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Interviews with Our Editors: Reflecting on Arbitration Down Under with Georgia Quick, President of the Australian Centre for International Commercial Arbitration

Mon, 2021-10-04 01:21

Georgia Quick is a senior partner in Ashurst’s dispute resolution group and joint head of the firm’s Australian international arbitration practice. Dual qualified in Australia and England & Wales, she has been extensively involved with the Australian Centre for International Commercial Arbitration (“ACICA”), having joined the Board in 2010 and sat as a Vice President on the Executive Committee since 2015. She was appointed ACICA’s new President in June 2021. Her practice focuses on complex construction, energy & resources disputes.

 

Thank you, Georgia, for joining us today!

 

  1. Congratulations on your appointment as President. You have had a long-standing and active involvement with ACICA for over a decade, including through various leadership roles on the Board and Executive Committee. How has the institution changed over this time?

In the past decade, ACICA has undergone significant change. This has followed on from the tremendous work of past presidents Dr Michael Pryles AO, Prof. Doug Jones AO and Alex Baykitch AM, and the success of hosting the ICCA conference in Sydney in 2018. In more recent times, the executive and secretariat under the presidency of Brenda Horrigan have expanded in the following ways:

    1. The introduction of State Committees.
    2. The inception of the ACICA Council.
    3. Enhancement of the Judicial Liaison Committee.
    4. An active Practice & Procedures Board.
    5. A larger and more active secretariat with increased caseloads and claim values.

Bringing on Deborah Tomkinson as Secretary-General has also been instrumental in implementing long-lasting structures and initiatives into ACICA. Deborah is an experienced arbitration practitioner who practised international arbitration at three major law firms both in Australia and the Middle East. She is enthusiastic and committed to promoting international arbitration.

 

  1. As ACICA’s recently elected President, would you like to share with our readers your vision for the future of the institution? Are there any specific issues or initiatives that you and your team would like to focus on over the next two years?

The vision is to continue our recent growth and to leverage off the high-quality legal system and resources we have in Australia, including market-leading skills in construction and energy and resources law. This ensures Australian and foreign parties alike are confident in selecting the ACICA Arbitration Rules 2021, Australian arbitrators and counsel, as well as our major cities as arbitration seats. COVID-19 has shown us all that any perceived tyranny of distance need not be so.

ACICA’s key projects over the next two years include:

    1. Increasing ACICA’s outreach domestically with legal organisations and other corporates and industry organisations. This includes the work of our State Committees to help ensure that ACICA is truly engaging nationally, with greater focus on our users’ experience with a more active User’s Council.
    2. Increasing ACICA’s outreach internationally in Asia and also the Pacific region, where the work by the Asian Development Bank has meant that a number of our neighbours have recently updated their arbitration acts and adopted the New York Convention.
    3. Continuing ACICA’s work on the Judicial Liaison Committee, working hand-in-hand with the Australian judiciary to harmonise arbitration-related practices, and assisting with judicial outreach and education in relation to arbitration.

 

  1. Let’s discuss ACICA’s newly revised Arbitration Rules and Expedited Arbitration Rules. This is now the fourth iteration of the institution’s rules since ACICA was formed back in 1985. What do you see as the key benefits for arbitrations conducted under the new rules compared to previous iterations? How would you compare the new rules with those of other arbitral institutions around the world?

We updated ACICA’s Arbitration Rules and Expedited Arbitration Rules to reflect best practice in international arbitration and increase efficiency overall. Given the rapid evolution of international arbitration, the ACICA Rules Committee, chaired by James Morrison and Malcolm Holmes QC, and composed of practitioners with experience from a number of major arbitration jurisdictions, have been constantly looking to when a rules update is appropriate; balancing keeping pace with reasonable levels of certainty.

Additionally, like other institutions (including the LCIA and ICC), ACICA adapted to the new virtual work environment. While we had already modernised the proposed 2021 Arbitration Rules (through electronic filings and data protection), the ACICA Rules 2021 now expressly empower tribunals to hold virtual hearings.

Some of the other bigger changes ACICA has made include:

    1. Introducing the ability of a party to file a single arbitration for multi-contract arbitrations (Article 18), similar to the HKIAC, ICC, SCC and SIAC rules. Article 18 allows for this to occur even if the contracts are not between the same parties, however only if they meet the other criteria set out in Article 16.
    2. Increasing efficiency by allowing the Secretary-General (rather than ACICA) to confirm the nomination of an arbitrator under certain circumstances. This allows ACICA to resolve questions of independence, impartiality and availability before any arbitrator is appointed.
    3. Requiring tribunals to introduce the possibility of using alternative dispute resolution mechanisms, including mediation, or to suspend proceedings for such a discussion at the request of a party (Article 55).
    4. Finally, like other institutions (e.g. HKIAC, ICC) we have required the disclosure of third-party funding arrangements, including law firm contingency fees (Article 54).

The Arbitration Rules 2021 ensure ACICA continues to have up to the minute best practice rules. To some extent the rules between the major arbitral institutions share common high standards, but the implementation of those rules and the service and resources provided will distinguish them.

The amendments made in the Arbitration Rules 2021 underscore the commitment ACICA has to international best practice and improving user experience, in as efficient a manner as possible. Compared to other institutions, we offer our services at a relatively low cost and are ‘light touch’. Australian international arbitration lawyers have a reputation for being conscientious practitioners, and ACICA’s team is no exception.

Our focus will continue to be our users. Working with a group of experienced practitioners based across the Asia-Pacific region, ACICA has continued to develop a toolkit of guidance notes and sample documents to assist users, regardless of their experience or practice background. We hope these materials will be of use to those conducting arbitrations in the region, even outside of the ACICA Rules. Further, in 2018, ACICA founded ACICA45 for the purpose of encouraging more junior practitioners to engage with arbitration and to meet other practitioners. ACICA45 also has a number of recorded webinars on our website setting out the life cycle of an arbitration.

 

  1. What are some of the key market trends you are seeing in international arbitrations specific to the Oceanic region?

The 2020 Australian Arbitration Report confirms that the leading sectors for international arbitrations involving Australian parties are construction, oil & gas, mining and resources and transport. There are a number of joint venture related disputes for all of these sectors.

Additionally, we are seeing an increase in disputes relating to the shift to renewables, both in the development of these projects and in climate change disputes. With increased corporate social responsibility and an abundance of renewable energy within Australia, an enormous number of renewables projects are being pushed through. As with any wave of development, disputes follow and challenges with grid infrastructure and regulation have made this all the more prevalent.

We also see increased development in the Pacific Islands, with a number recently adopting the New York Convention and engaging in legislative reform, including Fiji, Palau, Tonga and Papua New Guinea.

 

  1. Australia’s strategic, political, and economic pivots towards Asia has been much discussed in the past decade. Do you see arbitration in Australia pivoting towards Asia?

This is not so much a pivot as a reflection of what is already happening. 65% of Australia’s trading partners are Asian countries. A significant number of ACICA’s arbitrations have an Asian-based party.

Geopolitical shifts and perception create ever-growing opportunities for Australia to provide a known safe seat, and for Australian legal practitioners to assist with these matters in the region. This reflects the importance of having a stable and neutral seat, and an international reputation for a strong rule of law, supported by a fair, efficient, and high-quality judicial system.

 

Thank you for your time, Georgia. We wish you and the ACICA leadership team all the very best!

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

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Rekindling the Debate on Enforcement of Foreign Seated Emergency Awards in India

Sun, 2021-10-03 01:33

Recently the Supreme Court of India in Amazon.com NV Investment Holdings Inc. v. Future Retail Ltd, (“Amazon v. Future”) took a progressive step by enforcing an emergency order/award rendered by an emergency arbitral tribunal appointed by Singapore International Arbitration Centre (“SIAC”). The Court held that the term ‘arbitral tribunal’ contained in section 17 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) includes an ‘emergency arbitrator’ within its fold. Therefore, the Court held that its order/award is enforceable in India.

However, this case is hardly an authority for the proposition that foreign-seated emergency awards are enforceable in India. This is because Amazon sought to enforce a Delhi-seated emergency award, i.e. though the administering institution was SIAC, the tribunal itself was not foreign-seated.

Provisions enabling enforcement of emergency awards

Section 17(2) of the Arbitration Act, inserted vide the Arbitration and Conciliation Amendment Act, 2015 (“2015 Amendment”), provides by a deeming fiction that any order issued by an arbitral tribunal (seated in India) shall be deemed to be an order of the court and shall be enforceable as such. Therefore, since the arbitral tribunal in Amazon v. Future was domestically seated, it was able to enforce the award under this provision.

However, had the award been rendered by a foreign seated arbitral tribunal, the court could not have relied upon section 17(2) to enforce the emergency award since Part-I of the Arbitration Act does not apply to a foreign seated arbitration (see Bharat Aluminium Company v. Kaiser Aluminium Technical Services; read here for a detailed discussion on the applicability of Part-I to foreign seated arbitrations).

While Amazon v. Future is a shot in the arm for enforcing domestically seated emergency awards, it has rekindled the debate on the enforceability of foreign seated emergency awards in India.

Previous decisions on enforcement of foreign seated emergency awards in India

In 2016, the Delhi High Court in the case of Raffles Design v. Educomp Professional Education (“Raffles v. Educomp”) held that an emergency award by a foreign seated arbitral tribunal was not enforceable under the Arbitration Act and it could only be enforced by filing a suit (¶99). The court held that in the alternative, the party which had obtained a foreign seated emergency award would have to de novo seek interim orders from the domestic court in terms of the emergency award.

This approach goes against the entire basis of lending credibility to awards/orders of emergency arbitral tribunals. The Supreme Court of India in Amazon v. Future (¶32, 35) has recognized the reasons underlying the setting up of emergency arbitral tribunals, which are:

  1. to de-congest an already clogged court system; and
  2. to grant timely and efficacious interim relief to a party.

Thus, there are sufficient policy considerations to recognize emergency awards.

Enforcing foreign seated emergency awards in India: Examining the provisions of the Arbitration Act

The award/order of a foreign seated emergency arbitral tribunal may be enforced in India with the support of certain existing provisions under the Arbitration Act.

  1. Section 27(5)

As originally introduced, Section 17 of the Arbitration Act empowered arbitrators to pass interim orders but did not provide for any mechanism to enforce such orders. (see Sundaram Finance Ltd v. NEPC  India  Ltd.) Against this backdrop, the Delhi High Court in Sri Krishan v. Anand held that under section 27(5) the court had the power to punish a party for contempt at the instance of the arbitral tribunal if the party is in breach of the interim orders passed by the arbitral tribunal.  This interpretation received the imprimatur of the Supreme Court in Alka Chandewar v. Shamshul Ishrar Khan where the court held that the orders of the arbitral tribunal cannot be rendered a dead letter.

Section 27(5) is a salutary provision that does not trace its source to the UNCITRAL Model law but has been incorporated on the lines of section 43(2) of the now-repealed Arbitration Act, 1940. Section 43(2) empowered the court to subject persons guilty of contempt to the arbitrator to the same disadvantages, penalties, and punishments like offences in suits tried before the court. The same provision has now been incorporated legislatively in section 27(5) of the Arbitration Act.

After the 2015 Amendment applied section 27 to foreign seated arbitrations (vide the amendment to proviso to section 2(2)), section 27(5) can a fortiori be used to enforce emergency awards of foreign seated arbitral tribunals, just as it had been pressed into service for enforcing interim orders by domestic tribunals. Not doing so would render the application of section 27 to foreign seated arbitrations otiose.

Even the 246th Report of the Law Commission of India, which formed the basis of the 2015 Amendment, specifically observed that the purpose of the amendment to section 2(2) was to empower Indian courts to exercise jurisdiction under section 27 even to foreign seated arbitrations. Further, in applying section 27 to foreign seated arbitrations, the Arbitration Act has knowingly deviated from the UNCITRAL Model Law, which only intended to apply this provision to domestically seated arbitrations.

It appears from Raffles v. Educomp (supra) that this argument was advanced by the respondent, but was rejected without undertaking a proper examination (¶102). The court reasoned that a person guilty of not following interim orders of a foreign seated arbitral tribunal could not be punished in India.

The court, however, failed to consider that the party breaching the order would be located within the jurisdiction of the court in India where the court can exercise its jurisdiction in personam. Section 27 is a provision to aid the arbitral tribunal where a party or witness is located within the jurisdiction of the court and the court would exercise this power even at the instance of a foreign seated arbitral tribunal. As such, this provision may be resorted to for enforcing orders of a foreign seated arbitral tribunal rendered during the conduct of the arbitral proceedings.

  1. Enforcement as a foreign award

In appropriate cases, an emergency award may even be enforced as a foreign award under Part-II of the Arbitration Act. Under rule Rule 1.3 of the SIAC Rules, 2016 an ‘Award’ is defined to include an award of an Emergency Arbitrator. Similarly, Rule 9.9 of the DIFC-LCIA Arbitration Centre Arbitration Rules, 2021 prescribes that an emergency award shall take effect as an award.

Arguably, the term ‘arbitral awards’ under Article I section 2 of the New York Convention on the recognition and enforcement of foreign arbitral awards (“New York Convention”) is wide enough to encompass an ‘emergency award’ within its fold.

Thus, depending on the nature of the relief granted by the emergency tribunal, a foreign seated ‘emergency award’ may fall within the wide definition of a ‘foreign award’ under section 44 of the Arbitration Act.

An equitable relief granted by the emergency arbitrator may fall within the meaning of an ‘interim award’ and even if an interim award is intended to have effect only so long as the final award is not delivered, such an award may also qualify to be an ‘interim award’, depending on its form (Satwant Singh Sodhi v. State of Punjab ¶6).

In case an equitable emergency award is granted by the arbitral tribunal to prevent an irreparable injury to the applicant, such an order may have the trappings of finality and thus, enforceable as an award. The New York District Court in Yahoo! Inc. v. Microsoft Corp. applied these tests to confirm an emergency award and enforced it. While there have been other cases in the United States refusing to enforce an emergency award, a case-to-case evaluation may be considered by the court and lean towards a pro-enforcement approach so as not to render the emergency award meaningless.

Concluding remarks

It is desirable that Article 17H and 17I of the UNCITRAL Model Law recognizing and enforcing interim orders passed by foreign seated arbitral tribunals be legislatively inserted in the Arbitration Act, akin to the Singapore and Hong Kong legislations, for complete clarity on this subject.

However, until such time that legislators catch up to the international trend, these arguments will aid the enforcement of foreign seated emergency awards so that the orders passed by these tribunals are not rendered unenforceable in India. These interpretations would otherwise be in line with the New York Convention, which binds parties to enforce foreign arbitral awards unless they fall within the limited grounds enumerated under Article V of the Convention.

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The Contents of Journal of International Arbitration, Volume 38, Issue 5 (October 2021)

Sat, 2021-10-02 01:00

We are happy to inform you that the latest issue of the journal is now available and includes the following contributions:

 

Michael Hwang S.C. & Kevin Tan, The Time Limit to Set Aside an Award under Article 34(3) of the Model Law: A Comparative Study

The time limit to set aside an award under the United Nations Commission on International Trade Law (UNCITRAL) Model Law is three months. Although Article 34(3) of the Model Law does not appear to confer upon domestic courts discretion to extend this time limit, some exceptional decisions from Asian Model Law jurisdictions suggest that such discretion exists. This article argues that, notwithstanding these decisions, domestic courts do not have any discretion to extend the time limit to apply to set an award aside. This article also highlights certain recurring fact patterns commonly seen when parties try to argue in favour of such a discretion, and studies how the courts in various jurisdictions have treated these similar situations.

 

Nathalie Allen, Leonor Díaz Córdova & Natalie Hall, ‘If Everyone Is Thinking Alike, Then No One Is Thinking’: The Importance of Cognitive Diversity in Arbitral Tribunals to Enhance the Quality of Arbitral Decision Making

The popularity and longevity of international arbitration depends heavily on the quality of arbitral awards, the arbitral process, and the tribunals appointed by practitioners and institutions. In this article, the authors argue that practitioners and institutions need to consider a more diverse range of candidates for arbitrator appointments, to enlarge and diversify the pool of arbitrators. Not only does diversity make sense from an ethical standpoint, but research has also shown that increased cognitive diversity is required to reduce the risk of biased decision making and improve the quality of awards. More cognitively diverse arbitral tribunals are therefore necessary to preserve the continued legitimacy and success of international arbitration.

 

Morten Broberg & Niels Fenger, Preliminary References to the European Court of Justice by Arbitration Tribunals

When a court or tribunal of an EU Member State is faced with a dispute which gives rise to questions concerning the interpretation or validity of an EU legal measure that must be answered in order for the national court to render its decision, Article 267 of the Treaty on the Functioning of the European Union lays down that, prior to delivering its judgment, this court or tribunal may seek a preliminary ruling from the European Court of Justice. With the increased importance of EU law within those legal fields where arbitration is often used and with the growing number of arbitration proceedings, the preliminary ruling procedure may also be valuable to arbitration tribunals. However, the European Court of Justice has shown a pronounced reluctance when it comes to allowing arbitration tribunals access to use the preliminary reference procedure. This article provides an up-to-date examination of the Court of Justice’s approach to preliminary references from arbitration tribunals, and it considers the pros and cons of opening more up for such tribunals using the preliminary reference procedure.

 

Felix Krumbiegel, The Applicability of the Russia-Ukraine Bilateral Investment Treaty to Crimea in the Light of the Duty of Non-recognition in International Law

According to international law, Russia’s territorial claim over Crimea shall not be recognized as it was brought about by a violation of the prohibition of violence. Despite this obligation, several arbitral tribunals have recently accepted jurisdiction in claims brought by Ukrainian investors under the Russia-Ukraine BIT and declared the Russia-Ukraine BIT applicable. I consider the arbitral tribunals’ reasoning to be inconsistent with the duty of non-recognition. Therefore, I analyze possible alternative ways in which Ukrainian and non-Ukrainian investors can obtain protection for their investments in Crimea under the Russia-Ukraine BIT without implicitly recognizing Russia’s territorial claim over Crimea.

 

Mikhail Batsura, Limits to Party Autonomy in Appointing Counsel in International Commercial Arbitration

The right of a party to appoint its own counsel is an integral aspect of party autonomy and one of the fundamental rights enjoyed by the parties in international arbitration. However, party autonomy is not absolute and has its limitations. This article discusses whether the parties are free to appoint their legal counsel or face any applicable restrictions when making such appointment. The article invites a discussion on an existence of the immutability principle in international commercial arbitration and its tension with party autonomy in the selection of legal counsel (if any). Finally, the article proposes possible solutions for regulation of a party’s right to appoint a counsel of choice.

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ARBinBRIEF: New Initiative Kicking Off With A Group Of Trailblazers

Sat, 2021-10-02 01:00

This week has seen the launch of a new initiative – ARBinBRIEF. ARBinBRIEF is a practical video guide on handpicked arbitration issues. ARBinBRIEF aims to provide a concise, yet very informative insight into arbitration-related topics to all members of the arbitration community. The ARBinBRIEF series is divided into seasons consisting of 10 episodes each. Each episode will be recorded during a 15-minute live conversation between two stellar arbitrators and will be made available on the ARBinBRIEF YouTube channel. The episodes will air every fortnight. Attendees of the live event will be able to participate in a (non-recorded) Q&A and networking session thereafter.

