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The Rising Arbitrator’s Challenge: Navigating the Premise and Perils of Your First Appointment(s) Australia and New Zealand

Sat, 2021-07-17 01:53

On 30 May 2021 the fifth webinar of the series “The Rising Arbitrator’s Challenge: Navigating the Premise and Perils of Your First Appointment(s)” covering Australia and New Zealand was presented by ACICA45 in collaboration with the Rising Arbitrators Initiative (RAI). RAI was created in September 2020 to support arbitration practitioners under 45 who have either already received their first arbitrator appointments or have at least seven years of professional experience.

The webinar series began in Washington DC in December and has since been hosted in Vienna, Hong Kong, Montevideo and Nairobi. The aim of the series of events is to bring discussions around the main issues which arbitrators face in their first appointments and how they overcome the challenges. The series brings rising arbitrators together as well as representatives of arbitral institutions and aims to support practitioners tackling their first appointments.

The 30 May 2021 webinar focused on Australia and New Zealand and was moderated by Erika Williams (Williams Arbitration). Rocio Digon, RAI co-founder and legal consultant at White & Case gave her opening remarks briefly introducing the RAI initiative to the audience.

The panel consisted of four speakers: Caroline Swartz-Zern (Australian Centre for International Commercial Arbitration), Lucy Martinez (Martinez Arbitration), Jun Wang (Fitzgerald Lawyers) and Anna Kirk (Bankside Chambers).

 

Institutional perspective: what candidates can be appointed as arbitrators?

The first topic addressed by Caroline Swartz-Zern was the issue of first appointments from the institutional perspective. Caroline Swartz-Zern highlighted that probably every institution would say that it focuses heavily on the actual identity of the case and looks at the domain complexity of it. The candidates that will best fulfil the role of arbitrator are those who have experience in the particular area of the case. ACICA also looks at diversity both from the perspective of geographical and jurisdictional experiences, as well as, for example, the specific language skills. ACICA does not necessarily always look at whether or not someone has had experience acting as arbitrator before, but rather whether the person is fit to sit in a particular case, regardless of whether the matter is very complex and difficult. Further, Caroline Swartz-Zern also mentioned that it is good to consider being on the ACICA Fellows List, which practitioners can join after applying for the ACICA Membership. There are certain criteria that have to be met, including the level of experience, for joining this List. Further, ACICA also relies on the information already available to ACICA Secretariat on the potential arbitrators. As such, it is relevant that young practitioners and arbitrators publish, have speaking engagements, etc., to gain visibility. Moreover, the potential arbitrator would also have the right availability.

 

Insights on the first appointment and some top tips for rising arbitrators

Lucy Martinez talked about her first two appointments that were both institutional appointments and which came at the time when she was still working at a law firm. Both appointments were unexpected, and Lucy Martinez mentioned that she was not even aware that she was being considered. She recalled how later she did follow up with the two institutions. For one of the appointments, she was the last option on the list of potential candidates, all other potential arbitrators being conflicted. For the other, the fact that she was based in London was critical in securing the institutional appointment. These stories indicate that there is some randomness in the serendipity of the first appointments, which can be frustrating for those who are trying to get appointments. Thus, she highlighted, it is important to have a profile in the community and building up one’s practice towards an arbitrator profile.

Lucy Martinez continued with practical tips for arbitrators tackling their first appointments. The first one is to be confident in procedural decisions that one has to make as arbitrator, as most jurisdictions such as Hong Kong, Singapore and Australia would not entertain challenges to arbitral awards related to arbitrators’ discretion. Her second practical tip was “to sleep” on everything before sending it out, as, especially when sitting as sole arbitrator, there is the solitude of the decision making process and, hence, no review of drafts before being sent to parties. Another point highlighted was to have financial resources saved up because arbitrators are usually paid at the end of the arbitration. Further, Lucy Martinez advised to engage with institutions and institutional representatives, as statistically speaking, first few appointments are going to come from the institutions and, therefore, it is important to engage with them. For example, signing up to the ACICA Fellowship Programme, getting on the SIAC Panel or Reserve Panel, on the HKIAC Panel, being in the LCIA Council of Users, etc., and then making sure to join the various organizations that are around and to attend their conferences – like this one.

Jun Wang continued with his insight in his first appointment, which came not from an institution, but from a party. Jun Wang spent the first 26 years of his life in mainland China practicing as a Chinese lawyer in Beijing, before leaving China to move to Queensland, Brisbane, in January 2004. Prior to the pandemic he spent a good time in Asia, Australia and Southeast Asia, working on international arbitration cases as counsel, sometimes co-counsel with local law firms. His network, roots and connections in Asia were of great help, while he received the proposal to act as arbitrator in Asia, in 2017. The most challenging thing in first appointments, Jun Wang mentioned, is meeting expectations of both parties as well as the other members of the tribunal. Sometimes there can be a tension between the members of the tribunal, but one has to make sure that the job is done in a truly impartial manner and everyone is treated equally. Top tips Jun Wang gave to aspiring arbitrators include trying to build up a niche area, for example specializing in a particular sector such as renewable energy or being fluent in a particular language. As such, one has to try to make himself/herself unique in this increasingly congested market, so that users and institutions can consider them once the appropriate opportunity comes.

Anna Kirk started her arbitration career in London at one of the big law firms and then moved back to New Zealand. At that point she was thinking of how to continue her international arbitration career from there. She got to meet David Williams QC one day and that is how it has all begun, working with him as tribunal secretary for several years. Anna Kirk recalls this as an absolutely invaluable experience, in terms of the exposure to a tribunal’s perspective on arbitration, the decision-making process, written communicating with parties, observing how procedural issues play out etc. From this, she moved on to her own practice as barrister and arbitrator. Her main recommendations to rising arbitrators are to get yourself known in the community, speak, attend conferences, be a speaker at seminars, write articles and become known to the institutions. And this is actually how she got her first appointment, which was through the recommendation from the Executive Director at New Zealand Arbitrators and Mediators Institute. She has also done it entirely pro-bono. It was a small domestic matter, but this was less important, as it was the start of her path to becoming an arbitrator. Her first international arbitration appointment came through the ICC New Zealand National Committee, and again she highlighted how important is to make yourself known to the ICC National Committees. She also mentioned that institutions are keen on promoting young lawyers especially in the smaller cases. Her top tips to aspiring arbitrators are to have a mentor, from whom you can bounce ideas off, seek guidance from, of course preserving the confidentiality of the arbitration. Anna Kirk mentioned that she has seen senior arbitrators do this between each other because it is really helpful, especially when one is a sole arbitrator.

 

Conclusion

The speakers of the event took the audience on a very interesting journey where they shared personal stories of their first appointments. It was a great opportunity for young practitioners to get practical tips on how to get the first appointments and how to overcome challenges faced while sitting as an arbitrator for the very first time. RAI initiative is helping young professionals all over the world in their careers as arbitrators.

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Will Taiwan Become a Model Law Jurisdiction?

Fri, 2021-07-16 01:53

Although Taiwan’s legislative and judicial practices already conform to the spirit of the New York Convention (“Convention”) and the Model Law, it appears that non-Taiwanese parties nevertheless remain hesitant to arbitrate in Taiwan. The necessity of becoming a Model Law jurisdiction arises from Taiwan’s inability to accede to the New York Convention. Hence an institutional initiative for legislative overhaul has arrived at an opportune moment.

Since March 2018, a dedicated task force of the Chinese Arbitration Association, Taipei (“CAA”) has been working on the CAA Draft Amendment to Taiwan’s Arbitration Law (“Draft Amendment”). Following a series of consultation hearings in November 2020, March and May 2021, CAA is progressing towards presenting the Draft Amendment to the Legislative Yuan and Executive Yuan of Taiwan.

The dual-purpose of the Draft Amendment is to adopt the Model Law (including the 2006 amendments), with modifications tailored for Taiwan to alleviate certain controversies arising from the Model Law’s interpretation or application as discussed below. It also retains the distinctive provisions of Taiwan’s Arbitration Law, with amendments addressing certain problems of current practices or accommodating future developments which are presented below. Using the Model Law’s order of provisions, the 70 articles in the Draft Amendment merge and harmonise the Model Law with Taiwan’s Arbitration Law.

 

Amendment Highlights

As the Draft Amendment is in Chinese only, the author will highlight as a member of the CAA task force, selected provisions which stimulated and even stifled deliberations within the task force or during public consultation. These salient points will hopefully elicit further discussions in the international community and suggestions for improvement.

 

Unitary approach

First and foremost, should Taiwan adopt the Model Law as a uniform regime, or confine the Model Law to international or non-domestic arbitrations? The choice between unitary, dualist or hybrid approaches inevitably raises the question of how to distinguish between international and domestic arbitrations. The New York Convention’s territoriality-based distinction between foreign and domestic awards contrasts with the Model Law’s substantive distinction between international and domestic arbitrations. Premised on a unitary adoption of the Model Law, Article 63 of the Draft Amendment defines “foreign” awards as awards made outside Taiwan. It differentiates between arbitrations seated in and outside Taiwan, only in the context of annulment of awards made in Taiwan in contrast to non-enforcement of awards made outside Taiwan.

 

Challenges

Second, instead of empowering the arbitral tribunal to decide on challenges in the absence of the parties’ agreed procedures (Model Law Article 13(2)), Article 20 of the Draft Amendment entrusts the administering institutions to determine such challenges in institutional arbitrations while leaving the national courts to decide in ad hoc arbitrations. Similar to the Model Law approach, the challenging party may request judicial review of the institutional decision rejecting the challenge. This aligns with the prevalent institutional practice of engaging a neutral decision-maker for arbitrator challenges which eases the complexities and controversies arising from arbitrators deciding on challenges by themselves or their peers, thereby preserving the impartiality and legitimacy of arbitration.

One remaining question is whether, in the interests of avoiding litigation, it would be more appropriate for a designated appointing authority to determine arbitrator challenges in ad hoc arbitrations. Another question is whether judicial decisions on arbitrator challenges “shall be subject to no appeal” – a contention which also applies to judicial decisions on challenges to arbitral jurisdiction (Model Law Article 16 adopted by Draft Amendment Article 23) (see also discussion in an earlier post).

 

Applicable law

Third, Article 28(2) of the Model Law requires the arbitral tribunal to “apply the law determined by the conflict of laws rules which it considers applicable” in the absence of the parties’ agreement on the law applicable to the substance of the dispute. By contrast, Article 47 of the Draft Amendment allows the arbitral tribunal to directly apply “the law or rules of law which it determines to be appropriate”. This adopts the approach in Article 35(1) of UNCITRAL Arbitration Rules which is also the prevalent institutional practice, albeit extending to “rules of law” and effectively placing arbitrators and parties on equal footing in deciding the applicable law.

According to the author’s survey of 115 arbitration laws and rules in 2015, 92% of the surveyed institutions adopt a direct approach to choice of law, with 56% preferring “rules of law” over the other two variations of the direct approach. Given the gap-filling purpose of arbitrators’ choice in the absence of the parties’ choice, it is understandable that some would prefer less arbitral discretion in terms of choice of law.

 

Interim measures

Fourth, the Draft Amendment (Articles 24 to 34) adopts the entire Model Law provisions on interim measures and preliminary orders, and even extends to emergency arbitrations. This enables emergency arbitrators who are appointed before constitution of the arbitral tribunal to grant preliminary orders, as well as interim measures which are capable of judicial recognition and enforcement. Such proactive and pro-arbitration approach is likely to enhance Taiwan’s attractiveness as a seat, particularly in light of the findings in the ICC Commission Report on Emergency Arbitrator Proceedings that, out of the 45 surveyed national laws, only Hong Kong, Singapore and New Zealand expressly provide for enforcement of emergency arbitrator’s orders. However, such a giant leap requires concerted efforts over time in educating and instilling public confidence in using these unfamiliar mechanisms in Taiwan.

 

Arbitrator qualifications

Fifth, the Draft Amendment retains the qualifications and disqualifications of arbitrators as prescribed in Articles 6 to 8 of Taiwan’s Arbitration Law. From a Taiwanese perspective, restrictions on who can act as arbitrators preserve and promote public confidence in arbitration. From a non-Taiwanese perspective, however, such restrictions appear conservative and restrictive of party autonomy. Hence Article 12 of the Draft Amendment expressly allows the parties to agree on arbitrator qualifications which could be less or more stringent than the statutory qualifications.

 

Time limits

Sixth, to maintain the tradition and aspiration of swift arbitrations in Taiwan while accommodating complex and lengthy international arbitrations, Article 48 of the Draft Amendment retains the current time limits for award-making provided in Article 21 of Taiwan’s Arbitration Law (i.e., six months from constitution of the arbitral tribunal which is extendable by additional three months). At the same time, it enables the parties to agree on a different award-making period, additional extension of time, and suspension of time limitation. Furthermore, an extension of three months is available upon arbitrator replacement which results in repetition of hearings, unless the parties agree otherwise (Article 22 of the Draft Amendment).

 

Annulment

Seventh, notwithstanding the tremendous efforts to harmonise the grounds for annulment of Taiwanese (i.e., domestic) awards and non-enforcement of non-Taiwanese (i.e., foreign) awards, as well as to assimilate the wording of the exhaustive grounds in Article 34 of the Model Law, Article 56 of the Draft Amendment still retains the lengthy annulment grounds provided in Articles 38 and 40 of Taiwan’s Arbitration Law which include: i) a party is not lawfully represented in arbitral proceedings; ii) the reasons for the award are not stated as required; iii) an award directs a party to act contrary to the law; and iv) a party or any representative has committed a criminal offence in relation to the arbitration. These grounds in fact fall within, or overlap with, due process or public policy grounds, and are “limited to the extent sufficient to affect the award”. Furthermore, the Draft Amendment explicitly restricts merits review in annulment proceedings, which contrasts with the limited appeal on questions of law allowed by other jurisdictions.

 

Law applicable to arbitration agreement

Eighth, the law applicable to the arbitration agreement in the absence of the parties’ express choice of law, remains a fundamental question without a certain or clear answer, as confirmed by Maxi Scherer’s keynote speech on “The Proper Law of the Arbitration Agreement: A Comparative Law Perspective” (and reported in a previous post). The main competing default or backup choices are the law governing the contract and the law of the seat.

Article 7 of the Draft Amendment specifies the law of the seat as the law applicable to the arbitration agreement in the absence of the parties’ agreed choice of law. This conforms with the choice of law rule in Article V(1)(a) of the Convention concerning the invalidity of an arbitration agreement as a ground for non-enforcement of an award. Additionally and importantly, the Draft Amendment applies the choice of law rule in Article V(1)(a) of the Convention to all issues concerning the arbitration agreement (except for capacity and arbitrability), as well as to all judicial determinations of the law applicable to arbitration agreement (whether pre-award or post-award). This will facilitate judicial consistency and predictability, at least in Taiwan.

 

Confidentiality

Ninth, confidentiality is another area which lacks international consensus. According to the 2020 survey of 198 jurisdictions and 293 institutions by Hong-Lin Yu (another member of the CAA task force), 25% of the surveyed jurisdictions adopt the duty of confidentiality while 49% of the surveyed institutions also offer various degrees of such duty, thereby demonstrating the trend in favour of more detailed provisions for confidentiality.

Article 6 of the Draft Amendment provides for privacy and imposes the duty of confidentiality on arbitrators, arbitral institutions, and “third parties other than the parties” concerning any information obtained by participating in arbitral proceedings, subject to the parties’ agreement and requirements by law. The omission of parties is deliberate yet debatable. Should the parties also be subject to the duty to confidentiality in line with other jurisdictions, or would an opt-in approach be more appropriate for the parties?

 

Reflections

The Draft Amendment is ambitious yet cautious in ensuring that, on the one hand, any modifications to the Model Law will not preclude Taiwan from becoming a Model Law jurisdiction and, on the other hand, the adoption of the Model Law by Taiwan for both international and domestic arbitrations will be appropriate and acceptable.

Looking ahead, the tension between the unitary (maximalist) and dualist (minimalist) approaches will persist, especially within Taiwan. Further, it is observed that there are cultural clashes between Taiwan’s civil law tradition and the Model Law’s common law orientation. There are also foreseeable linguistic barriers in the bilingual process of legislative drafting in Chinese and English. Together, they make balancing public and private interests while harmonising national and international practices more challenging yet fulfilling. We cannot accommodate all demands, but we can achieve consensus through the common interests in promoting and preserving the legitimacy and efficacy of arbitration.

When individual, institutional, national and international interests align, aspirations and missions will be accomplished. Once achieved, Taiwan will become a Model Law jurisdiction.

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James Crawford, International Law Academic, Practitioner, and Judge, 1948-2021

Thu, 2021-07-15 01:15

James Crawford was the pre-eminent international lawyer of his generation. Throughout his career as arbitrator, judge, advocate, and counsellor he defied so-called “realists” who, when they addressed international law, often claimed there is no such thing.

