokens if they do not.
  • Decisions often will contain limited reasoning, if any.
  • There is the opportunity for the dissatisfied party to appeal and have the dispute ruled on again. Each appeal will involve double the number of jurors in the previous round plus one and therefore each level of appeal will be more expensive than the last.

In his paper, Mr. Tan also discussed other decentralised justice platforms including Aragon and Jur.

(iv) Enforceability issues under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards

Elizabeth (Lizzie) Chan (Allen & Overy) in her presentation entitled “Something Borrowed, Something Blue: The Best of Both Worlds in Metaverse-Related Disputes”2)The abstract on which this presentation was based was co-authored with Emily Hay of Hanotiau & Van Den Berg and was the winner of the 2022 Call for Conference Abstracts. jQuery('#footnote_plugin_tooltip_43605_15_2').tooltip({ tip: '#footnote_plugin_tooltip_text_43605_15_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and Mr. Tan engaged in a discussion on the implications of enforcement under the New York Convention for awards rendered in accordance with a blockchain arbitration protocol. These implications included:

  • whether the New York Convention is necessary, where decisions are self-enforced or the decision-maker is empowered to directly implement its decision in a particular digital asset system;
  • whether there would be a valid arbitration agreement (especially where smart contracts are involved);
  • whether party anonymity would be tolerable under the New York Convention (as it would go to issues of formal and substantive consent, and many national enforcing courts would likely require disclosure of parties’ identities);
  • whether the absence of a legal seat might render an eventual award unenforceable under the New York Convention;
  • whether the features of blockchain arbitration / SMDR (e.g., juror anonymity, economic incentives for voting, and the lack of reasoning) would cross any due process bottom lines under the New York Convention; and
  • whether awards might not be recognised or enforced on due process grounds.

Many of the speakers also chimed in on whether the New York Convention even has a role in the enforcement of such awards. If it does, the speakers discussed whether the interpretation of existing concepts under the New York Convention should be adapted for dispute resolution using blockchain technologies. If it does not, the speakers also considered whether a separate enforcement regime would be useful in this context, to enable parties using blockchain arbitration to still enjoy the benefits of a global enforcement system.

Tokenised funding

Prof. Julien Chaisse (City University School of Law) in his presentation entitled “Tokenized Funding and Initial Litigation Offerings” predicted that blockchain technology would disrupt the monetisation of litigation claims through tokenisation. Tokenisation refers to the process by which physical assets are substituted for an equity- or profit-sharing token, by way of a smart contract.

Prof. Chaisse argued that tokenisation brings about several important advantages for third-party funding, including: lowering costs and reducing the need for intermediaries; offering greater liquidity and enlarged (global) access to investments; facilitating fractional ownership; enabling faster transactions; and offering “the advantage of tokenomics”. Additionally, security tokens can be embedded with voting rights, which allows active third-party funding pools to operate (more) efficiently.

Prof. Chaisse also warned of the legal and regulatory challenges of tokenised funding. For example, some jurisdictions including the US, the UK and Singapore are already regulating this area, so the use of tokens (by whatever name) for funding activities may constitute regulated activity involving securities. Many other jurisdictions, including Taiwan, Hong Kong and Switzerland, are also looking into regulating this area.

Data protection and ADR in cross-border data disputes

Dr. Tsai-fang Chen (National Yang Ming Chiao Tung University (NYCU) School of Law) in his presentation entitled “Adequate Level of Data Protection and ADR in Cross-border Data Disputes – International Trade Law Perspective” considered the legal challenges arising in the digital economy in a different context from the other speakers. He shared his research on data protection and ADR in cross-border data disputes from an international trade law perspective.

Dr. Chen explained that regulatory measures in cross-border data flows are necessary for the proper implementation of personal data protection laws, such as the General Data Protection Regulation (GDPR). He observed that under the GDPR, the European Commission may make a finding that a third country ensures an adequate level of personal data protection and therefore that the transfer of personal data to that country does not require specific authorisation (i.e., the Adequacy Approach). He explained that these adequacy decisions are critical for the operation of digital trade, given the costs and uncertainty associated with cross-border transfer of personal data.

Dr. Chen noted, however, that this Adequacy Approach may have negative implications for trade in the form of trade barriers and may raise issues of discrimination and necessity. To best protect a subject’s personal data, he argued that an effective ADR mechanism should be adopted to supplement the GDPR’s requirement of effective administrative and judicial redress for the data subjects. This would necessarily require that the Adequacy Approach be relaxed to reduce the relevant international trade issues.

 

Conclusion

This was a thought-provoking panel on the emerging subject matter of disputes resolved by arbitration coupled with novel technologies. Preparation and professionalism together with adaptability and collegiality made this session seamless, spontaneous, and exceptionally engaging. The pandemic and ESG (environment, society and governance) provide further challenges and opportunities for adaptation and innovation in international dispute resolution (see Part 1).3)The authors thank all speakers and assistants (Kevin Hou, Tsung-Lin (Joe) Tsai and Julian Hsiang Luo) for their contribution to this blog post. jQuery('#footnote_plugin_tooltip_43605_15_3').tooltip({ tip: '#footnote_plugin_tooltip_text_43605_15_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

References[+]

References ↑1 The abstract on which this presentation was based was the runner-up of the 2022 Call for Conference Abstracts. ↑2 The abstract on which this presentation was based was co-authored with Emily Hay of Hanotiau & Van Den Berg and was the winner of the 2022 Call for Conference Abstracts. ↑3 The authors thank all speakers and assistants (Kevin Hou, Tsung-Lin (Joe) Tsai and Julian Hsiang Luo) for their contribution to this blog post. function footnote_expand_reference_container_43605_15() { jQuery('#footnote_references_container_43605_15').show(); jQuery('#footnote_reference_container_collapse_button_43605_15').text('−'); } function footnote_collapse_reference_container_43605_15() { jQuery('#footnote_references_container_43605_15').hide(); jQuery('#footnote_reference_container_collapse_button_43605_15').text('+'); } function footnote_expand_collapse_reference_container_43605_15() { if (jQuery('#footnote_references_container_43605_15').is(':hidden')) { footnote_expand_reference_container_43605_15(); } else { footnote_collapse_reference_container_43605_15(); } } function footnote_moveToReference_43605_15(p_str_TargetID) { footnote_expand_reference_container_43605_15(); 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_43605_15(p_str_TargetID) { footnote_expand_reference_container_43605_15(); 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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Berlin Dispute Resolution Days 2022: Disputes in an Age of Uncertainty – Managing the Energy Transition

Wed, 2022-11-30 01:15

The DIS 2022 Autumn Conference took place on 15 September 2022, following the traditional Gala Dinner at the spectacular Palace Charlottenburg the evening before. The Autumn Conference is one of two of the DIS’ main annual conferences, traditionally held in English gathering arbitration practitioners from all over the world to exchange ideas and initiate thought-provoking discussions. The overarching theme of the Conference this year was “Disputes in an Age of Uncertainty – Managing the Energy Transition”, with attendees and panelists discussing the intersections of international arbitration, Environmental Social Governance (ESG) and the energy transition.

 

Keynote Speech: The Energy Transition – Operating in an Age of Uncertainty

The conference began with a keynote speech delivered by Mathias Wolkewitz (Wintershall Holding GmbH) from the perspective of a market participant, focusing on the challenges for energy companies operating in the challenging times of the transition. Mr. Wolkewitz enlightened the audience with regard to the combination of technical, regulatory, economic and commercial uncertainties associated with the energy transition. Further, Mr. Wolkewitz explained how market participants were having to adjust on the go to the effects of the war and the related sanctions, which have had a heavy impact on the energy sector.

The keynote speech set the stage for the discussion panels on: (1) covering for uncertainty through contractual best practices, (2) managing uncertainty through procedural best practices, (3) the pros and cons of discovery/document production, (4) assessing uncertainty in quantum calculations, and (5) resolving uncertainty through arbitration (or other means) in a way that accelerates the energy transition.

 

Covering for Uncertainty in Energy-related Transactions – Contractual Best Practices

The first panel was moderated by Florian Cahn (Framatome) and addressed uncertainty in energy-related transactions. The panelists were Elena Busson (BonelliErede), Nikolas Hübschen (RWE), Bregje Korthals Altes (Ysquare), and Sebastian Schneider (Hengeler Mueller).

The speakers agreed that, while the energy market had remained relatively unscathed during the COVID‑19 pandemic, the current energy situation is cause for concern and having an impact on the M&A and transactional market. Echoing the sentiment expressed during the keynote speech, the speakers agreed that there was great uncertainty regarding the regulation of the industry. It was further discussed how judicial precedent arising out of environmental litigation may make some jurisdictions more or less attractive for deals and structuring.

There was also an insightful discussion surrounding the drafting of agreements for the transaction, which perked the ears of the dispute practitioners in the room who might need to interpret these agreements ex post. The speakers discussed the concept of uncertainties when drafting agreements, such as what can and cannot be foreseen and the perceived success of force majeure clauses, as well as the appropriate use of risk-sharing language to avoid future disputes.

 

Managing Uncertainty – Procedural Best Practices

The second panel was moderated by Maxi Scherer (Wilmer Hale), with Antje Baumann (BAUMANN Resolving Disputes), Christian Borris (Borris Hennecke Kneisel), James Boykin (Hughes Hubbard & Reed) and Anja Ipp (Climate Change Counsel) speaking, primarily from the perspective of the arbitral tribunal, about the procedural challenges arising in energy-related arbitrations and whether any best practices existed in this regard.

Given the complex nature of energy-related disputes, it can be challenging for arbitral tribunals to maintain procedural efficiency in these arbitrations. The speakers agreed in this regard that case management conferences, as foreseen by Article 27 of DIS Rules of Arbitration, are an effective tool to safeguard the efficiency of the proceedings. In particular, it was discussed that it is often useful to hold several such conferences to deal with the different stages of the proceeding in a collaborative manner. This is consistent with one of the key selling points of arbitration as a forum for dispute resolution allowing a flexible process tailored by the parties.

The importance of procedural flexibility in arbitration was also highlighted in the panel’s discussion surrounding tribunal-appointed experts. The speakers agreed that expert testimony is often indispensable in energy-related disputes, and that there may be situations in which the appointment of a tribunal-appointed expert could be warranted. It was also recognized, however, that parties are often reluctant to refrain from obtaining a party-appointed expert and the parties’ extensive knowledge of the facts of the case allows party-appointed experts to work in great detail, which is of benefit to the tribunal. Thus, the panel concluded that a tribunal-appointed expert in lieu of, or in addition to, party-appointed experts may not always be of benefit to the conduct of proceedings and should be considered on a case-by-case basis.

 

Coffee House Debate: Discovering Certainty without Discovery? Did Discovery/Document Production ever Lead to the Truth?

The third panel was conducted in a coffee house debate format. Nils Schmidt-Ahrendts (Hanefeld) moderated a panel consisting of Courtney Lotfi (Jones Day), Mino Han (Peter & Kim), Johannes Koepp (Baker Botts) and Simon Manner (Manner Spangenberg).

For the sake of the debate, Ms. Lotfi and Mr. Manner advanced the proposition that there should be no automatic discovery and/or document production because of its many shortcomings, while Messrs. Koepp and Han argued that it is an important procedural tool that must remain intact.

For their proposition, Ms. Lotfi and Mr. Manner cited particularly the time and costs concerns, in addition to the risk that the entire exercise turns into a fishing expedition. In addition, it was questioned whether one can reasonably rely on the procedural integrity of the opposing party. In sum, in the speakers’ view, document production constitutes much ado for nothing, as in their experience no smoking gun is likely to be revealed in document production.

In contrast, Messrs. Koepp and Han argued that document production is an essential element of justice, enabling both parties to access the same case-relevant materials. Furthermore, both pre-arbitration and post-arbitration, parties are aware that documents may come to light which could possibly damage their case. Therefore, they went on, although document production is criticized at times, it is nonetheless regularly employed by arbitrators and counsel alike. This speaks volumes as to its desirability as a procedural tool.

Interestingly, the latter view was confirmed by a spontaneous survey of the audience, with significantly more attendees raising their hand in favor of maintaining document production.

 

Assessing and Valuing Uncertainty: Old School vs. Modern Approaches

The fourth panel looked into issues of quantum, and was moderated by Alexander Demuth (Alvarez & Marsal). The panelists included Johanna Reichenbach (Frontier Economics), Stuart Dekker (Secretariat Advisors), and Dan Harris (Brattle Group), investigating methods to assess and value the uncertainty inherent to long-term energy investments and contracts, and in this context comparing old-school approaches to more modern ones.

The panel noted the great difficulties inherent to predicting and assessing drastic policy shifts and the ensuing consequences. Traditional methods such as the Discounted Cash Flow Method (DCF) are calculated with the most likely point estimates as input, and then spell out the most likely expected value of a certain asset. However, this method does not fully take into account essential information relating to the risk and uncertainty borne by long-term energy investments. The panelists thus elaborated on the Monte Carlo simulation, which incorporates risks elements into the traditional DCF valuation. That way, the application of Monte Carlo can reveal critical information to the arbitrators about the value of an asset at a certain point in time.

 

Resolving Uncertainty: Arbitration to Accelerate the Energy Transition?

The fifth and final panel examined ways to resolve uncertainty, and whether arbitration can be a suitable tool to accelerate the energy transition. Markus Köhler (Oppenländer) moderated a panel of Manfred Dittmer (Parkwind), Carlo Ottaviano (TenneT) and Roya Sangi (Redeker Sellner Dahs).

The panel explained the multi-layered complexity, both technical and legal, of large offshore wind projects, which creates a large demand for tailored dispute resolution services. In other words, there is a need for disputes arising in this specific industry to be resolved expediently and by competent individuals with industry knowledge. The panel also spoke in detail about a new initiative by the organization World Forum Offshore Wind (WFO), establishing an Offshore Dispute Resolution Committee which aims to meet this demand for specialized dispute resolution services in the industry.

The final mark of the conference was fittingly provided by Ms. Sangi, who confirmed that – in the future – arbitration could be a viable option to resolve disputes concerning offshore grid connection costs (rather than default litigation). This would enable arbitration to cover yet another highly specialized and complex disputes sphere, and thereby contribute to accelerating the energy transition.

 

Conclusion

In sum, the DIS Autumn Conference showed that, in the energy sector, winter is coming. And this upcoming winter will be crucial in managing the energy transition as adequately as possible both from a procedural and substantive standpoint. The DIS Autumn Conference provided numerous useful ideas on how the law generally, and arbitration more specifically, can play their part to that end.