 

The kick-off

ARBinBRIEF is a practical video guide that aims to deal with handpicked issues in arbitration. For the kick off event though, the founders of the series decided to take a different approach and learn from those who opted to pursue paths less taken. There is no recipe for success, but success definitely leaves clues. And the panellists left plenty of them. The discussion focused on highlighting the diverse career paths of the speakers, their dedication to initiatives that benefit the entire arbitration community and aim to challenge the status quo, as well as provide for a fulfilling and meaningful professional path.

The kick off took place on 29 September 2021, with a panel titled “Trailblazers: Ambition Meets Extraordinary” featuring a group of extraordinary individuals who have opted for different paths in pursuing their careers and have sought to achieve a purpose that goes beyond themselves:

Olga Hamama (Co-Founder and Partner of V29 Legal) moderated the panel.

 

Surround yourself with role models

Olga started off by remarking that success does not have a fixed recipe. Each path is distinct and extraordinary in its own way. Nadja, as the founder of breaking.through, is one of the people making such diversity visible with her platform.

When Nadja first entered the world of big law fresh out of law school, she noticed that there was a disparity between the number of men and women at the top. Many women would give up on the career of their dreams because they did not see enough role models at the top – someone they could learn from and go to for advice and guidance. That is when the idea for Nadja’s initiative was born. breaking.through publishes portraits of such role models, providing their insights on career-related questions. Within just three years, the platform has become the biggest career platform for women in the field of law in Germany and Switzerland. Because of this success, the team has now grown to 30 members working on additional services offered by breaking.through – events and workshops targeted at developing soft skills as well as mentoring opportunities.

 

Dedicate yourself over time and apply yourself

Amani did not start off her career as a lawyer. Law was her “Plan B” while she pursued her passion as a professional tennis player.

Having been confronted with poor remuneration and a short “shelf-life” as a tennis player, Amani decided to go back to her “Plan B” and pursue law.  A lot of what she learned through tennis formed her into the successful lawyer she is today. Two aspects from those days as a tennis player have particularly influenced her career:

  • the repetitive nature of training where you do not see the results right away and only years later looking back do you realize that you have the tools to achieve what you want if you chisel away at something long enough; and
  • time management skills by learning how to organise her time as an athlete while at the same time continuing her schoolwork.

Amani has now found her way back to sports by acting as an arbitrator on the Basketball Arbitral Tribunal (BAT) and as an anti-corruption hearing officer of the Tennis Integrity Unit. In this context, she spoke about serendipity because the opportunity to come back to sports came only by chance –while substituting a speaker at a DIS40 event and meeting a colleague who ultimately paved the way to her appointment as an arbitrator at BAT.

 

Fight for the things that you care about, but do it in a way that will lead others to join you

Rekha spoke about her experience with building something new – the New York International Arbitration Center. As a non-profit organization, NYIAC promotes and enhances the conduct of international arbitration in New York, offers educational programming, and operates arbitration hearing facilities. When Rekha was offered the role of an Executive Director, she did not know what it meant to work for NYIAC but knew that it offered an opportunity to build something up and grow while doing it. She did not hesitate to jump and take on the challenge.

In 2021, Rekha co-founded the Racial Equality for Arbitration Lawyers (R.E.A.L.) initiative along with other prominent practitioners and diversity advocates. In her words, “it is time to talk about race in the international arbitration community”. By co-founding the R.E.A.L. initiative, Rekha started by simply building a community that would talk about racial issues in arbitration  and would slowly build itself and spread the word around. The R.E.A.L. initiative has now grown to a network of committees and ambassadors promoting its goals around the globe. It also offers scholarships that can be used for a variety of things from courses and workshops to just event attendance – providing opportunities to professionals that would otherwise be beyond reach.

 

Remain resilient and adapt to change

Madeline shared her passion for technology – she always wanted to work in a technology-driven environment. Having started her career in-house working in banking and seeing the need to provide solutions for resolution of disputes, she embraced the opportunity and set up one of the very first online dispute resolution platforms in Tanzania – iResolve.

Madeline shared how working in banking exposed her to the rapid pace of technology and a world where regulation was always lagging behind technological progress. When setting up her own law firm, that gap between regulation and progress made her think about how she could add value to her clients – and that is when iResolve was born. Initially a case management solution, it has now developed into a platform that facilitates mediation, arbitration, and adjudication processes.

Although initially there were challenges in convincing clients to use the platform to manage disputes, in the meantime virtual platforms have been embraced following the pandemic. Madeline’s resilience – the ability to adapt to changes in the face of market and consumer demands, constantly challenging the status quo – was key to her success.

The same virtues contributed to a successful development of the Tanzania Institute of Arbitrators (TIA). In her position as President, Madeline fuelled the developed TIA and arbitration in Tanzania by working with the government and the parliament for the (now adopted) new Tanzanian arbitration law.

 

Have a beginner’s mindset

According to her own description, a “Harvard Lawyer, Oxford Economist turned Founder of ArbiLex passionate about ‘predicting’ law “, Isabel, provided insights into her founder’s journey.

Isabel came up with the idea for ArbiLex after observing how decisions were made at the outset of investor-State cases. These crucial decision-making moments typically revolve around risk assessment. Having a degree in both law and economics allowed Isabel to see that risk differently and spot a business opportunity.

According to Isabel, the structure of ISDS case law lends itself to probabilistic modelling. The idea was therefore to quantify the risks unique the case in such a way that would be understood by financiers. ArbiLex therefore offers prediction services quantifying case risks using machine learning and game theory-inspired models. The venture has now grown further from its inception and offers arbitration finance in addition to the tech-enabled intelligence.

Isabel also noted that law is one of the areas that is slow to adopt new technologies, but the job of an innovator is to understand which groups within the larger sector are the early adopters, the followers, and those that will never adopt the technology. One would only need to find allies among the early adopters and people who share your vision to start.

 

In a very limited time, the speakers provided a lot of insights and useful guidance for any person pursuing a career in international arbitration and beyond. A combination of personal qualities, expertise, and ability to respond to the challenges and everchanging circumstances were just some of the qualities these extraordinary professionals share. As envisaged, the kick-off event captured the spirit of ARBinBRIEF – an attempt to challenge the status quo and develop a practical offering for the arbitration community while carefully listening and responding to the feedback of the users.

For all who missed the event, the recording will be available on the ARBinBRIEF YouTube channel.

The recording of the first episode of Season 1, featuring Wendy Miles and Jennifer Bryant discussing arbitrator appointments will take place on Wednesday 13 October at 3pm CEST.

If you want to keep up to date on the upcoming ARBinBRIEF episode recordings, you can follow ARBinBRIEF on LinkedIn, subscribe to the ARBinBRIEF YouTube channel, or get in touch via email. The ARBinBRIEF team – Elizabeth Chan, Nata Ghibradze, Nadja Harraschain, Olga Hamama, Emily Hay, Iuliana Iancu, Dara Sahab, Olga Sendetska, Mrinalini Singh, Vanessa Zimmermann de Meireles – would be grateful for the support of our community and any feedback along the way.

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Paris Arbitration Week: Arbitration and Trade Secrets

Fri, 2021-10-01 01:00

The Silicon Valley Arbitration & Mediation Center (SVAMC) held a virtual panel discussion on Arbitration and Trade Secrets during the Paris Arbitration Week. SVAMC’s CEO, Les Schiefelbein, opened the event and Stan Putter (Partner, Smallegange Lawyers) moderated the panel discussion. The panel included Sana Belaïd (Senior Counsel, Cisco Systems), Ignacio de Castro (Director, World Intellectual Property Organization (WIPO)), Sarah Reynolds (Managing Partner, Goldman Ismail Tomaselli Brennan & Baum LLP), Dr Patricia Shaughnessy (Professor, Stockholm University), and Claire Morel de Westgaver (Partner, Brian Cave Leighton Paisner).

The panellists shared practical perspectives on trade secrets and provided the participants with tools to optimise protection thereof in arbitration.

 

What is a trade secret?

Sana Belaïd opened the discussion by defining a trade secret – it is information, which has an actual or potential economic value and whose secrecy is protected by its owner. In practice, it is information that gives its owner an “edge”. Commercial edge is information based on years of market practice, experience, knowledge of what works in a specific industry, or learning from past mistakes. Technical edge is plans, designs, processes, cost and pricing methods, or formulas.

Ms Belaïd gave a few other examples of the type of information that can constitute trade secrets, such as customer lists, cost and pricing information on production goods, personal information, etc.

She noted that trade secrets may be more valuable than physical assets, as the former guide a company’s commercial efforts on the market.

 

Preservation of trade secrets in arbitration

Claire Morel de Westgaver explained that there are two areas where arbitration and trade secrets intersect: (i) protecting trade secrets during arbitration and (ii) the developing area of trade secret disputes.

On the first point, she explained that there are two relevant aspects: confidentially between the parties and towards third parties. During arbitration, there are three points where confidentiality may be at risk:

  • when trade secrets are at the heart of the dispute there is tension between protecting them and winning the case for their owner;
  • during document production parties might request information constituting trade secrets; and
  • during the pleadings a party may argue that it is unable to present its case without disclosing its trade secrets.

Ms Morel de Westgaver reminded the participants that it is a mistake to assume all arbitrations are confidential. If the applicable law does not provide for confidentiality, it is crucial to put processes in place to make the arbitration as “leak-proof” as possible. This could also concern orders and awards, which can contain confidential information that could be disclosed, for example, in enforcement proceedings. Special attention must also be paid to cybersecurity, to ensure the arbitration is, in fact, secure.

On the second point, Ms Morel de Westgaver noted that trade secret disputes typically relate to alleged misappropriation of trade secrets or improper use of confidential information. Parties may raise different types of claims including breach of contract, e.g. license agreements, non-disclosure agreements, development agreements, manufacturing agreements, consultancy agreements, or even joint-venture agreements. These disputes usually revolve around contract interpretation. A common defence is arguing the claimant and owner of the trade secret had not taken adequate steps to protect its rights.

 

Trade secrets & WIPO

Ignacio de Castro introduced the WIPO arbitration centre, whose work focuses on trade secrets within patent disputes. He noted that he often sees pharmaceutical cases with issues relating to know-how concerning specific manufacturing processes, or IT-related disputes in relation to software licenses or telecoms-matters. WIPO also deals with other commercial disputes, e.g. franchising or distribution disputes.

Mr de Castro explained that he often sees disputes concerning breach of confidentiality obligations. Former employees joining a competitor can also be an important source of disputes, for example in IT disputes regarding source codes or client lists.

Mr de Castro provided some examples of the protective measures that can be adopted regarding trade secrets, e.g. issuing a redacted and unredacted versions of an award, and stated that he regularly comes across protective orders or provisions on confidentiality. Confidentiality advisors have, however, rarely been used although provided for by the WIPO rules.

 

Confidentiality advisors

As a confidentiality advisor, Dr Patricia Shaughnessy explained the importance of this third-party/neutral role. At times called “experts” or “document production managers”, confidentiality advisors are not new and have been around in the United States for well over 40 years.

But why go to an advisor? Arbitrators should maintain their independence and impartiality and protect the right to be heard and equal treatment. They must be careful that they do not receive information that may affect their attitude when the other party is not aware of what that information is. Indeed, a party may not feel comfortable with information being provided to the arbitrators, even if the latter determine that such information is confidential and should not be considered in the adjudication of the dispute. The party’s issue is usually that their opponent’s claim of confidentiality is overly broad or that the information sought to be protected is exactly the information needed for a fair adjudication of the case.

This is when a confidentiality advisor becomes necessary. They assess whether information should be protected as a neutral third party and can provide assistance to the parties and the tribunal without participating in the adjudication of the dispute. Parties would typically agree that the confidentiality advisor should express an opinion on which document protective measures seem justified and which overly broad.

She concluded by pointing out that, of course, advisors must sign a confidentiality agreement, which can be very detailed and perhaps include provisions relating to the destruction of all information within a certain period.

 

The tribunal’s perspective

Sarah Reynolds shared the tribunal’s perspective. She reminded participants that even though arbitration is not public, confidentiality is not necessarily applicable in arbitration proceedings. For example, the Uniform Arbitration Act adopted in most of the US states does not impose confidentiality.

If trade secrets are involved, it is important to have clear procedures in place. First, the tribunal should examine the arbitration clause to see whether it includes terms for protection of confidential information or incorporates any relevant rules. If it does not provide sufficient guidance, the tribunal can issue a protective order detailing such procedures. These orders can be drafted by the tribunal or negotiated by the parties. Ms Reynolds stated that it is better from a procedural fairness and efficiency perspective if guidance is laid out early in the proceedings.

Ms Reynolds also underlined that the tribunal has a range of approaches that it can employ, depending on the party’s priorities and on the degree of sensitivity of the information. For example, she has experienced tribunals require prima facie showing that a breach occurred before requiring disclosure of sensitive information. It is a method that prevents the parties from using arbitration as a way of conducting a fishing expedition. Confidentiality advisors can also be useful. Using an attorneys’ eyes only approach can also be a good solution: the lawyers can bring a claim to the tribunal, without their clients accessing any information. However, it can be cumbersome to manage the redacted versions of the submissions and hearings organization.

Ms Reynolds insisted that good terms of reference and protective orders should guard against external disclosure of the trade secrets; and concluded by saying that the parties can also chose the tribunal based in their previous experience and methods of protecting confidential information.

 

What are the main issues?

The panellists wrapped up their discussion by summing up their conclusions on the main issues related to trade secrets and arbitration.

Ms Belaïd noted that in-house counsel should not assume arbitration is confidential. Furthermore, a trade secret can also be any piece of information: a photocopy, a scribbled note. This information can be monetized especially in today’s knowledge-based economy.

Ms Morel de Westgaver noted the difficulty in balancing winning a case while preserving trade secrets. One party may be trying to preserve a secret while the other party’s main concern may be that the claim is brought in bad faith. Parties may also assert that information contains trade secrets to shield it if it is harmful to their case.

Ms Reynolds said that the main issue is to find the right balance between protecting confidential information and maintaining an efficient process. The more sensitive the information, the more appropriate it is to include layers of protection.

Mr de Castro noted that where trade secret is disclosed, damages are irreversible. Arbitration does not provide a full answer to the situation and even a company with a lot of protection in place may find itself in a difficult situation.

Dr Shaughnessy summed up that it is sometimes difficult to be a confidentiality advisor, e.g. due to not having access to the submissions of the parties, or the need to have a technical expertise in some sectors.

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Colombia Prevailed in Two Arbitrations Related to the Financial Sector under the Colombia-US TPA

Thu, 2021-09-30 01:53

Earlier this year, Colombia prevailed in two arbitrations under the Colombia-US Trade Promotion Agreement (“TPA”). The claims were filed by Alberto Carrizosa Gelzis, Felipe Carrizosa Gelzis and Enrique Carrizosa Gelzis (“Carrizosa brothers”) under the UNCITRAL Arbitration Rules, and by Astrida Benita Carrizosa (“Ms. Carrizosa”) under the ICSID Convention.

In both arbitrations Ms. Carrizosa and the Carrizosa brothers alleged that Colombia breached the fair and equitable treatment and national treatment standards, among other provisions of the TPA by undertaking a series of regulatory measures in 1998, and a series of judicial decisions between 2005 and 2014, that affected its investment in Granahorrar, a financial institution in which the claimants were shareholders.

The United States filed a Non-Disputing Party submission in both arbitrations on its interpretation of the relevant provisions of the US-Colombia TPA.

On April 19, 2021, the tribunal constituted under the ICSID Convention decided that it did not have ratione temporis jurisdiction over Mr. Carrizosa’s claims. On May 7, 2021, the tribunal constituted under the UNCITRAL Arbitration Rules rejected the claims presented by the Carrizosa brothers as it alsofound that it did not have ratione personae jurisdiction over their claims.

In both cases, the tribunals ordered the claimants to bear the entirety of the arbitration costs and 50% or more of Colombia’s legal costs and expenses.

 

Facts

Granahorrar was incorporated in 1972 as a subsidiary of Banco de Colombia. Granahorrar was a a financial institution authorized to obtain capital via private savings and to finance the construction industry through loans and mortgages. In 1986, the Carrizosa brothers and their parents, Ms. Astrida Bentia Carrizosa and Mr. Julio Carrizosa Mutis (the “Carrizosa Family”), acquired shares in Granahorrar. Within the following two years, the Carrizosa Family became a majority shareholder in Granahorrar. They indirectly owned 58.76% of Granahorrar. As of October 1998, the Carrizosa Brothers’ stake in Granahorrar amounted to 40.2570%. Ms. Carrizosa, in turn, owned 2.3307% of Granahorrar.

In the late 1990s Colombia suffered an economic crisis. In this context, the Colombian government adopted measures to subject financial institutions to strict supervision. In 1998, Granahorrar suffered a severe liquidity crisis, and thereby sought support from Colombian authorities. In response, the Central Bank provided funds as “temporary liquidity support” (TLS), equivalent to approximately US$194 million at the time. In turn, Fogafín (a Government entity created to protect savings) undertook to guarantee up to approximately US$222 million of Granahorrar’s interbank financing. In exchange, Granahorrar agreed to issue promisory notes to Fogafín valued at 134% of the guaranteed amount.

In the following months, Granahorrar’s financial standing continued to deteriorate. On October 2, 1998, the Superintendency of Finance ordered Granahorrar to raise approximately US$ 99.8 million in new capital to offset its insolvency. Granahorrar, however, did not raise the additional capital. On the next day, October 3, 1998, the Superintendency issued a report to Fogafín concluding that Granahorrar was insolvent and illiquid. On the same date, Fogafín’s board decided that the Government would take over Granahorrar, and ordered the company to reduce the nominal value of its shares to COP 0.01.

Fogafín capitalized Granahorrar and became the majority shareholder in the bank. The financial situation of Granahorrar improved andFogafín sold Granahorrar to the Spanish bank Bilbao Vizcaya Argentaria in 2005.

Following the measures adopted by Colombian authorities, the Carrizosa Family initiated a number of administrative judicial proceedings that culminated in a judgment in 2005,  rejecting the claims on the merits. The Carrizosa Family appealed this decision. Colombia’s Council of State upheld the appeal and ordered the Superintendency and Fogafín to compensate the Carrizosa Family in an amount up to US$ 114 million (the “2007 Judgment”).

On March 5, 2008, the Superintendency and Fogafín filed constitutional injunctions (tutelas) against the 2007 Judgment. On May 26,  2011, the Constitutional Court issued a unanimous judgment, whereby it reversed the 2007 (the “2011 Judgment”). Although the Carrizosa Family requested the annulment of the 2011 Judgment, the Constitutional Court dismissed this request in 2014 (the “2014 Order”).

 

International Claims against Colombia

 The UNCITRAL Arbitration

In the UNCITRAL arbitration proceedings, the Carrizosa brothers requested compensation in the amount of US$ 323 million for the alleged breach of the TPA.

The UNCITRAL Tribunal addressed and upheld the respondent’s ratione personae objection, pursuant to which Colombia alleged that Article 12.20 of the Colombia-US TPA only covered claims filed by U.S nationals, or dual nationals with US dominant and effective nationality.

The UNCITRAL Tribunal analyzed the “dominant and effective nationality” of the Carrizosa Brothers, concluding that the claimants had the burden of proving their dominant and effective nationality. The tribunal decided not only to analyze the critical dates of the arbitration (the date of the alleged breach, and the date of the submission of the Notice of Arbitration), but also the entire life of the Carrizosa brothers. For this purpose, the tribunal undertook an objective factual enquiry rather than considering the subjective appreciations of the Carrizosa Brothers on what they considered their “dominant and effective” nationality to be.