Crawford was born in Adelaide, South Australia in 1948 and made his career at the intersection of academia and practice. By the 1990s, he had established a worldwide reputation as an advocate and adviser on thorny questions of public international law, mostly involving sovereign-to-sovereign disputes. Then came the great boom in international investment arbitration, which inextricably involves treaties, because it is under investment treaties that most arbitrations between investors and countries take place. Reading a treaty, as Crawford would tell students, is in many ways just like reading any other legal instrument—a contract, a trust, a bequest—but not quite. And adjudicating and arbitrating when a government is a party is somewhat like any other forensic process a lawyer engages in—but, again, not quite. Crawford honed his skills on high-profile disputes like Nauru v. Australia, representing the claimant against his home country; and the East Timor case, where he worked for Australia. These and other such cases prepared him well to play a leading role in the practice of investment arbitration during the heady days of its rise to prominence as a distinct field.

Regularly sought-after for ad hoc engagements when a firm needed the best in the field to boost its capacity on a particular case or problem, Crawford remained a sole practitioner, latterly at Matrix Chambers in London, until the UN elected him a judge of the ICJ—the International Court of Justice—for a nine-year term starting in 2015. The ICJ is sometimes confused with various other tribunals that sit in the Hague, but it would be no mistake, if one mentioned Crawford in connection with any number of them: he practiced in front of practically every international dispute settlement organ in existence; he led the drafting of the Rome Statute that governs the International Criminal Court. He advised the Crown Prince of Jordan on the Israel-Jordan Peace Treaty, the King of Bahrain on that country’s maritime dispute over an oilfield with Qatar, and the government of the King of Thailand in a dispute with Cambodia. Chile, Colombia, Costa Rica, Romania, Greece, and the United Kingdom numbered among some his other sovereign clients.

Crawford taught his students at Cambridge that one best be a national lawyer first: that is how one gets to international law. Crawford was an Australian lawyer first. Early in his career, he served on the Australian Law Reform Commission, where, from 1982 to 1984, he did pathbreaking work on aboriginal customary law and laid the groundwork for Australia’s Foreign State Immunities Act of 1985 and Admiralty Act of 1988, both, with amendments, still in force. And, yet, when asked to do a job in another country’s courts, for example, to prepare an amicus brief in a United States federal court, he brought to bear his keen intellect and unflagging energy to match or better long-time practitioners in the jurisdiction on its own procedural quirks and substantive law.

When he represented Chevron against Ecuador, he formulated the bold strategy of requesting that the international tribunal grant a worldwide injunction against the enforcement of any future judgment by the Ecuadoran courts against the company. While anti-suit injunctions and the like are more common today, his was a novel request before a treaty-based tribunal that was bound to respect the rights of the sovereign party to the case. The tribunal granted his request, which protected the company when parties tried to “transport” internal Ecuadoran judgments to other countries.

He deftly led the UN International Law Commission in 2001 to break a four-decade stalemate and finalize its articles on State responsibility.

From a generation of generalists in a field increasingly subdivided into specialties, Crawford taught, practiced with, and inspired lawyers in every part of the world and every specialty. His influence as a pragmatic, text-based jurist is likely to endure.

Crawford enjoyed cricket and was a keen collector and drinker of wine from his native South Australia. Writing was his self-declared calling, and his writing was superlative in practically every form of the art. On one occasion, after we’d finished drafting a boundary crossing treaty, he helped us both to a glass of wine as he reflected that every lawyer should be so lucky at some point in his career to have drafted each of three kinds of instruments: a contract, a trust—and a treaty.

 

James Richard Crawford AC SC FBA, Judge of the International Court of Justice. Born, Adelaide, South Australia, 14 November 1948; died, the Hague, the Netherlands, 31 May 2021. Elected Judge of the International Court of Justice, November 2014. Whewell Professor of International Law, University of Cambridge, 1992 to 2014. Member, UN International Law Commission, 1992 to 2002. Dean of the Sydney Law School, 1990-1992; Challis Professor of International Law, Sydney Law School, 1986 to 1992. University of Adelaide lecturer in international law, 1977-1983, personal chair 1983-1986. Member, Australian Law Reform Commission, 1982 to 1984.

 

 

Thomas D. Grant completed his Ph.D. at Cambridge in 1999, under James Crawford’s supervision, and served as Crawford’s principal associate from 2002 to 2013. Grant is a Senior Fellow of the Lauterpacht Centre for International Law at Cambridge and practices international law having previously served as Senior Advisor for Strategic Planning in the Bureau of International Security and Nonproliferation in the U.S. Department of State and having been a U.S. designee to the Permanent Court of Arbitration.

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UNCITRAL, Expedited!

Wed, 2021-07-14 01:07

On 9 July 2021, the United Nations Commission on International Trade Law, better known as UNCITRAL, reached another milestone in its 55-year history. The Commission adopted the 2021 Expedited Arbitration Rules (“EAR”) (subject to completion, without objection, of a silence procedure). The EAR modify certain aspects of the UNCITRAL Arbitration Rules (“UAR”) and must be read in conjunction with them. The adoption marks the culmination of two and a half years of intensive discussions in UNCITRAL’s Working Group No. II. The Commission also adopted, in principle, the Working Group’s Explanatory Notes to the EAR, which provide important commentary and guidance on the rules. The Explanatory Notes will be finalized by the Working Group during its fall 2021 session.

While UNCITRAL is known for its pioneering work in the field of arbitration, leading to instruments such as the Model Law, the UAR, and the Mauritius Convention on Transparency, the Commission turned to expedited arbitration rather late in the day. A number of commercial arbitration institutions have already adopted procedural rules on expedited or fast-track arbitration and gathered experience with that format. UNCITRAL’s EAR, however, are special in several respects.

 

A Unique Process

What stands out is the unique setting in which instruments, including the EAR, are elaborated. The Commission’s membership consists of sixty Member States elected by the United Nations General Assembly. In addition, other States, international organizations, and non-governmental organizations may attend, and participate in, sessions of the Commission and its working groups. Delegations will often be composed of government officials and renowned experts in their field, both academics and practitioners. The result is a uniquely global, transparent and inclusive process providing a high-quality end product. The EAR, like no other expedited arbitration rules, thus embody a broad consensus, in terms of geographic representation and stakeholder participation, including having benefited from the input of major arbitral institutions.

Under the chairmanship of Andrés Jana from Chile, Working Group II began to tackle the topic of expedited arbitration in February 2019, conducting its habitual bi-annual sessions in Vienna and New York until it was forced to adapt its working methods due to the COVID-19 pandemic. Bearing in mind the nature of UNCITRAL’s deliberations and consensus-based decision making process, the transition to a virtual or hybrid discussion format was not simple. The completion of the project—among the first set of UNCITRAL texts adopted remotely—within the originally envisaged timeframe is therefore an impressive testament to the commitment of, and the spirit of collaboration and collegiality shown by, delegations and the UNCITRAL Secretariat. This was justly highlighted by delegates during last week’s session of the Commission, the governing body of UNCITRAL.

 

Scope of Application and Interaction with the UNCITRAL Arbitration Rules

From the beginning, discussion centred on the question whether to develop a “stand-alone” set of rules or modify the UAR to mandate a more expeditious process. In the end, the Working Group decided to prepare an appendix to the UAR (which will be referred as the UAR “with new article 1, paragraph 5, as adopted in 2021”). Both sets of rules must be read in conjunction with each other. Article 1 of the EAR provides that disputes shall be settled in accordance with the UNCITRAL Arbitration Rules “as modified by these Expedited Rules and subject to such modification as the parties may agree”. To help users navigate the interaction between the EAR and the UAR, Article 1 incorporates a footnote listing those provisions of the UARs that do not apply in expedited arbitration.

A second question was whether, following the example of certain institutional rules, the scope of application of the EAR should be tied to a fixed financial threshold or other objective criteria. Yet, this approach was rejected since it can raise a number of practical difficulties in determining the application of the rules in an ad hoc setting.  Ultimately, it was decided that the rules would come into operation only by express consent, thereby mitigating risks that less-experienced parties (especially small and medium-sized enterprises) may inadvertently subject themselves to the EAR by agreeing to the UAR. The Working Group also felt that the approach would permit the introduction of more stringent rules to expedite the proceedings without raising concerns about due process or the enforceability of awards. Hence, agreement to the 2021 version of the UAR does not automatically encompass the application of the expedited provisions, unless such consent is expressly stated.

 

Initial Steps of an Arbitration

Article 7 provides that, unless otherwise agreed, there shall be one arbitrator. To facilitate the speedy constitution of the tribunal, the claimant must include, with its notice of arbitration, the proposal of an appointing authority (if one has not already been agreed upon) and the arbitrator. To further expedite the process, the notice of arbitration constitutes, at the same time, the claimant’s statement of claim. Even so, evidence must be submitted at that stage only “as far as possible”.

The respondent then has 15 days to file its response to the notice of arbitration. The respondent must also address the claimant’s proposals regarding the appointing authority and the arbitrator. If the parties reach agreement on the arbitrator, the tribunal is constituted within the first 15 days of the arbitration. Otherwise, any party may request the intervention of the appointing authority. The respondent’s statement of defence is due within 15 days of the constitution of the tribunal.

 

Designating and Appointing Authorities

The appointing authority in international arbitration plays an essential role in ensuring the efficient conduct and integrity of proceedings. It allows the parties to avoid procedural impasses without the need to resort to domestic courts. The UAR entrust the Secretary-General of the Permanent Court of Arbitration (“PCA”) with the power to designate the appointing authority if one has not been agreed upon by the parties. Since 2010, the UAR also expressly clarify that the parties can directly agree that the PCA Secretary-General shall act as appointing authority.

The Working Group decided to simplify this process in the context of expedited arbitration. When the parties have not agreed on an appointing authority, Article 6(1) of the EAR authorizes any party to request the PCA Secretary-General to (a) designate the appointing authority or (b) serve as appointing authority. Furthermore, Article 6(3) states that, if the PCA Secretary-General is requested to serve as appointing authority, it will do so “unless it determines that in view of the circumstances of the case, it is more appropriate to designate an appointing authority”. Thus, the EAR abolish the default two-step designation/appointment procedure, empowering the PCA Secretary-General to act directly as appointing authority at the request of a party. The approach combines a streamlined process with a degree of residual discretion on the part of the PCA Secretary-General.

 

Tribunal Discretion in Shaping the Proceedings

Article 10 provides broad discretion to the tribunal to extend or abridge any period of time, with the exception of the timeframe for the issuance of the award, specifically regulated under Article 16.

Article 11 empowers the tribunal to decide that no hearings shall be held, after having consulted the parties and in the absence of a request from a party. In such case, the arbitration is conducted on the basis of documents and other materials.

Article 15 clarifies the discretionary power of the tribunal with regard to the taking of evidence, including a reaffirmation of its power to reject a phase for the production of documents.

These provisions entrust a tribunal with a robust mandate to balance expeditiousness and due process, thus contributing to legal certainty and mitigating risks at the enforcement stage.

 

Time Period for Rendering the Award

Article 16 was arguably the most debated provision of all. It regulates the important issue of the time limit for the tribunal to render its award. There was early consensus in the Working Group that, as a general rule and unless otherwise agreed, the award must be made within six months from the date of the constitution of the tribunal.

However, it was apparent that a mechanism to accommodate unwanted, but sometimes inevitable, extensions had to be designed. Institutional rules provided no guidance in that respect, as by design no administering institution that could authoritatively extend time limits is provided for in the EAR. The Working Group was divided between those who favored a hard-limit on the extension of the expedited proceedings (with a total duration of the proceedings ranging from 9 to 12 months being envisaged); and those who supported granting the tribunal the power to authorize further extensions (possibly under strict conditions).

After extensive discussion, initially at Working Group level and then in the Commission session, an innovative solution that combines elements of both approaches was achieved. Article 16(3) and (4) provide that, if the tribunal considers that it is at risk of not rendering an award within nine months, it shall propose an additional – final – extended time limit. If all parties agree to the proposal, the extension is considered adopted. If a party objects to the extension, however, any party may make a request that the EAR no longer apply to the arbitration. After hearing the parties, the tribunal may then make a determination that it will instead conduct the proceedings in accordance with the UAR.

 

Conclusion

The EAR are a carefully balanced set of procedural rules, which have every potential of sharing the success of the popular UAR. Their adoption, taking effect on 19 September 2021 upon translation of the final text into all six official UN languages, is particularly timely in circumstances where the international dispute settlement system has had to accommodate the unprecedented challenges posed by the COVID-19 pandemic. Parties now have the ability to refer in their contracts to a procedural framework bearing the UNCITRAL “quality seal”, to settle their disputes in a predictable, yet less costly and more expeditious manner.

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How Far to Reach an International Standard? The Applicable Standards for Granting Interim Relief in Mainland China and Hong Kong

Tue, 2021-07-13 01:00

In 2019, Mainland China and Hong Kong entered into a groundbreaking bilateral arrangement regarding interim measures for arbitration, i.e., Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the “Arrangement”).1)Thanks to Lingming Xu for his contribution to this blog post. The views expressed herein are personal and do not reflect the views or the position of the Hong Kong International Arbitration Centre. The author reserves the right to amend her position if appropriate. jQuery('#footnote_plugin_tooltip_37191_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37191_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The arrangement allowed parties to an institutional arbitration seated in Hong Kong to seek interim measures in courts in Mainland China. (See previous posts here, here, and here.)

HKIAC has witnessed 47 applications made under the Arrangement as of 30 June 2021. The Arrangement has become “the bridge” for seeking interim measures between Mainland China and Hong Kong. This post examines the applicable standards for granting emergency interim reliefs in these two jurisdictions.

 

Mainland China Approach

Under the current Chinese legal framework, courts in Mainland China (“Mainland Courts”) have the exclusive power to grant interim relief for arbitration both before and during arbitral proceedings. In other words, interim relief in support of arbitration in Mainland China is not available from the arbitral tribunal. Interim measures in Mainland China are broadly divided into three categories: the preservation of assets, evidence, and conduct. The PRC Civil Procedure Law (“CPL”) provides the applicable standard for Mainland Courts to grant interim measures.

To obtain pre-arbitration interim measures to preserve assets or conduct, the applicant shall prove that “the interested party’s lawful rights and interests will be irreparably damaged if an application for preservation is not filed immediately under urgent circumstances.” (Article 101, CPL.) In addition, the applicant shall provide security. The standard to preserve evidence is whether “there is an emergency that the evidence is likely to extinguish or difficult to obtain in the future.” (Article 81.2, CPL.)

To obtain interim measures to preserve assets or conduct during the arbitral proceedings, the applicant shall prove that “it may be difficult to execute a judgment, or any other damage may be caused to a party.” (Article 100, CPL.) Mainland Courts may order the applicant to provide security upon the application at this stage. The standard to preserve evidence is whether “the evidence is likely to extinguish or [become] difficult to obtain in the future.” (Article 81.1, CPL.)

It is hard to draw a clear applicable standard from the above-mentioned CPL clauses because the wording is vague. On top of that, Mainland Courts have great discretion in deciding whether to grant emergency interim reliefs: the application for interim measures is made ex parte, and Mainland Courts adopt the doctrine of ex officio.

In practice, from my observations, it is more difficult to obtain pre-arbitration interim relief and, among the three types of measures, conduct preservation. On the other hand, asset preservation has been widely granted.

However, it is still hard to draw a “national standard” on interim reliefs from reviewing Mainland Courts’ decisions. Different courts adopt different interpretations of the CPL’s requirements and even have different requirements on documents and evidence to be provided with the application for asset preservation. Arbitration practitioners in Mainland China have raised concerns for such lack of a clear standard because applicants may fail to meet the “internal standard” set by the competent court, which is not disclosed to the public, and miss the opportune time to freeze assets.

Generally, the conclusive factor for Mainland Courts in deciding asset preservation is whether the applicant can provide security. All successful applications made under the Arrangement have provided security to Mainland Courts. (As of 30 June 2021, around USD 1.6 billion worth of assets have been ordered to be preserved by Mainland Courts under the Arrangement.)

There is also no clear applicable standard for emergency arbitrators in Mainland China to grant emergency interim relief. Emergency arbitrator is not recognized by PRC Arbitration Law (“Arbitration Law”). Still several major arbitration institutions in Mainland China have introduced the concept of emergency arbitrator into their arbitration rules. Since 2017, we have seen at least two emergency arbitrators appointed in arbitrations administered by arbitration institutions in Mainland China with a seat in Mainland China. See Beijing Arbitration Commission case and Shanghai Arbitration Commission case. Similarly, the arbitration rules of arbitration institutions in Mainland China only provide general guidelines or grant emergency arbitrator great discretion, rather than a clear standard. See, e.g., Article 63(6), Beijing Arbitration Commission Arbitration Rules (2019); Article 5.1, CIETAC Emergency Arbitrator Procedures (2015).

Therefore, the approaches adopted by the judiciary and arbitration institutions in Mainland China do not seem to provide a clear and practical standard for judges and emergency arbitrators to apply in deciding whether to grant interim relief.