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Berlin Dispute Resolution Days 2022: ESG – Dawn of A New Era of Disputes in International Arbitration?

Wed, 2022-11-30 00:12

On 14 September 2022, the DIS40 Autumn Conference was held in Berlin, Germany, as part of the first edition of Berlin Dispute Resolution Days – a near week-long series of conferences and events focused on dispute resolution. It also coincided with the 20th anniversary of the DIS40, making it a rather special gathering for dispute resolution practitioners in Germany and abroad.

The theme of this year’s conference was captioned, “ESG – Dawn of A New Era of Disputes in International Arbitration?“. The panels included a discussion on each letter of E (environment), S (social) and G (governance) (collectively, “ESG”). The conference encouraged dialogue and a lively debate based on practical experiences and academic perspectives. As such, the thoughts represented by each panel did not necessarily reflect a panel or a speaker’s particular views towards a topic.

This post provides a brief recap and analysis of the relevant topics in discussion, concerning: the role of ESG principles in international arbitration, ESG as an often-discussed topic, arbitration and the environment, arbitration and business & human rights, and fraud and corruption in arbitration.

 

The Role of ESG Principles in International Arbitration

ESG aspects are now discussed as arguably significant drivers of corporate and investment activities globally. It is increasingly commonplace that investors (both individual and institutional) and corporations in general demand ethical business practices as part of their investment and business decisions. Global ESG assets have been cited to be on track to exceed $50 trillion by 2025, being over a third of the total $140.5 trillion in projected total global assets under management. The rise of ESG factors in investing can be described as a remarkable transition for corporate investors but should be approached with trepidation. The topic has its critics and has been described in the Economist as three letters that won’t save the planet. According to the Economist, ‘green-washing’ is a term that might shroud some ESG activities.

In the investment law context, increasingly, a shifting balance can be seen towards a host State’s right to regulate. Newer trends in treaty negotiation practices and modernisation efforts have focused on including standalone provisions in that regard or entire chapters in trade agreements on the environment. This possibly sees an increasing focus towards a host State’s sovereign powers to regulate in the public interest.

 

ESG – Three Letters and a Big Question Mark

In a conversation between Katrine R. Tvede (Ashurst) and Marc Jacob (DLA Piper), a critical view towards ESG was taken.

It is not clear yet whether ESG initiatives move business activities towards its stated purposes, or whether this goal is still utopic. Arbitrators are decision-makers, who resolve questions put to them by counsels. In this context, in an investment case encompassing ESG activities, the tribunal might be tasked with evaluating those activities. Outside of this scope, tribunals would be reluctant taking decisions concerning ESG if not explicitly asked to. In commercial arbitration, cases where ESG factors form a part of the contract may give tribunals more room for consideration.

The question whether companies were actually pursuing ESG targets remained open.

 

Arbitration and Environment

This topic was discussed by a panel consisting of Amanda Neil (HEAD), Viktoria Schneider (Noerr), Alicja Zielińska-Eisen (Humboldt University of Berlin and Queritius) and Jan Heiko Köhlbrandt (ADM) and moderated by Johanna Büstgens (Hanefeld).

Arbitral proceedings, investment treaties and arbitral decision-making have, to varying degrees, been influenced by environmental considerations. At a treaty-reform level, efforts to modernise the Energy Charter Treaty appear to facilitate sustainable investment in the energy sector. This would reflect clean energy transition goals and contribute to the objectives of the Paris Agreement.

From an in-house perspective, ensuring ESG compliance of suppliers is increasingly an area of focus. It affects business from suppliers on-boarding to auditing for compliance and monitoring of ESG amongst all suppliers. Further, ESG regulatory initiatives in the EU build pressure on businesses to carry out compliance checks.

In the context of international arbitration, introduction of ESG factors into arbitral procedure (e.g. an ESG-compliant arbitration) could present a novel approach to greener arbitrations. In a similar conclusion to the earlier discussion, arbitral tribunals will likely not deal directly with ESG issues, unless confronted with them. A suitable mechanism to incorporate ESG considerations into arbitral proceedings (e.g. amicus curiae briefs) is still missing. In an investment law context, newer model BITs and trade agreements are beginning to incorporate ESG considerations, or at least to rebalance in favour of a host States right to regulate.

 

Arbitration and Business & Human Rights

Emanuel Ghebregergis (Covington & Burlington), Laura Halonen (Wagner Arbitration), Simona Scipioni (Webuild), Jan Erik Spangenberg (Manner Spangenberg) discussed disputes involving business and human rights. This session was moderated by Alessandro Covi (Herbert Smith Freehills).

Although arbitration involving business and human rights issues might emerge, it could remain subject to its own limitations. In August 2017, a Working Group on International Arbitration of Business and Human Rights published a proposal suggesting arbitration being used as a mechanism for resolving disputes arising out of business-related human rights abuses, after identifying that there is a growing need to protect victims. This is an effective component of the United Nations Guiding Principles on Business and Human Rights (2011).

The Bangladesh Accord is another example of this need, being a legally binding agreement between brands and trade unions aiming a safer and healthier garment and textile industry in Bangladesh. International commercial arbitration, however, has been built primarily for commercial application. Commercial parties might also be seen as repeated users of arbitration, whereas victims might only be one-shot players in any such system. In general, human rights issues have formed parts of disputes in which tribunals have been called to consider them.

In this respect, supply chain due diligence only becomes more important for businesses. Globally, many jurisdictions have passed or are beginning to pass supply chain due diligence legislation, which provides a legal foundation for an obligation on companies to respect human rights in global supply chains.

From a counsel perspective, litigation and representing victims of corporate negligence is also a topic that connects to business and human rights issues. Such cases often involve greater personal connections with victims of disasters and their families.

 

Fraud and Corruption in Arbitration – A Debate

The final panel was a debate between Iuliana Iancu (Hanotiau & van den Berg) and Sebastian Wuschka (Luther), moderated by Adilbek Tussupov (Herbert Smith Freehills).

Fraud and corruption are emergent topics in international arbitration. In both contexts of commercial and investment arbitration, fraud and corruption allegations have the potential to affect the enforceability or the setting aside of an arbitral award on public policy grounds.

Tribunals are increasingly faced with allegations of investment illegality. In certain cases, it might be necessary to consider whether an investment was made “in accordance with the host state law“. (See Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford University Press, 3rd ed, 2022), p. 106 et seq.). This might form part of a jurisdictional objection, an issue on the merits or in relation to quantum. Further, illegality may occur during the concurrence of a proceeding, which could then affect the procedural conduct of the arbitration. This would influence the rendering of an arbitral award, in which issues of enforcement or setting aside ought to be considered. Finally, they also debated whether to shift the burden of proof to the investor, where a host State could present prima facie evidence of corruption. The burden of proof itself is founded in due process, which is a fundamental requirement of all arbitral proceedings. Fraud and corruption are increasingly topics being dealt with by tribunals and courts. It has the potential to affect the substantive and procedural components of an arbitral proceeding.

 

Conclusion

It is the dawn of a new era where ESG factors become a key consideration for businesses and States. This is unlikely to change in a future where such considerations play an increasing role in business decisions. International arbitration continues to demonstrate flexibility. Decision-makers on that front might be called upon to consider disputes containing an environmental or human rights element. It therefore remains important for practitioners and decision-makers alike to be informed of ESG factors as they evolve.

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Should I Arbitrate My Patent Dispute?

Tue, 2022-11-29 00:51

As noted in GAR’s Guide to IP Arbitration, “one of the noticeable trends in international arbitration in the past several years has been the growing use of arbitration to resolve IP-related disputes.”  The World Intellectual Property Organization (“WIPO”) Arbitration and Mediation Center reports that its filings (arbitration, mediation and expert determination) increased by over 15% from 2018 to 2019, held steady in 2020, and increased 44% from 2020 to 2021.

Despite the arbitration of patent disputes not being a new or novel concept, wide-spread use of arbitration for the resolution of patent disputes remains elusive. But why? In large part it appears that questions arise as to the arbitrability of patent disputes, the arbitral process, and the benefits available from selecting arbitration over litigation.

 

Are patent infringement and invalidity arbitrable?

The arbitrability of substantive patent disputes (i.e., disputes involving questions of patent validity and infringement as opposed to contractual questions involving, for example patent licensing) is increasingly recognized by national legislatures and courts.  Indeed, WIPO Arbitration and Mediation Center asserts that “it is now broadly accepted that disputes relating to IP rights are arbitrable.”

The United States has a relatively long track record with patent arbitration.  In 1982, Congress amended Title 35 of the United States Code (i.e., the U.S. patent statute) to include Section 294, which is directed to voluntary arbitration and provides a broad scope of arbitrability.

More recently, leading arbitration-friendly jurisdictions have amended their legislations to expressly provide for arbitration of substantive patent disputes. In 2017, Hong Kong amended its Arbitration Ordinance (Cap. 609; Part 11A) to, among other things, clarify that all disputes over intellectual property rights (“IPRs”) can be resolved by arbitration. In 2019, Singapore followed suit, amending its International Arbitration Act (Arts. 26B and 26G) to expressly provide for the arbitration of IP disputes including patent invalidity.1)See also, the website of the Intellectual Property Office of Singapore (“IPOS”) jQuery('#footnote_plugin_tooltip_43465_24_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43465_24_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); While Japan does not have a specific civil code provision concerning the arbitrability of patent disputes, the Japan Patent Office (“JPO”) has a portal to facilitate arbitration of substantive patent disputes.

On May 5, 2021, the District Court of Munich recognized the arbitrability of patent validity under both German and Swiss law. Relying on Section 1030 of the German Code of Civil Procedure, which provides that any pecuniary claim is arbitrable, the court found that German ordre public did not preclude the arbitrability of patent rights. Further, in analyzing Swiss law, the court found that Swiss public policy did not preclude the arbitrability of disputes relating to the rights of European patent application.

With increasing statutory and judicial acceptance of the arbitrability of patent rights/disputes and the express recognition that such disputes do not violate public policy, the concern that an award may be refused recognition under Articles V(2)(b) of the New York Convention is obviated in at least in those countries.  For example, in the United States, the Court of Appeals for the Federal Circuit has rejected arguments that an arbitral award addressing patent invalidity issues should be refused recognition under Article V(2)(b) of the New York Convention. In doing so, the Federal Circuit explained that US courts construe the public policy exception of the New York Convention narrowly, applying it “only where enforcement would violate the forum state’s most basic notions of morality and justice.” In fact, the Korean Supreme Court, has also rejected a party’s argument that the arbitral award addressing patent rights should be aside for violating public policy as defined in Art. V(2)(b) of the New York Convention. This despite that fact that the case involved the use of a patent right, which, under Korean law, could not be created by an agreement between private parties because such a patent right is created and recognized for public interest within the framework of patent law. The Korean Supreme Court, similarly explained the narrow application of this ground. That said, care should always be taken to consider in which countries enforcement is likely to ensure those countries recognize the arbitrability of the validity and infringement of patents rights.

 

Resolution of Multi-jurisdictional Patent Disputes in a Single Proceeding

While arbitrating patent disputes provides all the benefits of arbitration in general (e.g., ability to select a technically and legally qualified arbitrator, neutrality, confidentiality, efficiency, lower cost of arbitrating IP disputes), there is another  aspect of arbitration that makes it particularly attractive for patent disputes: the ability to resolve global disputes in a single proceeding.

Patent disputes frequently implicate patents in multiple jurisdictions, each of which requires litigation in the respective national courts.  Arbitration, in contrast, allows parties to resolve the full scope of their dispute in a single proceeding, with one set of attorneys, and under an agreed upon legal regimen, thereby reducing costs and the time to resolution, while eliminating the risk of conflicting decisions.

The UK Court of Appeal recently acknowledged this benefit of arbitrating transnational patent disputes in Nokia Technologies OY v Oneplus Technology (Shenzhen) Co Ltd, [2022] EWCA Civ 947 (11 July 2022).  This case involved a complex jurisdictional dispute over Nokia’s assertion of its Standard Essential Patents (SEPs).

Industry standards (e.g., USB, LTE, Wi-Fi) exist so that different manufacturers can produce compatible equipment. As the court explained, a patent is said to be “standard-essential” if implementation of the standard would necessarily involve infringement of the patent in the absence of a license.  Industry members that are involved in the establishment of the standard are required grant licenses of their SEPs on fair, reasonable and non-discriminatory (FRAND) terms. This ensures patentees are not disadvantaged by cooperating with the establishment of the standards – allowing patentees to be rewarded for their inventions – while guaranteeing access to those standard essential inventions at a fair rate.

As the UK Court of Appeal explained, when disputes arise as to SEPs and FRAND licenses, the parties typically turn to the national courts. However, because patents are territorially limited, a patentee must enforce its patent(s) in each jurisdiction where the accused infringer exploits the patented invention. Not only is this burdensome for the patentee, but it is incredibly inefficient and costly for both parties and creates the inherent risk of inconsistent decisions.

Arbitration provides a facile mechanism for global resolution of such disputes.  As Lord Justice Arnold aptly put it, “[t]he only sure way to avoid these problems is to use a supranational dispute resolution procedure, and the only supranational procedure currently available is arbitration.”

 

Arbitration Can Avoid Bifurcation of Infringement and Invalidity Determinations

Patent disputes can be further complicated when the dispute arises in a country (e.g., Japan, Germany, China, Korea) in which infringement is bifurcated from the invalidation proceedings.  In Japan, for example, infringement is resolved in national courts, whereas invalidity proceedings are conducted in the JPO.  In Germany, these issues are resolved in two separate courts.  Arbitration, however, allows parties to avoid the bifurcation dilemma, allowing for the resolution of all patent issues in a single proceeding.2)Patent invalidity is not arbitrable subject matter in Korea and China. jQuery('#footnote_plugin_tooltip_43465_24_2').tooltip({ tip: '#footnote_plugin_tooltip_text_43465_24_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Caution Against Patent/IP Carve-Outs in Arbitration Agreements

Even parties that choose arbitration as the dispute resolution mechanism for their contractual disputes, often choose to exclude patent and other IP disputes from the arbitration agreement (“carve-out”).  The Second Circuit’s recent decision in Lavvan, Inc., v. Amyris, Inc., No. 21-1819, 2022 WL 4241192 (2d Cir. Sep. 15, 2022) demonstrates the negative aspects of such carve-outs.