The tribunal analyzed, among other criteria: the habitual residence, place of birth, property, assets, passives, economic center of their business, social life, where have they voted, tax payments, and social security, health and pension payments.

After examining the evidence in the record, the UNCITRAL Tribunal concluded that it was clear that the Carrizosa brothers were not predominantly U.S nationals but Colombian nationals.Thus, the Tribunal held that the Carrizosa brothers were not covered by the TPA.

Accordingly, the UNCITRAL Tribunal decided that it had no jurisdiction ratione personae under Article 12.20 of the TPA and dismissed claimants’ claims. The tribunal further decided that claimants should bear the entirety of the fees and expenses of the PCA, and pay all of the legal costs and expenses of Colombia (save for a US$ 30,000 adjustment).

 

The ICSID Arbitration

On January 25, 2018, Ms. Carrizosa filed a Request for Arbitration with ICSID against Colombia under the US-Colombia TPA, the Colombia-India BIT, and the Colombia-Switzerland BIT, seeking compensation of US$ 40 million for the alleged breach of the TPA.

The tribunal upheld Colombia’s ratione temporis objection. This was based on the fact that the measures that allegedly breached the TPA took place before the TPA entered into force on May 15, 2012. The tribunal concluded that the TPA did not cover the administrative measures adopted by Colombian authorities in 1998, and the 2011 Judgment issued by the Constitutional Court.

The ICSID Tribunal clarified that although the 2014 Order was issued after the TPA entered into force, the claims related to the 2014 Order were not independently actionable The 2014 Order merely rejected the Carrizosa’s Family request to annul the 2011 Decision and therefore left unaltered the outcome of the 2011 Decision. Accordingly, the tribunal concluded that the measures giving rise to the arbitration predated the entry into force of the TPA and were outside of the temporal scope of the tribunal’s jurisdiction.

The tribunal further analyzed Colombia’s objection regarding the three-year limitation period provided in Article 10.18.1 of the TPA. Under Article 10.18.1 of the TPA, no claim may be submitted to arbitration if more than three years have elapsed as from the date on which the claimant first acquired, or should have acquired knowledge of the breach.  Ms. Carrizosa acquired knowledge of the 2014 Order shortly after the Constitutional Court issued said decision on June 25, 2014. Yet, she commenced the arbitration on January 24, 2018, which is more than three years after she acquired knowledge of the alleged breach of the TPA. Consequently, the tribunal concluded that her action was outside the temporary scope of jurisdiction of the tribunal.

To overcome this hurdle, Ms. Carrizosa tried to invoke the TPA’s most-favoured nation (MFN) clause to substitute the three-year period contained in the TPA with the allegedly more favorable five-year period set out in Article 1.5 of the Colombia-Switzerland BIT. The tribunal, however, concluded that it was not within its jurisdiction to apply the MFN clause given that Article 12.1.2(b) of the TPA provides that the subject-matter scope of the tribunal’s jurisdiction on disputes under Chapter 12 (Financial Services) is limited to four substantive provisions of the TPA that do not include the MFN clause.

The tribunal further noted that even if it were to apply the five-year period of the Colombia-Switzerland BIT, the claim would still be time barred given that the events that gave rise to the dispute took place in 1998 and 2011, which is more than five years prior to the Request for Arbitration.

In sum, the ICSID Tribunal dismissed Ms. Carrizosa’s claims and ordered her to bear the entirety of the arbitration costs and expenses, and bear 50% of Colombia’s legal fees and other costs.

 

Final remarks

After prevailing in both arbitrations, Colombia will pursue the recovery of 100% of the arbitrations’ costs and expenses, 100% of the legal fees spent in the UNCITRAL Arbitration, and 50% of the legal fees spent in the ICSID Arbitration. The total sum of the money that Colombia would recover amounts to approximately US$ 2,9 million.

However, the dispute between the Carrizosa Family and Colombia has not concluded. On June 6, 2012, the Carrizosa Family et. al filed a petition with the Inter-American Commission of Human Rights (“IACHR”), alleging that Colombia had breached their due process and property rights in the context of the measures adopted over Granahorrar. They requested, inter alia, that the Constitutional Court Judgment be overruled. In 2016, the Registry of the ICHR rejected the petition given that one of the victims was a legal corporation and thereby the claim fell outside the jurisdiction of the IACHR. The Carrizosa Family  submitted two additional revision petitions on October 4, 2017 and on July 4, 2018, which are pending resolution.

 

 

 

 

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Interviews with Our Editors: Illuminating Investment Treaty Arbitration and Institutional Services with Antonio R. Parra, Former Deputy Secretary-General of the ICSID

Wed, 2021-09-29 01:00

Antonio R. Parra led a lengthy and luminous career of international public service, having held various roles in the OPEC Fund and the World Bank. Of special interest to our readers is that from 1990 to 1999 Mr. Parra was Legal Adviser at the International Centre for Settlement of Investment Disputes (ICSID), and then from 1999 to 2005 (when he retired), he was ICSID’s first Deputy Secretary-General. During his service at ICSID, the institution grew in prominence and scale to become the premier institution for investor-State dispute settlement (ISDS). Even still, many working at the ICSID Secretariat speak of the lasting legacy of Mr. Parra’s contribution. It’s an honor and a privilege to have him share his perspective with our readers.

 

  1. Mr. Parra, your vision and leadership have been instrumental to shaping the practice of ISDS. Yet, you have also made significant contributions to academia, having published several books and served ICSID Review – Foreign Investment Law Journal as Managing Editor, and then Editor-in-Chief. In your view, how does academic input influence ISDS practice?

 

The influence of scholarly writings on ISDS practice is clear from a glance at written pleadings and arbitral decisions in the field. Contributions of scholars are frequently cited by parties and arbitrators on the myriad procedural and substantive legal issues that arise in the cases.

In launching the ICSID Review—Foreign Investment Law Journal, Ibrahim Shihata, General Counsel of the World Bank and Secretary-General of ICSID during most of the 1980s and 1990s, observed that such contributions could help to clarify the law applicable to foreign investments and assist in its balanced and progressive development.

The article that Shihata published in that first issue of the ICSID Review, had a large impact on the practice, and in particular growing acceptance, of ISDS at ICSID. Entitled “Towards a Greater Depoliticization of Investment Disputes: the Roles of ICSID and MIGA,” the article was based on a paper that Shihata had presented at a 1985 international arbitration conference in Rio de Janeiro. In the paper, Shihata showed how the ICSID system respected considerations underlying the Calvo Doctrine followed in Latin America, notably by precluding the home State of an investor from espousing its national’s claim if the matter was being or could be dealt with by an ICSID arbitral tribunal.

On re-publication of the article in 1991, Shihata observed that, when he presented the paper six years earlier, only four Latin American countries had signed the ICSID Convention but that the number of Latin American signatories had since doubled (and now encompasses almost all countries of the region).

 

 

  1. Do you believe that the ICSID Convention facilitates and promotes Foreign Direct Investment (FDI) by protecting investments and investors? From your perspective, what are the greatest threats facing the ICSID system and how can they be addressed?

 

Encouraging increased foreign investment certainly was regarded by ICSID’s founders as the basic objective of the ICSID Convention. They did not, however, see ICSID as serving this objective merely by protecting investments. Rather, they considered that the availability of balanced international facilities for the settlement of investment disputes could help to foster an atmosphere of mutual confidence conducive to stimulating greater investment flows. (I am paraphrasing the 1965 Report on the ICSID Convention of the Executive Directors of the World Bank, who had formal responsibility for drawing up the Convention.) The founders were clear-eyed about the impact of the Convention. They foresaw that countries with good investment climates would continue to attract  investments even if they did not become parties to the Convention or use ICSID’s dispute settlement facilities. However, adherence to the Convention could, the founders expected, enable countries seeking more investment to “provide additional inducement” for investment (in the words of the Report of the Executive Directors). The Convention obviously can be counted a success in this respect. The extent to which it may be credited with actual rises in investment flows, a much larger question, is probably impossible to measure, if only because the factors determining investment decisions are so varied and subjective. But given the central role that ICSID plays under most bilateral investment treaties, reference might be made in this connection to studies finding a positive correlation between such treaties and investment flows.

As dangers for ICSID, now approaching its 60th anniversary, I think that many would highlight recent moves, ironically of advanced economy countries, to narrow or even eliminate the scope for recourse to ISDS under their investment treaty arrangements—keeping ISDS only for disputes arising out of Mexico-U.S. investments under the new USMCA; the termination, in view of their ISDS clauses, of intra-E.U. bilateral investment treaties; and the proposal championed by the E.U. to replace ISDS mechanisms with a permanent multilateral investment court (MIC).

For ICSID, these might best be considered opportunities instead of dangers. Retreat from ISDS, in the sense of investment treaty arbitration, may enlarge possibilities for resort to contract-based arbitration, which still represents a significant proportion of ICSID’s caseload. ICSID conciliation and fact-finding facilities may at last find users. If a MIC materializes, it may only be after a long time, given the complexity of the project. But ICSID’s superb infrastructure and skilled Secretariat might make it an ideal host for the MIC. In all these ways, as well as by still administering investment treaty arbitrations, ICSID would be continuing to serve its objective of promoting international investment.

 

  1. In recent years, ISDS has seen backlash from external stakeholders, including NGO activists and journalists, which perhaps has led to a legitimacy crisis and demands for radical reforms. From your perspective, what could be one or two reforms to the ISDS system that would meaningfully address legitimacy-based concerns?

 

It may be useful, when we think about the legitimacy crisis of ISDS, to keep in mind what we mean by legitimacy in this context. In several  of its very good notes on IIA Issues, UNCTAD has referred to the legitimacy of ISDS as its authority, in the eyes of the public at large, to assess the validity of a State’s acts. Because of the structure of investment treaty arbitration, we can only look for that authority in the arbitration and substantive treatment provisions of the underlying treaty. Consternation about the outcome of a case may often best be directed at these provisions as permitting or indeed demanding the outcome. Makers of investment treaties and other stakeholders increasingly recognize the need for greater care in the elaboration of the provisions, especially those on indirect expropriation. Investment treaties however remain a patchwork of varying norms, probably becoming even more diverse as newer treaties slowly replace older ones. A solution might consist in the conclusion of a global investment treaty, though countries may be discouraged from attempting this difficult task again, after the repeated failures to finalize such a treaty at the OECD. A set of non-binding guidelines on the treatment of foreign investment was issued under World Bank auspices in the early 1990s. Reissuance by such a universal organization of widely accepted updated guidelines, for countries to emulate in their investment treaties and laws, might well help to address legitimacy-based concerns about ISDS.

 

  1. Relatedly, recent years have seen significant ISDS reform efforts, including the ICSID rule amendment project and UNCITRAL Working Group III, with significant input from various stakeholders, including the States and investors themselves. From your perspective, what are the top three issues to be addressed?

 

From such ambitious and wide-ranging reform processes, it is difficult to choose just three topics to discuss. Among the many overlapping issues being addressed in the UNCITRAL and ICSID processes, three of particular interest to me are issues relating to challenges of arbitrators, security for costs, and frivolous claims. In these and other respects, the ICSID process is more advanced and focused, dealing just with the institution’s own rules.

In accordance with the ICSID Convention, challenges of an arbitrator for lack of independence, or for ineligibility to serve on the arbitral tribunal, have been decided by the other arbitrators, unless they are equally divided, in which case the challenge has been decided by the Chair of the Administrative Council of ICSID (the President of the World Bank). Having unchallenged arbitrators, at least in the first instance, decide the challenge of their fellow arbitrator has rightly been termed unsatisfactory by the annulment committee in a recent ICSID case.

Requests for a tribunal to direct a party to provide security for costs have been handled within the framework of the article of the ICSID Convention on provisional measures, under which an arbitral tribunal may grant provisional measures to preserve the respective rights of either party. The requests made on this basis for security for costs have seldom been granted. In several instances, the tribunals considered that they could not issue provisional measures in respect of rights that were hypothetical or to be created only in the event of the requesting party prevailing in the proceeding.

By a provision added to its Arbitration Rules in 2006, ICSID introduced a procedure for the early dismissal of claims manifestly lacking legal merit. In subsequent proceedings, the provision has been interpreted as covering claims that are unsustainable from the jurisdictional as well as substantive viewpoints, although this was not clear from the provision (which I feel free to criticize because I was its initial drafter).

These shortcomings, and many others, are addressed in the outstanding package of new amendments prepared by ICSID. Thus, under the new amendments, if unchallenged arbitrators find themselves unable for any reason to rule on the challenge of their colleague, they will be deemed to be equally divided on the challenge, which will then be decided by the Chair of the Administrative Council; orders for security for costs will no longer be treated as provisional measures under the ICSID Convention; and the Arbitration Rules will put beyond doubt the possibility of early dismissal of claims that are manifestly ill-founded as to jurisdiction.

 

  1. In 2009, following unfavorable outcomes in several investment disputes, Ecuador notified the World Bank of its denunciation of the ICSID Convention. Ecuadorian leaders went as far as adding a provision (Article 422) to the Ecuadorian Constitution to prevent future governments from entering new International Investment Agreements (IIAs) that could ‘yield sovereignty’ to international arbitration. Now, a decade later, Ecuador has taken steps to rejoin the ICSID Convention. At the very least, this example illustrates that State views on IIAs and related dispute resolution can evolve over time depending on the context. From your perspective, how can ICSID best be mindful over sovereignty concerns and criticism while promoting the benefits of ISDS? Should we revisit the utility in academic discourse on “de-politicization” of investment disputes?

 

Sovereignty concerns were indeed invoked for Ecuador’s denunciation of the ICSID Convention in 2009. In my understanding, the denunciation was precipitated, not so much by experiences of Ecuador in particular cases, as by the decision in 2007 of members of the Bolivarian Alliance for the Americas—ALBA—to withdraw from the ICSID Convention, a decision acted upon, among ALBA members, by Bolivia and Venezuela as well as Ecuador. Attracting much attention around the time of Ecuador’s denunciation were government statements calling into question the neutrality of ICSID arbitration. As you suggest in your question, it is crucial for such debates to be grounded in fact. In 2010, the same year that the denunciation of Ecuador took effect, ICSID redoubled its efforts to meet this need with the inauguration of its semiannual publication, The ICSID Caseload—Statistics. ICSID has also become very active in offering courses and training on ICSID arbitration to government officials and the public at large. Such efforts have been doing much, to use your words, to promote the benefits of ISDS, particularly ICSID procedures, while remaining mindful of the concerns and criticism.

 

  1. Several times in past posts on the Blog our contributors have commented on whether India should join the ICSID Convention. On this debate, India has emphasized the perception of ICSID being “pro-developed countries” and also underscored the lack of review as a major disadvantage (i.e. the self-contained, detached structure). On the other hand, it has been argued that the Indian economy would benefit from a transparent, reliable, and predictable legal framework for investor/investment protection, and therefore that joining the Convention would “enhance investor confidence and promote incoming investments”. In your view, which of the two better reflects reality and why?

 

On the first side of this debate, I would disagree with the contention that ICSID is “pro-developed country.” Its governing body, the Administrative Council, comprising one representative of each member, each with one vote, is overwhelmingly composed of representatives of developing countries. Moreover, the respondents in ICSID cases, most of them governments of developing countries, have prevailed in more than half of the cases decided by tribunals. It is interesting that, on this side of the debate, the exclusion of review by national courts of ICSID arbitral awards is cited as “a major disadvantage.” The exclusion was put in the ICSID Convention precisely to help governments of developing countries obtain enforcement of awards rendered in their favor without being subject to undue delays or defenses based on local laws. (For compliance with awards rendered against governmental parties, it was considered sufficient that such compliance would, under another provision of the Convention, represent an international law obligation of the government concerned.)

On the other side of the debate, adherence to the ICSID Convention might facilitate increased investment in India but the first of the quoted posts on your Blog considers adherence by India to be “highly unlikely.” It seems from that and the second quoted Blog post that much of the reluctance about joining the ICSID Convention stems from the potential of ICSID claims being brought against India. But adherence to the ICSID Convention does not in and of itself obligate a country to submit all or indeed any of its investment disputes to ICSID. Importantly for an investment exporter such as India, adherence will make its nationals eligible to use ICSID’s dispute resolution facilities for disputes with host countries of their investments abroad. To the extent it is not already doing so, it might be useful for India, in its further consideration about the possibility of joining the ICSID Convention, to keep in view its position as a home country, as well as a host country, for foreign investments.

 

  1. Could you please share with our audience two negative trends and two positive trends you have observed with ISDS the last five years?

 

Two aspects of ISDS nowadays that I would single out for criticism are a continued lack of diversity among members of arbitral tribunals and the continued lack of an international appeals facility such as the one proposed at ICSID in 2004 (in a report written by me). According to my last count, only about 20 percent of the individuals appointed as ICSID arbitrators have been nationals of emerging or developing countries and only about 10 percent women. Responsibility for this rests, of course, mainly with parties to proceedings, who make most of the appointments. In suitable contexts, where parties to investment treaties agreed to incorporate the envisaged appeals facility rules by reference into their treaties (and took steps to make the necessary modification of the ICSID Convention as between themselves), the mechanism might have enhanced the credibility and consistency of ISDS, if only under the particular investment treaty or treaties concerned.

Two positive developments that I would highlight are the growing popularity of investor-State mediation and the intensified attention being paid to ways of cutting the duration of arbitration proceedings. On mediation, I refer especially to the mediation rules that ICSID has included in its proposed rule amendments. On duration, I particularly have in mind the proposed ICSID amendments more extensively stating time limits, counting them more strictly, and offering parties the option of agreeing to expedited arbitration proceedings with shortened timeframes.

 

Thank you, Mr. Parra, for sharing these insightful views.  We appreciate your time and continue to wish you the best!

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

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Growing Gender Diversity in International Arbitration: A Half Truth?

Tue, 2021-09-28 01:00

Introduction

In the past few years, there has been a visible focus on ensuring diversity, especially in terms of gender, in international arbitration (IA). This engagement has, arguably, assumed the most prominent or tangible form in respect of arbitrator appointments, which has been previously discussed here and here. One of the most significant steps taken for achieving this goal is the Equal Representation in Arbitration Pledge (ERA Pledge), which was adopted in 2016 and currently has more than 4,700 signatories. However, despite these efforts, commentators have identified a diversity paradox, which is the “apparent inability to translate [the concerns with respect to lack of diversity in IA] into actual appointments in individual cases”.

In this context, this post analyses whether the recent statistics published by various arbitral institutions on arbitrator appointments actually narrate a success story for gender diversity in IA. Specifically, this post analyses gender diversity in IA from an intersectional lens, accounting for geographic and ethnic diversity, along with making a case for sustainable participation at all levels of seniority.

 

2020 statistics

The International Chamber of Commerce (ICC) published its dispute resolution statistics for 2020 in August 2021. While commemorating the five year mark of the ERA Pledge, ICC highlighted that “the number of confirmations and appointments of women arbitrators in ICC case continues to steadily rise – increasing from 312 in 2019 to 355 in 2020, representing today over 23% of all confirmations or appointments up from 21.1% in 2019”. While commenting on geographical and gender diversity, the ICC statistics state that 2020 saw “1,520 appointments and confirmations…with arbitrators coming from 92 countries and comprising 23.4% women arbitrators appointed or confirmed”. In terms of nationalities, the highest percentage of arbitrators came from the UK (14.5%), followed by the US (10%), Switzerland (8.9%), and France (6.6%). More than half of the arbitrators on ICC tribunals in 2020 (52.3%) were from North and West Europe.