 

Hong Kong Approach

Hong Kong Arbitration Ordinance (“Arbitration Ordinance”) has largely adopted the UNCITRAL Model Law on International Commercial Arbitration (“UNCITRAL Model Law”). For an arbitration seated in Hong Kong, both the Hong Kong court and the tribunal/emergency arbitrator have the power to grant interim measures before or during arbitral proceedings. According to Section 35 of the Arbitration Ordinance, the types of interim measures are less strictly categorized than those in Mainland China.

Section 36 of the Arbitration Ordinance (adopting Article 17A of UNCITRAL Model Law) provides that “The party requesting an interim measure . . . shall satisfy the arbitral tribunal that: (a) Harm not adequately reparable by an award of damages is likely to result if the measure is not ordered, and such harm substantially outweighs the harm that is likely to result to the party against whom the measure is directed if the measure is granted; and (b) There is a reasonable possibility that the requesting party will succeed on the merits of the claim.”

Article 23.4 of HKIAC Administered Arbitration Rules (2018) (“HKIAC Rules”) adopts the same applicable standard as Section 36 of the Arbitration Ordinance. It is noteworthy that Article 23.4 of HKIAC Rules expressly gives tribunal/emergency arbitrators discretion to consider other factors when deciding whether to grant interim measures by stating, “relevant factors may include, but not limited to . . . [the same factors adopted by Section 36 of the Arbitration Ordinance].”

The Hong Kong approach seems to be more like the “international standard” adopted by the Model Law. And in practice, Hong Kong courts have developed the substantive multi-factor test. Compared to the approach in Mainland China, which seems to pay more attention to the procedural requirement, i.e., whether the applicant provides the security or not, the Hong Kong approach gives weight to the substantive analysis of the case.

One possible reason for such differences between the two approaches is that the two jurisdictions reflect different legal traditions. Hong Kong is a common law jurisdiction that adopts the party-centered principle, where the parties take more responsibilities than the judges in producing substantive analysis for the decision. Meanwhile, the Mainland Courts adopt the adjudicator-centered principle where the judges take more responsibilities for the decision-making. Under such principle, Mainland Courts tend to rely on the clear procedural requirement set by CPL. This is also a reflection of Mainland China as a civil law jurisdiction.

 

Comments

An amendment to the Arbitration Law is in process. It is unclear whether emergency arbitrators will be introduced to the upcoming version of the Arbitration Law. However, with the Arrangement in place and at least two successful emergency arbitrator precedents in Mainland China, we will likely see more applications for interim measures in support of Hong Kong seated-arbitration in Mainland Courts and more emergency arbitrators appointed in arbitrations seated in Mainland China. Thus, it is important to develop the applicable standards for granting emergency interim relief in Mainland China, which will provide clear and practical guidance for Mainland Courts and emergency arbitrators and more certainty for parties.

As discussed above, Mainland Courts have the exclusive power to order interim relief. In most cases, the judge assigned for cases regarding interim relief in support of litigation should also be assigned to decide interim relief in support of arbitration. Even if the amendment of Arbitration Law revises the standards for granting emergency interim reliefs, the experience from deciding interim relief in litigation cases will still be relevant in deciding interim relief in arbitration-related cases.

Emergency arbitrators are less influenced by litigation case law in Mainland Courts. For example, Mr. Sun Wei has shared his experiences of acting as the first emergency arbitrator in Mainland China. He applied the “international standard” drawn from general practice in international commercial arbitration and arbitration rules from major international arbitration institutions like the ICC and HKIAC. With more emergency arbitrators to be appointed in Mainland China, we cannot expect every emergency arbitrator to be familiar with international arbitration practice like Mr. Sun. Thus, if arbitration institutions in Mainland China can take the lead and incorporate the “international standard” into arbitration rules, I believe this will provide practical guidance for emergency arbitrators and more certainty for parties in such cases in Mainland China.

References[+]

References ↑1 Thanks to Lingming Xu for his contribution to this blog post. The views expressed herein are personal and do not reflect the views or the position of the Hong Kong International Arbitration Centre. The author reserves the right to amend her position if appropriate. function footnote_expand_reference_container_37191_30() { jQuery('#footnote_references_container_37191_30').show(); jQuery('#footnote_reference_container_collapse_button_37191_30').text('−'); } function footnote_collapse_reference_container_37191_30() { jQuery('#footnote_references_container_37191_30').hide(); jQuery('#footnote_reference_container_collapse_button_37191_30').text('+'); } function footnote_expand_collapse_reference_container_37191_30() { if (jQuery('#footnote_references_container_37191_30').is(':hidden')) { footnote_expand_reference_container_37191_30(); } else { footnote_collapse_reference_container_37191_30(); } } function footnote_moveToReference_37191_30(p_str_TargetID) { footnote_expand_reference_container_37191_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_37191_30(p_str_TargetID) { footnote_expand_reference_container_37191_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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Swiss Supreme Court Clarifies Arbitrability of Claims in Insolvency Context

Mon, 2021-07-12 01:00

The economic havoc wreaked by the Covid-19 pandemic has resulted in a 10-year high of corporate bankruptcies in the United States in 2020. While bankruptcy levels across Europe have fallen amid the pandemic, a sharp spike in corporate bankruptcies is expected as economic support programs phase out in the coming months.

This will increase the relevance of the thorny relationship between bankruptcy and arbitration, which regularly gives rise to questions such as the capacity to act. This issue was the subject of a 2009 decision of the Swiss Supreme Court, in which it was held that an insolvent Polish entity no longer possessed the capacity to participate in arbitral proceedings. However, the court came to a different conclusion in a subsequent decision in 2012. Taking a slightly different approach analysing the issue of legal capacity, the court held that an insolvent Portuguese entity was capable of being a party to arbitral proceedings. Both of these decisions were discussed in an earlier blog post. In a recent decision (5A_910/2019), the Swiss Supreme Court has contributed further guidance on these thorny issues, having ruled on the enforceability of an award that was issued against a party against whom bankruptcy proceedings were initiated while the arbitration was ongoing.

 

Background to the Dispute

The 2019 decision concerned the recognition and enforcement of an arbitral award rendered under the auspices of the London Court of International Arbitration (LCIA). During the LCIA proceedings, the Respondent went bankrupt. With the consent of the creditors, the bankruptcy administrator assigned the Respondent’s rights in the LCIA proceedings to A, one of its former directors and creditors. A lost and was ordered to pay the costs of LCIA proceedings.

In the subsequent enforcement proceedings, the cantonal courts of Zurich incidentally recognized the costs award and declared it enforceable. A appealed the decision to the Swiss Supreme Court arguing that the recognition and enforcement of the award should be refused since the subject matter of the dispute is not arbitrable under Art. V(2)(a) of the New York Convention.

 

Reasoning of the Swiss Supreme Court

The Swiss Supreme Court rejected A’s appeal. The Court found that under Swiss law, claims against a Swiss party to a foreign arbitration do not per se lose their arbitrability if that party goes into bankruptcy after the initiation of the arbitration proceedings.

 

1. Claims Filed after the Initiation of Insolvency Proceedings are not Arbitrable

At the outset, the Swiss Supreme Court clarified that a claim against an insolvent Swiss party is not arbitrable under Swiss law. Thus, an arbitral award obtained against a Swiss party that was already subject to bankruptcy proceedings when arbitration was initiated is not enforceable in Switzerland.

Following the initiation of insolvency proceedings, claims against the bankrupt party must be asserted through the means of recourse available against the schedule of claims in Swiss courts. The schedule of claims is initially drawn up by the insolvency administrator. It collects the claims of all creditors and orders them according to priority. Thus, asserting an additional claim against the bankrupt party requires a challenge to the schedule of claims. Due to the exclusive jurisdiction of state courts in these proceedings, claims against bankrupt Swiss parties are not arbitrable.

Insolvency claims therefore constitute an exception to the rule that any dispute involving an economic interest (cause de nature patrimoniale) is arbitrable (para. 3.6 of the judgment).

 

2. Claims Filed Before the Initiation of Insolvency Proceedings Remain Arbitrable

Importantly, however, this reasoning is limited to arbitrations initiated after the start of the bankruptcy proceedings. According to the Swiss Supreme Court, it does not necessarily apply to claims which are already pending before an arbitral tribunal when the party goes bankrupt. The Swiss Supreme Court compared this situation with the one when a party falls into bankruptcy during ordinary state court proceedings.

If a party goes bankrupt while a case is pending before Swiss courts, the litigation is suspended and the creditors decide whether the proceedings should be pursued further (para. 3.10 of the judgment). If the creditors decide to continue the litigation, the court judgment is binding on the bankruptcy mass.

This applies in principle also to foreign court proceedings in which a Swiss party falls into bankruptcy while the litigation is ongoing. The judgment of a foreign court against the insolvent Swiss party is binding on the Swiss bankruptcy proceedings if the foreign court stays the proceedings and the creditors subsequently decide to continue the foreign litigation (para. 3.12 of the judgment).

Against this background, the Swiss Supreme Court found that there is no reason why the subject matter of arbitral proceedings should per se lose its arbitrability if arbitration was already pending at the opening of the bankruptcy proceedings. Thus, an arbitral award resulting from these proceedings would be enforceable with binding effect on the Swiss bankruptcy procedure (para. 3.13 of the judgment).

 

Key Takeaways

The Swiss Supreme Court decision clarifies an important point, namely that claims remain generally arbitrable even if insolvency proceedings are initiated against a respondent in an ongoing arbitration. This is consistent with the principle that arbitral awards are afforded the same treatment as domestic and foreign court judgments.

However, it is not entirely clear whether this applies if the arbitral tribunal failed to stay the proceedings to allow the creditors to decide on their continuation. The Supreme Court’s reference to domestic and foreign state court proceedings suggests that the suspension is a necessary precondition. To stay on the safe side, a claimant in arbitration against a Swiss debtor who falls into bankruptcy during the proceedings should motion the tribunal for a stay.

Initiating arbitration proceedings against a Swiss party after the opening of the bankruptcy procedure is likely futile as the claim is non-arbitrable. The Swiss Supreme Court’s approach regarding the arbitrability of claims against insolvent debtors differentiates between arbitration proceedings that are already pending and arbitration proceedings that commence after the opening of bankruptcy proceedings. As was noted in the recently published IBA Toolkit on Insolvency and Arbitration of March 2021, which is aimed at providing “guidance […] in situations where a party to arbitration proceedings is also subject to insolvency proceedings in one or more jurisdictions”, this distinction is not a unique Swiss feature, but is also followed in many other jurisdictions.

It is certainly coincidence that both the Swiss Supreme Court Decision and the IBA Toolkit on Insolvency and Arbitration have been published in the same month. However, this does show that the topic is of growing relevance. The many unresolved questions on the relationship between arbitration and bankruptcy are sure to keep arbitral tribunals and courts occupied in the foreseeable future. In this regard, the Swiss Supreme Court has rendered a timely decision on an important issue.

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RWE and Uniper: Can (German) Courts Assess the Jurisdiction of ICSID Arbitral Tribunals?

Sun, 2021-07-11 01:16

The Achmea saga has taken yet another twist. In a recent communication to the Dutch Parliament, the Dutch Ministry of Economic Affairs and Climate disclosed that it initiated “anti-arbitration” proceedings before the German courts on 11 May 2021 to “avert” two ECT-based ICSID arbitrations brought against it by the German energy companies RWE and Uniper (“Communication”). According to the Communication, RWE’s and Uniper’s claims lack a legal basis in light of the 2018 CJEU ruling in Achmea (C-284/16, reported here and here) declaring the disputed arbitration clause in the Netherlands-Slovakia BIT incompatible with EU law. The Communication is also based on the subsequent declarations issued by 22 EU Member States (including the Netherlands and Germany) on 17 January 2019 agreeing to terminate all intra-EU BITs and supporting the European Commission’s (“Commission”) stance that Achmea applies equally to the ECT.

 

The CJEU and Intra-EU ECT Disputes

The latter might soon be confirmed by the CJEU. In March 2021, CJEU Advocate General (“AG”) Szpunar released an opinion (C-741/19) holding that Achmea was applicable to intra-EU ECT arbitrations, thus siding with the Commission (see here and here). Ironically, the underlying Paris-seated ECT arbitration (Komstroy (formerly Energoalians) v. Moldova) does not have a direct intra-EU connection. Apart from the fact that the seat of arbitration is in France, neither the home state of claimants Komstroy (Ukraine), nor respondent Moldova is an EU Member State. Considering the recent tendency of EU institutions on this issue, it would not come as a particular surprise if the CJEU decided to follow AG Szpunar’s recommendation.

 

Inadmissibility Applications before the German Courts

While details remain unclear, it is assumed that the Netherlands has invoked the “Achmea objection” in an application to the Higher Regional Court (“HRC”) of Cologne to declare RWE’s and Uniper’s claims inadmissible pursuant to section 1032(2) of the German Code of Civil Procedure. The provision, which is not enshrined in the UNCITRAL Model Law, aims at increasing the efficiency of proceedings. It allows German courts to dismiss the admissibility of arbitral proceedings at an early stage, i.e. pending the constitution of a tribunal. Since the application was made, the RWE tribunal has been constituted; the Uniper tribunal is not yet in place. While, strictly speaking, section 1032(2) refers to the “admissibility” of a claim, it is established court practice that this also covers the validity of an arbitration agreement, and hence a tribunal’s jurisdiction. If the Netherlands’ section 1032(2)-application is successful, the HRC’s finding of the inadmissibility of arbitral proceedings would bind other German – and possibly European – courts.

The Netherlands’ move bears similarities to an earlier section 1032(2)-application brought by Croatia in April 2020 aimed at preventing the Frankfurt-seated UNCITRAL arbitration, Raiffeisen v. Croatia (II). On 11 February 2021, the HRC Frankfurt sided with Croatia and declared Raiffeisen’s arbitration inadmissible. In its decision, the court reasoned that the arbitration clause in the underlying Austria-Croatia BIT was invalid in view of the Achmea judgment, which the HRC qualified as a “landmark decision” (‘Grundsatzentscheidung’) and therefore considered significant for all intra-EU BITs. The court followed the reasoning of the CJEU in Achmea which held that the arbitration clause in dispute (Article 8 of the Netherlands-Slovakia BIT) may affect the autonomy of the EU legal system (in particular, Article 344 of the TFEU) and the consistent and uniform interpretation of EU law. So far, many investment tribunals have rejected the “Achmea objection”, even in other disputes concerning the Austria-Croatia BIT. The recently constituted Raiffeisen tribunal’s reaction to the HRC Frankfurt’s finding will undoubtedly be keenly awaited.

 

The Netherland’s Application and ICSID’s Self-Contained Regime

The Netherlands’ section 1032(2)-application is likely to trigger much doctrinal debate, considering that the RWE and Uniper arbitrations – unlike Raiffeisen – are conducted under the self-contained ICSID regime which expressly bars parties from turning to domestic courts under Article 26 of the ICSID Convention. Some may argue that this provision has no effect where there is no “[c]onsent of the parties to arbitration” in the first place. Should the HRC Cologne find the arbitration clause in the underlying ECT to be invalid, no legal basis would exist for the parties’ consent to ICSID arbitration. Others strongly question the German courts’ competence to decide on the admissibility of ICSID arbitrations and raise concerns over similar future attempts by states to sidestep the ICSID system. Some at least support the possibility to bring an ICSID claim in intra-EU scenarios.

Their views are reinforced by the principle of Kompetenz-Kompetenz enshrined in Article 44 of the ICSID Convention, which considers an ICSID tribunal “the judge of its own competence”. In commercial arbitration only some jurisdictions and authorities go as far as to ascribe this principle a “negative” effect, precluding the parallel assessment of a tribunal’s jurisdiction by national courts. Yet, the self-contained design of the ICSID system reflected in various provisions of the ICSID Convention (Articles 26, 27, 52, 53(1)) provides good arguments for an expansive understanding of the Kompetenz-Kompetenz of ICSID tribunals.1)Georges R Delaume, International Centre for Settlement of Investment Disputes Arbitration and the Courts, (1983) 77 American Journal of International Law 781, 784. jQuery('#footnote_plugin_tooltip_37905_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37905_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); It is thus questionable whether a German court’s assessment of an ICSID tribunal’s jurisdiction is compatible with Germany’s public international law obligations flowing from the ICSID Convention. 2)For a stay of national court proceedings in a similar situation, see Mobil Oil Corporation and others v. New Zealand, ICSID Case No. ARB/87/2, Judgment of the High Court of New Zealand, 1 July 1987, 4 ICSID Reports 117. jQuery('#footnote_plugin_tooltip_37905_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37905_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Further uncertainties arise under German procedural law given that, as a result of ICSID’s self-contained nature, ICSID proceedings have no arbitral “seat”. Per sections 1025(2) and 1062(1)(no. 2) and (2) of the German Code of Civil Procedure, German Higher Regional Courts are competent to hear a section 1032(2)-application if the seat of the arbitration is outside of Germany. The HRC Cologne will have to grapple with the question of whether a “foreign seat” can be equated to the lack of an arbitral seat for purposes of the German Code of Civil Procedure.