In Lavvan, the court of appeals reviewed the lower court’s denial of the defendant’s motion to compel arbitration.  The arbitration agreement in question provided for arbitration of “[a]ll disputes that cannot be resolved by the management of both Parties,” but contained a carve-out of all disputes arising “with respect to the scope, ownership, validity, enforceability, revocation or infringement of any Intellectual Property”. Thus, the plaintiff commenced ICC arbitration of its contractual claims and, simultaneously, pursued litigation of its trade secret misappropriation and patent infringement claims in federal court. In its motion to dismiss, the defendant argued that because all the claims arose from a common factual matrix, and it was at least ambiguous whether the claims fell within the carve-out, any ambiguity should be resolved in favor of arbitration.

The Second Circuit rejected the defendant’s argument, holding that the claims asserted in the complaint were “clearly disputes of the sort exempted from arbitration” and thus not arbitrable. Additionally, the court noted that “the fact that these intellectual property claims are intertwined with the contractual issues currently being arbitrated provides no basis on which to require claims exempted from arbitration to be subject to it.”

Thus, even where contractual and intellectual property claims are intertwined, they must be pursued in two separate and parallel proceedings when the parties include a carve-out regardless of the increased costs, decreased efficiencies and the inherent risk of inconsistent rulings.   Given the inherent benefits of arbitration (i.e., ability to select a technically and legally qualified arbitrators, neutrality, increased confidentiality, lower cost, etc.), parties should avoid such carve-outs unless strong overriding reasons exist.

Additionally, while some IP owners may be hesitant to arbitrate their IP disputes because of the lack of appellate review, such hesitancy should be tempered. For a patent owner, if an asserted patent is invalidated in a national court, the patent claims at issue are invalidated erga omnesi.e. towards everyone.  Hence, it cannot be asserted against any party.  However, because arbitral awards are binding only on the parties to the arbitration and can be subject to strict confidentiality, arbitral invalidation of the patent may not affect the enforceability of the patent against other possible infringers. Thus, agreeing to arbitrate such disputes can provide a lower risk avenue of enforcement than litigation.

 

Conclusion

It is broadly accepted that patent disputes are arbitrable. While litigation is often perceived as providing certain benefits in patent disputes (e.g., greater discovery, appellate review), any perceived benefits are offset by the substantial expense and inability to achieve a global resolution in a single proceeding.  By contrast, arbitration can accomplish the same goals, while providing the added benefits of global dispute resolution in a single neutral proceeding, by qualified arbitrators, at lower cost and with increased confidentiality. As more parties and counsel understand and appreciate the benefits of arbitrating patent disputes, it can be expected that patent arbitrations will not remain elusive for long.

References[+]

References ↑1 See also, the website of the Intellectual Property Office of Singapore (“IPOS”) ↑2 Patent invalidity is not arbitrable subject matter in Korea and China. function footnote_expand_reference_container_43465_24() { jQuery('#footnote_references_container_43465_24').show(); jQuery('#footnote_reference_container_collapse_button_43465_24').text('−'); } function footnote_collapse_reference_container_43465_24() { jQuery('#footnote_references_container_43465_24').hide(); jQuery('#footnote_reference_container_collapse_button_43465_24').text('+'); } function footnote_expand_collapse_reference_container_43465_24() { if (jQuery('#footnote_references_container_43465_24').is(':hidden')) { footnote_expand_reference_container_43465_24(); } else { footnote_collapse_reference_container_43465_24(); } } function footnote_moveToReference_43465_24(p_str_TargetID) { footnote_expand_reference_container_43465_24(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_43465_24(p_str_TargetID) { footnote_expand_reference_container_43465_24(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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The Art of Advocacy: Storytelling from Socrates’ Athens

Mon, 2022-11-28 00:39

The trial of Socrates

In 399 BC, the philosopher Socrates was tried on the charges of asebeia, or impiety, and of corrupting the youth of Athens. The trial is famous for, inter alia, Socrates’ elenchus, or cross-examination, of his accuser, Meletus. While Socrates’ cross-examination was doubtless an impressive sight, he ultimately failed to successfully advocate for his own life. Convicted and condemned to death by a jury of 501 citizens, the wisdom of Socrates failed to live up to the task required, that of Socrates’ acquittal. For further reading see Plato’s The Apology of Socrates, or, e.g., the Encyclopaedia Britannica.

 

No corrupt youth to see here

Over 2,400 years later and another international arbitration moot season is now upon us. This blog post summarizes some important advice and insights into dealing with oral and written advocacy, including cross-examination.

In preparing this post, the authors, being one current and one former moot court participant (the Cross-Examination and Willem C. Vis International Commercial Arbitration moots, respectively), have drawn inspiration from the recent ICDR Y&I Skills Training Workshop on Written and Oral Advocacy in Investment Arbitration (“Workshop”) held in July 2022 in Athens, the Hellenic Republic, as part of a Summer Law School in Investment Arbitration organized by the European Law Students’ Association and the Athens Public International Law Center.”

The Workshop was led by renowned lawyers and arbitration practitioners Rebecca James (Linklaters), Barton Legum (Honlet Legum Arbitration), Alexander G. Leventhal (Quinn Emanuel), Marc Krestin (PGMBM) and Marily Paralika (Fieldfisher), each of whom offered incisive tips that are valuable to many new and aspiring students and practitioners as they hone their skills for use in moot court competitions and beyond.

 

Coordinated advocacy

First, coordinate your team. A well-coordinated team is the foundation of any successful case. It is seldom you will be working completely alone, and it is important to understand each other’s strengths and weaknesses and to take advantage of these.

Relatedly, consider the division of work early and to start writing as soon as possible. The writing of submissions or sections thereof should be kept as consistent and equal as possible between the drafters. In this regard and depending on the team dynamic, it is often helpful to brainstorm together. Things move faster and two heads are generally better than one.

Where the individual components of the submission continue to be written separately, it is advisable to merge the individual parts first as soon as possible and then to coordinate the styles.

In the authors’ experience, the team’s more junior associates generally build the basic framework of the submission, while the more experienced team members then finesse the fine points. Ask questions of your peers, seniors, partners and coaches. There are no silly questions. In general, the goal should be to draft logically with simplicity and precision. Developing a solid legal and evidentiary basis is very important.

 

Mind the gap: effective signposting

Second, it may be trite, but it is very effective to put up “signposts”. These include key words to hold on to, but also stylistic devices that weave a golden thread through the submissions, oral or written.

Lead your submissions with the strongest arguments. There is no time for a warm-up act. End your arguments on a high, there may well be no encore. In real life there may be a post-hearing brief, alas not so for Socrates. Ordered signposts will help you here in terms of structure and ordering.

The authors are aware of the conundrum as to what extent an advocate should take into account the preferences of an arbitral tribunal with regard to the presentation or the order of their submissions. In principle, it is possible to take such preferences into account, but it is not necessarily conducive to good advocacy. What should be uncontroversial is the view that it is essential for an advocate to truly understand their case and to give the arbitral tribunal the impression that it is being presented with serious and important issues to decide. For Socrates’ Ancient Athenian jury, this question should have been made especially clear.

 

Goodies versus baddies: persuasion through storytelling

Third, the Workshop panelists stressed the importance of the advocate persuading the arbitral tribunal to view the facts as they see them and not as opposing counsel sees them. To do this, the best advocates present their case in the form of a story. In particular, the arbitral tribunal should be made to feel as if they are directly involved, acting as the “avenger” in righting a wrong. To achieve this, the advocate must ensure the arbitral tribunal also becomes part of the story.

To this end, it can be useful, nay important to cast one’s client in the role of the victim as much as possible. But how can the advocate portray their client in a way that makes them appear as the victim? The authors concede that this question cannot be answered in a one-size-fits all manner. As the lawyerly adage goes, “it depends”. It depends both on the individual circumstances of a dispute and, in the case of investment arbitration, on the nature of the investment. The most important thing for the advocate here is to be able to explain, for example, why the client’s expectations were not met, or why their story is the more credible one.

 

“Know thyself”

Fourth, it should be emphasized that the narrative or “story” of the case becomes clearer towards the “pointed end” of the proceedings. Presenting this story persuasively is ultimately the advocate’s main job. Therefore, and this is considered particularly important, an advocate must also focus on themself. There can be tragic consequences if an advocate forgets their “personality”, i.e., who they are and what their particular style and preferences are.

 

Oral testimony: what is it good for?

Fifth, what is oral testimony and is it truly needed? While the art of advocacy appears firmly established as a cornerstone of every jurisdiction, the value of oral testimony and the concept of cross-examination remain alien to many. At the Workshop, the scenario of the client who insists on testifying to have their “day in court” arose. Unsurprisingly, this is only necessary or helpful in rare cases. For the authors of this post, the strong emotional attachment of such a witness to the dispute contradicts Aristotle’s notion that the “law is reason free from passion” and can jeopardize both the advocate’s credibility and persuasiveness. Indeed, one of the Workshop panelists referred to a case they worked on in which the witness being cross-examined admitted to committing criminal offences, which led to his subsequent prosecution. Such testimony should therefore be discouraged.

It should also be recalled that, for the layperson, the task of testifying can be very difficult and stressful. A good advocate will ensure their witness has had every opportunity to be well-prepared for the examination, cross-examination, and reexamination, if applicable.

Successful cross-examination demands control, responsiveness, and adaptability. When cross-examining, avoid questions to which you do not know the answer.

 

Tips for hearing preparation

Sixth, how to prepare for the hearing. The Workshop panelists provided some useful practical tips as guidance. Outside the competition requirements that might guide moot court advocacy, the advocate’s opening statement should not take longer than 90 minutes and this is generally not the opportunity for detailed discussion of damages calculations.

Moreover, it is of crucial importance that the advocate presents themself as well as possible during the submissions. In the Zoomiverse, basic tips include keeping the speaker’s microphone facing the right direction and the optimal distance from the speaker’s mouth, if such technology is available. The advocate should speak slowly and with a varied intonation to engage the arbitral tribunal. The advocate’s focus should stay on the arbitral tribunal in order to respond to any reactions.

An advocate should also be cautious of excessive hand gesturing. To what extent is the use of a script or outline more appropriate? Again, it depends on the advocate’s preferences. Both options have advantages and disadvantages, but both should be used as a prompt rather than something to rely on throughout the submissions.

A top tip from the Workshop is that advocates should prepare for their hearings by, for example, recording themselves in videos and then watching them in order to refine their presentations and arguments. In the event that the advocate receives a question from the arbitral tribunal during the hearing to which they do not have an appropriate answer in the heat of the moment, it is not a problem and may be advisable to give the answer later in the hearing or, if necessary, to have it answered by another member of the team.

 

“We cannot live better than in seeking to become better”

Among the most valuable tips for advocates that the authors have learned from the Workshop and beyond thus include the importance of a coordinated team, storytelling, a good knowledge of self, an orderly consideration of the broader context of the client and their case, the need for clear communication, and of course, sufficient preparation. We would like to think that perhaps even Socrates himself might have found a small piece of wisdom or two.

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Expeditious Dispensation of Justice: ADR The Way Forward? – Perspectives from Pakistan

Sun, 2022-11-27 00:54

International Conference: Expeditious Dispensation of Justice – ADR The Way Forward” was held on 1 and 2 September, 2022 at Serena Hotel, Islamabad, Pakistan and in the Islamabad High Court respectively. The conference was dedicated to exploring the ways in which alternative dispute resolution (ADR) and arbitration can support the progressive development of the legal system in Pakistan. With a huge backlog of cases hindering the expeditious dispensation of justice in Pakistan at all fora, the need for mechanisms that run parallel to traditional litigation is felt at an unprecedentedly unanimous level among the local legal fraternity.

The conference was organized by International Center for Appropriate Dispute Resolution and Prevention (ICADRP) and celebrated ICADRP’s formal launch. The conference was held in collaboration with Samdani & Qureshi, a law firm based in Islamabad, Safer Communities Foundation, an organization working on improving the justice system in Pakistan, Weinstein International Foundation, a US-based organization that focuses on mediation, and the Islamabad High Court Bar Association. This post presents highlights drawn from the two-day conference that are of interest to international audiences.

 

The Need for Greater ADR and Arbitration Tools to Expedite the Progressive Development of Pakistan’s Justice System

Dilating on the impacts of the Pakistani courts’ backlog of cases, a primary challenge is the slower dispensation of justice in these cases, which is problematic for litigants, courts, and lawyers alike; with the litigants suffering in misery owing to the delays, the lawyers overworked with never-ending cases, and the courts overburdened with a case load beyond their capacity to discharge. These concerns and challenges are also highlighted in a press release issued by the Law and Justice Commission of Pakistan on 24 November 2022.

Many countries around the world have adopted various modes of ADR and arbitration to facilitate a more expedient justice system and to ease the workload. ICADRP is one such organization playing its part in facilitating court-annexed ADR by providing various ADR services to litigants interested in the same in Pakistan and providing cost effective solutions for international users. Dr. Shoaib Suddle, Chief Executive Officer of Safer Communities Foundation in particular stressed the need for a fast and expeditious justice system for maintaining rule of law, and cited the example of Japan, wherein ADR is often used to facilitate justice in the criminal context – a model that could be applied to Pakistan. This example demonstrates how ADR can help remove some burden from the national courts while facilitating justice.

Judge Charles N. Brower, a former judge of the International Court of Justice and the Iran-US Claims Tribunal, who is also the Patron-in-Chief of ICADRP, further explained how ADR and arbitration are efficient, efficacious and expeditious and that many countries are turning to ADR and arbitration to avoid the delays in the traditional justice system. Giving the example of Turkey where mediation centers have been set up annexed to private law firms, he explained stressed that Pakistan too can benefit by setting by ADR centers, which could be court-annexed or set up privately, which will help alleviate the burdens felt by national courts.

Howard A. Herman of JAMS further affirmed that ADR and arbitration has been effectively used by American courts and others around the world. He specified that aside from arbitration, other ADR mechanisms can be usefully employed, including mediations, conciliations and negotiations. Such tools can support the avoidance and prevention of disputes before they escalate to an adversarial point, where there can no longer be reconciliation.

 

Challenges in Implementation of Effective ADR Solutions

The Honorable Mr. Justice Miangul Hassan Aurangzeb of the Islamabad High Court emphasized the necessity of lawyers being at the forefront of leading the initiative for supporting ADR and arbitration in Pakistan. In his view, the lack of support from the legal fraternity is a major hindrance to the widespread use of ADR and arbitration in Pakistan. He gave special focus to the model followed in Turkey. A useful feature employed in Turkey in support of ADR is that law firms have developed dedicated rooms within their office premises in which to conduct mediations. He proposed that this small feature could usefully be employed in Pakistan.