The London Court of International Arbitration’s (LCIA) casework report for 2020 also notes that “the overall percentage of female arbitrators appointments reach[ed] a high of 33% in arbitrations pursuant to the LCIA Rules, a growth from 29% in 2019”. In terms of nationalities, the report stated that, “37% of appointments comprised appointments of arbitrators from 40 different countries, with the next highest numbers of arbitrators [after British arbitrators] being from Canada, the United States, Ireland, Germany, and Mexico”.

The caseload statistics for 2020 published by the Singapore International Arbitration Centre (SIAC) notes that “[o]f the 143 arbitrators appointed by SIAC, 46 (or 32.2%) were female”.

The annual report published by the Hong Kong International Arbitration Centre (HKIAC) in 2021 states that “[o]f the 149 appointments made by HKIAC in 2020, 34 (22.8%) were of female arbitrators”. The percentage of female arbitrators appointed by parties in HKIAC arbitrations was much lower at 11.1%.

At the outset, while these statistics indicate a gradual rise in gender diversity in arbitrator appointments, the absolute numbers of women arbitrators are still substantially lower than their male counterparts. Further, geographic diversity amongst arbitrators still seems to be relatively limited, with European (especially English) arbitrators being appointed most frequently in IA tribunals. This is also consistent with the findings of the recent survey by White & Case and Queen Mary (a different aspect of this survey is discussed here) which found that “[m]ore than half of respondents agree that progress has been made in terms of gender diversity on arbitral tribunals over the past three years. However, less than a third of respondents believe there has been progress in respect of geographic, age, cultural and, particularly, ethnic diversity”.

The picture only becomes grimmer when one considers the possibility of repeat appointments for a set pool of experienced arbitrators – an issue which has been identified as one of the challenges to diversity in arbitral tribunals in past studies. Worse even, when viewed from the perspective of intersectional identities or that of sustainable participation at all levels, the existing data appears inadequate to reflect the nuanced realities of diversity in IA, i.e., the intersectional lens of diversity, which is explored in detail below.

 

Intersectional identities  

The intersectional lens, which is “a prism for seeing the way in which various forms of inequality often operate together and exacerbate each other”, can be particularly relevant for understanding diversity in IA. For instance, when considered in isolation, there might be an increase in both gender and geographical diversities internationally. However, when taken as a whole, the proportion of women arbitrators from Asian or African countries in IAs is likely to be significantly lower than those from Europe or America.

Taking the example of India, out of the 30 Indian arbitrators who have been appointed in various ICC tribunals (based on the publicly available data on ICC’s website, which includes information for ICC cases registered as of 1 January 2016), only one (3.33%) is a woman. In the ICC India Arbitration Group, which includes the selection committee for arbitrators (responsible for nominating arbitrators upon the request of the ICC Court), there is only one woman (out of 25 members in total). Similarly, out of the 36 Indian arbitrators who are included on SIAC’s panel of arbitrators, only three (8.33%) are women, and out of the 11 Indian arbitrators on HKIAC’s panel, only one (9.09%) is a woman (who is also a part of SIAC’s panel). Therefore, as far as these three institutions are concerned, in total, names of only four women Indian arbitrators are publicly available, as opposed to the names of about 90 odd Indian men. This is despite the fact that these institutions administer a significant volume of arbitrations involving Indian parties. This situation may not be peculiar to India and may hold true for many other countries.

Such intersectional analysis becomes relevant for understanding actual diversity because in many countries with a nascent IA practice, the real opportunities available to women practitioners can only be fully appreciated by accounting for their identities as women from their countries of origin. This is because, more often than not, practitioners from these countries are only appointed as arbitrators in arbitrations where at least one of the parties is from that country. Again, taking the example of India, as per the ICC 2020 statistics, 79 (3.15%) Indian parties participated in ICC arbitrations. On the other hand, only 20 (1.32%) Indian arbitrators were appointed to ICC tribunals. Tellingly, as per the SIAC 2020 statistics, while 690 (63.89%) Indian parties participated in SIAC arbitrations, only 14 (4.86%) Indian arbitrators were appointed to SIAC tribunals. The relatively higher number/percentage of Indian arbitrating parties as compared to the number/percentage of Indian arbitrators, coupled with the general preference for arbitrators from western countries, suggests that Indian arbitrators on ICC or SIAC tribunals were probably only appointed in arbitrations involving Indian parties. Therefore, in turn, the near absence of Indian women arbitrators in IAs is on account of issues linked to both, gender diversity and geographical diversity.

 

Sustainable participation at all levels

As discussed in an earlier post, to appreciate the issue of diversity in IA, along with addressing the lack of women’s representation in leadership roles (such as arbitrator appointments), it is crucial to address issues relating to sustainable participation at all levels. This is because sustainable participation, which involves issues relating to opportunities available to young women to practice and gain experience, and the availability of means to stay in such opportunities, is bound to impact leadership in the long run.

Pertinently, the 2020 Report of the Cross-Institutional Task Force on Gender Diversity in Arbitral Appointments and Proceedings identified the unavailability of sufficiently qualified and well-known practitioners from diverse backgrounds as one major barrier to achieving greater diversity in IA. This was also confirmed in the White & Case survey, wherein participants indicated that at the end it is “always the demands of the case that determine choice of arbitrators”. Therefore, in order to ensure diversity in arbitrator appointments (and in IA generally), it is crucial to create sufficient opportunities for women from diverse backgrounds to gain relevant experience and visibility.

In recent years, while there has been a consistent push to ensure diversity in leadership in IA, issues linked to sustainable participation of women have probably attracted less traction. In our view, trying to address the lack of diversity solely through interventions with respect to leadership roles is more likely to aggravate the diversity paradox as opposed to solving it. Therefore, while proposals for setting a new norm/standard that “all panels should include at least one woman or other diverse practitioner and panels that do not are Defective Panels”, or efforts solely directed towards leadership issues, would have some immediate impact, in the long run, they have to be coupled with efforts for ensuring sustainable participation to guarantee a holistic improvement in diversity. In the absence of inclusion and capacity-building initiatives catering to women at all levels and across all geographies, the leadership pool is likely to be limited to a small number of established practitioners (even if women).

Currently, in absence of much data (especially country-specific data) on practitioners at all levels of seniority, it would be difficult to comment on the state of diversity in IA generally.  Having said this, it is probably safe to conclude that issues with respect to gender diversity are only half understood when solely viewed from the perspective of leadership.

 

Possible ways forward?

Ways to improve intersectional diversity and sustainable participation in IA, which could, in turn, improve diversity as a whole, could include the following active efforts from all actors in IA, such as arbitral institutions, law firms, chambers, etc.:

  1. Publishing detailed data regarding diversity (gender, geographical and ethnic) in IA across different levels of seniority.
  2. Viewing diversity from a more intersectional lens that accounts for overlapping identities and therefore, publishing diversity data accounting for such identities.
  3. Including more women from various races, seniorities, nationalities, ethnicities etc., as speakers in panel discussions, conferences etc., which could improve the visibility of women practitioners.
  4. Initiating conversations with industry bodies and other potential clientele on the need for diversity and the problems with homogeneity in the lawyers advising them.

These are undoubtedly broad suggestions that require a much more nuanced analysis of different legal systems, existing wage gaps, and the potential roles of the various actors involved in IA. Having said this, it is undeniable that it is high time that all stakeholders of IA understand and discuss diversity holistically and address various inequalities collectively, as opposed to addressing them in a piece-meal manner. Further, it is a collective responsibility to sustain the conversation and debate on this topic until IA truly becomes non -“pale, stale and male”.

 

We thank Mr. Rishab Gupta (Shardul Amarchand Mangaldas & Co) for his inputs.

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Revision of the WIPO Arbitration Rules: Adapting to an Increasingly Remote Setting In Technology Disputes

Mon, 2021-09-27 01:00

On July 1, 2021 the World Intellectual Property Organisation (WIPO) revised its Arbitration Rules (2021 WIPO Rules). The amendments include a possibility for the parties to conduct remote hearings, an obligation to disclose third-party-funder agreements and a decrease in costs in arbitration proceedings. As elaborated below, the 2021 WIPO Rules have been adapted to reflect modern trends of dispute resolution in an increasingly remote environment. This post provides an overview of the WIPO, discusses these revisions to its Rules, and suggests areas where perhaps the WIPO could have gone further in its revisions to its Rules.

 

Background

WIPO is a global forum for intellectual property and one of the United Nations (UN) specialised agencies. Its Arbitration and Mediation Centre (WIPO ADR) provides time- and cost-efficient alternative dispute resolution, which benefits from specialised arbitrators, privacy, confidentiality, and a simple enforcement procedure. These advantages stand clear in contrast to common courts, where parties may end up with a judge without the necessary expertise, hearings are often public, and enforcement proceedings last for years.

As a result, the demand for ADR in technology disputes has been steadily increasing in recent years. According to the WIPO Caseload Summary, the number of cases it has administered grew from 41 in 2011 to 182 in 2020. In its 2020 report, WIPO ADR highlighted the importance of arbitration as a forum to resolve technology disputes.

The 2021 WIPO Rules introduced a series of amendments as a response to the COVID-19 pandemic. They replace the 2020 Rules, which expired on 30 June 2021 but apply to disputes registered until that date. The main change concerns remote hearings and coincides with revisions of other arbitration rules such as the ICC rules for 2021, LCIA rules for 2021 and the Swiss Arbitration Centre rules for 2021. Further changes concern third-party funding agreements, electronic filings and fees.

 

Remote hearings as a response to the post-COVID-19 era

Remote communication tools have gained in popularity as a result of restrictions on the functioning of arbitration tribunals around the world due to the COVID-19 pandemic.

Remote WIPO arbitration hearings are now not only expressly permitted in the 2021 WIPO Rules, but also parties are encouraged by the WIPO to use this tool (as WIPO indicated in its official communication). Article 55 of the 2021 WIPO Rules provides that the adjudicating panel may, after consulting the parties to the proceedings, conduct hearings by videoconference, using online tools, or in-person.

Remote hearings are of great importance because WIPO manages IT disputes in which the parties are accustomed to online communication. Moreover, given the characteristics of disputes resolved under the 2021 WIPO Rules, including disputes involving infringement in licensing, the parties are typically concerned with bringing the case to a quick resolution and stopping further infringement as soon as possible.

Most of the arbitration institutions have already introduced similar solutions. The possibility of conducting proceedings by videoconference was introduced by the Swiss Arbitration Centre in June 2021 (Article 27), the International Chamber of Commerce in January 2021 (Article 26(1)), and in October 2020 – by the London Court of International Arbitration (Article 19(2)).

The solution presented by WIPO is not only a response to the COVID-19 pandemic but also a response to the needs of a centre handling disputes mostly involving technology companies.

 

Electronic filing to make parties’ lives easier

The 2021 WIPO Rules permit the electronic filing of cases, as well as ordinary communication, as the default option for communication. The amendment proposed to Article 4(a), although it is a more cosmetic change, organizes and clarifies the issue of online communications. WIPO thus emphasized online communication, making it the default mode of contact, perhaps with no room for other interpretation. On its website, WIPO offers that the request for arbitration be submitted online using the WIPO IP Portal form.

A similar solution was introduced by ICSID at the last revision of the Arbitration Rules of the International Centre for Settlement of Investment Disputes (ICSID) in June 2021 (in case of request for arbitration regulated by Article 36 of the ICSID Convention). At the time, Meg Kinnear, ICSID’s Secretary-General, said that: “Given the state of information technology—and the ease with which participants in ICSID cases have adapted to online file sharing in recent years—it made sense to make electronic filing the norm”.

This solution could potentially improve the administration of cases by WIPO, as in practice WIPO uses email to communicate with the parties and arbitrators, thus making all case-related documents in one place on a secured online file-sharing platform (see blog coverage here).

On the other hand, there are potential dangers with online hearings, including the issue of confidentiality and potential leakage of information. In particular, the issue of confidentiality in using online platforms should be subject to constant digital transformation. A significant number of proceedings conducted before WIPO are technology disputes and, as data show, more than 30% of parties to the technology disputes found confidentiality as an important element (Report on International Trends, WIPO, 2018). Crucially, IT market is very competitive, therefore any leakage of information may result in substantial losses to the company revenue or its reputation.

Moreover, there is a serious risk of cyberattacks. If file-sharing platforms are not properly secured, it may harm the confidentiality of a dispute, which may be a critical issue in disputes concerning intellectual property and related claims. There are many guidelines for parties and arbitrators on how to conduct the virtual hearings properly, using specific tools that arbitration institutions have already put in place (for example, the ICC Guidance Note, the HKIAC Guidelines and the Seoul Protocol – see the blog coverage here). Although the area of virtual hearings is developing dynamically, a close collaboration between the arbitral tribunal and technology firms may be of the greatest importance.

 

The obligation to disclose the third-party funder

Similar to the ICC rules for 2021, the WIPO Rules 2021 recognise the growing popularity of financing arbitral disputes through third-party funders. Under the 2020 WIPO Rules, the issue of third-party funders was not addressed. However, under the new rules, the obligation to disclose third-party funders’ arrangement with a party is required at the time when a request for arbitration is filed. If a funding agreement is concluded at a later stage of the proceedings, the identity of the third-party funder shall be disclosed promptly to the parties, the WIPO, and the tribunal. The third-party funder disclosure must also be made by the respondent, in its answer to the request for arbitration (Article 9(vii) and 11(b) of the 2021 WIPO Rules).

The proposed changes reflect a trend in international arbitration to address conflicts of interest between parties to the proceedings. The trend is visible not only in the recent amendment to the arbitration rules in Europe (see blog coverage here), but is also an emerging topic in East – Asia region (see blog coverage here). Moreover, not only commercial arbitration is full of TPF standards. Recent work undertaken by the UNCITRAL Working Group III covers the issue of third party funding in investor-state disputes (see blog coverage here).

 

Fees reduction by 25%

Together with the amendments made to the 2021 WIPO Rules, WIPO has updated its Schedule of Fees and Costs and introduced a 25 % reduction to the WIPO Centre’s administrative fees that apply if one or both parties to a dispute is a small or medium-sized enterprise (SME). This solution may attract entrepreneurs to submit their cases to WIPO ADR.

Although WIPO’s fees have increased, they remain lower compared to the fees offered by other arbitration centres. For example, when the amount in dispute is $2 million, the administrative fees at WIPO are $3,000.00, while the administrative fees required by the Swiss Arbitration Centre for a dispute of the same value are $9,815.00.

 

Amendments of the 2021 WIPO Rules could have gone further – proposals for future consideration

Surprisingly, the 2021 WIPO Rules do not include certain amendments that could make arbitration proceedings conducted at the WIPO Centre potentially more attractive.

Firstly, the time limit set for the appointment of an arbitral tribunal under the 2021 WIPO Rules is 50 days when appointed by the parties (Article 16) and 45 days when the appointment is made by the WIPO Centre (Article 15b). In contrast, under the revised LCIA rules for 2021, the deadline for convening a tribunal is 28 days (down from 35).

Secondly, the time limit to render the final award in the case of the 2021 WIPO Rules is 12 months (Article 65a), while under the ICC rules for 2021 the time limit for the final award is 6 months (Article 31). Moreover, the recent amendments made by the LCIA to the LCIA rules for 2021 cover this issue and specify the deadline of “as soon as possible”, but no later than 3 months.

The length of arbitral proceedings has often been touted as a principal advantage of arbitration compared to state court proceedings. Given WIPO’s competition with other arbitral centres (and state courts), it would behove the WIPO to consider solutions to reduce the length of arbitral proceedings, as has been achieved by other centres with much success. Coupled with reduced fees and the other added features of the 2021 WIPO Rules, reducing the length of arbitral proceedings could be advantageous for many entrepreneurs who may be deciding to bring a case to the WIPO Centre instead of a court.

 

 

 

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Moldovan Supreme Court: Execution of Enforcement Title Falls Outside the Scope of the New York Convention

Sun, 2021-09-26 01:00

On 26 May 2021, the Supreme Court of the Republic of Moldova (the “Supreme Court”) decided that the procedure for execution of an enforcement title, after recognition and enforcement of a foreign arbitral award, falls outside the scope of the New York Convention. Instead, it is subject to municipal law.

 

Factual Background

The request for recognition and enforcement of the foreign arbitral award on the territory of the Republic of Moldova was submitted by a limited liability company incorporated in Ukraine (the “Claimant”) against a private individual (Ukrainian citizen) (the “Respondent”). The award was issued by the arbitral tribunal in the arbitration administered by the Permanent Court of Arbitration at the Public Organization of Ukraine “Union of Investors of Ukraine” based in Kiev (the “Arbitral Institution”).

The dispute arose out of a guarantee contract concluded between the parties. According to the contract, settlement of any disputes arising from the implementation of the contract or in connection with it falls within the jurisdiction of the Arbitral Institution.

On 12 March 2020, the arbitral tribunal issued Decision no. 06/20 awarding the Claimant approximately 75 million EUR (the “Arbitral Award”). The Claimant initiated proceedings for the recognition and enforcement of the Arbitral Award, including on the territory of the Republic of Moldova. The Claimant sought to freeze and then to levy execution in Moldova against the Respondent’s shares held in a Moldovan company (the “Company”).

The main issue discussed before the Supreme Court was whether the New York Convention applies to the execution phase, and where are the boundaries between the recognition and enforcement of foreign arbitral awards, and the execution of those awards against assets. In this context, the Supreme Court also analysed whether the Moldovan legislation and the New York Convention require the creditor to first levy execution against the bank accounts, the movable or immovable property and then the shares in the company.

 

Respondent’s Arguments

The Respondent argued that the Claimant could not seek execution against the shares held by him in the Company in the first instance. He argued that the Claimant had to, under Art. 90 of the Moldovan Enforcement Code, successively execute the Arbitral Award against funds, settlement accounts, movable / immovable assets he had in Ukraine, and only then it could seek seizure of and execution against shares in Moldova.

Moreover, the Respondent maintained that the Claimant might pursue recognition and enforcement of the Arbitral Award in Moldova, only after presenting indisputable evidence confirming the impossibility of its execution on the territory of Ukraine.

 

Supreme Court’s Findings

The Supreme Court emphasized that Art. 3 of the New York Convention and Art. 4753 of the Moldovan Code of Civil Procedure, contain rules on the recognition of a foreign arbitral award and the granting of its execution on the territory of Moldova. This involves ascertaining the enforceability of the foreign arbitral award and authorizing its enforcement. Accordingly, the examination of the application for recognition and enforcement does not imply any evaluation of the subsequent execution, the latter falling under the jurisdiction of the bailiff acting in accordance with the provisions of the Moldovan Enforcement Code.

Moreover, the provisions of Art. 4751 of the Moldovan Code of Civil Procedure, do not require the award creditor to first apply for recognition and enforcement in another jurisdiction prior to initiating proceedings in Moldova.

The execution against the debtor’s assets is governed by Art. 90 of the Moldovan Enforcement Code. It provides that the sequence of the execution may be established by a mutual agreement of the parties to the enforcement procedure. If the parties have not agreed, the sequence of the execution against assets is determined by the creditor and the bailiff, according to the following order:

  • first of all, the debtor’s personal assets will be pursued free of collateral or mortgage and funds;
  • secondly, the debtor’s assets will be pursued, which are in common ownership in shares or in debasement, free of pledge or mortgage;
  • thirdly, the pledged or mortgaged goods will be pursued;
  • lastly, the real estate in which the debtor resides will be pursued.