Irrespective of the HRC Cologne’s decision, the RWE/Uniper tribunals may draw inspiration from the SGS v. Pakistan tribunal. Faced with a decision by the Supreme Court of Pakistan barring the claimant from pursuing the ICSID arbitration, the SGS tribunal held:

The right to seek access to international adjudication must be respected and cannot be constrained by an order of a national court. Nor can a State plead its internal law in defence of an act that is inconsistent with its international obligations. Otherwise, a Contracting State could impede access to ICSID arbitration by operation of its own law.

 

Outlook

The RWE/Uniper tribunals might join the long list of ICSID tribunals rejecting the “Achmea objection”, particularly in connection with the ECT. Yet, even if successful, RWE and Uniper will have to be aware that further trouble likely awaits at the enforcement stage. One may recall the Commission’s (in)famous decision in 2015, prohibiting Romania from complying with the Micula v. Romania (I) ICSID award in favor of the Micula brothers. The Commission alleged that payment by Romania would constitute state aid in contravention of EU law and thus effectively endorsed the primacy of EU law over international law. In June 2019, the General Court annulled the Commission’s decision, noting that the Micula award could not be considered as illegal state aid, at least not the part of the compensation that covered the period pre-dating Romania’s accession to the EU, and admonishing the Commission for exceeding its competence (see also here). However, with the General Court’s decision currently under appeal, the CJEU’s final word is yet to be spoken.3)On 1 July 2021, AG Szpunar released his opinion (C‑638/19 P) in the pending appeal advising the CJEU to quash the General Court’s decision based on errors in the interpretation of EU state aid law. However, AG Szpunar agreed with the General Court that the Achmea ruling is not applicable since the underlying Micula dispute pre-dated Romania’s accession to the EU. See Opinion of AG Szpunar (C‑638/19 P), 1 July 2021, available at: https://curia.europa.eu/juris/document/document_print.jsf?docid=243665&text=&dir=&doclang=EN&part=1&occ=first&mode=req&pageIndex=0&cid=542600. jQuery('#footnote_plugin_tooltip_37905_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37905_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Against this background, RWE and Uniper may have a similarly long road ahead of them.

Whether the developments in Raiffeisen, Micula or Komstroy bode ill for RWE and Uniper remains to be seen. The German courts’ U-turn since Achmea is particularly remarkable. The HRC Frankfurt’s finding in Raiffeisen endorsing the CJEU’s Achmea judgment essentially reverses its original view in the (likewise Frankfurt-seated) Achmea arbitration that the BIT arbitration clause is compatible with EU law. The German Federal Court of Justice (‘Bundesgerichtshof’) had a similar change of heart when it set aside the Achmea award following the CJEU’s judgment, despite initially indicating a different view in its referral request. Even the Netherlands has silently switched sides. It now seems to have become a staunch supporter of the CJEU/Commission, vehemently committed to putting an end to all intra-EU arbitrations. This stands in stark contrast to its previous position and fierce defense of the validity of the underlying BIT during the Achmea arbitration. The Netherlands even went as far as to intervene in the set-aside proceedings before the HRC Frankfurt as a third-party, considering that the court’s decision would affect the scope of its rights and obligations under the Netherlands-Slovakia BIT.

It will be interesting to see whether the Netherlands’ third-party intervention will be emulated by other states in relation to the RWE/Uniper proceedings before the HRC Cologne. After all, the Netherlands’ section 1032-application could incentivize other states to invoke domestic law in a way that may be considered incompatible with the ICSID regime and the ICSID member states’ rights and obligations. Such procedures would add another layer of complexity to the RWE/Uniper proceedings that would certainly be worth reporting.

References[+]

References ↑1 Georges R Delaume, International Centre for Settlement of Investment Disputes Arbitration and the Courts, (1983) 77 American Journal of International Law 781, 784. ↑2 For a stay of national court proceedings in a similar situation, see Mobil Oil Corporation and others v. New Zealand, ICSID Case No. ARB/87/2, Judgment of the High Court of New Zealand, 1 July 1987, 4 ICSID Reports 117. ↑3 On 1 July 2021, AG Szpunar released his opinion (C‑638/19 P) in the pending appeal advising the CJEU to quash the General Court’s decision based on errors in the interpretation of EU state aid law. However, AG Szpunar agreed with the General Court that the Achmea ruling is not applicable since the underlying Micula dispute pre-dated Romania’s accession to the EU. See Opinion of AG Szpunar (C‑638/19 P), 1 July 2021, available at: https://curia.europa.eu/juris/document/document_print.jsf?docid=243665&text=&dir=&doclang=EN&part=1&occ=first&mode=req&pageIndex=0&cid=542600. function footnote_expand_reference_container_37905_30() { jQuery('#footnote_references_container_37905_30').show(); jQuery('#footnote_reference_container_collapse_button_37905_30').text('−'); } function footnote_collapse_reference_container_37905_30() { jQuery('#footnote_references_container_37905_30').hide(); jQuery('#footnote_reference_container_collapse_button_37905_30').text('+'); } function footnote_expand_collapse_reference_container_37905_30() { if (jQuery('#footnote_references_container_37905_30').is(':hidden')) { footnote_expand_reference_container_37905_30(); } else { footnote_collapse_reference_container_37905_30(); } } function footnote_moveToReference_37905_30(p_str_TargetID) { footnote_expand_reference_container_37905_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_37905_30(p_str_TargetID) { footnote_expand_reference_container_37905_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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Hong Kong, SAR China’s New Approach to Investment Treaty Arbitration

Sat, 2021-07-10 01:00

In March 2021, a major newspaper broke the story that a Hong Kong investor had filed what may be considered the very first investment treaty arbitration claim against Japan under the Hong-Kong Bilateral Investment Treaty (Hong Kong, China SAR – Japan BIT 1997). While it may take anywhere from a few months to a few years for this BIT arbitration to reach final conclusion, the dispute is significant as it allows us to examine Hong Kong’s approach to investment treaty arbitration. It also becomes important to examine this BIT arbitration because unlike most capital exporting economies, Hong Kong and Japan are parties to fewer international investment agreements (IIAs) and both jurisdictions can be used as prime examples of an Asian approach to ISDS which is meant to be non-adversarial. While Hong Kong is a party to 25 Investment and Promotion Agreements (IPPAs) including the Closer Economic Partnership Arrangement (CEP) investment agreement signed with China in 2017,  Japan is a party to 35 BITs and 15 treaties with investment provisions (TIPs).

In this blog post, we examine Hong Kong’s modest international investment treaty framework and highlight how investor-state dispute settlement (ISDS) clauses in Hong Kong’s IIAs have evolved over time and more recently in response to specific global and regional investment treaty drafting trends. This analysis is based on an examination of the ISDS provisions of Hong Kong’s recently signed treaties with Australia, Mexico and the United Arab Emirates (UAE). We argue that unlike other small jurisdictions and leading financial centres, Hong Kong has adopted a passive but consistent approach to investment treaty arbitration, but that this approach is slowly being modified. We contend that this alteration in policy reflects Hong Kong’s special characteristics, especially its limited sovereignty under international law, and is consistent with its dispute avoidance objectives. Hong Kong is a leading centre of foreign direct investment. In line with its position as a leading financial centre, Hong Kong consistently promotes itself as a friendly international arbitration hub based on its proximity to mainland China, international arbitration centres, rule of law tradition and independent judiciary. Although Hong Kong’s sovereignty under international economic law has recently come under scrutiny, as evidenced in a pending World Trade Organization dispute between Hong Kong and the USA, IIAs (which have been signed under the authority of its constitutional law) remain a pillar of its economic strategy.

 

Narrow Arbitration Clauses

Under most of Hong Kong’s IIAs, disputes concerning an investment are arbitrable as long as they concern an investment made in the area of the contracting party. An example is the Hong Kong-Australia BIT which was signed in 2020 to replace the earlier 23-year old Hong Kong-Australia BIT (which was the basis for a highly publicised investment treaty arbitration between Australia and a subsidiary of the tobacco giant Philip Morris). This treaty has narrowed the definition of the term “investment” while excluding arbitration claims by a Hong Kong investor that relate to acts of the Office of Gene Technology Regulator. Investors from both Hong Kong and Australia cannot institute claims which relate to either party’s control measures of tobacco products or other smoking products.

On the other hand, the Hong Kong-Mexico BIT (2020) adopts a broader arbitration clause but specifically provides that ‘An investor of a Contracting Party may submit to arbitration a claim that the other Contracting Party has breached an obligation under Chapter II, and that the investor has incurred loss or damage by reason of, or arising out of, that breach.’ Additionally, Hong Kong’s BIT with the UAE (2019) also adopts broader language but unlike the majority of Hong Kong’s BITs, it does not contain a territorial qualification that an arbitration claim must be a dispute concerning an investment in the area of the other party.

Consistent with the recent treaty practice of most states, Hong Kong’s BITs with the UAE, Mexico and Australia exclude the possibility of importing more favourable investment dispute procedures from IIAs signed with third parties. In practice, however, this does not exclude the possibility that more favourable substantive provisions can be imported from treaties signed with third party states.

 

Limitation Periods

Introduction of limitation periods in Hong Kong’s newer BITs is consistent with newer generation treaties which introduce procedural safeguards to limit the exposure of states to frivolous and/or antiquated arbitration claims. All three investment agreements include limitation periods for instituting arbitration claims. The Hong Kong-Australia BIT adopts a limitation period of 3 years and 6 months, the Hong Kong-UAE BIT’s period is 5 years while the BIT with Mexico agreement adopts a 3-year limitation period.

 

More Forum Options

One of the most distinct changes to Hong Kong’s ISDS provisions is the inclusion of more arbitration forums. Traditionally, Hong Kong’s BITs have referred to settlement of disputes using only the UNCITRAL Arbitration Rules. For example, the Hong Kong-Japan BIT provides that after a period of six months from written notification of a claim, the dispute may be submitted to a procedure for settlement as agreed by the between the parties to the dispute. However, where parties do not reach an agreement, at the request of the foreign investor, the dispute shall be submitted to arbitration under the UNCITRAL Arbitration Rules. Unlike the large majority of over 2500 BITs that have been signed; Hong Kong’s BITs do not refer to arbitration under the International Centre for Settlement of Investment Disputes (ICSID) Convention rules. This is because the Hong Kong SAR is not a direct signatory to the ICSID Convention. Rather, in disputes involving Hong Kong investors or Hong Kong’s territory, jurisdiction under ICSID may be derived from China’s accession to the ICSID Convention.

In addition to UNCITRAL arbitration, the Hong Kong-UAE BIT provides for arbitration by the International Court of Arbitration of the International Chamber of Commerce (ICC) and the Arbitration Institute of the Stockholm Chamber of Commerce (SCC). The BITs signed with Mexico and Australia follow the text of older Hong Kong treaties and provide for the application of any other arbitration rules if the disputing parties so agree. This distinct characteristic of Hong Kong’s BITs may be why to date only three investment treaty arbitration disputes have been instituted by Hong Kong investors. The very first investment treaty claim, Asian Agricultural Products Ltd v Republic of Sri Lanka was instituted prior to the transfer of sovereignty over Hong Kong by the United Kingdom in 1997. This arbitration claim was instituted by a Hong Kong registered company at ICSID on the basis of the UK-Sri Lanka BIT (1980). A more recent ICSID investment treaty dispute instituted by a Hong Kong subsidiary of a financial institution on the basis of the UK-Tanzania BIT (1994) was dismissed for lack of jurisdiction in 2012. The third treaty claim, Philip Morris Asia Limited v The Commonwealth of Australia was also dismissed for lack of jurisdiction. Together, these three investment claims raise the question whether the forums provided for in Hong Kong’s IIAs are adequate for promoting and protecting foreign investment.

 

Conclusion

The Hong Kong SAR has recently concluded IIAs with Bahrain, Maldives, and Myanmar. Negotiations for IIAs with Iran, Russia, and Turkey are underway. These agreements will probably follow the trends identified above and confirm that investment treaty arbitration remains a preferred forum for settling disputes between host territories and foreign investors. Even though there have been limitations in respect to Hong Kong’s sovereignty, its association and engagement with ISDS appears to be increasing. This is reflected in newer IIAs which give parties more forum options. While this conclusion may be counter-intuitive considering the inclusion of procedural safeguards against investment arbitration in Hong Kong’s more recent IIAs, Hong Kong appears to be taking a more open approach to investment treaty arbitration.

Overall, our review of ISDS provisions in Hong Kong’s recent treaties confirms that Hong Kong firstly, still favours arbitration of disputes, secondly, is willing to accommodate the needs of partner states and thirdly, is willing to conform to emerging investment treaty drafting trends as long as they remain in line with its limited sovereignty. Although Hong Kong’s modest IIA network with limited ISDS forum options may be why it has not yet been a respondent in any dispute, by signing new IIAs, Hong Kong is protecting the interests of its investors but also increasing its exposure to ISDS claims. However, only time will tell if like Japan, Hong Kong will soon face its very first investment treaty arbitration.

 

Acknowledgements: The authors wish to thank Luke Nottage, Esmé Shirlow, Jan Kunstyr, Ishita Mishra, Sufian Jusoh, Yashvi Jain, and Xueliang Ji for indispensable feedback and comments. This article is part of a broader research supported by the General Research Fund Project No. 11606820 of the Hong Kong SAR Research Grants Council. The opinions expressed herewith are the authors’ own.

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Arbitration Idol 2.0

Fri, 2021-07-09 02:36

Arbitration Idol is back for season 2! Following the tremendous success of our debut season in 2020, the summer of 2021 is once again dedicated to Arbitration Idol and to helping those in need.

What is Arbitration Idol? It was a few weeks into the pandemic when, in June 2020, Svenja Wachtel (Digital Coffee Break in Arbitration), Chris Campbell (Tales of the Tribunal) and Amanda Lee (Careers in Arbitration) decided to do something. Meeting people at an in-person conference, having lunch or sharing a cup of coffee with new connections were no longer an option. The Arbitration Idol initiative was born, providing a means to connect experienced leaders in the field of international arbitration with lucky individuals from around the world for a digital coffee break, while collecting money for UNICEF.

Being aware that the use of the word “Idol” carries certain connotations, Svenja, Mandy and Chris want to emphasize that “Idol” is a play on words, a tongue-in-cheek parody of the US singing competition show “American Idol”. Our Idols come from diverse backgrounds. It is not solely the outstanding work of each individual chosen that makes them an “Idol”, but also their willingness to kindly donate their time and goodwill in order to speak to the lucky winners, offering support and helping others during what has been a difficult time for so many.

The distinguished leaders who became the Arbitration Idols in 2020, for Season One, were:

Mohamed Abdel Wahab, Funke Adekoya SAN, Gary Born, Eleonora Coelho, Gabrielle Kaufmann-Kohler, Darius Khambata, Joongi Kim, Toby Landau QC, Dana MacGrath, Michael McIlwrath, Lucy Reed, and Catherine Rogers.

Last year 92 people donated EUR 1,936 for UNICEF! With your help, we can surpass that total in 2021. The procedure in 2021 is as simple as last year: anyone, anywhere in the world, can donate whatever they can afford (minimum donation EUR 1). Every donation buys the donor the chance to win a one-on-one digital coffee break with a leader from the field of international arbitration.

Our 2021 Arbitration Idols are once again distinguished leaders from around the globe who have generously donated their time to Arbitration Idol 2.0 and by doing so are helping others in need.

Have you ever wanted to know what it takes to become a successful international arbitrator, academic or counsel? What does it take to make a (R.E.A.L.) difference to gender, racial and age diversity in international arbitration? What lessons can be learned from working at an arbitral institution or running an arbitration centre? Perhaps you are simply looking for tips on how to deliver a fantastic speech or start a new webinar series. Our 2021 Arbitration Idols can answer these questions and many more.

Thank you to:

Cecilia Azar, Chiann Bao, Nayla Comair-Obeid, Benjamin G. Davis, Kabir Duggal, Babatunde Fagbohunlu, Neil Kaplan CBE QC SBS, Sara Koleilat-Aranjo, Arthur Ma, Emilia Onyema, Rekha Rangachari, Maxi Scherer, Claus von Wobeser, and Roland Ziade.

To participate and be in with a chance of winning a digital coffee break with one of our Arbitration Idols, please follow the steps outlined below:

1. Make a donation (minimum donation EUR 1) from now until July 27, 2021 at https://www.justgiving.com/fundraising/arbitrationidol or use the QR-Code. All proceeds are going 100% to UNICEF.

2. If you would like to participate in the prize draw, please forward your e-mail from Justgiving confirming your donation to [email protected] (feel free to redact the amount donated). By doing so, you will automatically be entered into the draw and will have the chance to join one of our Idols for a digital coffee (or tea) break.