On this subject, the need for extensive trainings of mediators and arbitrators in Pakistan was emphasized, especially keeping in mind local socio-cultural dimensions. Some lawyers are fearful or apprehensive because, in their view, encouraging ADR and arbitration would reduce business opportunities. This notion is misplaced; widespread support for and use of ADR and arbitration would not only alleviate the backlog presently facing the courts but also, as ADR and arbitration gain traction, would create new and different opportunities, including for lawyers to maintain specialized practices in this field. For example, rather than allowing a matter to sit before the courts for three years before resolution, a few weeks could be spent in mediation to achieve expeditious resolution of the dispute.

Justice Aurangzeb also identified the challenges for ADR and arbitration as reflected in Pakistan’s legal system itself. The Arbitration Act 1940 (“1940 Act”), as applicable in Pakistan, is an archaic law that requires modification, if not complete revision. As it stands, the 1940 Act requires significant court intervention, which results in arbitration processes becoming as cumbersome as litigation itself. For example, litigants who have opted for arbitration may find themselves approaching the court for administrative and procedural requests that perhaps could be avoided, such as for the appointment of arbitrators, injunctive orders, and claims of misconduct against the arbitrators. This results in formal or informal long periods of inactivity in or stays of the arbitrations. Therefore, even though the 1940 Act, the Section 89-A of the Civil Procedure Code 1908, and various other family and personal laws in Pakistan provide for out of court settlement mechanisms, these are not effectively implemented due to cumbersome procedures, lack of awareness, the scattered nature of the laws (which are not compiled comprehensively in one place) and interference by the court when it should refrain from doing so. Justice Aurangzeb referred to the Arbitration and Conciliation Act 1996, as adopted in India, as an example for Pakistan as well as the UNCITRAL Model Law on International Commercial Arbitration which could be used by Pakistan to develop a more modernized law to replace the 1940 Act.

The Honorable Mr. Justice Sardar Ejaz Ishaq Khan of the Islamabad High Court further discussed the judges’ perspective on the various challenges that hinder the adopting of ADR mechanisms in Pakistan. He narrowed them to seven specific “fallacies” and proposed solutions to the same:

  1. The one-size-fits-all fallacy, that the same ecosystem is sufficient for all kinds of ADR, without differentiating between the different modes of ADR and the methods of their enforcement, such as using mediation and arbitration interchangeably, whereas they are not.
  2. The patriarchal fallacy, that the government must be the all-encompassing regulator of ADR systems.
  3. The statutory fallacy, focusing on varying contradictions and absurdities present in the law that hinder the enforcement of ADR.
  4. The silos fallacy, that ADR and arbitration can effectively be implemented without permanent partners.
  5. The costs fallacy, that ADR and arbitration increase the overall cost for dispensation of justice.
  6. The arbitration law reform fallacy, that the status of the arbitration law in Pakistan is solely responsible for the challenges associated with implementation and use of ADR and arbitration.
  7. The panacea fallacy, that that ADR is the panacea to all our ails, whereas effective rule of law and dispensation of justice needs to be considered at all stages, namely, including the prevention, management, resolution, and enforcement of dispute resolution processes. ADR is a toolkit that needs to be used to manage conflicts at various stages, and there is rising global usage of these tools. However, these tools are admittedly in short supply in Pakistan.

Despite the proven utility of ADR and arbitration in other countries in strengthening the judicial system, it has been largely ignored in Pakistan owing to several challenges, and there needs to be reform at every level, be it judicial, legal or coming from litigants and lawyers themselves.

 

Role of the Courts in Facilitating ADR and Arbitration

The Honorable Chief Justice of the Islamabad High Court, Mr. CJ Athar Minallah, who also presided the event as Chief Guest, emphasized that the backlog of cases and the overburdened courts in Pakistan required greater understanding and use of ADR and arbitration. He emphasized that this intervention must be supported by the Pakistani judiciary, The Islamabad High Court, he assured, would further this initiative towards encouraging and facilitating ADR.

Dr. Nudrat Piracha, Chief Executive Officer of ICADRP, also pointed out that the unnecessary cases pending in courts come from the parties’ understanding that litigation is the only way forward for the resolution of disputes. Court-annexed ADR, she said, is a winning formula that would help take the burden off of the local courts while creating great access to justice. She talked about mediation, conciliation, arbitration and negotiations as the varying methods of ADR. The system currently suffers from various challenges, including lack of: capacity of stakeholders, centralized efforts, and trained mediators, conciliators and arbitrators. There is need for training, system design, government and other institutional support, building appropriate legal and social structure, social support, setting up online dispute resolution systems and public-private partnerships along the models implemented in recent years in Turkey, Italy and some African states.

 

Investment Arbitrations and Pakistan

Meg Kinnear, the Secretary-General of the International Center for Settlement of Investment Disputes (ICSID), speaking on international arbitrations and investor -state dispute settlement, pointed out the problems associated with approaching domestic courts for the resolution of investor-state disputes. She recalled that the first international investment agreement in history was signed between Pakistan and Germany in 1959 and entered into force in 1962. Despite this early interest, expertise and specialization in the area remains lacking within the country. Furthermore, domestic ownership of foreign arbitral awards and agreements remains a challenge for Pakistan.

 

Concluding Remarks

The conference featured many more international and domestic speakers, including those who drew upon innovative technologies and other models to explain how ADR and arbitration can be effectively introduced in Pakistan to facilitate greater access to justice and the progressive development of law within the country. The conference ended on the note that the ICADRP, under the able leadership of Dr Nudrat Piracha, will accelerate its efforts to propagate the importance of ADR in Pakistan in order to facilitate expeditious dispensation of justice in Pakistan, and will further look into online dispute resolution (ODR) as a way forward for efficacious and expeditious settlement of disputes outside of the court rooms. It was further resolved that the Islamabad High Court and the Islamabad High Court Bar Association would both take the initiative of supporting ICADRP and would further facilitate the adoption and use of ADR and arbitration in Pakistan.

 

Recordings of the program’s sessions are available online here.

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How States Comply with Investment Treaty Arbitration Awards: Insights from a 2022 Report on Compliance

Sat, 2022-11-26 01:07

Amidst the turmoil surrounding the Energy Charter Treaty (ECT) and the announced withdrawal by Poland, Spain, the Netherlands, France, Slovenia and Luxembourg, the very first edition of the Report on compliance with investment treaty awards by States has been published by the present author.

Whereas the discussion usually focuses on whether international investment agreements (IIAs) and the investor-State dispute settlement mechanism (ISDS) contained in them are pro-investor biased and thus should be reformed or even completely removed as has been the case within the EU, the question to what extent States actually comply with their international obligations and pay awards rendered against them is hardly discussed.

The inspiration for writing this Study, coupled with the wider aim of tracking the compliance level of States on a systematic and regular basis, comes from a highly interesting article written two years ago by the late Emmanuel Gaillard and Ilija Mitrev Penushliski entitled “State Compliance with Investment Awards”.

The research for this Report has been performed in the first half of this year and is based on publicly available sources (free sources as well as behind paywalls). The research compiled the known investment treaty arbitration disputes regarding the top twenty countries which have faced most of such disputes. Subsequently, the research collected available information regarding the outcome of the disputes, and in all cases of adverse awards against States, tried to find information regarding whether or not the States have complied with those awards by paying the amount of compensation. A State is classified as non-compliant whenever it refuses to pay the award by trying to annul or set aside the award either at the international law level (i.e., through ICSID Annulment) or at the national law level by initiating setting aside procedures before domestic courts.

The Report reveals the following notable outcomes.

 

Key Trends in State Compliance with Investor-State Treaty Arbitration Awards

First, the Report underscores the high number of EU member states, in particular Spain, Czech Republic, Poland, Romania, Hungary, Croatia, Slovakia, Italy, Bulgaria, Germany, and the Netherlands, which have faced multiple ECT disputes in the past years.

Second, the International Law Compliance Index, which has been created on the basis of this Report and aims to rank the States according to their non-compliance level, reveals that Spain has been facing more than 50 intra-EU ECT claims resulting in damages claims totalling more than US$ 9.5 billion so far.

Indeed, adverse ECT awards continue to be rendered against Spain, such as in the Eurus Energy v. Spain case (ICSID Case No. ARB/16/4), award issued on 14 November 2022), Cavalum v. Spain case (ICSID Case No. ARB/15/34, award issued on 29 September 2022) and the Mathias Kruck and others v. Spain case (ICSID Case No. ARB/15/23, award issued on 14 September 2022). Also, on 10 June 2022, the ICSID ad hoc Annulment Committee upheld the adverse ECT award in the RREEF Infrastructure v. Spain case (ICSID Case No. ARB/13/30).

More importantly, the Report confirms the fact that Spain ranks second in the world (behind Venezuela and before Russia) the country which most frequently refuses to pay the awards rendered against it, with an outstanding amount of at least US$ 700 million.

Third,  this Study highlights the fact that the overwhelming majority of intra-EU ECT disputes in fact concern renewable energy sources, in particular, the retroactive withdrawal of guaranteed feed-in-tariffs for solar and wind farms.

Fourth, whereas, in contrast to the often-repeated narrative that the ECT mainly protects unclean energy producers, the Study also shows that only a handful of ECT disputes relate to fossil fuel or nuclear energy, which, moreover, are far more often settled than renewable energy cases. Reference can be made to the Vattenfall v. Germany case, which Germany settled for EUR 1.5 billion as opposed to the claimed EUR 4.7 billion.

Similarly, the RWE and UNIPER v. the Netherlands cases, which relate to the phase-out of recently constructed coal-fired power plants have become effectively halted for different reasons. UNIPER had to withdraw its claim as part of the rescue package, which ultimately resulted in the nationalization of UNIPER. The RWE case has been thrown out by a German court following a successful injunction by the Netherlands arguing that the dispute is “inadmissible” because it must be considered to be incompatible with the CJEU’s Komstroy and Achmea jurisprudence. Although, this judgment can be appealed before the German Supreme Court, it seems unlikely that it will rule differently.

 

Annual Compliance Report and Index

In sum, this Study provides a fact-based analysis highlighting that most ECT disputes actually concern measures related to renewable energy, rather than fossil fuel, and that several EU member states, in particular, Spain, belong to the most non-compliant States.

Given the dynamic developments in international investment law, in particular fuelled by the behaviour of the EU and the actions taken by the EU member states in terms of preventing the recognition and enforcement of intra-EU BITs and intra-EU ECT awards as per the Termination Agreement for intra-EU BITs, the similar proposed inter-se agreement regarding the ECT and the CJEU’s Micula judgment, this Compliance Report and the Index will be updated and incrementally expanded by including more countries on an annual basis.

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Arbitrating Small Value Claims in Investment Arbitration

Sat, 2022-11-26 00:40

The International Bar Association (“IBA”) Subcommittee on Investment Treaty Arbitration has recently finalized its report titled “Arbitrating Small Value Claims in Investment Arbitration” co-signed by the current co-chairs (Caline Mouawad, Maxi Scherer) and former co-chairs (Noiana Marigo, Patrick Pearsall) (“Report”). The Report was also presented at the 2022 Annual Meeting of the IBA that recently took place in Miami.

The Report explores small value claims in investment arbitrations, where the identifiable amount claimed is no greater than US$50m or €50m. Such claims have come to represent a significant percentage of investment arbitrations across different arbitral institutions, industry sectors and geographic regions. Given their significance, small value claims also present a unique conundrum for the arbitration community: on the one hand, the relatively modest sum at stake calls for a manageable and cost-effective approach so as not to deter parties from bringing such claims and impede the parties’ right to have access to justice; on the other, small value claims do not necessarily mean that they are simpler or less complex than large value claims, that may involve high representation fees if not managed right. With these key considerations in mind, the Report examines the available procedural tools to minimize costs in such cases while ensuring that parties achieve swift and fair resolution of their disputes.

The Report approaches the issue of small value claims mainly from three angles: (1) the Report examines the available empirical data from major arbitral institutions, reinforcing the view that small value claims are statistically prevalent in international investment arbitration; (2) the Report explores the special procedures that are already available in international investment agreements (“IIAs”) and arbitral rules to manage costs in small value claims; and (3) the Report proposes procedural measures that can be adopted at different stages of the proceedings to achieve an efficient resolution of small value disputes. This blog post highlights the Report’s key findings on each of these issues in turn.

 

I. PREVALENCE OF SMALL CLAIMS IN INVESTMENT ARBITRATION 

The empirical data obtained from major arbitral investment arbitration institutions demonstrates the prevalence of small value claims in investment arbitration cases in the past decade.

Of the cases administered by ICSID, the PCA, and the SCC between 1 January 2010 and 31 December 2021, approximately 20 percent to 40 percent were small value claims under US$50m or €50m. For ICSID, 108 cases (approximately 27 per cent) involved claims below US$50m. For the PCA, 42 cases (approximately 23 per cent) were small claims. The SCC saw the highest percentage of small claims, with 23 cases (approximately 43 per cent).

There is no one industry sector or region which is more likely to face small value claims. Statistics indicate that small value claims are prevalent in all sectors, including electricity and power, construction, extractive industries, agriculture, finance, and transportation. Respondent states from all geographical regions have seen their fair share of small value claims.

Maybe unsurprisingly, empirical data also confirms that a majority of small value claims are brought by individuals or small and medium-sized enterprises (“SMEs”). Based on the figures provided by ICSID, the PCA, and the SCC, at least half of small value claims were instituted by individuals or SMEs. The only caveat to this view is that there was limited data available on the size of the claimants bringing small value claims.

 

II. SPECIAL PROCEDURES FOR ARBITRATING SMALL VALUE CLAIMS 

Potential claimants considering bringing small value claims can take comfort in the wide range of special procedures already available. In this respect, the Report examines measures in IIAs and arbitral rules that can reduce the time and resources required to arbitrate such claims. While these tools are available for all claims, irrespective of the amount at stake, they are particularly well-suited and (in many instances) essential for small value claims.