In the Supreme Court’s opinion, the notion of enforcement in Art. 1(3) of the New York Convention has the exclusive meaning of the procedure of “recognition and enforcement”. This consists in the procedure of the assessment of the conditions of international regularity, provided in Art. 476 of the Code of Civil Procedure, regarding the invoked arbitral award. However, the execution procedure, based on an executory title issued by the State Court (i.e. Moldovan court) where the enforcement is recognized, shall be performed under the conditions of the Enforcement Code. Therefore, the Respondent’s argument that, as a shareholder of the Company, he cannot from the beginning be financially liable with the amount of the share capital, until his assets from the state where it resides are pursued, was irrelevant. This is because the Respondent’s argument refers to the enforcement procedure in which the debtor’s assets can be pursued. However, the subject matter of the Claimant’s request concerned the phase after the approval of the enforcement procedure in accordance with the Enforcement Code of the Republic of Moldova. Therefore, the execution against the assets, based on a foreign arbitral award, is performed at the stage where the arbitral award was already recognized, and the judgement recognizing the foreign arbitral award was already issued.

 

Concluding Remarks

Although the Supreme Court’s decision may be unsurprising for international arbitration community, it is one of the first decisions in Moldova clarifying the aspects related to recognition and enforcement of foreign arbitral awards, and the execution against the debtor’s assets. This decision seems to clarify the boundaries between the applicability of the New York Convention and the internal norms applicable to recognition and enforcement of foreign arbitral awards, and the execution against the assets based on such awards. Thus, the Supreme Court clarified that, once a creditor identified the debtor’s assets in Moldova, it should be aware that the New York Convention is applicable to the procedure of recognition of the arbitral award, and the “approval for enforcement” (încunviințarea executării) only, and not to the execution procedure itself. According to the Supreme Court, once the competent national court issued the judgement recognizing and approving the enforcement of a foreign arbitral award, and that judgement remained final and irrevocable, the procedure for execution of the debtor’s assets is entirely governed by domestic law (i.e. Enforcement Code).

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Paris Arbitration Week: Protecting Your Interest Through Interim Relief From Mainland Chinese Courts

Sat, 2021-09-25 01:00

During the Paris Arbitration Week, HKIAC held a webinar on “Protecting your interest through interim relief from Mainland Chinese courts”, two years after the unprecedented Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and the Hong Kong Special Administrative Region (the Arrangement) came into effect.

Dr Ling Yang (Deputy Secretary-General and Chief Representative of the Shanghai Office at HKIAC) delivered welcoming remarks and Anton Ware (Partner, Arnold & Porter) moderated the discussion. The panellists were Chungang Dong (Partner at Jingtian & Gongcheng), Dr Nils Eliasson (Partner at Shearman & Sterling; HKIAC Vice Chairperson), Sarah Grimmer (Secretary-General at HKIAC) and Karl Hennessee (Senior Vice-President of Litigation, Investigations & Regulatory Affairs at Airbus; HKIAC Council Member).

 

The Arrangement

The event kicked off with a presentation by Dr Yang on the Arrangement.

The instrument was signed on 2 April 2019 and came into effect on 1 October 2019. On 25 September 2019, six arbitral institutions in Hong Kong were approved as the eligible institutions under the Arrangement. The Arrangement allowed Hong Kong to become the first and only arbitral seat outside of Mainland China, where parties can apply for interim measures in Mainland Chinese courts to preserve assets, evidence or conduct.

 

HKIAC’s experience with the Arrangement

Ms Grimmer addressed the role of HKIAC in applications for interim measures to Mainland Chinese courts, which is to certify that HKIAC is administering the case. Within 24 hours upon receipt of complete applications from the parties, HKIAC will issue a letter to Mainland Chinese courts confirming that the arbitration is administered by HKIAC.

She then provided a statistical analysis of the implementation of the Arrangement. HKIAC has so far processed 50 applications under the Arrangement. The Mainland Chinese courts have issued 32 decisions, 30 of which granted interim measures upon the applicants’ provision of security. The total value of assets preserved amounted to RMB 10.9 billion (approximately USD 1.7 billion), which, according to Ms Grimmer, showcases the significant commercial advantage of choosing Hong Kong as an arbitral seat.

To date, applications have been made to 23 different courts across China. In terms of nationalities, the Arrangement has an impact on both Chinese and foreign entities – applicants comprise around 25% Mainland Chinese parties and 75% foreign parties, while respondents are split between 53% Mainland Chinese entities and 47% foreign parties. The median time taken by Mainland Chinese courts to issue a decision was 8 days.

In practice, around 2/3 of the cases were submitted by the applicants to the courts, whereas 1/3 of the applications were transferred to the courts by HKIAC.

 

Benefits of the Arrangement

The panellists then discussed the impact of the Arrangement on parties’ business dealing, negotiation and choice of dispute resolution clause in a China-related contract. Mr Hennessee considered the benefits to be two-fold: first, the Arrangement helps to preserve the relationship between the parties and minimise the disruption of supply chain when a dispute arises; second, the existence of the instrument also provides assurance to both parties and encourages the parties to act in good faith. In a nutshell, the Arrangement balances the playing field between parties and decreases the possibility of one party leveraging a supply or payment situation.

Dr Eliasson commented that the Arrangement has proven to be a game-changer for several reasons: first, Hong Kong is the only jurisdiction outside of Mainland China where parties can obtain interim measures from Mainland Chinese courts; second, interim relief obtained from an arbitral tribunal is unenforceable in Mainland China, rendering an application under the Arrangement the only viable solution; third, interim measures can also be ordered ex parte; lastly, the Arrangement has a broad scope that also captures foreign parties that are not based but have assets in Mainland China. In addition, Dr Eliasson also observed a shifting choice‑of‑seat landscape after the adoption of the Arrangement – foreign companies either are more committed to Hong Kong as an arbitral seat, or have chosen to switch to Hong Kong to come within the ambit of the Arrangement.

 

Practical issues in seeking interim relief from a PRC court

Mr Dong then shared his previous experience with successfully obtaining a freezing order from an intermediate court in Guangdong province in aid of a HKIAC arbitration. He noted that the application was off to a rocky start – the initial request for a pre‑arbitration freezing order was rejected. Although a pre-arbitration freezing order is allowed under Article 3 of the Arrangement, in practice it is common for Mainland Chinese courts to dismiss such applications, even for domestic arbitration cases. The applicant subsequently commenced arbitration and filed the HKIAC confirmation letter with the court. The application for a freezing order was then approved and the security requirement was satisfied by a litigation preservation insurance policy.

Mr Dong commended HKIAC’s experience in handling such applications. From a procedural perspective, he noted that there was barely any practical difference from seeking interim relief for domestic arbitration cases.

 

Preservation of conduct

The panel then turned to a unique concept under Chinese law – “preservation of conduct”.  Mr Dong explained that this is analogous to preliminary injunction under common law. Introduced in Articles 100 and 101 of the Civil Procedure Law of the People’s Republic of China in 2013, preservation of conduct refers to interim measures requiring or prohibiting a party from acting in a certain manner. The legal threshold is high – the applicant must show urgency, irreparable harm and furnish security.

Mr Hennessee added that the legal standard of preservation of conduct may be higher than that of a preliminary injunction in common law courts. He noted it is similar to an ex parte injunction, which also requires proof of urgency and irreparable harm, as well as provision of security. He then illustrated the high threshold of urgency with an example – in practice, parties often invoke a clause in the contract that requires both parties to continue to perform in the event of a dispute. In his experience, the existence of similar clauses can be an important piece of evidence to show urgency.

Mr Eliasson encouraged parties to consider preservation of conduct despite the stringent legal criteria. In this regard, it is helpful that the power of the courts to grant such preservation is formulated broadly under Article 100 of the Chinese Civil Procedure Law. Mr Eliasson found this particularly helpful in private equity investment and other types of investment disputes, which are prevalent in Hong Kong. For instance, in 2020, a court in Shenzhen issued an order prohibiting shareholders who allegedly obtained shares in an invalid manner from registering the purchase with the relevant authorities in China. In this context, interim relief granted under the Arrangement can be a very important supplement to the measures that parties typically seek in Hong Kong or other offshore jurisdictions in these types of cases.

Ms Grimmer described HKIAC’s experience with one unusual conduct preservation case that arose out of a professional services contract, under which the claimant claimed unpaid fees from the respondent for services rendered in respect of a third-party Mainland Chinese entity. The claimant applied for an order restraining the third party from allocating any assets to the respondent. Interestingly, instead of a conduct preservation order, the Mainland Chinese court issued an order preserving the assets of the respondent for the arbitration.

 

Proposed amendments to Chinese arbitration law

The last topic of discussion concerned the recent publication of the Revised Draft of Arbitration Law of the People’s Republic of China (the Revised Draft) in July 2021, and whether the reform would boost Mainland Chinese cities to become the “future centres of international arbitration”.

Mr Eliasson recognised the importance of the ongoing reforms to Chinese arbitration law, as well as the increasing popularity of Mainland China as an arbitral seat. He found that these changes, however, will not undermine the competitiveness of Hong Kong as an arbitral seat, considering that Hong Kong has developed its arbitration-friendly regime over decades.

Mr Dong agreed that the Revised Draft is progressive and inspiring, but also pointed out that there is still a long way ahead before it can be adopted. He raised concerns about the amendment in the Revised Draft that empowers arbitral tribunals to grant interim measures (a power that currently rests with the courts), stating that this may lead to an influx of applications from over 200 arbitration institutions in China. Hence, the reform would also require corresponding amendments to the Chinese Civil Procedure Law and robust support from the Mainland Chinese court system.

 

Conclusion

Drawing upon their own experiences as well as the implementation of the Arrangement, the panellists agreed that Hong Kong continues to have a significant competitive edge over other arbitration hubs for Mainland China-related arbitrations, and will remain an attractive arbitral seat in the future.

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Paris Arbitration Week: Arbitration in the BVI, an up-and-coming hub in the Caribbean

Fri, 2021-09-24 01:00

When you think about the British Virgin Islands (BVI), you probably have a very good image of the sea, sand, beautiful views and maybe some very much needed vacation. There is however more to the BVI, particularly as relates to arbitration. It is possible that in the coming years, the BVI will be one of the preferred seats for arbitrations.

One of the sessions at the Paris Arbitration Week 2021 dealt with this topic. The event was moderated by Raphael Kaminsky (Vice President, Paris Arbitration Week and Partner, Teynier Pic) and Hana Doumal (Registrar at BVI International Arbitration Centre), who also wore the hat of a panellist. The other panellists were Shan Greer (Partner, Spencer West LLP), Angeline Welsh (Barrister, Essex Court Chambers) and Nicholas Burkill (Partner, Ogier).

The session focused on a general overview of the framework for arbitration in the BVI, the BVI International Arbitration Centre (BVI IAC), what advantages the BVI offers as a seat, and a discussion on confidentiality under the BVI Arbitration Act.

 

Overview of the framework for arbitration in the BVI

The 2013 BVI Arbitration Act, which entered into force in 2014, is the principal legislation on arbitration in the BVI. The Act is based on the UNCITRAL Model Law and establishes the BVI International Arbitration Centre. To ensure the enforcement of awards obtained in proceedings seated in the BVI, the BVI acceded to the New York Convention in May 2014.

The 2016 BVI IAC Rules, which are modern UNCITRAL-based Rules, are the extant arbitration rules in the BVI. The BVI IAC is, however, working to amend the rules and is scheduled to release the updated rules during the BVI IAC Week in November 2021. The amended rules will introduce new provisions on pertinent issues including emergency arbitrators, expedited procedures, tribunal secretaries, joinder, and consolidation. They will also introduce an Arbitration Committee to ensure the application of the Rules.

The BVI as a seat also enjoys unwavering support from the judiciary. The courts in the BVI take a non-interventionist approach to arbitration and relying on the BVI Arbitration Act, provide the necessary support for arbitral proceedings – interim reliefs, enforcement of awards, and privacy of hearings. The court proceedings are also very quick. For instance, Mr Burkill shared the experience of a proceeding that was commenced in October 2020, went to trial at the end of January, the trial concluded at the end of February, and the judgment was ready two days later.

 

The BVI IAC

The BVI IAC is an independent not-for-profit institution established in 2013 by the BVI Arbitration Act to meet the demands of the international business community for a neutral, impartial, efficient and reliable dispute resolution institution in the Caribbean and Latin America. The centre officially opened for hearings in January 2017. It is a well-equipped state of the art centre that benefits from the acknowledged quality of the BVI legal framework and the stable political environment offered by a British Overseas Territory. The goal is to become a leading arbitration hub in the Caribbean and beyond.

It is expected that the BVI would be home to different disputes but more particularly those relating to tourism, M&A, joint venture, and oil & gas disputes. With the geographical consideration, the BVI is well placed as a neutral venue for disputes from South and Central America, North America, Europe, Russia, and neighbouring states. It is also possible that the BVI will see disputes from Asia since many companies set up corporate vehicles in the BVI.

 

What advantages does the BVI offer?

The White & Case and Queen Mary 2021 International Arbitration Survey identifies ‘greater support for arbitration by local courts and judiciary’, ‘increased neutrality and impartiality of the local legal system’, and ‘better track record in enforcing agreements to arbitrate and arbitral awards’ as the key adaptations that would make arbitral seats more attractive. In 2015, the Chartered Institute of Arbitrators also introduced the CIArb London Centenary Principles – 10 principles for an effective, efficient and ‘safe’ seat for the conduct of international arbitration. The panellists agreed that the BVI meets these criteria and goes beyond them to provide additional advantages.

Firstly, even though the BVI is a new seat, the BVI piggybacks off the wealth of authority and experience of established jurisdictions, particularly England. It is a UK overseas territory and enjoys the political stability of the UK.

Secondly, the BVI has a dedicated commercial court and bar, very familiar with arbitration. The courts have taken an unflinching stance in support of arbitration, as noted by the court in the case of Retribution Limited v L Capital KTD Limited BVIHC(COM) 2015/0078 where the BVI High Court confirmed that the BVI Arbitration Act signals the BVI’s commitment to create and provide a modern and comprehensive legal framework for attracting and dealing with arbitral disputes and, save only in limited circumstances, the court will not allow parties who have agreed to arbitrate their disputes to by-pass an arbitration agreement through the draconian threat of liquidation.

Thirdly, while the BVI is guided by its specific statutory provisions which may sometimes differ from the English statutory provisions, the BVI draws on the deep reservoir of English case law as the common law of the BVI derives from English common law and English cases. The approach adopted by the English courts generally guides the approach in the BVI.

With specific reference to the CIArb London Centenary Principles, the BVI IAC continues to show commitment to the education of arbitration practitioners, safeguards the right of the parties to be represented by legal counsel of their choice whether from within or outside the BVI, guarantees the immunity of arbitral tribunal for acts done in the performance of its functions, and respects international treaties and agreements including the UNCITRAL Model Law and the New York Convention.

Another imperative point to note is the ease of enforcement in the BVI. As noted earlier, the BVI acceded to the New York Convention which ensures the enforcement of the awards worldwide. More so, as a practical matter, where there is no challenge, enforcement proceedings could be concluded in a couple of weeks.

 

Confidentiality under the 2013 BVI Arbitration Act

Of the pertinent points that make the BVI stand out are the provisions of the BVI Arbitration Act relating to confidentiality of court related proceedings. One of the oxymorons that have bedevilled arbitration practice is how parties usually lose every shred of confidentiality when any portion of the arbitral proceeding is referred to the courts – whether for interim reliefs, enforcement etc. Unlike other jurisdictions including the UK, the BVI Arbitration Act sets out a robust regime for maintaining confidentiality of court proceedings relating to arbitration. Specifically, the BVI Arbitration Act prohibits disclosure of information relating to arbitral proceedings and awards, subject to limited exceptions. The Court is required to not make an order for publication of a judgment unless the parties agree that it can or publication would not reveal information which the parties would reasonably consider to be confidential. The Court can still depart from this regime, but only where there is major legal interest or it is in the public interest to do so.  But even then, the parties can apply for parts of the judgment to be redacted on the grounds of confidentiality.

 

Initiatives in the BVI: Caribbean ADR Initiative (CADRIn)

CADRIn is an independent non-profit initiative co-founded by Ms Greer with a vision to establish a mechanism by which regional practitioners, ADR centres and potential users are brought to a discursive platform where international best practice can be analysed, distilled and appropriately disseminated in light of these domestic, regional, legal, cultural, and other dynamics.  This vision is expansive and relies on significant engagement with a wide audience of stakeholders, and thus requires a well-structured methodology and approach. Its focus has been on SMEs and the initiative will be holding meetings in the next few months to discuss ways in which ADR can support the effective resolution of regional disputes with SMEs.

 

Conclusion

The BVI is certainly an up-and-coming arbitration hub in the Caribbean. Its development is supported by legislation, the judiciary, and institutional infrastructure. The 2013 BVI Arbitration Act is the principal legislative instrument, supported by the 2016 BVI IAC Rules which will be amended with the new rules to be released in November 2021. Institutionally, the BVI IAC provides the very much needed support for the BVI. It administers arbitration in the BVI and provides state-of-the-art facilities for arbitration hearings. The BVI courts, without a doubt, support arbitration in the BVI and appear to have shown that they will continue doing so in the future. The panellists agreed that arbitration practitioners may therefore want to consider the BVI when negotiating their arbitration clauses. On a final note, Mr Burkill who chairs the BVI Arbitration Group invited persons with interest in international arbitration to join the BVI Arbitration Group.

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Paris Arbitration Week: Is There an App for That? Arbitration of Smaller Commercial Disputes in the Technology Sector

Thu, 2021-09-23 01:03

On 20 September 2021, a panel of arbitration and dispute resolution experts discussed the topic of technological disruption in commercial arbitration and online dispute resolution (ODR) with a specific focus on smaller disputes. Moderated by Ms Myriam Seers (Partner, Savoie Laporte), the panel included Ms Sophie Nappert (Independent Arbitrator, 3 Verulam Buildings, and Co-Founder, ArbTech), Prof Amy Schmitz (Professor of Law, Centre for Dispute Resolution, University of Missouri), and Mr Colin Rule (CEO of Arbitrate.com and former director of ODR at PayPal and eBay).

With the advent of the COVID-19 pandemic, arbitration experienced an unprecedented degree of digitalisation. However, this has been limited so far to using tools that replicate offline arbitration in an online setting, with the most common example being virtual hearings. But could technology become instrumental to adjudicating commercial disputes beyond only aiding practitioners to carry out their business as usual? According to the speakers, only then will we begin experiencing a true technological disruption of arbitration.

 

Disruption of arbitration

The discussion kickstarted with a conversation on whether and to what extent arbitration could be disrupted by technology, similar to other industries. Ms Nappert pointed out that arbitration has already become a target for disruption without realising it. Thus far, arbitration has offered many benefits for large, international claims that need tailored proceedings and expert arbitrators. However, e-commerce, exacerbated by the current state of the world, became a source of instantaneous, albeit smaller, disputes that nevertheless need instantaneous resolution. The panel agreed that arbitration at this point has not offered much to address this new demand.

The current state of arbitration may be acceptable for claimants with enough resources to endure long proceedings, but now that everyone can take part in immediate cross-jurisdictional transactions, a need for faster dispute resolution will need to be addressed. Mr Rule noted that the “incumbent players” of the dispute resolution ecosystem, i.e. arbitral institutions, practitioners, and overall stakeholders, may need to reformulate basic notions of arbitration and procedure or otherwise risk that new players overtake this untapped market. Ultimately, disruption means making a service much cheaper, faster, and simpler. The redesigning of cross-border dispute resolution by new players, as Mr Rule warned, can only be ignored at each own’s peril.