3. Keep your fingers crossed – the winners will be announced on July 30, 2021.

A big thank you goes out to the supporting organizations: ArbitralWomen, myArbitration, the Campaign for Greener Arbitrations, Deutsche Institution für Schiedsgerichtsbarkeit e.V. (DIS) 40, the Young Thailand Arbitration Center (YTHAC), the Vienna International Arbitral Centre of the Austrian Federal Economic Chamber (VIAC), the Global VYAP Network, Jus Mundi, Africa in the Moot, R.E.A.L. – Racial Equality for Arbitration Lawyers, the Rising Arbitrators Initiative, the Chartered Institute of Arbitrators (CIArb) and the New York International Arbitration Center (NYIAC).

Thank you in advance to everyone who kindly donates to UNICEF – we wish the entire arbitration community the best of luck!

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The Contents of the ASA Bulletin, Volume 39, Issue 2 (June 2021)

Fri, 2021-07-09 00:51

We are happy to report that the latest issue of the ASA Bulletin is now available and includes the following articles and cases:

 

ARTICLES

Felix DASSER, “Swiss Arbitration” – The New One-Stop Shop And Other Good News

In his message, ASA President Felix DASSER shares the news of the launch of “Swiss Arbitration”, the one-stop shop for arbitration and mediation in Switzerland, and other exciting developments.

 

Antoine EIGENMANN, Marc BEUCHAT, Arbitrage international et succession. L’exécuteur testamentaire face à une clause compromissoire

Antoine EIGENMANN and Marc BEUCHAT examine whether an arbitration clause can be opposed to an executor, considering the unilateral nature of an executor’s appointment under inheritance law.

 

Eliseo CASTINEIRA, Thomas LEHMANN, After Vattenfall: A Science-Based Proposal to Account for Climate Change and Biodiversity in Energy Arbitrations

Reflecting upon the Vattenfall case, Eliseo CASTINEIRA and Thomas LEHMANN explore how arbitral tribunals may assess the effect of measures adopted by the state in relation to climate change mitigation, biodiversity, natural resources as well as human health.

 

Johannes LANDBRECHT, Rechtsschriften an das Bundesgericht in englischer Sprache – nur in welcher?

Johannes LANDBRECHT reflects on the use of a “Swiss English legal language” for challenges to international arbitral awards before the Swiss Supreme Court.

 

Jörg RISSE, The WYSIATI-Effect and Biased Arbitrators

Jörg RISSE discusses one of the most pernicious and best-researched biases that may affect an arbitrator’s decision-making:  the “What you see-is-all-there-is”-Effect (“WYSIATI-Effect”).

 

Alex LEVIN CANAL, Vanessa ALARCÓN DUVANEL, Annulment of Commercial Arbitral Awards by State Courts: A Comparative Study of Spain and Switzerland

Alex LEVIN CANAL, Vanessa ALARCÓN DUVANEL compare the statutory framework and body of case-law in annulment actions of commercial arbitral awards in Switzerland and in Spain and identify the key differences in the application by domestic courts of similar arbitration legislation.

 

Yağmur HORTOĞLU, Fraud and Arbitration: The Truth Untold

Unravelling the thorny topic of fraud in arbitration, Yağmur HORTOĞLU proposes a categorisation of the different types of frauds specific to arbitration and considers the efforts that both arbitrators and state courts will have to make in order to detect and prevent fraudulent arbitrations.

 

Walid BEN HAMIDA, L’imprévision et l’arbitrage après la réforme du droit des contrats en France

Walid BEN HAMIDA analyses the conditions and the treatment of hardship introduced under the new article 1195 of the French Civil Code by arbitrators, the possibility for arbitrators to adapt or revise the contract as a result, as well as the impact of this provision on their mandate.

 

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

  • 4A_318/2018 of 4 March 2019 [Right to be heard – Public policy – Proportionality of a sanction – Federal Tribunal does not review arbitrators’ application of the law, not even Swiss law]
  • 4A_244/2020 of 16 December 2020 [Partial waiver of right to seek annulment of award (192 PIL Act) – Admissible conversion of a claim into USD based on an unspecific alternative prayer (… any other sum which the arbitral tribunal considered appropriate)]
  • 4A_56/2018 of 30 January 2019 [Lack of any legitimate and current interest to challenge award]
  • 5A_1019/2018 of 5 November 2019 [Enforcement of (ICDR) award in Switzerland – New York Convention – Ultra petita – Extension to non-signatory majority shareholder – No enforcement of permanent court injunction]
  • 4A_640/2017 of 3 May 2018 [Enforcement in Switzerland of foreign awards against a State – Immunity – Territorial link with Switzerland required – New York Convention]
  • 4A_301/2018 of 19 November 2018 [Prohibition to take the parties by surprise]
  • 4A_118/2014 of 5 February 2020 [Withdrawal from arbitration and annulment proceedings]
  • 4A_198/2020 of 1 December 2020 [Timeliness and signature of appeal to CAS are formal requirements not points of jurisdiction – Ultra petita]
  • 4A_248/2020 of 20 October 2020 [General partner bound by arbitration clause entered into by a limited partnership – Liability on the merits does not necessarily warrant an extension of the arbitral agreement]
  • 4A_35/2020 of 15 May 2020 [Repudiation of know-how transfer agreement for material error on performance – Attributability of knowledge within a company]
  • 4A_58/2020 of 3 June 2020 [Cost advances – Award to claimant on the reimbursement of the cost advance paid in lieu of defendant upheld]
  • 4A_324/2020 of 18 September 2020 [Simulated or illegal contract – Art. 18/20 CO – Public policy]
  • Decisions Briefly Noted: 4A_62/2020 of 30 September 2020 [Right to be heard – Annulment request dismissed]; 4A_215/2020 of 5 August 2020; 4A_384/2020 of 10 December 2020
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International Law Talk Podcast and Arbitration: Arbitrating in the Emergency Room, In Conversation with Patricia Shaughnessy

Thu, 2021-07-08 04:28

International Law Talk is a series of podcasts through which Wolters Kluwer provides the latest news and industry insights from thought leaders and experts in the fields of International Arbitration, IP Law, International Tax Law and Competition Law. Here at Kluwer Arbitration Blog, we highlight the podcasts focused on international arbitration. In this latest episode, Wolters Kluwer has partnered with the Chartered Institute of Arbitrators for a discussion on emergency arbitration, with Crina Baltag, Editor of Kluwer Arbitration Blog, interviewing Patricia Shaughnessy, at Stockholm University.

Patricia Shaughnessy has been directly involved in the development of the emergency arbitration procedure, as member of the SCC Board, and later, as Vice-Chair of the SCC Board. The podcast discussion considers and explores:

  • the launch of the SCC Emergency Arbitration Rules in January 2010 and the reasons behind and beyond the Emergency Arbitration procedure, in particular providing users with quick access to interim measures, when urgently needed;
  • the role Emergency Arbitration plays in the effective and cost-efficient resolution of disputes;
  • the suitability of Emergency Arbitration procedure for various types of disputes, including for investment arbitration;
  • factors to assess when filing an Emergency Arbitration request: urgency is essential, but only one of the factors;
  • the case management by the Emergency Arbitrator: experience and ability to act and decide quickly is essential in Emergency Arbitration proceedings;
  • while Emergency Arbitration proceedings are increasing in number, there are still concerns with the enforceability of the Emergency Arbitrator decisions;
  • one must not confuse Emergency Arbitration with Expedited Arbitration: Emergency Arbitration is about urgent interim relief; Emergency Arbitration may well interact with Expedited Arbitration.

As final thoughts, Patricia Shaughnessy offers her views on the future of international arbitration and Emergency Arbitration, in particular.

 

http://arbitrationblog.kluwerarbitration.com/wp-content/uploads/sites/48/2021/07/KLI-afl-13-trailer.mp4

 

Listen to the discussion: Arbitrating in the Emergency Room, in conversation with Patricia Shaughnessy.

Follow the coverage of the International Law Talk arbitration podcasts on Kluwer Arbitration Blog here.

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Arbitration Tech Toolbox: Toward Pandemic-Proof Arbitrations: The Augmented View

Thu, 2021-07-08 01:30

The pandemic has taught us to be flexible and adaptable and has opened up new possibilities, including the transformative use of technology in dispute resolution. While I have written on the use of technologies, including artificial intelligence (“AI”), in arbitration here before, my goal in this post is to provoke further thinking on the potential of another type of technology: augmented reality (“AR”).

By necessity the pandemic forced us to fulfill the promise of arbitration as a relatively malleable tool for dispute resolution—though credit must go to all branches of dispute resolution that have also demonstrated an adept agility to operate on a remote basis. With vaccinations gaining pace on a daily basis, some may wonder whether life will go back to a pre-pandemic “normal” where physical presence was the norm. Many perspectives have been shared on this, and a growing chorus is building in international arbitration circles that it is time to fully embrace the emancipatory potential of technology in dispute resolution.

AR allows the user to add media to her current field of view without displacing the physical environment. AR technology is enabled by some type of hardware, such as a phone or a headset, that captures your physical environment in real-time and generates AR content “within” that environment. Whereas virtual reality replaces what a user sees, AR digitally superimposes images, videos and other materials, such as holograms, onto the user’s current physical space.

AR is no science fiction fantasy. There’s been a recent explosion in AR technology offerings and applications, ranging from gaming, business planning, product design, and lifestyle apps that allow you to “try on” shoes and see how furniture will look in the room before you buy it. As the Harvard Business Review put it, “[i]n the coming months and years, [AR] will transform how we learn, make decisions, and interact with the physical world. It will also change how enterprises serve customers, train employees, design and create products, and manage their value chains, and, ultimately, how they compete.”

Similarly, the potential for AR in international arbitration could be significant for a number of reasons.

First, our shared experience in the arbitration community of successfully conducting arbitral proceedings remotely during the pandemic (and some of us, such as the author, even pre-pandemic) has confirmed that arbitration and technology—as well as arbitration as a technology—can deliver on their promise of efficiency and flexibility, despite the international nature of some disputes. Throwing AR into the mix would take two-dimensional virtual hearings to the next level by creating an even more personable experience where, for example, the key actors of a hearing are represented within the physical space of the viewer—wherever that viewer may actually be. Not only would this preserve the efficiencies of remote proceedings, but it would also, to some advocates at least, enhance the efficacy of presentations and even perhaps examinations of witnesses. Being able to converse with the tribunal and examine a witness “in front” of you, rather than on a screen, is highly appealing.

Second, AR arbitrations (or “Augmented Arbitrations”) could provide an additional incentive to conduct arbitrations remotely, and by consequence, generate cost savings to clients in the form of reduced air travel, logistical, and printing costs.

Third, Augmented Arbitrations, as with all remote proceedings, would generate a smaller carbon emissions footprint. For example, the Campaign for Greener Arbitrations estimates that a large international arbitration could require “just under 20,000 trees … to offset the total carbon emissions resulting from just this one arbitration” and that “[l]ong-haul flights alone can contribute over three of quarters of these total carbon emissions” (for more on arbitration’s impact on the environment, see here). Augmented Arbitrations would make the arbitration ecosystem even more sustainable environmentally.

 

Could Augmented Arbitrations work in practice?

Augmented Arbitrations would enable practitioners, witnesses, and arbitrators to gather holographically without the need to be physically present. Stakeholders could participate in conferences and hearings from the comfort of their “home offices” (or living rooms, bedrooms etc.) or their firm’s conference rooms. It would further cement arbitration’s innovative and flexible potential and enhance access to justice.

While there appears to be no products currently available specifically geared toward the use of AR in dispute resolution, the use of AR in other contexts can help us visualize how the technology could work in the arbitration space in the future. Microsoft’s Mesh service aims to provide AR eyewear and a software platform to enable holographic meetings to take place from anywhere. Individuals from across the globe can gather at their own locations and view projections of their colleagues’ holographic selves next to them. Spatial.io provides an AR platform that allows teams to collaborate using AR. Individuals can create lifelike avatars to simulate in person meetings wherever they’re located. If a user does not want to use an avatar, they can also use their webcams to project whatever it’s capturing (such as their two-dimensional face), just as you would on a videoconference call, and display it in a three-dimensional field of view.

An Augmented Arbitration service provider would need to consider the following practical components:

  • Spatial Consistency. So that individuals are not popping up in random places in your living room (or conference room), a virtual central block (or virtual “table”) could be used use so that all participants gather around it.
  • Breakout Rooms. An AR breakout room would enable parties and clients to gather during breaks to discuss the hearing.
  • Cyber-security. To prevent malignant (or even humoristic) intrusions, Augmented Arbitration service providers must ensure that all hardware and software used are fully protected and secured by the latest encryption technology.
  • Optional Add-ons. For example, service providers may include real-time transcripts so that you can view, access, and interact with a transcript as part of the AR environment.

While the potential for change is clear, there are technical, legal, and cultural barriers to making Augmented Arbitrations a reality. In technical terms, there yet needs to be hardware and software that can adequately capture live video from multiple users and project it into the AR environment so that all users can see each other, including their bodies, in real time. As cost of hardware could also be an issue (at least for early adopters), firms and attorneys may want to invest in these in the long-run, or arbitral institutions could offer rental or sharing schemes for those who do not have their own equipment. Legally, it would generally be up to the parties and the tribunal to agree to the use of the technology. Network bandwidth limitations may also mean that a full AR experience, without any latency issues, may only be possible with the deployment of 5G (or even 6G) networks. The issue may be exacerbated if adequate network bandwidth is unequally available around the world. Moreover, as with all arbitrations, consent—in particular, the client’s consent—will drive the parameters of how the technology is used. And as with all technologies, there may be healthy pushback, discomfort, or hesitancy in some circles. The byproduct of everyone’s input will generate more efficient and practical solutions.

While still a thought experiment, Augmented Arbitrations could offer the best of both worlds: cheaper and greener arbitrations while promoting an immersive holographic experience for the key stakeholders involved.

Lucas Bento FCIArb FRSA is Of Counsel at Quinn Emanuel Urquhart & Sullivan LLP. He is the author of The Globalization of Discovery under 28 U.S.C. § 1782: Law and Practice (Kluwer Law International, 2020). The views expressed in this post are the author’s personal views, and do not reflect the opinions of Quinn Emanuel Urquhart & Sullivan LLP.

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Further posts on our Arbitration Tech Toolbox series can be found here.
The content of this post is intended for educational and general information. It is not intended for any promotional purposes. Kluwer Arbitration Blog, the Editorial Board, and this post’s author make no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information in this post.

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Videoconferencing Technology in Arbitration: New Challenges for Connectedness (2020 Survey)

Thu, 2021-07-08 01:10

In June 2020, we ran a survey of users’ experiences with remote hearings.  Our preliminary findings, which we published in International Arbitration and the COVID-19 Revolution (edited by Maxi Scherer, Niuscha Bassiri, Mohamed S. Abdel Wahab) showed that over ten times more fully remote hearings appeared to have taken place on an annualised basis in the second quarter of 2020 than at any time previously (for a definition of ‘fully remote hearings’, see Maxi Scherer’s May 2020 blog post, Remote Hearings in International Arbitration – and What Voltaire Has to Do with It?).

This dramatic change over a limited period of time in the conduct of arbitration hearings relied on videoconferencing tools that had been available for many years already (at different stages of development), but tended to be reserved for the examination of witnesses and experts who could not physically attend the hearing.

The present post discloses additional, previously unpublished, findings from our survey, including user preferences in relation to the available videoconferencing tools for hearings; users’ experiences with webinars; users’ priorities when selecting or investing in technology; and how these various insights might inform or impact users in the workplace.

 

1. Preferred videoconferencing technology for hearings

The survey identified five preferred videoconferencing platforms out of a selection of eight choices: the most popular was Zoom (first launched in 2013), followed by Microsoft Teams (first launched in 2017), Cisco WebEx (acquired by Cisco in 2007), GoToMeeting (first launched in 2004) and finally BlueJeans (first launched in 2011).

Zoom was appreciated for its ease of access, functionalities and reliability, but questions were raised as to privacy, likely in light of reports in and around April 2020 about Zoombombing (the term has been used for unwanted, disruptive intrusion into videocalls and is not limited to when this happens on Zoom).  For this reason, mainly, some users preferred to use Teams and WebEx.

One limitation of these findings is that they do not make reference to the access barriers generated by these technologies.  These had become more visible and better understood by the end of 2020, as was apparent from the discussions at GAR Interactive: Africa (2020) or in Maguelonne de Brugiere and Cherine Foty’s December 2020 blog post, Sustainability and Diversity in the Newly Virtual World of International Arbitration, which considered the impact of “low bandwidth internet connections, poor video streaming quality, or electricity shortages and power outages” (in the context of participation in webinars), and discussed how “the transition of international arbitration to a virtual setting has also impacted historically disadvantaged and underrepresented women and minorities, creating opportunities for increased visibility and participation while exacerbating existing biases.