Generally speaking, IIAs do not provide for special procedures with regard to small value claims. In recent years, however, a number of IIAs have included provisions concerning claims filed by SMEs or ‘relatively low’ claims for damages. This includes, for example, Comprehensive Economic and Trade Agreement (“CETA”) which encourages the nomination of a sole arbitrator where the investor is a SME or the monetary amount sought against the state is relatively low.  Indeed, Article 8.23(5) of the CETA provides that “[t]he investor may, when submitting its claim, propose that a sole Member of the Tribunal should hear the claim.  The respondent shall give sympethatic consideration to that request, in particular if the investor is small or medium-sized enterprise or the compensation or damages claimed are relatively low.” These IIAs also include procedural measures to accommodate such claims, including through: (a) increased use of videoconferencing (see, e.g., CETA, Article 8.19(3)), (b) consolidation of related claims (see, e.g., Dutch Model BIT, Article 19(7)), (c) tribunal’s discretion not to apply the costs-follow-the-event rule when the unsuccessful party is an SME (see, e.g., Dutch Model BIT, Article 22(5)), (d) supplemental rules to reduce a claimant’s financial burden (see, e.g., EU-Vietnam Investment Protection Agreement, Article 3.53(5)).

In particular, one IIA provides that the disputing parties may consent to the application of an expedited arbitral procedure “when the damages claimed do not exceed CA$10m”. To the extent this IIA applies, the parties typically have the option to: (a) take recourse to mediation, (b) appoint a sole arbitrator, (c) agree on a compressed procedural schedule, (d) agree on a limited document production phase, and (e) agree on streamlined written submissions, among others.

Arbitral rules also provide for expedited rules or fast-track procedures, if agreed between the parties, including the ICSID Expedited Arbitration Rules, or automatic for low-value disputes, such as the UNCITRAL Expedited Arbitration Rules. As the Report explores (pp. 16-24), expedited rules are especially suitable for parties with limited means, which require a quick resolution of their dispute, or for disputes over smaller sums at stake. Typical features of an expedited procedure include: (a) sole arbitrator by default, (b) time limits for filing, (c) limited number of filings, (d) limitation on document production and evidence, (e) documents-only arbitration, (f) time limits to render award, and (g) awards with no reasons or with summary reasons. However, such procedures often allow to revert to non-expedited procedures when necessary.

 

III. ADDITIONAL PROCEDURAL MECHANISMS AVAILABLE FOR ARBITRATING SMALL VALUE CLAIMS

The Report at pp. 25-53 suggests several techniques and procedures which the parties may adopt even when the applicable IIAs or arbitral rules have not set out relevant special procedures. These measures may be adopted at various stages of the arbitration:

  1. At the pre-arbitration phase, parties may increase cost-efficiency through calibrating their choice of arbitral rules, the arbitral institution, the seat, counsels, and arbitrators. Parties are also encouraged to engage in pre-arbitration settlement negotiations or mediations to either avoid the arbitration altogether or streamline the process and narrow down the disputed issues.
  2. At the arbitration phase, parties may, among others, (a) negotiate their Procedural Order No.1 from model agreements, (b) empower the tribunal to adopt cost-saving procedural measures, (c) agree on costs budgets, (d) limit written submissions, (e) agree to manage witness and expert evidence in a cost-efficient manner, (f) limit third-party intervention and amicus curiae, and (g) limit the scope of the document production phase. Parties also may opt for documents-only arbitration and remove the need for hearings altogether or propose to adopt remote hearings with technology-powered transcription services and limited post-hearing phase.
  3. At the post-arbitration stage, parties may restrain the ability to apply for annulments, reduce the length of such proceedings, or altogether waive the right to dispute the awards.

These procedural mechanisms and strategies available to the parties for consideration are summarized in a checklist annexed to the Report.

 

Conclusion

The rise of small value claims in investment arbitration presents a new opportunity to explore cost-saving mechanisms that can be more broadly adopted in investment arbitration to promote a more efficient and cost-effective process overall. The Report contains an invaluable toolkit for disputing parties in investment arbitration to consider when designing an efficient process to resolve their differences.

 

 

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Mexico’s New Energy Sovereignty Puts the USMCA Dispute Resolution Mechanisms to a Test

Fri, 2022-11-25 00:30

A North American energy trade war may be on the horizon. President Andres Manuel Lopez Obrador (AMLO) is backstepping the opening of Mexican energy markets by halting the issuance of permits, providing competitive advantages to state-owned enterprises, and attacking independent regulators.

The re-centralization of the energy sector is being done in the name of Mexico’s “energy sovereignty.” Naturally, foreign companies that invested in Mexico after the passing of the 2013 comprehensive energy reform are alleging unfair and discriminatory treatment.

Mexico’s North American partners have not remained quiet. In July 2022, the Canadian and U.S. governments officially began consultation procedures over AMLO’s energy policies but after seventy-five days failed to settle the dispute with Mexico. The exhaustion of the consultation period triggers the first step in the state-to-state dispute resolution mechanism  set up in Chapter 31 of the United States Mexico Canada Agreement (USMCA). The results of these procedures could lead to the establishment of a panel and, if Mexico loses the case, the suspension of trade benefits.

According to some estimates, the dispute could cost Mexico $30 billion in retaliatory tariffs on Mexican goods imposed by the U.S. and Canada. The active engagement of the governments marks the first time that foreign powers retaliate against Mexico’s energy policies since 1938, when Mexico expropriated foreign oil and gas companies. It also marks the beginning of a regional trade conflict–in the midst of a global pandemic, the Russian-Ukraine conflict, unsettled energy markets, and global inflation that has reached its highest levels since the 1970s.

This post will discuss how the concept of energy sovereignty impacts the USMCA energy disputes and the way in which the state-to-state proceedings can affect investors’ rights.

 

‘Energy sovereignty’

As discussed in an extensive paper on the topic of the author of this post, the term energy sovereignty has different meanings depending on the international actor. Energy sovereignty represents not only the eagerness of the state to secure the flow of energy products and the resiliency of the electrical grid -energy security-, but also the right of the state to determine the origin, quality, methods of control and efficiency of those resources. As such, the exercise of energy sovereignty has different strategies depending on the overall priorities of the state in question. Some might employ government-centered approaches where the use of state enterprises and the protection of key industries, such as oil and gas, is a priority to maintain the stability of the state. Others, might rely on market-oriented approaches where access to foreign resources and the global flow of clean energy products is the best way to exercise their energy sovereignty. Both of these visions collide in international trade and investment agreements and it is up to dispute resolution bodies to balance them out.

In the context of Mexico, it is noteworthy that the companies affected have not yet filed investment claims against the regulatory changes introduced by the AMLO administration. The Mexican judiciary, so far, issued injunctions against the implementation of the legislative changes, but the discriminatory treatment against the companies remains. Moreover, under the USMCA Chapter 14 Annex E companies in the energy sector do not need to exhaust domestic remedies or spend time in Mexican courts in order to file an arbitral claim. As of the writing of this post, the AMLO administration had three notices of dispute and three active cases in the energy sector. None of these cases involve actions taken by the government under the new energy policies but rather involve discriminatory or unlawful actions taken by the state-owned enterprises and Ministries against private companies under the 2013 energy legislation. For example, in terms of notices of dispute, Talos Energy filed a notice of intent under the USMCA agreement for actions taken by the Ministry of Energy after the company failed to reach a unitization agreement with Pemex; and Gulf Investments & Services Ltd. filed a notice involving an impounded vessel by Mexican authorities as part of a criminal investigation against Oceanografia for its contractual relationship with Pemex; Monterra Energy also notified the Mexican government of the emergence of a dispute involving the seizure of its Tuxpan terminal by the National Guard in 2021 after a controversial inspection by the Energy Regulatory Commission (CRE) and the Safety and Environmental Energy Agency (ASEA).

On the side of active cases, Finley, MWS and Prize initiated an ICSID arbitration under the USMCA against Mexico for a breach of contract by PEMEX on three oilfield service contracts; Terrance Highlands filed an investment claim under the UK-Mexico Bilateral Investment Treaty for the undue care of its impounded vessels in the criminal investigation against Pemex’s contractor Oceanografia; Shanara Maritime International and Marifield Ltd, also filed an investment claim under the Mexico-Panama BIT for their impounded vessels in the Oceanografia criminal investigation; finally,  Servicios Petroleros Oro Negro filed an investment case under NAFTA’s legacy provisions for Pemex’s alleged breach of contracts involving offshore drilling platforms.

Hence, it will be in the state-to-state panels where the new Mexican energy sovereignty approach will be tested.

 

Potential impact of consultation procedure on ISDS

The triggering of the state-to-state dispute resolution mechanisms raises an interesting question on how the precedent set by the panels could impact future investment claims. Ultimately, this is one of the first cases in which the home states spoused investors’ claims as part of the state-to-state dispute resolution proceedings. In that sense, it is worth pointing out that the investment allegations under Chapter 14 of the U.S. and Canada consultation request only included breaches of the national treatment standard. Hence, investors could still bring claims under the fair and equitable treatment or indirect expropriation, as long as their investments are considered covered government contracts under Annex E of Chapter 14.

Notwithstanding this fact, the state-to-state panels will be analyzing the same policies that the Mexican government enacted and that affect foreign investment in the energy sector. Therefore, it is hard to imagine future investment tribunals ignoring the state-to-state panels’ interpretation. In the same vein, through their briefs, Canada, Mexico and the U.S. could agree on specific interpretations of the agreement that could potentially be considered as a subsequent practice by ISDS tribunals. It is worth remembering that in the context of NAFTA, the interpretation of the Free Trade Commission after the Pope and Talbot decision and the parallel litigation of cases in the WTO involving the sugar industry in Mexico, had an impact in the interpretations of subsequent arbitral tribunals.  Finally, Mexico could also reach an agreement to compensate the U.S. and Canada for its actions. In contrast, the treaty is silent regarding the duty of the filing states to compensate their investors using the damages paid by Mexico.

 

Conclusion

Overall, the storm is still forming and the Mexican government does not seem to back away from its efforts to advance its “energy sovereignty” policies. Even in light of the consultations and the threats of ISDS claims, the Mexican President is benefiting from a hostile geopolitical atmosphere. The lingering effects of a global pandemic, the war in Ukraine, the energy crisis in Europe, and the fears that Mexico will stop cooperating with U.S. officials in security and immigration issues before the midterm elections gives policy space for Mexico to double down on its effort to change its domestic energy market. The costs of retaliation are too high, and the USCMA seems insufficient to tame the temptation of forcing investors to adapt to Mexico’s new energy sovereignty.

 

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

Thu, 2022-11-24 00:55

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

A new upload of materials from the 2022 volume of the Yearbook Commercial Arbitration is now available on the KluwerArbitration database. It contains six unpublished awards rendered under the auspices of the International Chamber of Commerce.

The arbitrators dealt with a broad range of issues, including the arbitrability of employment disputes, the interpretation of arbitration clauses, and the application of the CISG and Rome I and II Regulations. The public policy exception in the 1958 New York Convention was discussed in two awards that I would like to highlight and commend for reading.

In one case concerning the termination of a distribution agreement in Greece, the arbitral tribunal noted that it was compelled to issue an enforceable award, and that a violation of public policy – in the narrow sense of a violation of the forum state’s fundamental notions of morality and justice – was among the grounds for refusal of enforcement under the New York Convention. However, the tribunal noted that in the present case there was no authority that provisions of Greek law that provided certain protections to distributors – such as a longer termination notice and payment of compensation in case the terminating party had exploited a situation of economic dependence – were a fundamental principle of Greek public policy.

In another case, the sole arbitrator dismissed the respondent’s argument that the arbitration agreement between the parties was invalid as a matter of mandatory UAE law because the UAE Commercial Agency Law provided for the exclusive jurisdiction of the UAE courts over disputes between an agent and a principal. The arbitrator explained that, while the ICC Rules provided that arbitrators had to make every effort to ensure that the award was enforceable at law, and Art. V(2)(b) of the New York Convention provided that enforcement of an arbitral award could be refused on public policy grounds, these provisions did not import into each and every arbitration all public policy provisions of the different countries in which an award might be presented for enforcement. In the same award, the arbitrator also held that the deadline for objections to arbitral jurisdiction was determined by the law of the seat – in that case German law. The earlier date set by the ICC Secretariat for the parties to make known any jurisdictional objections was merely an administrative deadline.

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Applicable Tests For Arbitrator Bias: Recent Practice In Select Common Law Jurisdictions

Thu, 2022-11-24 00:15

Over the last few years, arbitrator independence and impartiality have been under heightened scrutiny by courts and tribunals. This is not unexpected. The importance of the rule against bias is best explained by Lord Denning’s dictum in Metropolitan Properties Co (FGC) Ltd v Lannon [1969] 1 QB 577 where he held that “[j]ustice must be rooted in confidence: and confidence is destroyed when right-minded people go away thinking: ‘The judge was biased.’

Arbitrator bias may be “actual” or “apparent”. Whilst the position on actual bias is clear i.e., it is a factual question, the test for apparent bias may not be quite so straightforward in all cases. Most common law jurisdictions rely on one of the two tests for apparent bias in international arbitration:

  1. the less stringent “reasonable apprehension of bias” test, which poses the question as to “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased” (originally laid down in Porter v Magill [2002] 1 All ER 465 at 507); or
  2. the stricter “real danger of bias” test, where the question is whether “having regard to those circumstances, [the court considers] there [to be] a real danger of bias on the part of the relevant member of the tribunal in question, in the sense that he might unfairly regard (or have unfairly regarded) with favour, or disfavour, the case of a party to the issue under consideration by him” (originally laid down in R v Gough [1993] AC 646 at 670).

There are two immediately visible differences between these two tests. The first lies in the perspective of the observer of bias. While for the reasonable apprehension test relies on the concept of the vantage point of “a fair-minded and informed observer”, in case of the real danger test, the court is the observer. The second difference lies in the degree of proof required to establish bias: the reasonable apprehension test merely requires there to be a “real possibility” of bias i.e. a lower threshold, whereas the real danger test requires a “reasonable likelihood” of bias.

Unsurprisingly, the traditional competition between the two tests originated in the English common law as applied to the rule of bias to administrative and judicial decision makers. In the arbitration context, the UK Supreme Court confirmed that reasonable apprehension test applies to apparent bias in Halliburton v Chubb [2020] UKSC 48 (see previous posts on this case here and here).

This post traces recent applications of the apparent bias test across select common law jurisdictions of Australia, Canada and India. We analyse the formulation of the apparent bias tests and recent legislative and judicial responses to the issue of arbitrator bias in these jurisdictions.

 

Australia

In the recent decision of Hancock v Hancock Prospecting Pty Ltd [2022] NSWSC 724, the New South Wales Supreme Court considered a challenge to an arbitrator appointment under the Commercial Arbitration Act 2012 (WA) (the “CAA”).