One key notion that may need rethinking is due process. Ms Nappert stressed the fact that as long as offline enforcement and court oversight are present, due process will continue to be interpreted as we know it, i.e. having your day in court and being able to ventilate every detail of the dispute. However, as a more confident view on technology consolidates, the notion of due process may change. Although human oversight will continue to be important, novel ways of partnering with technology will optimise dispute resolution.

 

A forum for high volume, low value disputes

The digital economy has revolutionised commerce, and in the process, it has exacerbated the number of disputes over commercial transactions. Although online disputes tend to be of lower economic value, they still need an adequate forum where users can resolve them. This is even more evident, considering that these disputes often refer to cross-jurisdictional transactions between different business cultures and jurisdictions that have different expectations about commercial transactions, which radically expands their complexity.

ODR services aim to provide access to justice to millions of users of e-commerce through user friendly platforms. Prof Schmitz highlighted that consumers usually give up on online disputes as they find that there is no adequate forum where they can bring their claims. To address this issue, mechanisms that allow to honour commitments agreed upon on an online business-to-business basis and to amicably settle disputes arising thereof are necessary, and ODR may become that adequate forum.

However, to design an adequate forum it is also necessary to delineate the disputes apt to be settled therein. In this sense, it was noted that “small disputes” is a relative term. What may be a small claim for some may not be for others. In the current arbitration status quo, disputes as high as USD 10 million may still be too uneconomic to pursue, or too time consuming, so the market for these claims remains untapped.

As smaller disputes will often arise from almost immediate transactions, the panel suggested that only through almost immediate dispute resolution can we keep up with the pace. Luckily for practitioners, this will not mean the end of arbitration practice as we know it. Mr Rule reassured attendees that fears of losing jobs are not warranted. To the contrary, the development of new ODR techniques will prove beneficial for all stakeholders, as technology will continue to assist practitioners, who will also develop new skills to adapt and perform their jobs in novel ways. Overall, the panel encouraged the community to embrace these ideas with a sense of creativity and entrepreneurship.

 

The widths of ODR

Although ODR is sometimes regarded simply as “arbitration over Zoom”, or as using tech tools to make practitioners’ work lives easier, this is not exactly the case. ODR indeed started by replicating offline dispute resolution features in an online environment, but nowadays it creates a much broader range of opportunities for the untapped market of smaller claims.

High value claimants have the time and resources to engage in long, mostly in-person arbitrations, but smaller parties do not. At the same time, Mr Rule predicts that at least half of dispute resolution procedures will be online even if the Covid-19 pandemic is fully controlled. Therefore, as part of creating an adequate forum for these left-out parties, ODR has developed technology-based mechanisms for faster, fully digital dispute resolution. Among them are dispute resolution software solutions that rely on blockchain technology, such as crowdsourced arbitration, or artificial intelligence and machine learning. A wide list of providers of ODR services was shared during the event and can be accessed here.

As an example, the panel discussed Kleros, an ODR platform where users can act as jurors and settle online disputes. The platform relies on blockchain technology, and jurors can stake their virtual currencies and be rewarded after the conclusion of a dispute. Interestingly, the legitimacy of these decisions arises from the trust that the virtual currency community share amongst themselves, which is not necessarily too different from the legitimacy traditional arbitrators receive from the parties to an arbitration agreement. Nevertheless, several doubts and concerns also arise. The panelists questioned whether and how this new notion of legitimacy can be scaled up to other less niche and more regulated, traditional fields. Furthermore, the danger of dishonest online jurors calls into question the alleged incorruptible nature of the blockchain technology.

 

UNCITRAL Working Group III

Efforts to promote ODR have not come only from private parties and potential service providers. The speakers noted that there has also been an interest from governmental and institutional platforms. The UNCITRAL Working Group III’s work on ODR is an example. However, this project ended in 2016 without consensus. Prof Schmitz, who took part in the initiative, pointed out that from a political perspective, ODR faces a few more challenges.

The first challenge is the different regulatory treatment that jurisdictions give to arbitration. The issue of enforcement of pre-dispute arbitration agreements in consumer transactions represented the main problem. These are not enforceable in most jurisdictions – notably the EU – but are a normal practice in others, such as the US. The disruptive nature of technology itself is also a challenge, considering that any agreed-upon framework on ODR could be rendered insufficient as technology continues to evolve at a much faster pace than regulation.

The panel concluded that this, however, did not mean the end of institutional efforts to embrace ODR. To the contrary, as Prof Schmitz emphasised, institutional embracement is key for the development of ODR, and we are now seeing efforts migrating from global platforms as UNCITRAL to regional initiatives or projects focused solely on one economic sector of interest, which would allow to better fit the ODR forum to a specific context.

 

Takeaways

The fascinating discussion ended with each panelist issuing a call to action in line with their backgrounds. Ms Nappert encouraged young practitioners to get involved in the ODR universe and try out platforms to become arbitrators of online disputes. Prof Schmitz encouraged students to learn about ODR technology and stressed how this can help in improving their profile in the job market. Finally, Mr Rule encouraged attendees to enter the ODR world with an entrepreneurial mindset and to build businesses where the highway is going, not where it is right now.

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Paris Arbitration Week: Harmonization through Arbitration – the Arbitrators’ Role and Function

Wed, 2021-09-22 01:28

The 2021 Paris Arbitration Week (PAW), which kicked off on Monday 20 September 2021, brings the arbitration community together in a hybrid format with participants and speakers attending in person and online from all over the globe, following a fully virtual edition in 2020.

One of Monday’s sessions involved a series of Oxford-style debates on harmonization through arbitration and focused on the arbitrators’ role and function in that regard. The session was hosted by Sciences Po Law School, Queen Mary University of London, the Sciences Po Arbitration Society and Latham & Watkins LLP.

The first half of the session was moderated by Dr Constance Castres Saint-Martin of Sciences Po Law School and addressed the topic from the perspective of commercial arbitration.

The first topic of debate related to the question of whether the arbitration community is witnessing a harmonization of arbitrators’ profiles.

In support of the motion, Audley Sheppard QC of Clifford Chance argued that there is overwhelming evidence that arbitrators’ profiles are undergoing a process of harmonization. He highlighted 10 contributing factors to that effect:

  1. the majority of arbitrators are lawyers;
  2. these lawyers are arbitration specialists;
  3. prominent arbitrators are involved in the same organizations and attend the same events discussing similar themes;
  4. the trend currently gaining momentum is for arbitrators to have studied arbitration during their undergraduate or LLM studies;
  5. most arbitrators work as practitioners, while fewer of them are academics;
  6. only a few former in-house counsel become arbitrators;
  7. there is regrettably slow progression on the topics of regional and ethnic diversity among arbitrators (at least in Europe);
  8. while gender diversity has improved, this has mainly been driven by arbitral institutions rather than by clients, who tend to act more conservatively;
  9. the harmonization of arbitral proceedings leads arbitrators to approach cases and conduct proceedings in a similar manner;
  10. by its very nature, arbitration nudges members of the arbitral tribunal to compromise with one another when drafting awards and does not reward those arbitrators who endorse uncompromising legal reasoning.

Mr Sheppard concluded that arbitrators’ profiles undergo harmonization and that this is desirable as it answers the parties’ need for predictability.

Against the motion, Marina Matousekova of CastaldiPartners argued that arbitrators’ profiles are not homogeneous and that competition in the market now requires arbitrators to stand out from the crowd. She described how, over the past 20 years, a very concentrated club of white male individuals acting only occasionally as arbitrators evolved into a large and global pool of diverse professional and specialized candidates. Ms Matousekova suggested that the increased diversity driven by arbitral institutions, advocacy groups and mentorship programs by law firms and law schools creates a moral imperative for parties when selecting their arbitrator. In that regard, she added that clients now select their arbitrators according to a range of criteria, including prior experience as arbitrator, specialist knowledge of the relevant sector, familiarity with the cultural context and language as well as an understanding of applicable law. According to Ms Matousekova, technological innovation allows sophisticated parties to assess candidates against these criteria by analyzing available online data when prospecting for arbitrators. She concluded by advising aspiring arbitrators to be proactive in controlling their public profile when participating in conferences, building their network and acquiring visibility in specific sectors.

The second topic under debate concerned the issue of whether the arbitration community is witnessing a harmonization of arbitral awards.

For the motion, Jose Ricardo Feris of Squire Patton Boggs argued that harmonization of arbitral awards is desirable because it creates legal certainty, a key client concern. According to him, it is due to this need that the arbitration community has put great effort to devise institutional rules and soft law guidelines for arbitrators to follow during the proceedings leading to the issuance of the award.

Against the motion, Eleonora Coelho of Eleonora Coelho Advogados, argued that, on the contrary, parties choose arbitration because of party-autonomy and flexibility, which allows them to design tailor-made proceedings culminating in an award.

Mr Feris suggested that the rule of precedent was virtually already a reality in arbitration, in light of widespread reliance by counsel and arbitrators alike on earlier published arbitral awards. Ms Coelho countered that the arbitrator’s mandate is distinct from that of a judge: arbitrators are not part of a single legal system in which the law needs to be applied homogeneously under the control of a supreme court, but owe a duty only to the parties that appointed them. She also underlined that confidentiality hindered any rule of precedent from efficiently taking hold in arbitration.

Finally, Mr Feris endorsed the practice of some arbitral institutions (such as the ICC) to scrutinize awards, thus improving their overall quality. According to him, a third party with less granular knowledge of the case could impartially advise arbitrators to detail the reasons of their award, thus ensuring the parties are satisfied that their case had been heard, whatever its outcome, and reducing the risk of a challenge being brought against the award. Ms Coelho disagreed: she first reminded the audience that the process of scrutinising awards delays the proceedings and increases their cost, and concluded that grounds for annulment often relate to substantive issues, which is why institutional scrutiny is of little help to prevent the annulment of awards.

The second half of the session, chaired by Dr Diego P. Fernandez Arroyo of Sciences Po Law School, dealt with the question of whether arbitrators could contribute to the harmonization of international investment law.

In support of the motion, Ina Popova of Debevoise & Plimpton distinguished the rule of precedent from harmonization. According to Ms Popova, harmonization is the process of achieving consistent and complementary decisions by investment arbitral tribunals, which requires deliberate and conscious participation of arbitrators. She argued that harmonization in this area is possible as arbitral tribunals derive their authority from treaties, interpreted and applied according to the same principles of international law. Arbitral tribunals participate in an iterative process of harmonization together with other international adjudicators such as the Court of Justice of the European Union and the International Court of Justice that nowadays sometimes refer to or even review investment arbitral awards. Ms Popova was joined by Andres Jana of BMAJ, who described how harmonization safeguards the legitimacy of investor-state dispute settlement (ISDS) because it provides legal certainty and predictability, easing business planning for foreign investors and ensuring host states remain safe for FDI. According to Mr Jana, those who rely on ISDS expect a harmonious application of concepts of investment law and arbitrators should strive to meet this expectation. He concluded that, in any event, the practice of parties and arbitral tribunals makes the harmonization of investment law unavoidable, as the demands for transparency lead to more and more awards being publicly available which are, in turn, quoted and debated in subsequent proceedings or by state representatives negotiating treaty revisions.

Against the motion, Fernando Mantilla-Serrano of Latham & Watkins submitted that the arbitral tribunals’ primary mandate is to resolve the parties’ dispute rather than to contribute to the creation or development of investment law, and that their duty is to the parties that appointed them rather than the legal community. He argued that there is no justification to distinguish investment arbitration from commercial arbitration in that regard: commercial arbitration tribunals regularly interpret standard construction or oil and gas contracts, just as investment arbitration tribunals routinely interpret investment treaties offering similar protections to foreign investments or investors.

Mr Mantilla-Serrano then turned to the typical practice of investment arbitration tribunals quoting and discussing prior awards in their own decisions. He argued that the large number of inconsistent awards on a given issue allows arbitral tribunals to find comfort or support for any proposition and concluded this shows there has been no successful harmonization on the interpretation of the substantive protections provided under investment law.

Giuditta Cordero-Moss of the University of Oslo reached a similar conclusion regarding the procedural aspects of investment arbitration. According to her, arbitral practice on procedural issues is fragmented even within the self-contained ICSID regime. Ms Cordero-Moss then reminded the audience that approximately 35% of investment arbitrations were not conducted within the ICSID regime and were subject to other arbitration rules (e.g. the UNCITRAL, SCC or ICC rules) and to the mandatory procedural principles of the seat. Non-ICSID tribunals have to bear such principles in mind or risk having their award annulled at the seat or its enforcement refused under the principles set out in the New York Convention. She provided three examples where that risk arose:

  1. national laws diverge on the principle iura novit curia, and an arbitral tribunal that applies a legal principle without hearing the parties on it could risk having its award annulled for excess of power or breach of due process in some jurisdictions;
  2. the power of an arbitral tribunal to impose a virtual hearing on the parties is not recognized in all legal systems, and an award issued following a contested virtual hearing could be challenged for breach of due process;
  3. national laws do not impose identical formal requirements for arbitration agreements to be valid, and an award upholding jurisdiction in breach of these requirements is likely to be challenged.

Ms Cordero-Moss concluded that there is an irreducible core of procedural issues in investment arbitration for which harmonization is structurally impossible.

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Cross-Disclosure In Parallel Investment Arbitrations: Perspectives For States

Tue, 2021-09-21 01:21

The recent Singapore Court of Appeal judgment in Republic of India v. Vedanta Resources PLC provides a relevant backdrop for revisiting the often-competing themes of confidentiality and consistency in investment arbitrations and their effect on cross-disclosure of evidence (witness statements or documentary exhibits) and pleadings in parallel arbitral proceedings over a common substantive issue-in-dispute. Cross-disclosure of pleadings and written submissions particularly help a tribunal to appreciate the overall case theory since it gains access to all the legal arguments submitted by parties in connected parallel proceedings. Thus, cross-disclosure may be of assistance in the tribunal’s decision-making process.

The Vedanta decision arose out of an application by India for cross-disclosure of documents in two parallel and related investment-treaty arbitrations with the Cairn Group (“Cairn Arbitration”), on one hand, and Vedanta Resources plc (“Vedanta Arbitration”) on the other. Both arbitrations emanated out of the same taxation measures taken by the Indian government with respect to the restructuring of Cairn Group’s India business (which was subsequently acquired by Vedanta Group). The Cairn Arbitration has been discussed on this blog previously here and here. Moreover, both arbitrations were invoked under the India-UK BIT, conducted in accordance with UNCITRAL Arbitration Rules 1976, and administered by the PCA. The Cairn Arbitration was seated in the Netherlands, while the Vedanta Arbitration was seated in Singapore.

In view of the potential overlap between the two separate but related arbitrations and the possible risk of inconsistent positions on questions of law and/or inconsistent presentations or accounts of the facts, taken by counsel in both the arbitrations, in-turn leading to inconsistent awards, India made cross-disclosure applications before both the tribunals. Although, the relevant procedural orders (“POs”) issued by the Cairn and Vedanta tribunals eventually permitted cross-disclosure of documents with the consent of the opposing party or with the permission of the tribunal, there was significant departure between the underlying premise of the two POs.

The key premise of the Cairn PO was that the parties to an investment-treaty arbitration were not subject to a general obligation of confidentiality under Dutch law. The Cairn PO was, therefore, based on a regime of open document disclosure, and expressly stated that the Cairn tribunal would uphold objections to disclosure only rarely. 1)Republic of India v. Vedanta Resources PLC [2020] SGHC 208, para. 20 jQuery('#footnote_plugin_tooltip_38789_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38789_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); On the other hand, the Vedanta PO was premised on the notion that parties to an investment-treaty arbitration are subject to a general obligation of confidentiality under Singapore law. 2)Republic of India v. Vedanta Resources PLC [2020] SGHC 208, para. 22 jQuery('#footnote_plugin_tooltip_38789_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_38789_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Thus, the Vedanta tribunal declined to grant the parties a general license to make cross-disclosures, in favour of a case-by-case approach.

Subsequently, India pursued applications before the Singapore High Court and the Singapore Court of Appeal seeking declaratory relief that India would not be in breach of any obligation of confidentiality or privacy if it discloses Vedanta Arbitration documents in the Cairn Arbitration.

 

Confidentiality, Transparency and Cross-Disclosure – States’ Probable Concerns

Irrespective of the merits of these Singapore court decisions, they provide useful context to discuss the practical issues that States face due to strict confidentiality requirements in arbitrations and potential issues that may arise therefrom in parallel investment arbitrations.

Parallel investment arbitrations are essentially multiple arbitrations between States and investors of the same constructive identity, which concern a State-measure’s compliance with the State’s international investment law obligations. There can be several variants of parallel proceedings. For instance, different shareholders may raise separate disputes arising out of a single factual scenario due to the existence of different treaties based on the shareholders’ home States. Similarly, a claimant may raise the same dispute under different treaties because differences in treaty-texts mean that substantive protections thereunder may vary.

If we adhere to strict confidentiality norms (as held by the Singapore courts) in such arbitrations, we may face the prospect of inconsistent decisions from different tribunals. CME Czech Republic B.V. v. The Czech Republic and Ronald S. Lauder v. Czech Republic are illustrative in this regard. Conflicting awards of this nature are undesirable not only because they raise concerns about the legitimacy of the investment arbitration system, but because they may cause difficulties at the enforcement stage and encourage future litigants to forum-shop. For instance, where it is open to an investor to bring a claim under more than one treaty, an investor may initiate proceedings under one treaty, assess how its legal arguments are being received and strategize accordingly before initiating a second proceeding under another treaty in the hope that it will succeed in at least one proceeding. This creates inequity from a State’s perspective, but also leaves open the possibility of several inconsistent and conflicting decisions. Inconsistent decisions, in turn, may lead to several issues at the stage of enforcement. Where there are two inconsistent awards, the enforcement of one decision would invariably lead to an implicit violation of the other. These issues may undercut the finality of awards and significantly delay the resolution of disputes. The potential for inconsistent decisions is also a feature of the larger ongoing debate concerning the so-called ‘legitimacy crisis’ in ISDS. Minimising the risk of inconsistent decisions is therefore of broader systemic importance and has a key role to play in enhancing the overall effectiveness of the ISDS mechanism.

Issues of confidentiality and consistency are more acute for States such as India, that have not yet adopted the ICSID Arbitration Rules (which have an in-built transparency mechanism, e.g., in the form of Rule 48(4) dealing with publication of awards) – and instead participate in ad-hoc investment arbitrations., mostly under UNCITRAL Arbitration Rules. Nevertheless, even outside the ICSID framework, some States have ratified the UN Convention on Transparency in Treaty-based Investor-State Arbitration, also known as the Mauritius Convention, which extends the application of the UNCITRAL Rules on Transparency to arbitration proceedings commenced under treaties concluded after 1 April 2014. The Mauritius Convention requires, among other things, the publication of information regarding the names of disputing parties, economic sector involved and treaty under which the claim is being made, the potential for a “third person” to file a written submission with the arbitral tribunal regarding a matter within the scope of the dispute, and that hearings for the presentation of evidence or for oral argument be made to the public.