With hearings moving online came the question of how to show evidence.  Survey respondents most preferred screen sharing (39%); next, for everyone to follow on their own side, e.g., in their own paper bundle or on their computer (31%); and, finally, showing excerpts in a PowerPoint during oral submissions (17%) and referring to tags in an electronic bundle (10%).  A related question about electronic bundles and providers showed that a majority of survey respondents (74%) did not have an opinion on these tools or their suppliers, which suggests that there is limited experience generally with such solutions.

Finally, users in their comments recommended to exercise caution with electronic solutions so as to avoid, in the words of one survey respondent, the “risk of a witness being ’tricked’ into looking at a part of a document by the cross-examiner as [there is] no possibility to ‘scroll down’ or consider the entire document before answering the question”.

 

2. Webinars we love to hate

The above videoconferencing platforms also supported the move online of arbitration events and conferences.  Survey respondents were asked what they preferred or disliked about webinars, and could provide multiple answers.

They most valued the access webinars provided to knowledge, ideas, speakers from around the world, and global audiences (40%); the convenience of webinars (33%); cost savings (18%, including in relation to the cost of conferences and the cost of travel); and connectedness (10%).

Conversely, webinars were also criticised for failing to facilitate connectedness at the same level as in-person events, due to not being able to network or interact with other participants or the speakers (43%).  Other survey respondents stated that there were too many webinars (23%).  The remaining answers referred to technological issues (10%), the quality of speakers (10%), digital fatigue (7%), and lengthy speaker introductions (7%).

While inevitably there have been concerns over the proliferation of webinars, these new online forms of interactions have also been very positive in terms of diversity – of speakers, of audiences, of ideas.  Webinars have helped to ‘open up’ the arbitration community (as discussed at p. 9 of the September 2020 ArbitralWomen Newsletter), and have created ‘Silver Linings for Young Arbitrators in Africa’, as discussed in Ibrahim Godofa and Mercy Okiro’s July 2020 blog post, including from the move online of professional training and skills development courses.  An example of this is Delos Dispute Resolution’s Remote Oral Advocacy Programme (ROAP), which brings together participants and faculty across continents and was shortlisted earlier this year for GAR’s Best Innovation Award (2021).

We would also highlight ‘Mute Off Thursdays’ as another successful combination of connectedness, ongoing learning, networking and diversity.  The initiative was shortlisted earlier this year for GAR’s Best Innovation Award (2021) and won the GAR Pledge Best Diversity Initiative Award (2021).

 

3. Priorities when selecting or investing in technology

Our survey asked respondents to indicate what considerations went into (i) choosing a technology solution or provider in the context of remote hearings, and (ii) investing in technology generally.  While both questions did not necessarily call for the same answers, the two following figures show very similar priorities:

In both cases, data security and privacy were top of mind, followed by functionalities/efficiency.  It is only in fourth and fifth position that survey respondents referred to the need or a desire for human interaction or help, which suggests an expectation that the technology will be intuitive and relatively easy to use on one’s own.  Cost was sixth in the order of priorities.  All other considerations, including environmental, ranked much lower.

Looking back a year later, one noticeable absence from the list is ‘health’.  Sophie Nappert and Mihaela Apostol noted in their July 2020 blog post “the physical and psychological challenges presented by the sudden omnipresence of video conferencing in professional life”, and the consequent physical and mental strain (see Healthy Virtual Hearings).  As we gradually become more aware of the multiple implications of our new hybrid environment, it is to be hoped that health considerations will make their way towards the top of the priority list when considering choices of and investments in technology, both for ourselves and for our teams.

 

4. Videoconferencing and other tech solutions: impact on the workplace?

Our survey asked respondents to reflect on their experience of Covid-19 lockdowns by sharing whether they might henceforth prefer working remotely or at an office (respondents could provide multiple answers).

Proponents of working from home (frequently abbreviated as ‘WFH’) cited concentration (30%) and flexibility (30%) as the greatest benefits.  While only 5% answers expressly mentioned ‘family’ as a benefit of working from home, we understand ‘flexibility’ to include family considerations.  Additionally, respondents mentioned saving time (20%), the comfort of their home environment (13%), and health reasons (8%) as part of why they enjoyed working from home.

For those who preferred the office environment, the answers highlighted in equal measure team collaboration (ease of communication and coordination, efficiency) (32%), the office setup (meeting rooms, IT, printers and hard copy documents, support staff, library – and separating the workplace from home) (32%) and the atmosphere (collegiality and team culture, socialising) (32%).  Only a couple of answers focused on being able to concentrate better.

The final question of our survey asked as follows: “[a]s a law firm, funder, institution or chambers, do you plan on reducing in the medium to long term the size of your offices [referring to the physical space as opposed to staff]? If so, do you already have plans on reinvesting the corresponding savings?”  61% of those who answered the question said that there were no such plans, 6% that there could be, while 33% were clear about downsizing their office space.  One respondent indicated that the savings would be used to increase partner returns while another stated that they would be invested in training.

 

5. Concluding remarks

The picture that emerges from our survey is that, as of July 2020, videoconferencing platforms and related technology had been largely beneficial in supporting remote access, be it for the purposes of hearings, events, or even working from home; but the resulting lack of in-person interaction had created new challenges in terms of connectedness, and users were concerned about data security.

These observations point to the emergence of hybrid solutions in every aspect of our work, which is also a finding of the recently published 2021 International Arbitration Survey, Adapting Arbitration to a Changing World, Queen Mary University of London and White & Case (Chart 17).

The results from our survey shared here are companion to, as mentioned, those published in International Arbitration and the COVID-19 Revolution (edited by Maxi Scherer, Niuscha Bassiri, Mohamed S. Abdel Wahab), then developed in ‘Remote Hearings (2020 Survey): A Spectrum of Preferences’, (2021), 38, Journal of International Arbitration, Issue 3, pp. 292-308.  Alongside this post, a data sheet, published by Delos on its website page dedicated to this survey, completes this trilogy of commentary.  We take this opportunity to renew our thanks to the many institutions, organizations, and individuals that kindly supported the survey.

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Admissibility of ‘Hacked Evidence’ in International Arbitration

Wed, 2021-07-07 02:27

An emerging consideration in international arbitration is the use of evidence acquired illegally. Illegally obtained evidence can take a variety of forms, including, for example, illicit recordings, information obtained by trespass, and ‘hacked evidence’.

‘Hacked evidence’ refers to materials obtained through unauthorised access to an electronic system (either directly or through a third party), and usually includes emails, digital documents, electronically stored audio and video recordings, instant messages and logs, or financial transaction records.

Arbitration rules give wide latitude to tribunals to determine the admissibility of illegally obtained evidence (and evidence issues more generally). Typically this involves conducting a balancing exercise which considers (1) the process and circumstances through which the material was obtained (and its compatibility with obligations of good faith, procedural fairness and equality of the parties); and (2) the probative value of the evidence itself (including considerations of privilege and relevance).

 

Position in International Arbitration

Arbitration rules

Arbitration rules confer broad discretion to decide issues of admissibility. As a starting point, UNCITRAL Model Law Article 19(2) states that ‘the power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence’. This is mirrored in most arbitration rules. By contrast, the ICC Arbitration Rules remain silent as to admissibility of evidence.

The IBA Rules on the Taking of Evidence in International Arbitration (‘IBA Rules’) state that ‘The Arbitral Tribunal shall determine the admissibility, relevance, materiality and weight of evidence’. (Article 9(1)) Similarly, the ICSID Arbitration Rules (‘ICSID Rules’) state that ‘The Tribunal shall be the judge of the admissibility of any evidence adduced and of its probative value’. (Rule 34(1)) The SIAC Rules provided that ‘The Tribunal shall determine the relevance, materiality and admissibility of all evidence. The Tribunal is not required to apply the rules of evidence of any applicable law in making such determination’.( Rule 19.2)

In particular, the 2020 IBA Rules directly address illegally obtained evidence. Article 9.3 provides that the ‘Tribunal may, at the request of a Party or on its own motion, exclude evidence obtained illegally’, which reinforces the tribunal’s discretion to rule on evidence acquired illegally. The Commentary to the revised Rules emphasises the discretionary aspect:

The 2020 Review Task Force contemplated capturing specific circumstance in which such evidence should be excluded but concluded that there was no clear consensus on the issue. National laws vary on whether illegally obtained evidence should be excluded from evidence in both criminal and civil court proceedings. Similarly, arbitral tribunals have reached different conclusions, depending on, among other things, whether the party offering the evidence was involved in the illegality, considerations of proportionality and whether the evidence is material and outcome-determinative, whether the evidence has entered the public domain through public “leaks”, and the clarity and severity of the illegality. The 2020 Review Task Force has sought to allow for this diversity by providing that the arbitral tribunal “may” exclude evidence under Article 9.3 whereas it “shall” exclude evidence where the grounds of Article 9.2 are present.

Given that Article 9.2 compels a tribunal to exclude evidence, upon finding that one of the criteria therein is satisfied, parties seeking to prevent the admission of illegally obtained evidence might therefore choose to advance their objection on the basis of both Article 9.3 as well as any applicable categories in Article 9.2. For example, illegally obtained information could conceivably be within paragraphs (e) to (g) of Article 9.2, relating respectively to, ‘commercial or technical confidentiality’, ‘special political or institutional sensitivity’, and ‘considerations of … fairness or equality of the Parties’.

 

Decisions of Arbitral Tribunals

Hacked evidence

Prior to the introduction of Article 9.3, some tribunals had adopted procedures for dealing with the admissibility of hacked evidence in lieu of a fixed rule allowing the exclusion of such matter.

In Caratube International Oil Company LLC v Kazakhstan (‘Caratube’) (ICSID Case No ARB/08/12), Award of 27 September 2017, para. 156, the Tribunal admitted hacked evidence from a site called ‘KazakhLeaks’ to the extent the evidence was non-privileged. More generally, in Yukos Universal Ltd v Russian Federation (under the UNCITRAL Rules) and ConocoPhilips v Venezuela (ICSID), WikiLeaks cables were relied upon by the parties in order to assert matters of fact, with no issues of admissibility being ventilated.1) See Cherie Blair and Ema Vidak Gojkovic, ‘WikiLeaks and Beyond: Discerning an International Standard for the Admissibility of Illegally Obtained Evidence’ (2018) 33(1) ICSID Review 235, 247–50. jQuery('#footnote_plugin_tooltip_37962_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37962_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Conversely, in Libananco Holdings Co Ltd v Turkey (‘Libananco’) (ICSID Case No ARB/06/8), Preliminary Issues of 23 June 2008, para. 82, Turkey procured around 2000 privileged and confidential emails from Libananco by way of domestic court-ordered interception of electronic communications for what it claimed was an anti-money laundering operation unrelated to, and informationally segregated from, the arbitral proceedings. The Tribunal ordered that the privileged and confidential materials be excluded from evidence.

 

General Treatment of Illegal Evidence

In Methanex Corporation v United States (‘Methanex’) (NAFTA Chapter 11 arbitration), Award of 3 August 2005, pt II ch I para. 56, the Claimant trespassed into the office of a lobbying organisation on multiple occasions and obtained private correspondence and privileged material through ‘dumpster diving’. The Tribunal excluded the illegally obtained evidence, noting that it would be ‘wrong for Methanex to introduce evidential materials obtained by Methanex unlawfully’, and that the ‘conduct offended basic principles of justice and fairness required by all parties in every international arbitration’. Interestingly however, that was not the end of the inquiry. The Tribunal then proceeded to address a second issue, materiality. On this issue, the Tribunal noted that the documents were ‘of only marginal evidential significance’ and that they could not have been used to discredit the witnesses, as initially intended.

Similarly, in EDF (Services) Ltd v Romania (‘EDF’), (ICSID Case No ARB/05/13), Procedural Order No 3 of 29 August 2008, para. 38, the Tribunal excluded a copy of an illegal audio recording, which captured confidential commercial discussions and the offer of a bribe. Notwithstanding the incriminating and potentially probative nature of the recording, the Tribunal was unprepared to admit the evidence, in light of expert evidence that the authenticity of the copy of the recording could not be ascertained without forensic examination of the original (there being some question over whether the copy had been tampered with). The Tribunal emphasised that the principles relating to the admissibility of unlawfully obtained evidence ‘are to be found in public international law, not in municipal law’, and, in excluding the evidence, held that:

Admitting the evidence represented by the audio recording of the conversation held in Ms. Iacob’s home, without her consent in breach of her right to privacy, would be contrary to principles of good faith and fair dealing required in in international arbitration. (paras 36-38)

Obligations of good faith, procedural fairness, and equality between the parties were important factors in each of these decisions, yet the ultimate outcome will turn on the facts of each case. Based on the analysis applied in these cases, tribunals would appear to find the following of relevance when addressing the admissibility of hacked evidence:

  • Does the party seeking to admit the evidence have ‘unclean hands’, so as to offend the principles of good faith, procedural fairness and equality of parties?
  • Does the information contain privileged or confidential material? If so, can that material be preserved through selective redactions?2) See IBA Rules, Article 9.2(b), ‘privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable’. See also Article 9.4 which outlines the factors a tribunal may take into account in considering legal privilege. jQuery('#footnote_plugin_tooltip_37962_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37962_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });
  • Is the material publicly available? If so, this would favour admitting the evidence, as it could produce an injustice for the tribunal to issue a decision in denial of facts in the public domain.
  • Finally, are there any other policy considerations, or matters in relation to fairness or equality between the parties, that the tribunal ought to take into account?
  • Domestic Law Approaches

While there is no set rule that arbitral tribunals must adopt on the question of the admissibility of illegally obtained evidence, the approach adopted in the cases identified above is not dissimilar to that taken in some common law court systems. This is perhaps unsurprising given the legal backgrounds of some tribunal members in the arbitrations in which these issues have arisen. For example, in Australia, sections 135 and 138 of the Uniform Evidence Acts provide for general powers of the court to exclude evidence. Section 138 provides that evidence obtained improperly or in contravention of an Australian law is not to be admitted ‘unless the desirability of admitting the evidence outweighs the undesirability of admitting evidence that has been obtained in the way in which the evidence was obtained’. Hacked evidence acquired as a result of a contravention of, for example, section 478.1 of the Commonwealth Criminal Code,3) Criminal Code Act 1995 (Cth) s 478.1, an offence titled, ‘Unauthorised access to, or modification of, restricted data’. jQuery('#footnote_plugin_tooltip_37962_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37962_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); would prompt the court to undertake this balancing exercise, and potentially exclude the evidence.

In the United Kingdom, evidence is regarded as prima facie admissible if relevant, subject to the court’s discretion under part 32.1 of the Civil Procedure Rules to ‘exclude evidence that would otherwise be admissible’. In Ras Al Khaimah Investment Authority v Azima, the Court of Appeal considered whether email correspondence obtained by hacking could be admissible at trial, and concluded it was.4) Ras Al Khaimah [2021] EWCA Civ 349, [41] (Lewison, Asplin and Males LJJ), quoting Helliwell v Piggott-Sims [1980] FSR 356 (Lord Denning MR). jQuery('#footnote_plugin_tooltip_37962_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37962_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The Court chose not to disclose the evidence finding that, in circumstances where the evidence was important to the issues at hand and it would have been disclosed through production anyway,  disapproval of the unlawful conduct could be expressed in other ways than through the exclusion of that evidence. (paras 43–45)

 

Conclusion

There is no hard and fast rule in relation to the admissibility of hacked evidence in arbitration. It remains the case that arbitral tribunals enjoy significant flexibility and discretion to make determinations of evidential admissibility, which is reconfirmed by the revised 2020 IBA Rules, which provide a framework for parties and tribunals to consider the parameters of a tribunal’s evidentiary powers.

 

 

The author would like to thank Jesse Tizard and Seung Chan Rhee for their assistance with this blog post.

References[+]

References ↑1 See Cherie Blair and Ema Vidak Gojkovic, ‘WikiLeaks and Beyond: Discerning an International Standard for the Admissibility of Illegally Obtained Evidence’ (2018) 33(1) ICSID Review 235, 247–50. ↑2 See IBA Rules, Article 9.2(b), ‘privilege under the legal or ethical rules determined by the Arbitral Tribunal to be applicable’. See also Article 9.4 which outlines the factors a tribunal may take into account in considering legal privilege. ↑3 Criminal Code Act 1995 (Cth) s 478.1, an offence titled, ‘Unauthorised access to, or modification of, restricted data’. ↑4 Ras Al Khaimah [2021] EWCA Civ 349, [41] (Lewison, Asplin and Males LJJ), quoting Helliwell v Piggott-Sims [1980] FSR 356 (Lord Denning MR). function footnote_expand_reference_container_37962_30() { jQuery('#footnote_references_container_37962_30').show(); jQuery('#footnote_reference_container_collapse_button_37962_30').text('−'); } function footnote_collapse_reference_container_37962_30() { jQuery('#footnote_references_container_37962_30').hide(); jQuery('#footnote_reference_container_collapse_button_37962_30').text('+'); } function footnote_expand_collapse_reference_container_37962_30() { if (jQuery('#footnote_references_container_37962_30').is(':hidden')) { footnote_expand_reference_container_37962_30(); } else { footnote_collapse_reference_container_37962_30(); } } function footnote_moveToReference_37962_30(p_str_TargetID) { footnote_expand_reference_container_37962_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_37962_30(p_str_TargetID) { footnote_expand_reference_container_37962_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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Investor Protection in Europe: What does the Future Hold?