The circumstances in the challenge centred around the arbitrator’s relationship with his spouse. The arbitrator’s spouse was employed in the past by the law firm representing the defendant. During the spouse’s employment at the law firm, she attended certain meetings between the parties and the arbitrator had been briefed by his spouse in a related procedural matter in the arbitration. On this basis the plaintiff alleged that justifiable doubts exist as to the arbitrator’s independence and impartiality.

In making its decision, the court relied on the text of section 12 of the CAA which provides that the “justifiable doubts” standard will only be reached if there is a real danger of bias. The court reiterated the policy reasons for the adoption of this stricter standard  – and found support for its conclusions in a consultation report that preceded the enactment of the CAA  – to discourage the procedural tactic of arbitrator challenges by parties and to promote Australia as a hub for international arbitration.

With clear legislative backing for the application of the stricter standard, the court dismissed the challenge on the basis that a case of “real danger of bias” was not made out by the plaintiff. According to the court, the test is whether there is an “objective likelihood of there being a real risk that someone in the position of the arbitrator would not be able to bring an impartial mind to (all of) the questions to be determined.” The court deemed the passage of time of 20 years between the circumstances allegedly giving rise to the bias and the current case as a relevant factor in dismissing the challenge. It held that the “test should not be understood as requiring an investigation into the particular attitudes or propensities of the arbitrator under challenge”.

Whilst the Hancock decision was under the Western Australia arbitration legislation, the same position applies to Australia-seated international arbitrations (Sino Dragon) and other domestic arbitrations (Gascor v Ellicott [1997] VR 332). In an application to set aside an arbitral award under the International Arbitration Act 1974, the Federal Court of Australia held in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd [2016] FCA 1131 that the higher “real danger of bias” test applies to an international commercial arbitration. It expressly rejected the contention that the common law test of “reasonable apprehension of bias” was part of Australia’s public policy.

 

Canada

For domestic arbitration in Canada, the less stringent “reasonable apprehension” test generally applies at common law, which was recently confirmed by the Supreme Court of Canada’s decision in Yukon Francophone School Board, Education Area #23 v. Yukon (Attorney General) [2015] 2 SCR 282. One of the first elucidations of this principle came about in Justice de Grandpre’s dissenting opinion in Committee for Justice & Liberty v Canada (National Energy Board) [1978] 1 SCR 369. According to Justice de Grandpre, there was “no real difference” between the expressions “reasonable apprehension of bias”, “reasonable suspicion of bias” and “real likelihood of bias”.

When it comes to the applicable test for arbitrator bias, the situation differs across the Canadian provinces. The Ontario Arbitration Act expressly mentions the “reasonable apprehension” test for challenging an arbitrator (Section 13(1)1.). The test was most recently applied in Dufferin v. Morrison Hershfield, 2022 ONSC 3485, where the applicant alleged bias on the basis that the arbitrator had pre-judged the issues, and their conduct in the proceeding was akin to being an advocate for the other side. The court acknowledged that while the arbitrator may have been interventionist, it could not conclude that such behaviour would give rise to a reasonable apprehension of bias. Instead, the arbitrator was found to be “a deeply invested, engaged [a]rbitrator that worked tirelessly for the parties in furtherance of his mandate, which was to determine the truth of the issues before him”.

Notably, the British Columbia Arbitration Act has recently gone the opposite way. In 2018, it expressly established the “real danger” test (Section 17). Effects of the shift are yet to be confirmed in practice, but some practitioners contend that the amendment will make it harder for applicants to successfully challenge arbitrators in British Columbia-seated proceedings. Finally, the same “real danger” test applies in the case of international arbitration (Section 12 of the British Columbia International Commercial Arbitration Act).

 

India

In India, the relevant test for arbitrator impartiality is whether there is a reasonable apprehension of bias from the viewpoint of the concerned party rather than that of the arbitrator (Murlidhar Roongta v S Jagannath Tibrewala 2005 57 SCL 128 Bom and Ranjit Thakur v Union of India AIR 1987 SC 2386). This alters the common law test from the point of view of a fair-minded and informed observer to that of the party. However, the test is still an objective one.

India’s response to the issue of arbitrator independence and impartiality has been unconventional. Inspired by the IBA Guidelines on Conflicts of Interest in International Arbitration, the 2015 amendments to the Arbitration and Conciliation Act 1996 (the “ACA”) included an extensive list of circumstances that may give rise to justifiable doubts as to an arbitrator’s impartiality in the Fifth and Seventh Schedules.

The Seventh Schedule to the ACA introduces certain grounds mirroring the Red List of the IBA Guidelines which de jure renders an arbitrator ineligible for appointment. This blanket ineligibility approach has been criticized for not considering the particular circumstances of each case such as the proximity to the dispute, any economic interest and the arbitrator’s relative position to the party. The Indian Supreme Court, in a recent decision of HRD Corporation v GAIL (India) Limited, (2018) 12 SCC 471, provided parties with an interlocutory remedy to approach courts directly to decide the ineligibility of an arbitrator appointment under the Seventh Schedule. It is not inconceivable that this mechanism might be used by parties as a procedural tactic to delay the arbitral process.

***

As countries continue to upgrade their international arbitration legislations to bring them in line with international practice, recent jurisprudence on the rule against bias in the arbitration context may inform potential legislative reform efforts.

The opinions expressed in this blog post are those of the authors alone and do not reflect the opinions or views of Boies Schiller Flexner or its clients.

 

 

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Highlights from CanArb Week 2022: The 2022 ICC Canada Conference – The New World

Wed, 2022-11-23 00:39

On the third and final day of CanArb Week 2022, the ICC Canada Arbitration Committee held its annual conference titled The New World. The conference sessions were bookended by opening and closing remarks by Professor Janet Walker (Chair, ICC Canada, Atkin Chambers, Full Professor, Osgoode Hall Law School) and Myriam Seers (Vice-Chair, ICC Canada, Partner, Savoie Laporte). The forward-looking discussions gathered Canadians and other international arbitration practitioners from around the world, including in-house counsel and leading international arbitrators, to share practical insights on key issues in international arbitration. The conference program examined the future of the international dispute resolution community, in particular in light of recent legal and institutional developments.

 

Including the world: achieving equity, diversity and inclusiveness

The first panel discussion was moderated by Dr. Todd Weiler (Independent Arbitrator), and featured Dr. Ayodele Akenroye (FCIArb, Independent Arbitrator), the Hon. Clément Gascon, (Former Justice of the Supreme Court of Canada, Arbitrator, Woods LLP), Dana MacGrath (Independent Arbitrator), and Nancy Thevenin (General Counsel, USCIB). The panelists shared their perspectives and personal experiences with the challenges of and solutions to increase the representation of diverse arbitrators and lawyers, from gender and ethnic diversity to “invisible” disabilities such as attention deficit hyperactivity disorder (ADHD).

The panelists agreed on the need to expand the pipeline of students and lawyers interested in arbitration, increase interest and awareness, create new pathways with scholarships and internships, hire diverse students, and create opportunities for lawyers to move up the ranks within the field. The panel observed that efforts towards diversity need to be intentional, and praised the work of several organizations and initiatives supporting diversity, including ArbitralWomen, the Equal Representation in Arbitration (ERA) Pledge, and Racial Equality for Arbitration Lawyers (REAL). It was also noted that these issues are not new to the world of adjudication. Highlighting the approach that the Federal judiciary has used in Canada to increase diversity on the bench, it was observed that institutions in charge of appointments intentionally took a more active role in promoting diversity. Finally, all of the stakeholders who are part of the system must realize the importance of bringing diversity to the forefront, the “hidden” factor, as we all work toward inclusiveness.

 

Four simultaneous roundtable discussions

The second conference session offered the participants a choice of four roundtable discussions held simultaneously in different rooms of the McGill Faculty Club, which were then summarized by the facilitators in a plenary session.

The first roundtable, which discussed the topic of “modern” investment treaties, was facilitated by Pierre Bienvenu, Ad. E. (Senior Counsel, IMK s.e.n.c.r.l./LLP, Independent Arbitrator, Arbitration Place) and Alexandra Dosman (Counsel, Trade Law Bureau, Government of Canada). The discussion focused on the main changes introduced in Canada’s new 2021 model Foreign Investment Promotion and Protection Agreement (FIPA), the release of which was previously discussed in detail on the Blog. There was also a lively discussion on the introduction of provisions to promote mediation, expedited proceedings, the code of conduct for arbitrators, and the broad prohibition on double hatting.

The second roundtable, which examined the use of technology in international arbitrations, was led by Stephanie Cohen (Independent Arbitrator) and Michael Kotrly (Barrister, One Essex Court). The participants discussed the practical aspects of technology in arbitration, including whether familiarity with technology should be a factor in appointing an arbitrator, and how practitioners can incorporate technology into their practice. The discussion relied on the ICC report on leveraging technology, which was praised as a useful resource for counsel and tribunals.

The third roundtable, on efficiency in international arbitration, was moderated by David Roney (Partner, Sidley Austin LLP) and Ema Vidak Gojković (Independent Counsel & Arbitrator). The participants first discussed whether efficiency is always desirable, and noted that tribunals should engage in a dialogue with the parties in this regard. The discussion then turned to whether efficiency can look differently at various stages of an arbitration. Finally, it was suggested that some practices which used to be seen as inefficient, such as case management conferences throughout an arbitration when they were held in person, can be efficient today with the use of technology.

The fourth roundtable, facilitated by Philippe Boisvert (Counsel, Borden Ladner Gervais LLP) and Annie Lespérance (Omni Bridgeway), was particularly popular and discussed the strengths of Montreal as a seat of arbitration. In particular, Montreal was praised as a fantastic seat given its bilingualism, dual legal culture, and the large number of bilingual arbitrators with common law and civil law experience. As a result of the discussion, a number of participants agreed to create a steering committee whose purpose will be to further the place of Montreal on the Canadian and global arbitration stage.

 

Keynote speech

Meg Kinnear (Secretary-General, ICSID) delivered the keynote speech. Her insightful comments focused on the key changes in the 2022 ICSID rules, which were five years in the making.  The reform, which represents the most extensive rule-revision process in the centre’s history, includes new standalone mediation rules and expanded access to the Additional Facility rules, which can now be used when neither party is affiliated with ICSID – effectively creating a new regime for disputes administered by ICSID, new provisions aimed at reducing time and cost, and provisions on transparency and conflict of interest, in particular in relation to third party funding. The new rules, it is hoped, will provide practitioners guidance on contested issues in international arbitrations and increase the legitimacy of investor-state arbitration by enhancing transparency, and expanding ICSID’ dispute resolution offering.

 

Modified Tylney session

This modified Tylney session, a format in which participants are invited to submit questions and observations in advance, was moderated by Robert Deane (Partner, Borden Ladner Gervais LLP) with panelists Prof. Fabien Gélinas (Full Professor, Sir William C. Macdonald Chair, McGill University) and Erin Miller Rankin (Partner, Freshfields Bruckhaus Deringer). Under this modified Tylney, they shared their views on the future of arbitration and addressed questions from the audience, including many which had not been submitted in advance.

The panelists and audience first discussed the future of witnesses in arbitration, and shared a common concern for the importance of allowing a party to tell its story and the importance of stories in changing the mind of the arbitral tribunal, while noting the downsides of the heavy influence of lawyers on witness statements. The discussion then turned to the future of costs in arbitration and focused on whether more reasoning is needed as the amount of costs awarded increases. For example, a losing party may wish for more transparency and standardization of the reasons for cost awards. However, it was suggested that there are good reasons for the discretionary nature of cost decisions and that we should approach standardization cautiously, given that costs determinations are highly factual. Finally, participants engaged with the panelists on whether arbitration is part of a public civil justice system or whether it stands apart from civil justice system, echoing the remarks of the Hon. Louise Arbour at the 2022 ICCA conference.

 

Special guest speaker

Michael McIlwrath (MDisputes; Chair, ICC Governing Body for Dispute Resolution Services; Chair, Corporate Counsel Committee of Campaign for Greener Arbitrations) gave a brief overview of the important role of the Governing Body in overseeing ICC Arbitration and ADR, and an introduction to the Campaign for Greener Arbitrations and its Corporate Counsel Committee, including practical techniques to conduct arbitrations cost-efficiently and effectively with a reduced environmental impact.

 

Debate on sanctions

The last session consisted of a debate on whether financial, trade and political sanctions must be adhered to by arbitral institutions and tribunals, and whether such adherence negatively impacts their neutrality, independence, and impartiality. The debate between Joseph Chedrawe (Vice-Chair, Disputes, Europe, Middle East, and Africa, Covington & Burling LLP) and Jessica Crow (Independent Arbitrator, Arbitra International) was moderated by Colin Trehearne (Counsel, Mori Hamada & Matsumoto).

By way of introduction, it was noted by the moderator that sanctions take a variety of forms, including trade sanctions (e.g., service embargoes), financial sanctions (e.g., asset freezes), and immigration sanctions (e.g., travel bans). It was reported that the General Counsel of the ICC stated that one third of ICC arbitrations over the last two years have involved sanctions in some way. The impact on arbitral institutions includes additional compliance verifications to identify the ultimate beneficial owner of a party, and forcing institutions to consider the need to seek licenses from regulators.

The debaters raised many reasons for their assigned positions, skillfully navigating developments by institutions, practical realities, and legal impacts. The well-researched and articulated presentation added a lively closing to the day’s discussions.

 

Conclusion

The ICC Canada Arbitration Committee conference was a resounding success, not only for its enlightening and interactive discussions, but also for the palpable enthusiasm shared by the participants in meeting the Canadian arbitration community  again in person. With the program integrating many opportunities for interaction, participants were able, thanks to the masterful guidance of the panelists and facilitators, to delve into issues and connect on ideas, best practices, challenges and how to proceed into the future.

 

Follow along and see Kluwer Arbitration Blog’s prior coverage of CanArb Week here.

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Highlights from CanArb Week 2022: Review of Cross-Canada Jurisprudential Trends and Curiosities

Tue, 2022-11-22 00:38

The third edition of CanArb Week took place in Montréal from October 19 to 21, 2022. Speakers from all walks of arbitration life (academics, arbitrators, counsel, experts, leaders of arbitral institutions, and third party funders), as well as justices of the Supreme Court of Canada, gathered in the “Paris of North America”, to the delight of all participants in person and online. More than ten organizations partook in the event, including the Young Canadian Arbitration Practitioners (“YCAP”) and the Institut de médiation et d’arbitrage du Québec (“IMAQ”).