Considering the issues with parallel proceedings, it is relevant to note that the Singapore High Court, in its judgment, stated that investment-treaty arbitrations concern crucial issues of public interest and public policy involving a sovereign which is accountable to its people and “considerations which apply to a private arbitration do not apply with equal force to investment-treaty arbitrations.” According to the Singapore High Court, “a different approach may well be warranted in investment-treaty arbitration, given the different stakeholders and the sovereign and public interests implicated.” Whilst there may, therefore, be a general obligation of confidentiality under common law, that obligation may not extend to investment-treaty arbitration, which requires consideration of broader issues of public policy and sovereignty. A similar view has also been taken by other investment arbitration tribunals. For example, the tribunal in Vivendi v. Argentina, noted that nearly all investment treaty arbitrations involve matters of public interest because the international legal responsibility of a State is in question.

However, given the lack of a uniform global standard of confidentiality in investment arbitrations, States should carefully consider taking adequate steps before or at the stage of initiation of an investor-State arbitration to ensure that they would be able to obtain cross-disclosure of documents if required at a subsequent stage.

 

Practical Steps for States seeking Cross-Disclosure

States should ideally consider addressing this issue at a treaty-level, for instance by ratifying the Mauritius Convention (or incorporating similar provisions into the BITs) and/or administering arbitrations under the ICSID framework – both of which have enhanced transparency and disclosure provisions, as opposed to usual ad-hoc arbitrations. This would obviate the need to have a separate cross-disclosure regime, given that the main submissions of the parties would anyway be in the public domain. Ratifying such treaties would also build a positive perception in favour of the States as it would indicate they are committed to the broader idea of transparency and full disclosure of ISDS proceedings, rather than being perceived as taking a selective approach to cross-disclosure only when it advances their case theory in a subsequent arbitration.

Given that treaty adoption is a time-taking process (which requires wider consensus building), States should also explore means to ensure cross-disclosure on a case-by-case basis for its existing ISDS proceedings. For instance, in the case of UNCITRAL Arbitration Rules governed and/or other forms of non-ICSID arbitrations, States should give considerable thought in agreeing to a specific seat of the arbitration. Although multiple strategic factors would inform this choice, for the purpose of enhancing the possibility of the tribunal granting cross-disclosure, States would be better placed opting for civil law jurisdictions (eg, the Netherlands, Germany, France, etc.) which do not impose a rigid duty of confidentiality in arbitrations compared to common law jurisdictions like England & Wales, Singapore and India. This is because Claimants usually resist cross-disclosure by stating that it breaches the inherent duty of confidentiality in arbitrations. As can be observed from the Vedanta and Cairn POs, the difference in the standards of confidentiality under the Dutch and Singapore legal systems led to significantly different scales of cross-disclosure permitted in the Vedanta and Cairn arbitrations.

References[+]

References ↑1 Republic of India v. Vedanta Resources PLC [2020] SGHC 208, para. 20 ↑2 Republic of India v. Vedanta Resources PLC [2020] SGHC 208, para. 22 function footnote_expand_reference_container_38789_30() { jQuery('#footnote_references_container_38789_30').show(); jQuery('#footnote_reference_container_collapse_button_38789_30').text('−'); } function footnote_collapse_reference_container_38789_30() { jQuery('#footnote_references_container_38789_30').hide(); jQuery('#footnote_reference_container_collapse_button_38789_30').text('+'); } function footnote_expand_collapse_reference_container_38789_30() { if (jQuery('#footnote_references_container_38789_30').is(':hidden')) { footnote_expand_reference_container_38789_30(); } else { footnote_collapse_reference_container_38789_30(); } } function footnote_moveToReference_38789_30(p_str_TargetID) { footnote_expand_reference_container_38789_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_38789_30(p_str_TargetID) { footnote_expand_reference_container_38789_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Wolters Kluwer Expands Practical Insights Topic Module for Kluwer Arbitration Practice Plus

Sun, 2021-09-19 23:37

Wolters Kluwer Legal & Regulatory U.S. recently announced the inclusion of additional topics to the Practical Insights module in Kluwer Arbitration Practice Plus (KAPP). The 23 topics expand Kluwer Arbitration’s capabilities to guide practitioners through the most important steps of the arbitral process.

Launched in December 2019, KAPP is a practical extension to Kluwer Arbitration, the world’s leading research solution for international arbitration. With the extended coverage of Practical Insights, KAPP will support arbitration practitioners at all levels of experience in delivering actionable guidance for key decisions. The topics, which by end of this month will comprise 23 topics, and then will be expanded to around 40 by November 2021, guide users through the arbitral process to drive efficiency, mitigate risk and optimize case strategy. This kind of practical guidance is especially useful in complex, real-world scenarios, including those arising in the early stages of arbitral proceedings, the conduct of the proceedings, evidentiary issues, and multi-party arbitrations.

The Practical Insights by topic offer a gateway to users into Kluwer Arbitration’s deep archives of commentaries, decisions, rules, and other important research materials. Practical Insights by topic are overseen by four General Editors, who are globally-based: Prof. Joshua Karton (Queen’s University, Canada), Simon Greenberg (Clifford Chance, Paris), Dr. Fan Yang (Stephenson Harwood, London), and Kiran Nasir Gore (The George Washington University Law School, Washington, DC).

“Practical Insights by topic offer a combination of real-world guidance, deep domain expertise and trustworthy resources for arbitration practitioners,” said David Bartolone, Vice President and General Manager for the International Group within Wolters Kluwer Legal & Regulatory U.S. “With the addition of further topics, we enhance KAPP, and we are continuing to expand Kluwer Arbitration’s capabilities as a full-service solution that provides our customers with the right tools to drive to the best possible outcomes during the arbitral process. More enhancements will be announced before the end of the year.”

Cindy Ko, Registered Foreign Lawyer (Singapore), Stephenson Harwood noted “I am very impressed with Practical Insights which was prepared by practitioners for practitioners. The design and set-up shows real attention was given to the needs of a practicing arbitration lawyer. The section on ‘Practical Steps’ sets this apart from a regular commentary text. The ‘Country and Institution Comparison’ tab provides easy cross-referencing and comparison of laws in different jurisdictions and arbitral institutional rules at a single glance. It is a very useful tool for any arbitration lawyer given the increasingly international and multi-jurisdictional nature of arbitration work.”

Practical Insights, while targeting law firm-based users, also offers superb guidance to a wide range of other users requiring practical guidance, including academics, research institutions, government and corporate legal departments. It is intended to aid the user in:

  • Quickly locating salient information;
  • Recognizing nuances and understanding non-standard issues;
  • Raising ‘red flags’ and highlighting high impact factors;
  • Comparing differences in approach across jurisdictions and institutions; and
  • Proceeding to recommended reading for more in-depth analysis.

To learn more, visit  the Kluwer Arbitration Practice Plus webpage.

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Validity of Arbitration Agreement: A New Relaxed Approach in the Draft Amendment to PRC Arbitration Law

Sun, 2021-09-19 01:00

On 30 July 2021, the PRC Ministry of Justice issued the Amendment to the Arbitration Law (Consultation Draft) (the “Draft Amendment”), which is the first substantial amendment of the existing PRC Arbitration Law (the “Arbitration Law”) in more than two decades. (See previous posts on the PRC Arbitration Law here and here.) Of the changes made, this article discusses the Draft Amendment’s relaxed approach towards the validity of the arbitration agreement and competence-competence.

 

Stringent Requirements under the Existing Arbitration Law

Under Article 16 of the existing Arbitration Law, an arbitration agreement refers to an arbitration clause contained in a contract or an agreement to arbitrate reached in writing either before or after the occurrence of a dispute. It must contain three elements to be effective: first, the parties’ intention to arbitrate; second, the specific matter for arbitration; and third, a designated arbitration commission.

The third requirement that there must be a designated arbitration commission has been heavily criticized for being inconsistent with the international trend as embodied in the UNCITRAL Model Law (the “Model Law”). (See, e.g., here and here.) This statutory requirement alone has led numerous arbitration agreements to be rendered invalid. For instance, the Supreme People’s Court of PR China (the “SPC”) decided in an appeal that the arbitration agreement, which provided that “any unresolved matter should be submitted to local arbitration agencies for arbitration,” was invalid because the parties did not reach a supplemental agreement or make a choice on the “local arbitration agencies.”1)SPC (2006) Min Yi Zhong Zi Di No.11. jQuery('#footnote_plugin_tooltip_38677_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38677_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); In another case where the parties agreed on the application of ICC arbitration rules, the SPC decided that the arbitration agreement was invalid because the parties had failed to designate an arbitration commission.2)SPC (2007) Min Si Zhong Zi No.15. jQuery('#footnote_plugin_tooltip_38677_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_38677_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Despite the foregoing, in judicial practices, the SPC has for a long time realized the value and importance of respecting the parties’ choice of arbitration as the dispute resolution mechanism. For instance, in a case where a defendant argued that the arbitration agreement providing that “the arbitration shall take place at CIETAC Beijing, P. R. China” was invalid because it provided the place of the arbitration but did not designate the arbitration commission, the SPC found the agreement to be valid on the ground that “take place at CIETAC” could be interpreted as the parties designating CIETAC as the arbitration commission.3)SPC (2012) Zhe Yong Zhong Zi Que Zi No.4. jQuery('#footnote_plugin_tooltip_38677_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_38677_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

To further improve the situation caused by the stringent requirements in the Arbitration Law concerning the validity of arbitration agreement, in 2006, the SPC issued its Interpretation on Several Issues concerning the Application of the Arbitration Law (the “SPC’s Interpretation”). The SPC’s Interpretation clarified that, as long as the arbitration commission can be ascertained or the parties could reach a supplemental agreement or make a choice when filing the arbitration, the arbitration agreement shall still be regarded as valid for having designated an arbitration commission—even if the name of the commission was inaccurate, the parties only agreed on the rules of the arbitration commission, or they have agreed on more than one commission.   

Subsequent to the SPC’s Interpretation, in a similar case where the parties agreed on the application of the ICC arbitration rules, the Beijing Dongcheng District Court found the arbitration agreement to be valid because the arbitration commission (viz. ICC) could be ascertained from the parties’ agreement on the arbitration rules.4)Beijing Dongcheng District Court (2018) Jing 0101 Min Chu No.6973. jQuery('#footnote_plugin_tooltip_38677_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_38677_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The SPC’s Interpretation was indeed helpful but did not resolve the matter from its source—it could not amend the Arbitration Law. Hence, the third requirement for the validity of the arbitration agreement remains. After the SPC’s Interpretation, there were still plenty of arbitration agreements found invalid for failing to designate an arbitration commission.

 

The Relaxed Approach in the Draft Amendment

The Draft Amendment adopted a different approach to this issue.

According to Article 21 of the Draft Amendment, the arbitration agreement “includes the arbitration clause contained in a contract and parties’ agreement to arbitrate reached in other written form before or after the occurrence of the dispute.” Notably, the new definition only contains a substantive requirement (the parties’ intention to arbitrate) and a formality requirement (that the agreement shall be in writing). It has deleted the other two statutory requirements: the specific matter for arbitration and a designated arbitration commission.

Adding to the liberal approach, the Draft Amendment also incorporated a waiver clause similar to Article 7(5) of the Model Law and provides that, if one party in the arbitration asserts that there is an arbitration agreement and the other party does not deny it, then the arbitration agreement shall be regarded as in existence between the parties (see Article 21 of the Draft Amendment).

The Draft Amendment has clearly taken a leap forward from the existing law and is much more in line with the “presumptive validity” approach in the New York Convention and the Model Law. One can reasonably expect that more arbitration agreements will be given effect by the PRC courts applying the new law (if the Draft Amendment stands as it is).

 

Comparative Study

The reforms undertaken in the Draft Amendment follow the prevailing international practices. The Model Law and some national legislation akin to the Model Law treat the validity of the arbitration agreement quite liberally, and the tests applied are simply whether the parties had the clear intention to arbitrate and whether the parties’ agreement to arbitrate was put “in writing.”

For example, the Hong Kong Arbitration Ordinance incorporates Option I, Article 7 of the Model Law in whole, which defines “arbitration agreement” as “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not” and requires that the “arbitration agreement shall be in writing” (Section 19). The Singapore International Arbitration Act contains the same definition of “arbitration agreement” and the requirement that the “arbitration agreement shall be in writing” (Sections 2A.(1) & 2A.(3)).

English law goes further. According to Section 6 of the English Arbitration Act 1996, an “arbitration agreement” means “an agreement to submit to arbitration present or future disputes (whether they are contractual or not).” English law does not require the agreement to be necessarily done in writing, although oral agreement could be problematic. The French Law could perhaps be seen as the ceiling of liberalism. Pursuant to the amended Code of Civil Procedure, for domestic arbitration, an arbitration agreement shall be in writing to be valid, and for international arbitration, “an arbitration agreement shall not be subject to any requirements as to its form” (Article 1507).

The Draft Amendment appears similar to the requirements for the validity of the arbitration agreement under Singapore and Hong Kong law, i.e., the parties’ intention to arbitrate and an agreement in writing.

 

Competence-Competence

The existing Arbitration Law does not recognize the competence-competence doctrine (see also past article on competence-competence in PRC courts). In this respect, both the judicial courts and the arbitration commissions, rather than the arbitral tribunal, have the power to rule on the validity of an arbitration agreement. The arbitration commission’s power is secondary to the court’s power, i.e., if a request for confirmation on the validity of an arbitration agreement has been submitted to both the arbitration commission and the court, then the court shall decide the matter.

By contrast, the Draft Amendment embraces the competence-competence doctrine. It empowers the arbitral tribunal to rule on its own jurisdiction and to decide on issues including the existence and validity of the arbitration agreement. In the meantime, it allows the arbitration institutions to decide on the said issue on a prima facie basis before constitution of the tribunal. Further, it delays a court’s intervention by providing that—without submitting the issue to be decided by an arbitral tribunal or by an arbitration institution—a court shall not accept a party’s request on confirmation of the existence or validity of an arbitration agreement (see Article 28 of the Draft Amendment).

These changes are indeed positive and encouraging. For a long time, PRC arbitration reflected a strongly “administrative” color,5) See, e.g., CHEN Fuyong, Unfinished Transformation: An Empirical Study of the Current Status and Future Trends of China’s Arbitration Institutions (Law Press 2010). jQuery('#footnote_plugin_tooltip_38677_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_38677_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and PRC arbitration institutions were criticized for being quasi-governmental organs rather than private dispute resolution service-providers. By handing over the power to rule on the validity of an arbitration agreement to the arbitral tribunal and by delaying the judicial courts’ intervention in this respect, the Draft Amendment appears aimed at correcting this erroneous image of the institutions and better represents the feature of arbitration as a private and voluntary dispute resolution process.

 

Conclusion

An amendment to the Arbitration Law has long been called for. By simplifying the statutory requirements on validity of arbitration agreement and recognizing arbitral tribunal’s power to rule on their own jurisdiction, China is aligning itself with international standards and norms, striding ahead towards arbitration-friendly jurisdictions such as Singapore and Hong Kong. The arbitration community has high hopes for the new Arbitration Law in this respect.

References[+]

References ↑1 SPC (2006) Min Yi Zhong Zi Di No.11. ↑2 SPC (2007) Min Si Zhong Zi No.15. ↑3 SPC (2012) Zhe Yong Zhong Zi Que Zi No.4. ↑4 Beijing Dongcheng District Court (2018) Jing 0101 Min Chu No.6973. ↑5 See, e.g., CHEN Fuyong, Unfinished Transformation: An Empirical Study of the Current Status and Future Trends of China’s Arbitration Institutions (Law Press 2010). function footnote_expand_reference_container_38677_30() { jQuery('#footnote_references_container_38677_30').show(); jQuery('#footnote_reference_container_collapse_button_38677_30').text('−'); } function footnote_collapse_reference_container_38677_30() { jQuery('#footnote_references_container_38677_30').hide(); jQuery('#footnote_reference_container_collapse_button_38677_30').text('+'); } function footnote_expand_collapse_reference_container_38677_30() { if (jQuery('#footnote_references_container_38677_30').is(':hidden')) { footnote_expand_reference_container_38677_30(); } else { footnote_collapse_reference_container_38677_30(); } } function footnote_moveToReference_38677_30(p_str_TargetID) { footnote_expand_reference_container_38677_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_38677_30(p_str_TargetID) { footnote_expand_reference_container_38677_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Can the Egyptian Government Vest A Municipal Court With The Power To Review ICSID Awards?

Fri, 2021-09-17 01:00

On 6 January 2021, the Egyptian Government introduced a draft law for parliament’s approval, seeking to expand the Egyptian Supreme Constitutional Court’s (“ESCC”) jurisdiction to scrutinize international arbitration awards rendered against the Egyptian State and acts of international organizations affecting the Egyptian State. The legislative amendment is in line with previous legislative measures designed to control arbitration proceedings involving the public sector. After a controversial discussion and some last-minute modifications, the draft law entered into force on 16 August 2021.

 

Background

Since 2011, Egypt has been facing a significant increase in investor-state disputes. Most of the cases concern so-called “post-Arab Spring disputes” that are related to investments which failed or were put on hold after the Egyptian revolution. Egypt has been a party to the ICSID Convention since 1972. According to the ICSID database, a total of 37 ICSID cases were filed against Egypt, out of which 27 were filed after January 2011. The Egyptian Government managed to settle a good deal of these cases and is generally endeavoring to amicably settle pending investor-state disputes. At the same time, the Government has taken measures to prevent further negative arbitral awards. In line with this objective, the Egyptian Government has resorted to introducing legislative measures. Notably, the Government pursued to vest the ESCC with the power to review international arbitration awards rendered against the Egyptian State, including ICSID awards, against the backdrop of the Egyptian Constitution.

 

Amending the Supreme Constitutional Court’s Law

Legal basis

Article 192 of the Egyptian Constitution sets out the main competences of the ESCC. According to the said Article, the ESCC is inter alia exclusively competent to examine the constitutionality of laws and regulations, to interpret legislative texts and adjudicate disputes pertaining to the implementation of two contradictory final rulings. Article 192 then allows the legislator to further regulate the competences of the ESCC through laws as it states “[..] The law defines the Court’s other competencies and regulates the procedures that are to be followed before the Court.”

On this basis, the Government introduced a draft law (the “Draft Law”) to amend Law No. 48 of 1979 on the Supreme Constitutional Court (the “ESCC Law”), the law regulating the structure, competences, and procedures of the ESCC. Under the Egyptian Constitution, the laws regulating the judiciary are deemed “complementing laws to the constitution” and require a two-third majority of the Members of Parliament (“MPs”) to be approved in Parliament. Furthermore, the ESCC must be consulted on draft laws pertaining to the ESCC.

 

The Draft Law

The Draft Law introduced two amendments to the ESCC Law, specifically Articles 27 bis and 33 bis. According to Article 27 bis, ESCC shall have the power “to control the constitutionality of the decisions of international organizations and bodies and rulings of foreign courts and foreign arbitration bodies that shall be enforced against the state”.

Article 37 bis of the Draft Law thereby grants the Government a tool to challenge these decisions and rulings before the ESCC and grants the ESCC, in turn, the competence to rule on decisions and awards to be disregarded if found to be in violation with the Egyptian Constitution.

The Egyptian Government argued, in its explanatory note on the Draft Law, that the amendments are necessary given that the constitution and the ESCC Law lack provisions granting the ESCC jurisdiction to examine international decisions that can affect the “national security” of Egypt.