Wed, 2021-07-07 01:18

What does the future hold for investment protection in Europe? A colossal question that resonates across board rooms and government halls on both sides of the Channel. With a consortium of investment law experts including Nikos Lavranos (NL Investment Consulting), Ayse Lowe (Bench Walk), Gordon Nardell QC (Twenty Essex), and Laura Rees-Evans (Fietta LLP) joining together, the webinar held on 30 June 2021 provided multi-disciplinary viewpoints that will be of interest to both investors and States alike.

Notably, the speakers switched seamlessly between themes, starting off with third-party funding post-Achmea, as well as what the future holds for EU investors, moving on to the ever-evolving impact of Brexit on investment protection (particularly under the framework of the EU-UK Trade and Cooperation Agreement, ‘TCA’), discourse on the European Court of Human Rights (‘ECtHR’) as an alternative forum for investment disputes, before summing up with the impact of the rising tide of corporate social responsibility (‘CSR’) obligations—with a focus on the endangered elephant in the room, environmental provisions—on the investment treaty landscape in Europe.

Shortly put, despite these developments remaining unresolved or uncertain at the time of writing, the speakers delivered a much-needed contribution in the form of pragmatic solutions that investors, negotiators, and policy makers should take heed of.

 

Post-Achmea Repercussions on Funding (or rather Defunding) Intra-EU Disputes

Post-Achmea, Lowe stressed that the most import criterion—recoverability—overshadows even the best of potential claims. Achmea triggered shockwaves in the third-party funding industry as appetite to fund claims concerning intra-EU disputes dwindled. Traditional insurance providers also grew reluctant to insure security for costs or arbitral award defaults on behalf of third-party funders. Eventually, this spiralling effect disadvantaged European investors as they faced heightened difficulties in securing external funds and borrowing in general; they became a less attractive ‘demographic’ to lend to.

Lowe also maintains that across (i) ECT reforms, (ii) the European Parliament draft report on responsible private funding of litigation, and (iii) UNCITRAL Working Group III meetings, the prevailing stance adopted by States ranges from slight distrust to outward hostility towards third-party funding. In her view, the main concern voiced by States is that litigation funders are funding non-meritorious claims. Whilst in practice she noted that litigation funders serve as gatekeepers against these types of cases. In fact, citing the ICSID July 2020 Statistics Report, the number of registered cases against States have decreased from 52 (in 2012) to 39 (in 2019). Albeit a multitude of factors caused this decrease, Lowe believes litigation funders play a seminal role in this decrease as they reject cases without any prospects of success. Whether it be an outright ban on litigation funding (as endorsed by some States) or requesting parties to disclose any third-party funding relationships to courts (as per the EU Parliament report and UNCITRAL discussions), Lowe sharply dissects these considerations as constituting additional procedural hurdles claimants must adapt to.

Considering the EU Parliament report, opposition against litigation funding is grounded in the contention that third-party funders hinder access to justice. On the contrary, Lowe claims that third-party funders facilitate access to justice. In fact, the audience poll indicates that the vast majority support this proposition. Moreover, litigation funding clients mainly constitute small and medium-sized enterprises (‘SMEs’) that seek external funds as a matter of last resort to gain access to recourse—especially since security for costs makes the contentious process even costlier—rather than large multinationals who are comfortable funding their own disputes and boast in-house expertise.

Ultimately, Lowe proposes that policy makers, whether on a regional level (i.e. the European Parliament) or at an international level (i.e. UNCITRAL) engage with third-party funders in their respective deliberations to create a more comprehensive dialogue between stakeholders.

 

EU-UK Investment Protection after Brexit

Rees-Evans set the scene for this theme by recalling that the general expectation in the run-up to the UK’s departure from the EU was that Brexit would enhance the position of UK investors in the EU and elsewhere, notwithstanding the loss of existing protections under EU law (e.g. free movement of capital). One aspect of this was anticipated to be the maintenance of the UK’s existing BITs with EU Member States; BITs that the audience overwhelmingly believed still to provide a valid basis for an ISDS proceeding.

She explained that cross-border EU-UK investment is now primarily governed by the TCA, replacing EU law. However, the TCA contains limited substantive provisions, with no protection against unlawful expropriation, no reference to a fair and equitable treatment standard, and no full protection and security clause. The TCA is also limited in terms of procedural rights, as it contains neither an ISDS clause nor a right of action under domestic law.

Notwithstanding the preceding disadvantages, Rees-Evans stressed the positive impact of the UK’s status as a ‘third-country’ (in EU parlance) when it comes to ECT disputes. Achmea left open the question of the compatibility between intra-EU ECT ISDS proceedings and EU law, but the opinion of Advocate General Szpunar in ‘Komstroy’ indicates that the Court could well find them contrary to EU law. Post-Brexit, a UK investor wishing to invoke Article 26 ECT against an EU Member State should not be caught in the crossfire of these developments.

Moreover, post-Brexit, the UK enjoys complete freedom to negotiate International Investment Agreements (‘IIAs’). Nevertheless, Rees-Evans considers this point over-exaggerated as the rhetoric pre-Brexit revolved around views that the UK would negotiate solid investment agreements with non-EU States based on ‘now recovered, once lost’ bargaining power. In reality, she notes that the UK, whilst an EU Member State, retained the ability to negotiate IIAs with third countries in certain circumstances. Rees-Evans concluded by reflecting on post-Brexit developments in this arena, noting that the UK was yet to set out a cohesive investment policy and instead appeared to be taking a negotiation-by-negotiation approach that evidenced no general commitment to ISDS.

 

Investor Protections, is the ECHR Forged as a Sword or as a Shield?

Nardell started off by recalling that he and Rees-Evans had previously analysed the potential for European Convention on Human Rights (‘ECHR’) to act as a shield for investors whose extant arbitral claims under intra-EU BITs were impacted by the May 2020 Termination Agreement. But that left open the question whether the ECHR might also be available as a sword—that is, as an alternative route for investors to found claims against EU Member States. As well as containing ‘traditional’ non-monetary human rights provisions, the ECHR through Article 1 of its First Protocol (‘A1P1’) protects against unjustified interference with property rights, overlapping significantly with protection against expropriation and the fair and equitable treatment requirement commonly found in BITs. Moreover, Article 6 of the ECHR provides for procedural guarantees within the domestic legal system.

Through a ‘balance sheet’, Nardell weighs the advantages and disadvantages of ECHR claims for investors. On the positive side, the ECtHR has given A1P1 a broad scope by giving the concept of ‘possessions’ a liberal interpretation. Arguably the net of A1P1 is cast wider than the concept of ‘investment’ in BITs. Hence, when investors seek to bring a claim that proprietary rights under A1P1 have been interfered with by a State, they can sidestep the objection to jurisdiction, often encountered in a BIT claim, that the right in question does not rank as an ‘investment’. As other commentators have noted, the proportionality test which the ECtHR applies to A1P1 provides a coherent and transparent basis for balancing the investor’s property interest against the public interest served by the measure under challenge. That provides a degree of certainty that benefits both sides in a dispute.

On the negative side of the ‘balance sheet’, Nardell argues that despite the ECtHR claiming to assess compensation under Article 41 ECHR according to the restitutio in integrum (full compensation) principle, in practice it takes a rather unscientific ‘equitable’ approach which results in much lower awards than would be expected on an equivalent BIT claim. One difficulty is that the ECtHR’s procedure does not easily accommodate contested expert evidence on issues such as valuation and future profits.

Enforceability also proves problematic as the ECHR provides a political rather than judicial mechanism for ensuring satisfaction of ECtHR judgments. Unlike BIT awards, judgments of the ECtHR do not automatically become effective in the domestic legal order of the respondent State. So in practice, the ECHR system relies on voluntary compliance by States, under political and diplomatic pressure via the Council of Europe’s Committee of Ministers. Domestic remedies must also be exhausted prior to launching a claim before the ECtHR. This prerequisite makes the judicial process costlier and significantly extends the duration of a dispute, as investors must progress through the labyrinth of appeals on a national level, where applicable all the way to the domestic court of last resort. These features tend to make ECHR claims unattractive to funders. Astonishingly, the poll results showed no participant replied in the positive on the ECHR as a viable alternative to initiate arbitral claims.

To improve the attractiveness of the ECHR as a viable route for investment claims, Nardell advocates for procedural reforms to the ECtHR including adoption of a more scientific approach to quantum, bringing it more closely into line with other institutions and making the process more familiar for claimants. This and other changes could be achieved without negating the ECtHR’s human rights ethos.

 

IIAs and CSR Obligations in Europe

It is the TCA that Lavranos considers as arguably the most advanced trade agreement to date due to its drafters making an explicit link between investment and environmental protection. Not only does the TCA contain a dedicated chapter on sustainable development, covering environmental standards and the OECD Guidelines, but it is also the first time an IIA consists of specific provisions on tackling climate change combined with direct reference to achieving the Paris Agreement (2016) targets.

Despite these silver linings, Lavranos notes that the aforementioned commitments are in principle only binding upon contracting States. So far as private corporations are concerned, CSR provisions constitute soft law obligations. It is the recent judgment by the Dutch court of first instance against Shell that proves paramount in illustrating that soft law obligations—through dynamic reasoning by judges—can attain ‘hard law’ status, with subsequent effect obliging corporations to abide by CSR obligations.

Lavranos maintains that the conversion of soft law obligations into hard law status as a phenomenon is not only confined to domestic jurisdictions, but it is also emerging in the international investment law scene. A prime example thereof is found in the Dutch Model BIT (2019) within Article 23, ‘a Tribunal, in deciding on the amount of compensation, is expected to take into account non-compliance by the investor’, and in Article 7(4), ‘[i]nvestors shall be liable … where such acts or decisions lead to significant damage, personal injuries or loss of life in the host state’. Irrespective of whether drafters intended for provisions to give rise to soft law or hard law effects, CSR obligations are gradually creating liability for corporations.

These tensions also set the scene for procedural implications on an international level as ISDS claims regarding environmental measures could be excluded or exempted from the jurisdictional scope of a tribunal. Either by the contracting State itself when negotiating prospective IIAs or by the arbitral tribunal in question that determines it lacks jurisdiction on such matters. On a more confrontational basis, States could also initiate counter claims against investors requesting compensation for any environmental damages (i.e. clean-up expenses) incurred by the State (Perenco v. Ecuador).

Lavranos foresees an ever-growing intensity between IIAs and CSR commitments, in particular as States are repeatedly condemned by domestic courts for failing to do enough to meet the Paris Agreement climate targets—as the recent judgment by the French Conseil d’Etat illustrates. Consequently, States are forced to adopt ever more far-reaching measures, which will have a knock-on effect on investors. To defuse such tensions, he recommends including specific provisions within IIAs that deal with the consequences of any potential CSR breaches. Such contemplated provisions must also carefully detail the procedural process activated were such a breach to occur; thus, increasing transparency and managing investor expectations.

 

Summary

By exchanging views on their respective topics, discussions between the speakers conveyed intricate insights on investment policy. Pertinently, the dialogue between Nardell and Rees-Evans indicated that Brexit is very likely to cause a divergence over time between English law and EU law on the notion of ‘public policy’. Expanding on this theme of ‘divergence’, Lavranos believes such a schism between EU and UK IIA practice will occur as well, especially when it comes to the ‘substantive business operations’ issue. This condition is embedded in recent EU IIAs, which the UK is no longer bound by.

Ultimately, the synergy between the speakers brought these investment protection issues to the forefront, and in turn, deconstructed investor concerns from diverse angles (rather than the monotonous and bifurcated EU versus UK positions, etc.). By engaging with the audience in the form of multiple polls, the speakers were not confined in predicting the future of investment protection in Europe. Reassuringly, the majority felt optimistic about the future of investor protection in Europe. At least, for now.

 

The author would like to thank Nikos Lavranos, Ayse Lowe, Gordon Nardell QC, and Laura Rees-Evans for their comments. All errors are the author’s alone.

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The Rise of Japan Arbitration: A Balance to the Common Law Forces of International Arbitration in Asia?

Tue, 2021-07-06 01:53

On 31 May 2021, the Japan Commercial Arbitration Association (“JCAA”), Japan International Dispute Resolution Center (“JIDRC”), and the Japanese Ministry of Justice (“MoJ”) co-hosted a webinar on developments in arbitration in Japan and Japan’s potential as an international arbitration hub.

Some of the key takeaways from the event include:

  • positive experiences with the physical and legal infrastructure in Japan, including the neutrality and impartiality of the Japanese judiciary to foreign parties and the JCAA’s efficiency and professionalism in case administration;
  • the need for policymakers to decide whether to adopt a static or dynamic approach to Japan’s arbitration infrastructure;
  • the need for further clarity on Japan’s position on third-party funding and conditional fee arrangements; and
  • the need for further diversity in the boards of key institutions, such as the JCAA, in line with the goal of increasing its international appeal.

 

Opening Remarks

Mr. Kazuhiko Bando, President of the JCAA, observed that there is significant potential for growth for international arbitration in Japan. Merits for arbitrating in Japan include an independent and efficient judiciary, a vast talent pool of qualified lawyers, the JIDRC’s extensive infrastructure and support, the JCAA’s excellent track record of case management and high rate of enforceability for its awards, and (as evidenced by the MoJ’s participation in this webinar) the government’s support for promoting international arbitration in Japan.

 

Japanese Government’s Initiatives for Promotion of International Arbitration

Mr. Koji Kanki, Minister’s Secretariat of the MoJ’s Attorney International Affairs Division, highlighted three key efforts by the MoJ: 1) developing facilities for arbitration, 2) fostering human resources, and 3) promoting arbitration.

First, JIDRC has established two facilities: one in Tokyo, which opened in March 2020, and the other in Osaka. These facilities are fully equipped to support the technological needs of arbitration, such as video conferencing and real-time translation services. The JIDRC is also considering the use of AI for transcription services, as well as the use of cloud computing for case management.

Second, the MoJ has been investing in the training of young practitioners through training videos, seminars (such as this event), and opportunities to serve as interns at renowned arbitral institutions overseas. The MoJ has also facilitated practitioners to teach at universities to provide practical insights and increase interest in international arbitration.

Third, in order to promote international arbitration in Japan, the MoJ has been organizing events for enterprises and lawyers in and outside Japan. These efforts also include MoJ holding seminars in partnership with overseas arbitral institutions.

In addition, the MoJ has sought to make the legislative framework more conducive for arbitration. For instance, in 2020, the Act on Special Measures Concerning the Handling of Legal Services by Foreign Lawyers was amended. The amendments broadened the scope of “international arbitration cases” that foreign lawyers could act on and relaxed the professional experience requirements. As a result, companies arbitrating in Japan will enjoy greater freedom to choose counsel who is qualified to practice outside Japan even when all the parties are Japanese parties, so long as there are certain foreign elements.

Since October 2020, the Committee on the Reform of International Arbitration in Japan has been reviewing Japan’s Arbitration Act. In March 2021, they released the interim draft proposals, which include proposed revisions on the enforcement of interim measures, expanding the Tokyo and Osaka District Courts’ jurisdictions to hear arbitration-related cases and permitting the courts to discretionarily waive the requirement for Japanese translations of awards and/or exhibits. Mr. Kanki also shared that requirements on the form of arbitration agreements are being discussed. These revisions are intended to make the law more arbitration-friendly and to ensure conformity with the 2006 Amendments to the UNCITRAL Model Law.

 

The Strength of Japan as a Place of Arbitration

Having addressed the recent government initiatives, the webinar shifted to the user’s experience. Ms. Yoshimi Ohara, Partner at Nagashima Ohno & Tsunematsu, offered two reasons for choosing Japan as the seat of arbitration: 1) the Japanese courts’ pro-arbitration stance and 2) the unique efficiency of Japan’s legal system.

First, the Japanese courts’ pro-arbitration stance is part of the wider pro-arbitration infrastructure of Japan. In Ms. Ohara’s experience, the Japan courts generally refrain from excessive intervention and regularly enforce arbitral awards. The latest statistics from the Tokyo District Courts confirm this: in the past six months, the Court has been in favor of upholding arbitral awards in a majority of appeals.1) Hidenobu Nagasue, Survey on Arbitration-related Cases Handled by the Tokyo District Court, 721 JCA Journal 3-12 (2017). jQuery('#footnote_plugin_tooltip_37859_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37859_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Second, Ms. Ohara believes that the convergence of common and civil law traditions in Japan’s legal system makes it an ideal arbitral destination, particularly in cross-border contractual disputes where parties come from diverse legal backgrounds. Differences in legal traditions could impede the willingness to arbitrate because parties might be uncomfortable with adopting unfamiliar legal practices. This in turn might also stoke their fear of higher legal costs. For example, in common law jurisdictions, document productions and hearings tend to be more extensive, the latter due to the evidential weight of witness testimony. In civil law jurisdictions, written submissions tend to be lengthier.