YCAP’s bilingual panel was organized in collaboration with IMAQ and was moderated by Lisa C. Munro (partner, Lerners LLP). True to the session’s title, “Arbitration case-law from sea to sea: quoi de neuf?”, panelists Eric Bédard (partner, Woods LLP), Laura Cundari (partner, Blake, Cassels & Graydon LLP) and Marie-Claude Martel (partner, Forseti) discussed three recurring themes identified in jurisprudence over the last two years: (1) the impact of resignations and bias allegations on arbitral proceedings; (2) decisions concerning jurisdiction and stay of proceedings; (3) non-signatories to arbitration agreements.

 

Resignations and bias allegations: How have they affected arbitral proceedings?

Recent years have seen a spike in arbitrator challenges (meritorious or not), prompting courts across the globe to revisit or elaborate upon applicable tests and standards of independence and impartiality. Eric Bédard addressed a few cases in which Canadian courts faced similar issues, such as Dufferin v. Morrison Hershfield and Aquanta Group Inc. v. Lightbox Enterprises Ltd.. Though the Ontario Superior Court of Justice in both referred to the “reasonable apprehension of bias” test, the outcomes were largely a result of the Court’s perception of fairness. The challenge in Dufferin was triggered by the arbitrator’s proactiveness during the hearing which, according to the applicants, “crossed from adjudication to advocacy”. The Court disagreed, treating the arbitrator’s preparedness and interventions as evidence of him being “truly a subject matter expert who seeks to find the truth”. Apart from the fact that his right to interject with questions was built into the procedural order, the arbitrator’s various inquiries did not give rise to a reasonable apprehension of bias as he always ensured that counsel had the opportunity to ask any questions that arose from his own line of inquiry. Since both parties had a fulsome hearing and were granted an opportunity to explain their evidence, the Court dismissed the application for the arbitrator’s removal.

Similar considerations of fairness led the Court to a different conclusion in Aquanta Group Inc. v. Lightbox Enterprises Ltd. where the applicant sought to appoint an arbitrator who had previously ruled in its favour in a different contract dispute involving the same parties. The other side protested arguing, inter alia, that the arbitrator had made findings against its key witnesses in the context of the earlier arbitration, and that the prior award was the subject of a set aside application. The applicant, however, submitted that the arbitrator was uniquely placed to rule on the parties’ new dispute, including on the applicant’s argument that some of the issues were res judicata, because he could rely on his personal notes from the previous proceeding (an official transcript not having been made). This is precisely why the Court ordered the parties to approach other candidates. Apart from the nearly sacrosanct principle of deliberative secrecy, which would be violated if the arbitrator were to use his notes in the new arbitration, the Court underscored the “commitment to limiting the decision-maker’s reference to the open and transparent evidentiary record [which] is fundamental to due process,” and preventing “decision-makers from having to spend more time testifying about their decisions than making them”.

Allegations of bias, however, are not the only reason why an arbitrator’s mandate may end (or not begin in the first place). Though arbitrators generally have the right to resign, the effects of such resignations on the arbitral process have stirred up debate. Whereas in SZ v. JZ, the arbitrator’s resignation terminated the arbitration, in Kubecka v. Novakovic, it did not. Because the parties in SZ had arguably agreed to arbitration only with the said arbitrator, his resignation due to potential scheduling conflicts led the Alberta Court of Queen’s Bench to find the arbitration terminated. Conversely, the Ontario Superior Court of Justice in Kubecka found no such indication and held “it would be surprising if the mere resignation of an arbitrator […] would trigger the end of the arbitral process and a return to the court’s jurisdiction.” The outcomes in both cases largely turned on the interpretation of the arbitration agreement, but also on particularities of the Arbitration Acts of Alberta and Ontario. While the panelist would not suggest addressing arbitrator resignations in the arbitration agreement itself, it may be prudent to do so in the first procedural order.

 

Issues arising on review of jurisdictional decisions and stay applications: A can of worms that will (not) be closed by new legislation?

Laura Cundari considered the Luxtona case wherein Ontario justices struggled to determine what the evidentiary record before a court reviewing tribunal’s jurisdictional decisions rendered “as a preliminary question” ought to be. As previously discussed on this blog, some allowed parties to file new evidence as of right (justifying such an approach through a correctness / de novo standard of review), whereas others imposed strict conditions for the admission of “fresh evidence”. The decision issued in 2021 by the Divisional Court (a branch of the Ontario Superior Court of Justice) confirmed the standard of review as being de novo, meaning that the reviewing court was not restricted to the evidentiary record that was available to the arbitral tribunal. Though we have probably not heard the last of this case, it has already affected a number of domestic matters, in an outside of Ontario. Hornepayne First Nation v. Ontario First Nations (2008) Ltd., Optiva Inc. v. TbaytelIris Technologies Inc. v. Rogers Communications Canada Inc., and Ong v. Fedoruk – all confirmed that “decide the matter” from Article 16(3) of the UNCITRAL Model Law presupposes a hearing de novo without deference to the arbitral tribunal’s decision. Some of these cases also emphasized the absence of appeals from courts’ judgments reviewing tribunals’ jurisdictional decisions. Though consistent with the Model Law, the panelist wondered how justified such an approach was, considering that appeals are possible when jurisdictional matters are resolved at a later stage.

Since members of the Toronto Commercial Arbitration Society Arbitration Act Reform Committee (“AARC”) were in the audience, they were asked to comment on whether these issues could be addressed through legislative reform. Indeed, in 2021 AARC released a draft commercial arbitration act which, if enacted in Ontario, would apply to both domestic and international arbitrations, thereby replacing the current dual statutory regime. While acknowledging all the dilemmas Article 16(3) has prompted, AARC’s co-chair J. Brian Casey noted that the draft maintained Model Law’s language. Any errors made in the law’s application thus far would, therefore, have to be rectified by courts.

The panelist also touched upon the recent Ontario Court of Appeal judgment in Mundo Media which concerned an application to stay judicial proceedings launched by a receiver in favour of an arbitration in New York.  The Court of Appeal upheld the Superior Court’s refusal to refer the parties to arbitration, thereby confirming that the arbitration agreement had been rendered inoperative by the “single proceeding model” – a judicial construct used to group all claims against a debtor into a single forum so as to facilitate negotiation with creditors. That, coupled with the broad discretion that courts exercise in bankruptcy matters, enabled bankruptcy courts to preclude the operation of arbitration legislation. The panelist noted that the Supreme Court of Canada would probably provide further clarifications on the interplay between arbitration and insolvency in Peace River Hydro Partners et al. v. Petrowest Corporation et al. (the judgment has since been released).

 

Non-signatories to arbitration agreements: To bind or not to bind?

Marie-Claude Martel primarily focused on the position of non-signatories in Quebec, which has been largely influenced by a recent resurgence in the application of the 1996 Court of Appeal judgment in Décarel inc. v. Concordia Project Management Ltd. In this decision the Court held that the defendant’s shareholders and directors were bound to the arbitration agreement because holding otherwise would be tantamount to “nonsense based on blind technicality and knowing ignorance of the particular circumstances of the case”. Building on that, the Superior Court in Newtech Waste Solutions inc. v. Asselin recently allowed a “reverse” veil piercing, when it bound a non-signatory corporation to an arbitration agreement entered into by its shareholder and director. Though non-signatories are usually expected to oppose arbitration, in Tessier v. 2428-8516 Québec inc. and 10053686 Canada inc. v. Tang non-signatories were the ones to seek referral to arbitration. Binding non-signatories, however, remains an exception rather than the rule.

The panelist highlighted that the courts often referred to the close links between the non-signatories and the persons (whether individuals or corporations) involved in the dispute to justify imposing arbitration on non-signatories but noted that considerations for proportionality and the avoidance of multiple proceedings seemed to have also played into the decisions. Suggesting that this recent line of cases may have connections with the fact that parties to an arbitration can no longer opt out of the application of the principle of proportionality in Québec, the panelist asked whether we would see a continuation of the trend in months to come.

***

In canvassing recent trends, the panelists’ presentations highlighted the peculiar nature of the Canadian legal system which, on the one hand, features the co-existence of common law and civil law, and, on the other, is affected by the distribution of legislative powers among the federal and provincial governments, as evidenced in Mundo Media where federal insolvency rules trumped provincial arbitration rules.

 

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

Follow along and see Kluwer Arbitration Blog’s prior coverage of CanArbWeek here.

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

Mon, 2022-11-21 00:54

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

A new upload of materials from the 2022 volume of the Yearbook Commercial Arbitration is now available in the KluwerArbitration database. The materials include ten unpublished awards rendered under the auspices of the Arbitration Institute of the Stockholm Chamber of Commerce between March 2019 and February 2022. Four of those arbitrations were conducted under the SCC Rules for Expedited Arbitrations.

The arbitrators dealt with a variety of issues, including disputes concerning works to reduce the water inflow into a tunnel; compensation for extra construction work; payment of fees under a licensing agreement; the repayment of a loan pursuant to a loan agreement; a non-compete clause; and sale and purchase agreements for chemical products and for shares in a company.

Three awards are of particular interest. First, an arbitral tribunal held that the closing conditions for the agreement to sell and purchase the shares in a company were not met, because not all asbestos found in the property owned by the company had been removed, but had only been encapsulated.

Second, a sole arbitrator found on the facts of the case that the estimate in the parties’ agreement for the costs of the development of an IT system was not a price cap. This did not mean, however, that the developer could perform any work and be entitled to compensation – rather, it was for the developer to show that the time for which it claimed compensation was reasonable. This burden of proof was met in the case because the final costs did not exceed the estimate by more than 15 percent, the range of error in respect of estimates established in the governing Swedish law.

Finally, another sole arbitrator held, under English law, that the claimant had complied with the condition precedent that an attempt be made to settle a dispute through negotiation before commencing SCC arbitration, by sending a notice of dispute to the respondents and inviting them to reply. The arbitrator found that claimant was not required to go beyond that and did not have to propose a specific date, place, and format for negotiations, or chase respondents for a response.

These materials will also be made available on the ICCA Focus on Sweden section on the KluwerArbitration site. The Focus on Sweden is an initiative collecting all materials published in ICCA’s Yearbook Commercial Arbitration and International Handbook on Commercial Arbitration highlighting Sweden as an important arbitration jurisdiction.

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Modernising The Arbitration Act 1996: A Critique of the Law Commission’s Proposed Reforms

Mon, 2022-11-21 00:26

The Arbitration Act 1996 (the “Act“), the principal legislation governing arbitration in England, Wales and Northern Ireland, came into force 25 years ago. This landmark Act has enabled London to become a top arbitral seat and England and Wales is now home to at least 5,000 arbitrations every year. On 22 September 2022, to mark this anniversary, the Law Commission reviewed the Act and published a Consultation Paper on possible reforms (the “Paper“), seeking input from stakeholders by 15 December 2022.

The objectives of the reform process are to modernise the law and ensure it remains “state of the art” for domestic arbitrations and continues to support England and Wales as the global first choice for international commercial arbitrations.

This post reviews six important topics relevant to the review namely: non-discrimination, arbitrators’ duties, summary disposal, emergency arbitration, section 44 and section 67.  All quotes are from the Paper.

 

Non-discrimination in Arbitrators’ Appointments

The Law Commission considers that the Act should prohibit discrimination in arbitrator appointments, acknowledging that, currently, nothing prevents an arbitration clause providing for “commercial men” as arbitrators from being struck down.   It proposes that the Act should:

  • prohibit arbitral appointments on the basis of an arbitrator’s protected characteristic(s) (namely: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation); and
  • render unenforceable arbitration agreements requiring an arbitrator to have a protected characteristic(s), unless in the context of the arbitration in hand it is a proportionate means of achieving a legitimate aim.

The rationale for this proposal is sound, especially when we are far from gender parity amongst arbitrators, and preventing discrimination in arbitration is paramount.  However, for the below reasons, the current proposal may not be the best way to achieve this end:

  • international arbitration practitioners will need to familiarise themselves with the Equality Act 2010 – a complex English Act – and its related jurisprudence because the terms in bold above are borrowed from it rather than being defined in a standalone way for the purposes of the Act;
  • protected characteristics” form a closed list, there being no catch-all provision to take account of future developments;
  • the “proportionate means” test will be developed by the English courts on a case-by-case basis, which could cause potential concern for foreign parties who may feel that the English court is not best-placed to consider their local cultural/religious considerations for arbitrator selection;
  • the requirements may be employed as a guerrilla tactic (e.g., to significantly stall proceedings; for example, a respondent could engage an arbitrator whose maternity leave is imminent, knowing the claimant cannot challenge the appointment because “pregnancy and maternity” are protected characteristics); and
  • awards may still face enforcement barriers under the New York Convention on the basis that the tribunal was not composed in accordance with the parties’ agreement (e.g., an all-woman tribunal appointed under a clause providing for “commercial men“).

The key is to introduce a user-friendly test which (i) would be workable for the international business community and (ii) avoids being mired in complex local legislation.  Save for one stakeholder, who expressed an opinion earlier in the reform process, we are not aware of other stakeholders expressing any concerns with the current proposal. To date, most stakeholders have either (i) not publicly critiqued the current proposal or (ii) endorsed it or the rationale underpinning it.

 

Arbitrators’ Duty of Disclosure

The Paper proposes codifying an arbitrator’s continuing duty of disclosure – outlined in Halliburton v Chubb – but is against introducing a new statutory duty of independence, asserting that an arbitrator’s connection to the parties doesn’t really matter and is often inevitable; rather, its effect on impartiality, and the openness about such connections, is what counts. This seems a reasonable approach and is an important change which modernises legislation in line with soft law.

The Paper asks whether the Act should specify the state of knowledge required of an arbitrator’s duty of disclosure duty and, if so, if it should be based on the arbitrator’s actual knowledge or an objective standard (what he/she ought to know after making reasonable enquiries).  Given the current uncertainty in English jurisprudence about the state of knowledge required, the Act should clarify this expressly.  An objective standard may be best as international arbitrators are already familiar with this under the widely-consulted IBA Guidelines on Conflicts of Interest (General Standard 7(d)).

 

Summary Disposal

The Paper proposes an express summary disposal procedure that uses the English courts’ threshold, namely the claim/defence has “no real prospect of success” and there is “no other compelling reason” for it to continue to full hearing.  This is a rare but welcome proposal, not commonly found in foreign arbitration legislation, which seeks to promote cost and time efficiency and to reassure arbitrators, and foreign enforcing courts, that summary disposals may be appropriate and proper in the right circumstances (thereby combatting due process paranoia). This proposal could be particularly appealing to financial institutions enforcing payment obligations so may be attractive to speed up arbitrations.