On 14 June 2021, the legislative committee in the Egyptian Parliament approved the Draft Law as introduced and reported that the ESCC expressed its approval of the Draft Law. MPs in favour of the Draft Law argued therefore that there should be no doubt in respect of the constitutionality of the Draft Law. They considered the amendments necessary to safeguard Egypt’s strategic economic interests, arguing that many of the awards in investor-state disputes obtained against the Egyptian state in recent years were “politicized.”

 

Review of International Arbitration Awards by the ESCC

The proposed amendments, of course, were not without controversy. Adversaries of the Draft Law argued that the proposed changes might harm the country’s investment climate and jeopardize the Government’s efforts to encourage foreign investment. In addition, there are concerns that the proposed constitutional review of ICSID awards falls afoul of Egypt’s obligations under international law.

Among the most vocal critics of the Draft Law is prominent Egyptian arbitrator Prof. Abdel Moneem Zamzam who published a legal opinion arguing the unconformity of the Draft Law with international law and urging Parliament not to approve it. He argued, amongst other things, that the Draft Law violates (i) the Egyptian Constitution and (ii) Egypt’s international obligation under the ICSID Convention, the New York Convention (the “NYC”) and BITs concluded between Egypt and many other states.

Indeed, by providing the Government with a tool to challenge an ICSID awards, the Draft Law falls afoul of Egypt’s obligations under ICSID Convention which explicitly provides for the finality and binding force of the ICSID Awards and parties’ obligation to comply with it.

It is also questionable whether the Draft Law is compliant with the NYC. In contrast to the ICSID Convention, Article V(2)(b) of the NYC does permit national courts to review an arbitral award on the basis of public order before granting a writ of execution. However, this review is concentrated in the civil courts (which in case of international commercial arbitration would be the Cairo Court of Appeal and the Court of Cassation). The additional tool provided by the Draft Law and the proposed dual system of review is at odds with the NYC, as it arguably violates the “non-discrimination rule” under Article III NYC. NYC, which aims to facilitate the recognition and enforcement of arbitral awards at the international level, prohibits imposing substantially more onerous conditions on the recognition or enforcement of arbitral awards to which NYC applies than are imposed on the recognition or enforcement of domestic arbitral awards.  While it is true that the Draft Law only targets arbitral awards rendered against the state and not all foreign arbitral awards, it however specifically refers to “rulings of foreign arbitration bodies” as opposed to domestic arbitral awards rendered against the state.

 

Constitution–treaty Relationship

In spite of these objections from the perspective of international and municipal constitutional law, the ESCC explicitly condoned the Draft Law. The approval of the ESCC was a heavy setback to the adversaries of the Draft Law. Yet, it is consistent with ESCC’s stance as to the qualification of international treaties and their order of priority in relation to the Constitution.The ESCC previously ruled that a treaty once ratified has the status of a law in Egypt and as such is subjected to the supremacy of the Constitution. A national law that conflicts with a treaty is not necessarily unconstitutional (Case no. 7 of 2 JY). Furthermore, the ESCC is of the position that it is competent to scrutize  ratified treaties a posteriori based on Article 151 (3) of the Constitution which states “In all cases, no treaty may be concluded which is contrary to the provisions of the Constitution” (Case no. 12 of 39 JY).

However, even by following this position, the constitutionality of the Draft Law appears to be questionable as it does not grant the ESCC the power to scrutinize international treaties per se, but rather decisions and rulings issued by bodies established on the basis of such treaties.

From an international law perspective, the constitutionality of the Draft Law and the Constitution itself is irrelevant. Once a treaty is ratified, all state authorities, including in this case its supreme courts, are bound by these treaties regardless of conflicting domestic laws. Article 27 of the Vienna Convention on the Law of Treaties (1969), to which Egypt acceded in 1982, clearly regulates that states cannot invoke a domestic law as a justification for its failure to enforce a treaty. Consequently, any law or act in Egypt that undermines the finality and binding force of an ICSID award violates Article 53 (1) of the ICSID Convention and constitutes a breach of Egypt’s obligation under the Convention.

 

Last Minute Amendments: Egyptian Government Carves out Arbitral Awards from the Draft Law

Shortly before the vote to pass the Draft Law in the parliamentary sessions of 27 and 28 June 2021, upon the Government’s request the words “arbitration bodies” were deleted from the proposed wording of Article 27 bis of the Draft Law. The Draft Law subsequently was passed and enacted into law, Law 137/2021 on Amending the Supreme Constitutional Law 48/1979, in force as of 16 August 2021 (the “Law”). Article 27 bis now reads, “The ESCC shall undertake the control of the constitutionality of the decisions of international organizations and bodies and rulings of foreign courts that shall be enforced against the state”.

According to the minutes of the debate in the Parliament, the last-minute amendment was meant to exclude investment arbitral awards from the review by the ESCC, thereby acknowledging the criticism made against this mechanism from the perspective of international and municipal law. This means the ESCC jurisdiction, as amended, only permits ESCC to review the decisions of international organizations and of foreign courts. Its jurisdiction does not extend to scrutinizing arbitral awards. Yet, the vague wording that remains, in particular the reference to “decisions of international organizations and bodies”, bears the risk of the Government instrumentalizing this Law towards challenging the enforcement of international arbitral awards rendered against Egypt. Furthermore, the Law remains controversial as it may be used to undermine binding resolutions or recommendations of inter-governmental bodies rendered against Egypt, in particular in the field of the protection of human rights.

 

Outlook

The Law is part of a general arbitration sceptic tendency in Egypt, where in particular investment arbitration is seen as contravening the national interest. It conforms to a global trend critical towards investment arbitration. Since the start of this millennium, several countries have already resorted to constitutional arguments to prohibit submitting to international arbitration or to support the possibility of reviewing international arbitration awards against the backdrop of their constitutions. A recent example is the introduction of Article 125 (5)(b) of the Russian Constitution, which came into force on 4 July 2020, granting the Russian Supreme Court the competence to declare an international arbitral award unenforceable, if it finds it to be in violation of the Russian public policy.

This tendency is a serious challenge to the international system of investment arbitration (as it puts municipal law above the international laws under which the ICSID system operates). The rewording of the Draft Law before the adoption by Parliament is welcome, however ambiguities remain. The practical implications of the application of the Law remain to be seen.

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New Concession Arbitration Court in Hungary: An Uneven Playing Field

Thu, 2021-09-16 01:47

Would you agree to arbitrate in a forum where the opposing party has the last word about the tribunal’s composition? This is what the new Hungarian Concession Arbitration Court, scheduled to start operation in October 2021, proposes.

 

The Name of the Game

The Hungarian government loves playing with arbitration. In 2012, they prohibited arbitration in matters relating to national assets (that is, assets in the exclusive ownership of the central government or the local municipalities). In 2015, they abolished the prohibition for the sake of a controversial transaction with Russia relating to the expansion of Hungary’s nuclear plant. In 2017, they revamped the entire Hungarian arbitration law by adopting a new Act on Arbitration, merging the three well-established commercial arbitration institutions. More precisely, the Permanent Arbitration Court for Money and Capital Markets and the Permanent Arbitration Court for Energy Matters were merged into the Permanent Arbitration Court Attached to the Hungarian Chamber of Commerce and Industry, which was renamed as Commercial Arbitration Court and it is generally referred to as the HCCI Arbitration Court. The official reasoning of the bill laconically mentions that the change was intended to ensure efficiency and professionality by merging matters in the institution with the largest caseload. To give some perspective, note that, under Hungarian law, permanent arbitration institutions can only be set up by a legislative act.

 

The Concession Arbitration Court

In May 2021, the government decided to establish a new arbitration institution – the Concession Arbitration Court (“CAC”) – to arbitrate disputes relating to concessions. In other words, the primary task of this institution will be to resolve disputes arising out of or in relation to contracts for the exercise of activities in the exclusive competence of the state and typically relating to national assets.

The new institution is set up within the framework of a substantial amendment of the Hungarian concession laws (primarily by the enactment of Act XXXII of 2021 on the Supervisory Authority of Regulated Activities and some additional amendments). They include the extension of activities that can only be exercised as a concession and the creation of a new government authority, the Supervisory Authority of Regulated Activities (“Authority”). The Authority is tasked with the exclusive, centralized tendering and supervising of concessions. Its president is appointed by the prime minister for a term of 9 years.

The legislative changes are conspicuously timed together with the issuance of two widely criticized mega tenders for 35-year concessions (renewable for another 35 years) for the operation, maintenance, and development of the entire Hungarian motorway network and for the operation of the entire Hungarian waste management infrastructure.

Chapter IV of the Act XXXII of 2021 on the Supervisory Authority of Regulated Activities, scheduled to enter into force as of 1 October 2021, establishes the CAC, operated by the Authority. To the best of this author’s knowledge, the regulation was introduced without any public discussion, consultation or providing at least some information either to the general public or to the arbitration community. In fact, it went largely unnoticed.

 

Flimsy Official Reasoning

The official reasoning for the establishment of the CAC is short and surprisingly similar to the stated reasons behind the previous elimination of the well-established arbitration institutions – the promotion of efficiency and expertise. However, it fails to give any specifics as to why the recently set up mega-institution – the HCCI Arbitration Court – could not ensure the required expertise and efficiency. Indeed, it is difficult to see why the new institution would be more efficient or professional than the existing HCCI Arbitration Court. The differences between the organizational rules of the two institutions are minor; the wording of the relevant part of Chapter IV of Act XXXII of 2021 on the Supervisory Authority of Regulated Activities is largely a copy/paste of the relevant rules of Chapter XII of Act LX of 2017 on Arbitration setting up the HCCI Arbitration Court. The conditions to be listed in the roll of recommended arbitrators are the same with the exception of the requirement of the Hungarian bar exam or public administration exam.

 

A Tilted Playing Field

There are, however, some small but crucial differences between CAC and the HCCI Arbitration Court. In case of both institutions, it is their respective boards that act as appointing authority if the parties or the party-appointed arbitrators cannot agree on the chair of the tribunal (see Article 27 (1) c) of the Act XXXII of 2021 on the Supervisory Authority of Regulated Activities, and Section 62 (1) c) of the Act LX of 2017 on Arbitration respectively). The board of the HCCI Arbitration Court is appointed by different stakeholders with a majority of board members appointed by organizations independent from the government (three board members, including the president, are appointed by the Hungarian Chamber of Commerce and Industry, while the Hungarian Energy and Public Utility Regulatory Authority, the Budapest Stock Exchange, the Hungarian Banking Association and the Hungarian Bar Association each appoint one member). The board members of the CAC, on the other hand, will be appointed without exception by the Authority. Furthermore, while the board members of the HCCI Arbitration Court can only be removed by the appointing body for unworthiness and upon the reasoned motion of 4 of the 7 board members, the Authority can remove the members of the board of the CAC any time, without cause.

Thus, if the parties or the party appointed arbitrators cannot agree on the chair of the tribunal in a concession arbitration before the CAC, the freely removable appointees of an organ of the Hungarian government – that is (directly or through another organ or entity) necessarily one of the parties to any dispute relating to a concession agreement – will decide upon the chair of the tribunal.

In the light of the above rules, it is only a minor detail that board members of the CAC do not even need to have arbitration experience. Anyone with only 5 years of experience of (amongst other requirements) “regularly acting as representative in concession related or arbitration matters” can be appointed to the board of the CAC.

Equally troubling is that the employees of the secretariat of the CAC are public servants employed by the Authority, according to Section 27 (4) of the Act XXXII of 2021 on the Supervisory Authority of Regulated Activities. As public servants, the employees of the Secretariat shall comply with the instructions of their employer – which in this case is an organ of one of the parties to the dispute.

The CAC will, of course, only have jurisdiction if the parties agree to it in the concession agreement. The names of the board members, the procedural rules, and the arbitrators on the CAC’s list are also not yet known. The enforceability of awards rendered by panels chaired by appointees of the board of the CAC may nevertheless appear questionable. Even if the composition of such a panel was formally in accordance with the parties’ agreement and Hungarian law (as required by Article V (1) d) of the New York Convention), the right to an independent tribunal should not be a waivable right.

In any case, it is unfortunate that after facing criticism for weakening the independence of the judiciary, instead of reversing its policies, the Hungarian government appears to have chosen to create an arbitration institution for concession contracts with questionable independence, outside of the spotlight focused on state courts.

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Court Discretion in Indian Setting-aside Proceedings: Modification v. Doing “Complete Justice”

Wed, 2021-09-15 01:00

Proceedings for setting-aside arbitral awards in India have been the subject of controversy since time immemorial. Recent trends indicate that the tendency of courts to set-aside awards has been on the wane. However, on many occasions, courts have been sympathetic to the losing party on issues of quantum, costs and interest, and have undertaken a balancing exercise, while refusing to set-aside an award completely.

The Supreme Court of India (‘Supreme Court’) has finally decided the scope of an Indian court’s power to modify awards under the (Indian) Arbitration and Conciliation Act, 1996 (‘Act’) when adjudicating setting-aside applications. In The Project Director, NH No. 45E and 220, NHAI v M. Hakeem & Anr. SLP (C) No. 13020/2020 (NHAI v. Hakeem), the Supreme Court found that the Act does not provide any power of modification of arbitral awards, although such discretion may be used in rare circumstances by the Supreme Court as discussed below.

 

Scope of a reviewing court’s power in setting aside proceedings

The Act provides for setting aside as the only recourse against an arbitral award. An award can therefore usually only be wholly set-aside where the grounds for the same stand established.  A partial set-aside is possible when the award deals with ultra petita matters (i.e. issues beyond the scope of submission to arbitration). In all cases however, the scope of the reviewing court’s decision is binary, either to confirm or set-aside the award.

On this basis, the Supreme Court held that there was neither any right to seek a modification, nor any power of the reviewing court to modify the award. This reasoning draws support from the fact that the setting-aside provision under the Act is closely modelled on Article 34 of the UNCITRAL Model Law, which uses a clearer title “Application for setting aside as exclusive recourse against arbitral award”.

While the words “exclusive recourse” are not used in the title to Section 34 of the Act, the remainder of this provision follows Article 34 of the Model Law word-for-word, except for a deviation in language regarding burden of proof. While the Model Law requires that the party assailing the award “furnishes proof that” the grounds under Article 34 are met, the Act requires the party assailing the award to demonstrate these grounds “on the basis of the record of the Arbitral Tribunal”. This deviation in language was made by an amendment in 2019 to reinforce the principle that setting aside proceedings must be very limited in nature and not involve consideration of evidence and issues afresh.

The Supreme Court also referred to various judgments holding that the reviewing court in setting-aside applications cannot review the merits of arbitral decisions. Accordingly, the reviewing court cannot modify the award since this would effectively be based on a review of the reliefs granted by the arbitral tribunal.

This is a relatively straightforward proposition and is in consonance with global arbitral jurisprudence on the meaning of “setting-aside” proceedings. For instance, under arbitral legislation in the United Kingdom and Singapore, the reviewing court’s power to set-aside has been specifically distinguished from the power to ‘vary’ the award. The limited power to ‘vary’ has therefore been separately incorporated in these legislations, under Section 66, English Arbitration Act, 1996 and Section 49(8)(b) of the Singapore Arbitration Act, 2001.

 

Statutory power of modification v. Constitutional power of rendering “complete justice”

In practice however, several setting-aside applications in India do result in a modification or concession to the losing side in the arbitration (particularly where the losing side happens to be a state entity). For instance, issues of legal costs or interest on damages in India heavily depend on subjective ‘reasonableness’ in the minds of the arbitral tribunal, and subsequently the reviewing judge. While refusing to set-aside arbitral awards, reviewing courts frequently end up applying their own ‘reasonableness’ standard and reducing amounts awarded under these heads. This also emanates from the fact that costs jurisprudence in India, unlike some other jurisdictions, does not usually favour the grant of actual legal expenses, given that counsel fees are extremely variable in the Indian legal market.

This observation was brought to the notice of the Supreme Court in NHAI v. Hakeem, citing an earlier decision where the Supreme Court, in setting-aside proceedings, had changed the date from which interest would apply, thereby reducing the overall interest payable. The Supreme Court readily accepted that this was indeed a modification of the award. However, it held that this was not a modification pursuant to the setting-aside mechanism under the Act, but under the Supreme Court’s constitutional power to do “complete justice” under Article 142 of the Constitution of India.

This implies that various High Courts in India, which deal with the bulk of setting-aside applications, cannot modify awards, on any of its terms, including legal costs or interest, as only the Supreme Court can exercise power under Article 142 of the Indian Constitution . This is a positive step towards removing discretion in dealing with such applications and should lead to a trend of recovery of full legal costs as awarded and interest as awarded by an arbitral tribunal (see a previous post on legal costs here).

On the flipside, this may result in parties appealing against the rejection of their setting aside applications all the way to the Supreme Court, hoping to secure some modification under Article 142. While the Supreme Court has very rarely used its discretion under Article 142, in-principle, it is evident that some element of discretionary relief does remain to be explored before a losing party finally accepts the verdict under an arbitral award.

 

The application of the Supreme Court’s constitutional discretion

One of such instances, was in Ssangyong v. NHAI where in exercise of discretion under Article 142, an arbitral award which had been made by 2-1 majority, was set-aside and the separate opinion of the minority arbitrator was effectively converted into the final award (see a previous blog on this case here). Incidentally, this decision was also authored by Justice Nariman who authored NHAI v. Hakeem. Despite the anti-modification stance, the discretion under Article 142 was in fact ultimately applied by the Supreme Court in NHAI v. Hakeem to uphold a decision of a lower court which had modified the quantum under the award.

The awards in question in this case had been passed under the statutory arbitral mechanism provided under the National Highways Act read with the Act. These awards dealt with disputes on the quantum of compensation paid to private land owners whose properties were acquired by the NHAI (a government agency) for the purpose of construction of highways.

The arbitral mechanism under the NHAI Act provided for an arbitration on this issue, with the appointment of a sole arbitrator by the Indian Government. This appointment procedure is at odds with the decisions of the Supreme Court in TRF Limited v. Energo Engineering Projects Ltd. and Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd. (see a previous blog on this case here). It is now settled that one of the parties to an arbitration agreement cannot reserve a unilateral right to nominate a sole arbitrator. The NHAI being a state entity under the operation and control of the Indian Government, this unilateral reservation of appointment of the sole arbitrator was clearly bad in law.

However, the proceedings before the Supreme Court in NHAI v. Hakeem were only in relation to setting-aside of the awards in question, and there had been no constitutional challenge to the statutory provision under the NHAI Act allowing for such an appointment procedure. The Supreme Court thus held that it would cause “grave injustice” if the awards were set-aside only for fresh arbitral proceedings to be re-initiated under the defective appointment process. The Supreme Court had in any case found that the compensation awarded for acquisition of land by the government-appointed arbitrator in an arbitration against the government (NHAI) was perverse and not commensurate with the market value of the land acquired. Consequently, it upheld the effect of the lower court’s decision, which had been to modify and enhance the quantum of compensation under the awards.

 

Conclusion

Ultimately, despite the Supreme Court’s effort to reduce the scope of a reviewing court’s discretion under the Act, it would appear that this decision adds to the weight of precedent on the discretionary power under the Indian Constitution. The Supreme Court was evidently grappling with multiple policy objectives in this decision, viz. (i) reducing scope of a reviewing court’s discretion to modify, (ii) a defective appointment procedure under a statute that had itself not been challenged, and (iii) arbitral awards providing less than adequate compensation to persons whose properties were compulsorily acquired by the NHAI for the construction of highways.

What is certain is that this judgment does not close the chapter on modifications of arbitral awards by reviewing courts in India – effectively replacing one source of discretion with another, although perhaps less reachable than the former.

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