The Act could adopt the “manifestly without merit” test outlined in many institutional rules, which may be better known by international arbitrators, but there is no settled jurisprudence on its meaning. Conversely, the meaning of the proposed threshold is clearly articulated in English case law, so this is likely to be the better option for legal certainty. The threshold set by English law is also high which should appease any concerns that foreign parties may have about this new procedure.  

The Paper proposes that:

  • the summary procedure can only be invoked by party application (not unilaterally by an arbitrator); and
  • the tribunal must consult with the parties on the form of the procedure.

Users should welcome these proposals, designed at protecting party autonomy and procedural due process whilst allowing flexibility.  However, the Act should also incorporate a reasonable time limit for arbitrators to make their determination in order to protect against delay.

 

Emergency Arbitration and Section 44 (Court Powers Supporting Arbitral Proceedings)

Emergency arbitration is a new phenomenon which post-dates the Act.  The Paper provisionally concludes that the provisions which apply to arbitrators should not apply to an emergency arbitrator (“EA“) because many of them would be inappropriate in such context. Moreover, an EA regime should not be administered by the courts but by arbitral institutions, which are best-placed to administer such proceedings under their rules.

Adopting this proposal would mean that ad hoc arbitrations cannot, in future, benefit from an EA regime, something now well-engrained in modern arbitrations. This is significant because many traditional sectors, such as construction and commodities, as well as more recently established ones, such as FinTech, favour ad hoc arbitration as an efficient option for resolving disputes. Consideration should therefore be given to ensuring that the Act provides an EA regime which could apply to ad hoc arbitrations and to institutional arbitrations where no EA mechanism is otherwise available.

The Paper addresses non-compliance with EA orders and proposes either:

  • permitting an EA to issue a peremptory order, backed up by a court order, if ignored; or
  • bringing EAs into the remit of section 44 and allowing EAs to give permission for section 44(4) applications so that the court can grant interim relief relating to the EA order.

While (ii) is simpler, (i) maintains the primacy of the arbitral regime and is what practitioners are accustomed to under sections 41 and 42.

The Paper discusses what it describes as the widespread, but “incorrect”, perception that following the decision in Gerald Metals, section 44(5) of the Act precludes recourse to court where emergency arbitration is possible. Consequently, it suggests repealing section 44(5). Given the controversy generated by Gerald Metals, repealing section 44(5) would simplify things and would clarify that the Court can assist in the EA context within the confines of sections 44(3) and 44(4).

To address the “vexed question” of whether an order under section 44 can be made against someone who is not a party to the arbitration proceedings/agreement (“third party“), the Paper asks whether s44 should be amended “to confirm that its orders can be made against a third party“. Third party orders are possible for most, but not all, matters listed in section 44(2) – it depends on the applicable domestic law rules, which are imported into that section.  For this reason, it may be confusing to adopt the proposed blanket confirmation; it would likely be clearer to maintain the current status quo, especially in light of the evolving law concerning the matters listed in section 44(2).

 

Section 67 Challenges (Challenging Award Based on Tribunal’s Lack of Jurisdiction)

Currently, section 67 challenges may proceed by way of a re-hearing, with the inevitable duplication of cost and time (since the tribunal’s ruling is given no weight) but with the advantage of the court having the final say.

The Paper proposes that a section 67 challenge should instead take the form of an appeal (review of the award) in circumstances where:

  • a party has participated in the arbitration and objected to the tribunal’s jurisdiction; and
  • the tribunal has ruled on jurisdiction in an award.

This seems sensible in order to prevent (i) the “heads I win, tails it does not count” mentality (ii) the tribunal’s jurisdictional hearing being a “dress rehearsal” and (iii) duplication.

Currently, a party may also ask the court to determine a point of jurisdiction under section 32, which is possible either before or after a tribunal has ruled on its jurisdiction. It makes sense for the proposed ‘appeal, not rehearing’ reform to apply equally to section 32 where the tribunal has ruled on jurisdiction. However, serious consideration should be given to whether it should apply in the following scenarios: (i) section 32 applicants who do not possess a tribunal ruling on jurisdiction and (ii) non-participating parties in an arbitration who may seek a jurisdictional determination or apply under section 67 (see section 72), since there will be no award to review or “second bite of the cherry“, respectively.

 

Conclusion

The Act would benefit from modernisation but the objective should be to maintain the simplicity of its 1996 counterpart and to avoid complexity. Many, but not all, of the current proposals achieve this objective.

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World Arbitration Update: “Balancing the Protection of Foreign Investors and States Responses in the Post-Pandemic World” – Book Launch Program

Sun, 2022-11-20 00:41

The current era of emergencies, which includes climate change, environmental challenges, armed conflicts, and health crises, has a profound impact on foreign direct investment (FDI). A panel held on 27 September 2022 as part of the second edition of the World Arbitration Update (WAU) engaged with the effect of such global emergencies on international investment law (IIL) by focusing on ideas related to “Balancing the Protection of Foreign Investors and States Responses in the Post-Pandemic World”, a book published by Kluwer earlier this year and co-edited by Dr. Yulia Levashova and Dr. Pascale Accaoui Lorfing (also authors of book chapters). The book provides a comprehensive understanding of the impact of Covid-19 crisis on the IIL regime from both a State and an investor perspective. It draws focus to the analysis of investor rights and State defences from a multi-jurisdictional and regional standpoint, including Latin America, India, Korea, the United States and Russia. The book’s detailed examination of the effects of a pandemic on States and investors demonstrates how any crisis can alter the balance between investors’ legal protection under IIAs and the State’s regulatory authority to implement emergency measures.

The panel was moderated by Dr. Alvaro Galindo (Universidad de las Americas; Carmigniani Pérez Abogados) with speakers Ms. Munia El Harti Alonso (Xtrategy LLP), Dr. Pascale Accaoui Lorfing (Research Associate CREDIMI – University of Burgundy), Dr. Yulia Levashova (Nyenrode Business Universiteit), and Dr. Crina Baltag (Stockholm University).

 

Risk Allocation – “Emergency Provisions” in Contracts and IIAs

Ms. El Harti Alonso addressed “emergency provisions,” a concept that encompasses several different kinds of specific clauses that may be found in commercial contracts and international investment agreements (IIAs) (e.g. necessity and armed conflict clauses, as considered by the tribunal in CMS v. Argentina, para 353). She examined such emergency provisions through the lens of risk allocation because, fundamentally, the very existence of emergency provisions is premised on risk allocation (see e.g. Strabag v. Lybia referring to force majeure, para 791). She explained that such provisions are usually drafted by both contracting parties, or/and by the States that are parties to the relevant IIA. She elaborated that, in the FDI context, risk allocation provisions in related commercial contracts may be also invoked in  an investor-State dispute, as the investment tribunal may “identify and give effect to the risk allocation agreed by the parties in each contract” (see e.g. Strabag v. Lybia, para 791). This may include commercial contracts entered by an investor with a State – owned enterprise. With respect to IIAs per se, in Guris v. Lybia the tribunal went further and extended the risk allocation mechanism of the related commercial contract to its analysis of the IIA itself, in particular as to the emergency provision of the BIT such as the war losses clause of the 2004 Syria-Italy BIT (Guris v. Lybia, para 322). Ms. El Harti Alonso pointed out the triangular nature of IIAs, noting that in a Bilateral Investment Treaty (BIT), the host state and home state (rather than the investor) are the sole drafters of the clause. The State, through its role in drafting the clause, can be deemed to concomitantly have “assumed the risk of that situation [of force majeure (FM)] occurring” (Guris v. Syria, para 322, ibid). Such complexity is illuminated through the state’s triple identity, as elaborated by Patrick Pearsall in his article ‘The Role of the State and the ISDS Trinity’ (2018), where he explained that in the IIL regime the host state wears a triple hat as “treaty drafter, protector of investment and respondent.

 

Covid-19 and Fundamental Change Of Circumstances

Art. 62 of the Vienna Convention on the Law of Treaties (VCLT) sheds light on change of circumstances (CoC) in the international treaty regime and, as a general rule, provides that CoC may not be invoked as a ground to terminate or withdraw from treaties unless:

  1. there has been fundamental change of circumstances;
  2. such a change was not foreseen by the parties while concluding the treaties;
  3. previously existed circumstances were the essential basis of consent of the parties to be bound by the treaty; or
  4. the effect of the change is radically to transform the extent of obligations still to be performed under the treaty.

Dr. Galindo explained the legal effects of Art. 62, primarily focusing on the role of travaux préparatoires of the VCLT. He highlighted that CoC and consequences of pacta sunt servanda may apply in certain crisis situations. States may invoke Art. 62 VCLT to withdraw from IIAs upon a fundamental CoC occurring as a result of the crisis. However, it must be noted, the threshold to invoke CoC is high, as demonstrated in the Gabčíkovo-Nagymaros Project ICJ case as the conditions mentioned above must be cumulatively satisfied. With further nuance, Dr. Galindo added that going forward, attention must be paid to the strategy used by tribunals when resolving Art. 62 VCLT in connection to IIAs.

 

The State’s National Security Interest and Force Majeure

In the intricate IIL regime, States’ efforts to maintain national security are in the limelight. To safeguard national security interests, States may recourse to the provisions regulating essential security interest (ESI) or/and to the defence of force majeure (FM). Dr. Accaoui Lorfing’s chapter and presentation examine what constitutes FM, drawing attention to three sources that may provide guidance: (i) FM as defined by customary international law (CIL) as provided in  the ILC’s Draft Article on Responsibility of States for Internationally Wrongful Acts (2001) (ARISWA) Art. 23; (ii) FM as defined by national legislation and soft law; and (iii) FM clauses in contractual practice.

She emphasized the non-mandatory nature of FM clauses in national legislation, recalling that States may draft these clauses to prioritize either restrictive or expansive FM definitions. In terms of the obligation to notify the other party on FM, usually national legislation makes no mention of it, whereas soft law requires it. As such, she advised that these clauses should be drafted with a greater caution to include a list of qualified events as exemplified in the ICC model Clause on FM of 2020. This will assist parties in avoiding the situation in which a tribunal must determine what constitutes an FM situation and whether the FM clause applies in the case at hand.

States take measures for the protection of ESI i.e., national security, environment, climate change and human rights by including essential security exception clauses in IIAs. Dr. Accaoui Lorfing emphasised that ESI exception clauses have been included in an increasing number of the new-generation IIAs. As a result, tribunals will have to take these clauses into account more frequently in the future by carefully analysing their scope and the measures falling under an exception clause precluding liability, particularly in relation to the environment, human rights, and climate change. As the decision in Eco Oro v. Colombia case demonstrates, tribunals do not always give due consideration to the exception provision contained in an applicable IIA (para 829).

 

Legitimate Expectations of an Investor and the Right to Regulate

When States take measures during a crisis situation, such measures may interfere with the legitimate expectations of foreign investors under the fair and equitable treatment (FET) standard. Dr. Levashova addressed the tension of FET in relation to States’ right to regulate (RTR). She drew upon her research to explain that RTR has been recognized by tribunals in the assessment of the legitimate expectations of an investor and comprised of several elements. These are:

  1. States have inherent powers to RTR under customary international law;
  2. States can modify their laws as a part of the RTR; and
  3. the State’s legitimate objective in serving the public interest is among factors that is assessed as part of an overall balancing exercise.

She elucidated that, in recent cases such as Renergy S.à r.l. v. Kingdom of Spain and Sevilla Beheer B.V. and others v. Kingdom of Spain, tribunals have underscored that the assessment of legitimate expectations implies an inherent balancing of a state’s RTR and the investor’s rights. However, the manner in which tribunals perform the balancing exercise varies and there is no particular methodology followed in weighing the investor’s expectation and the State’s regulatory conduct. She pointed out to a lack of clarity regarding the hierarchy and allocation of weight among these factors in a tribunal’s final determination regarding the breach of legitimate expectations. Thereafter, she drew the attention to a State’s legitimate objective in serving the public interest and stated that it is only one among other intermediary factors in tribunals’ assessments. This sometimes might be problematic specifically in cases that involve a strong public interest, as was demonstrated in an assessment of FET standard in Eco Oro v. Colombia case.

While discussing the investor’s expectations of stability that may by a subject to protection, Dr. Levashova underlined that the scope of permitted regulatory changes is subject to ambiguity. She emphasized that FET claims arising out of the instability of a regulatory framework as a result of State measures aimed at dealing with any type of emergency are especially relevant in the context of a health, economic or environmental crisis. Finally, she explained that prevalent number of tribunals underlined that a State has an obligation to ensure a stable economic and legal regime, and that the FET protects only against drastic changes or fundamental changes, while pointing out that this definition that may and is interpreted in different ways does not clarify the scope of permitted regulatory changes.

 

New Horizon – Moving Forward

Considering various emerging crises, it is critical to understand what comes next in the IIL regime. In this regard, Dr. Crina Baltag stressed that the book co-edited by Dr. Levashova and Dr. Accaoui Lorfing addresses the issue of a health crisis in a timely manner given the existing IIL framework and its critics. Dr. Baltag observed that the IIL framework is clearly evolving. As reforms are visible especially in the context of the next-generation of IIAs that include the elaborated RtR provisions, as well as specific exceptions and carve-outs.

In discussing new horizons in the IIL regime, she identified four lessons that can be learned from the pandemic and in the context of ongoing ISDS reform:

  1. Collaboration: During the Covid-19 pandemic, there was clear cooperation between investors and States. Many States implemented the measures in such a way that allowed investors to successfully deal with the impact of these measures on their investments. She stated that, such collaborations are an important takeaway from the pandemic.
  2. Tools vested with investors and State: She addressed the tools available to both States and foreign investors to cope with a health crisis, such as the Covid-19 pandemic. States, in her opinion, should always follow a transparent process when dealing with investors.
  3. Novel elements and changes: She elucidated that Art. 62 VCLT is an unexplored tool in IIL that may become more relevant in the future.
  4. States’ responses: In addressing the States’ responses to a crisis, more attention must be paid to FM clauses in national and soft law, as well as State responsibility in the IIL regime pertaining to preclusions, as reflected in ARISWA Chapter V.

***

In sum, the webinar elucidated the legal nuances of the IIL regime in relation to crisis situations, such the Covid-19 pandemic. The discussions contained a timely analysis of the mechanisms that States can use to deal with an emergency, as well as the legal tools available to foreign investors under contracts and IIAs to protect their investments.

For additional coverage of World Arbitration Update click here.

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