In such instances, Japan’s mixture of legal traditions places it in a good position to serve as a neutral and cost-efficient arbitral destination. As an illustration, while cross-examinations play an important role but less so than in common law jurisdictions, Japan’s legal system also requires judges to take a ‘hands-on’ approach (as in civil law jurisdictions). This is in contrast to common-law based arbitral seats in Asia, such as Singapore and Hong Kong. Consequently, arbitrations seated in Japan may take the best aspects of the two systems thereby better managing costs.

 

Features of JCAA Arbitration

Prof. Masato Dogauchi, Chief Arbitration and Mediation Officer of the JCAA, Professor of Law at Waseda University Law School, and Professor Emeritus at the University of Tokyo, explained key features of JCAA arbitration. Prof. Dogauchi outlined the JCAA’s three different sets of rules: 1) Commercial Arbitration Rules 2019, 2) Interactive Arbitration Rules 2019, and 3) UNICITRAL Arbitration Rules 2010 and Administrative Rules for UNCITRAL Arbitration 2019.

The Commercial Arbitration Rules 2019 was designed to make arbitration more accessible to businesses. The rules offer the latest features in other institutional rules, such as expedited arbitration, interim measures by an emergency arbitrator, consolidation and joinder, and mediation in the course of the arbitration. The provisions on expedited arbitration are to be revised in June 2021 to make the provision apply to higher-value disputes. Other cost-saving features include provisions on the appointment of the tribunal’s secretary and the prohibition against dissenting opinions to reduce the time spent by arbitrators in drafting their award, given their hourly fees.

The Interactive Arbitration Rules 2019 contain provisions that overlap with the Commercial Arbitration Rules 2019, but also draw on the civil law approach to case management by requiring the tribunal to take an active role in identifying issues and communicating its preliminary views. This is to increase predictability and thereby facilitate settlement and is intended to appeal to enterprises that have historically preferred litigation in Japanese courts.

The UNICITRAL Arbitration Rules 2010 and Administrative Rules for UNCITRAL Arbitration 2019 are the universal rules of arbitration adopted by UNICITRAL and the JCAA. These rules can be used by international parties who prefer to arbitrate in Japan with rules that they are more familiar with.

Prof. Dogauchi concluded with some insightful statistics on JCAA arbitration:

  • The JCAA has a panel of more than 400 arbitrators, two-thirds of whom are non-Japanese, and from more than 50 countries.
  • 86% of cases filed with the JCAA from 2016 to 2020 are international cases (where one or more parties are foreign companies or related entities). Of those cases, 48% of the arbitrators appointed were non-Japanese.
  • 57% of cases were conducted in English, 3% in both English and Japanese, 3% in Chinese, 2% in both Chinese and Japanese, and only 35% were conducted purely in Japanese.
  • The average length of proceedings in 2011-2020, from the constitution of the tribunal to the issuance of the final award, is 12.8 months (including periods where the arbitration was stayed).

 

Concluding Thoughts

The points discussed in this webinar offer a compelling case for expecting growth in international arbitration in Japan. The overall pro-arbitration ethos and proactive approach of the Japanese government suggest that existing areas of uncertainty will be addressed. In its approach towards future developments in the arbitration infrastructure, it appears Japan will likely take the dynamic route like Singapore and Hong Kong, given its relatively new position in the market, compared to mature arbitral hubs like London and Paris. Only time will tell if Japan is capable of rivaling the leading Asian centers of Singapore and Hong Kong, but based on recent developments, there appears to be much promise.

 

References[+]

References ↑1 Hidenobu Nagasue, Survey on Arbitration-related Cases Handled by the Tokyo District Court, 721 JCA Journal 3-12 (2017). function footnote_expand_reference_container_37859_30() { jQuery('#footnote_references_container_37859_30').show(); jQuery('#footnote_reference_container_collapse_button_37859_30').text('−'); } function footnote_collapse_reference_container_37859_30() { jQuery('#footnote_references_container_37859_30').hide(); jQuery('#footnote_reference_container_collapse_button_37859_30').text('+'); } function footnote_expand_collapse_reference_container_37859_30() { if (jQuery('#footnote_references_container_37859_30').is(':hidden')) { footnote_expand_reference_container_37859_30(); } else { footnote_collapse_reference_container_37859_30(); } } function footnote_moveToReference_37859_30(p_str_TargetID) { footnote_expand_reference_container_37859_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_37859_30(p_str_TargetID) { footnote_expand_reference_container_37859_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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Changing Paradigm of the Arbitrator’s Duty to Remain Impartial in the Social Media Age?

Mon, 2021-07-05 01:51

Independence and impartiality of an arbitrator are sine qua non in an arbitration proceeding. It is for this reason that jurisdictions, all across the globe, have taken significant measures to elaborate on the circumstances that may raise justifiable doubts as to the independence and impartiality of an arbitrator. However, one sphere remained untapped, until recently.

Social media has ushered the freedom of speech and expression to new heights.  However, this unrestricted freedom has caused trouble in the domain of arbitration. Tweets and posts made by an arbitrator have the potential to give rise to challenge proceedings as well as annulment proceedings owing to an apprehension of bias.

These fears were confirmed on 22 December 2020, when the Supreme Court of Switzerland (“Court”), in Sun Yang v. Agence Mondiale Antidopage (AMA) and Fédération Internationale de Natation (FINA) (“Sun Yang case”), annulled an arbitral award passed by the Court of Arbitration for Sport (“CAS”), owing to an apprehension of bias based on the arbitrator’s comments on a leading social networking site. The judgment in this case has opened a myriad of issues surrounding an arbitrator’s expression on social media vis-à-vis their ability to remain impartial while adjudicating a dispute.

While the Court also elaborated on the “duty of curiosity” of a party in order to avoid challenge proceedings initiated merely because the party received an unfavourable award (previously covered here), this post analyses the judgment of the Court with regard to the threshold to prove impartiality in cases involving disparaging social media posts and to highlight pertinent issues that may affect an arbitrator’s conduct on social media.

 

The Decision in the Sun Yang Case: A Game-Changer

Sun Yang, a Chinese Olympic swimmer, was subjected to a surprise doping test by FINA. Wary of the credentials of the persons conducting the test, Sun Yang requested to verify their documents. After verifying the necessary documents, Sun Yang refused to provide the samples owing to lack of authority of the officials. Due to the refusal to provide samples, FINA took up the dispute internally and cleared Sun Yang of any liability. However, dissatisfied with the internal decision, the World Anti-Doping Agency filed a statement before the CAS. The three-bench tribunal of the CAS found Sun Yang guilty of violating the doping test rules and handed him an eight-year suspension.

Later, Sun Yang sought annulment of the award owing to the lack of impartiality on part of the presiding arbitrator, who had posted racist smears against Chinese nationals in 2018 on his Twitter account. The following were posted between May 2018 and July 2019:

“those bastard sadic chinese who brutally killed dogs and cats in Yulin.”

“…this yellow face chinese monster smiling while torturing a small dog, deserves the worst of the hell”.

“…those horrible sadics are CHINESE!”

“Old yellow-face sadic trying to kill and torture a small dog.”

The key issue before the Court was whether the social media posts raised justifiable doubts as to the impartiality of the arbitrator.

Respondent’s key contention was that the arbitrator was an animal rights activist and these posts were made in the specific context of the Yulin festival and only against those who were engaging in the brutality of killing the canine species.

The Court first noted the threshold to determine impartiality and relied on past decisions to hold that a challenge can be successful if the circumstances give rise to objectively justifiable doubts as to impartiality. Relying on the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (“IBA Guidelines”), the Court held that the doubts must be such that a reasonable third person would consider it likely that the arbitrator would be influenced by factors other than the merits of the case.

To strike a balance between the arbitrator’s freedom of speech and expression as against its duty to remain impartial, the Court acknowledged that expressing one’s opinion on matters personal to oneself does not, in itself, create any apprehension of bias. On the other hand, it held that the violent and racist terms used in the posts against Chinese nationals, even after the arbitration proceedings against a Chinese athlete had begun, raised objective grounds of apprehension of bias.

 

Social Media and Arbitrator’s Impartiality: Opening a Pandora’s Box

The decision in the Sun Yang case is the first of its kind in arbitration, in which doubts regarding impartiality have been raised based on an arbitrator’s previous social media activities. There are a number of factors that courts and tribunals must ponder upon while deciding on similar cases. The Sun Yang case alone is not sufficient to answer all of these questions.

First, the clamp down on an arbitrator’s social media has a severe impact on the privacy of such individual. The judgment in the Sun Yang case essentially encourages parties to dig into an arbitrator’s social media activity. However, often, individuals have private or closed accounts, to which the parties might not have access. In these cases, the parties would seek the relevant court to intervene and require the arbitrator to give access to their social media accounts since the duty of disclosure is a legal duty when the information sought to be disclosed can raise justifiable doubts as to the impartiality of an arbitrator. However, this would be in juxtaposition of the consent-based approach, rooted in legal instruments like the General Data Protection Regulation (“GDPR”), for processing personal data of an individual by any other individual or entity.

Second, in the Sun Yang case, the arbitrator had himself posted the tweet containing racist slurs, making it more of an open and shut case. However, it is often possible that a situation could arise in which an arbitrator did not post the content himself/herself but is instead reacting to it in a manner that shows support, for instance, liking and commenting on the post or temporarily promoting the post on their personal ‘stories’. The decision in the Sun Yang case does not address these issues. Although the facts and circumstances of the case would guide the final decision of the court or tribunal, it is likely that liking and more significantly commenting on the post in a manner that suggests endorsement of such a view can amount to grounds that raise an apprehension of bias.

Third, freedom of speech and expression is fundamental to every individual in all modern jurisdictions. However, the decision in the Sun Yang case has a chilling effect on this essential freedom. It prevents individuals from engaging in free thought on platforms meant to promote expression of personal opinion even when they do not have the arbitrator’s hat on. However, it has been observed that arbitrator’s conduct on social media is bound to be regulated. The New York State Bar Association (“NYSBA”) has published a guidance note which provides best practices to engage with and disclose an arbitrator’s social media activity.

Fourth, apart from the language of the post, one also needs to take into account the time when the post was made. Determining bias on the basis of an arbitrator’s personal convictions prior to the arbitration proceedings would amount to an unnecessary extension for seeking impartiality. Therefore, a year or half-a-decade old post cannot and should not form a basis to prove the existence of bias unless there is other corroborating evidence which proves that the arbitrator’s preconceptions continue to exist and affect one party negatively during the course of the proceedings.

Thus, future decisions on similar issues must go beyond the rationale laid down by the Swiss Supreme Court in the Sun Yang case so as to carefully balance an arbitrator’s right to privacy and freedom of speech on one hand as against the integral duty of an arbitrator to remain impartial.

 

Conclusion

Much like our lives, social media has also disrupted the scene in arbitration law. The decision in the Sun Yang case, only a tip of a potentially large iceberg, has set a dangerous precedent as it essentially encourages parties to undertake systematic study of an arbitrator’s social media activity in order to successfully challenge them. Although it is understandable that in cases involving   arbitrators who have and continue to post tweets with violent and racist undertones, an arbitral award can be set aside based on a reasonable apprehension of bias, the decision in the Sun Yang case has indeed opened a Pandora’s box. Due to the rapidly evolving nature of technology, the issues surrounding arbitrator’s duty to remain impartial vis-à-vis their social media activity will also become more sophisticated with time. Be that as it may, it is still pertinent for the courts and tribunals to ensure that the right to privacy and freedom of speech of an arbitrator are not curtailed beyond reasonable limits especially when an individual does not have their arbitrator’s hat on.

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Americans at Heart, Colombians in Fact: How the Carrizosas Award Contributes to the Trend on Lack of Standing of Dual Nationals in Investment Arbitration

Sun, 2021-07-04 01:47

The issue of dual nationals’ access to investor-state dispute settlement (“ISDS”) has once again taken the center stage through the recently issued Carrizosa v. Colombia award. Resolved under the auspices of the 2013 UNCITRAL Arbitration Rules, the PCA tribunal unanimously dismissed the entire case for lack of jurisdiction ratione personae, in accordance with the provisions of the Investment Chapter of the United States-Colombia Trade Promotion Agreement (“TPA”).

In a previous post, one of the authors reviewed the Ballantines award, which also dealt with dual nationals’ investment claims, concluding that doors for dual nationals’ claims are being closed, in particular for non-ICSID cases. The author drew the readers’ attention to then pending Carrizosas claim. As predicted at the time, in Carrizosas both the parties and the tribunal devoted much of their time to deal with the applicability of the Ballantines precedent to that dispute.

In a later post reviewing the Heemsens jurisdictional award, the same author reasserted the growing trend towards the restriction of dual nationals’ recourse to ISDS. Showing their foreign passports was not enough for the Heemsens claimants, and unsurprisingly, was not enough for the Carrizosas claimants either. The Carrizosa brothers also relied heavily on their subjective feelings as Americans. Given the extrinsic evidence of their well-entrenched Colombian roots, the tribunal accorded no weight to those subjective feelings. They may be Americans at heart but are Colombians in fact.

 

The Carrizosa Brothers’ Claims and Colombia’s Jurisdictional Objections

The three claimants Alberto, Felipe, and Enrique are the sons of Astrida Benita Carrizosa, a naturalized US citizen, and the late Julio Carrizosa Mutis, a prominent Colombian businessman. They claimed to have invested in Granahorrar, a Colombian banking entity engaged in promoting private savings for the construction industry. Sometime in 1998, they acquired shares in Granahorrar.

Amid the Colombian economic crisis in the late 1990s, Granahorrar borrowed funds from two Colombian government entities—the Central Bank and the Fogafín (the Colombian “Fondo de Garantías de Instituciones Financieras”). Granahorrar defaulted on its payments. In October 1998, Fogafín capitalized Granahorrar upon orders of the Colombian government’s Superintendency invoking the Fogafín agreement enabling ownership takeover of Granahorrar’s promissory notes in case of default.

From its acquisition of Granahorrar in 1998, the Fogafín implemented a “guarantee-restructuring program” to improve Granahorrar’s financial situation that eventually led to its merger with a Spanish bank in 2005. The claimants challenged these measures before Colombian courts. Through a 14-year string of court cases, the Constitutional Court ultimately affirmed the Fogafín’s and the Superintendency’s measures. Aggrieved by their defeat, the Carrizosas initiated an investment claim against Colombia in 2018. Citing investment protections under the TPA, the claimants sought compensation in the amount of US$ 323 million.

Colombia resisted the claims. In its Answer on Jurisdiction, Colombia challenged every aspect of the tribunal’s jurisdiction. With regard to the lack of jurisdiction ratione personae, it was an undisputed fact that the claimants were dual national citizens of the United States and of Colombia. All three claimants were born in Colombia, acquiring both Colombian nationality and, through their mother, US nationality at birth. The tribunal found that the Carrizosas’ dominant and effective nationality is that of Colombia, not the US, and thus dismissed the claims for lack of jurisdiction ratione personae.

 

Carrizosas and Ballantines Compared

Customary international law dictates that a State cannot be subject to claims raised by its own dominant and effective nationals before an international forum (as reflected in article 7 of the ILC Draft Articles).  The US-Colombia TPA embraces this principle by explicitly providing in Article 10.28 that a dual national claiming the status of a covered investor shall be deemed exclusively a national of the State of her or his dominant and effective nationality. As such, the sole issue that the Carrizosas tribunal had to resolve was which of the brothers’ nationalities was the dominant and effective one.

Ballantines was resolved under DR-CAFTA, under which Article 10.28 also restricts a dual national’s access to ISDS. It is not a sheer coincidence that both DR-CAFTA and the TPA contain the same restriction. The US government has had the very same clause in its 2004 and 2012 Model BITs, and it is a party to both the US-Colombia TPA and the DR-CAFTA. In fact, both in Carrizosas and in Ballantines, the US filed non-disputing party submissions reaffirming the importance of this principle in its treaties.

Further, in the Carrizosas award, the tribunal first ascertained who bears the burden of proof in establishing or defeating jurisdiction. Both Carrizosas and Ballantines placed the burden of proof on the claimants, following Pac Rim, which held that “all relevant facts supporting […] jurisdiction must be established by the Claimant at this jurisdictional stage and not merely assumed in the Claimant’s favour.” The Carrizosas award, however, went one step further. It rejected the claimants’ assertion of “a presumption of legitimacy” in favor of claimants “that the non-host State represents [their] dominant and effective nationality.”

Another similarity between Carrizosas and Ballantines is that the parties in both cases agreed that the claimants did not acquire a second nationality through a form of treaty-shopping. Be that as it may, the Ballantines tribunal considered that “naturalization is also a key component to be analyzed within the dominant and effective nationality test” and took it against the claimants that “the main reason for [them] to acquire a second nationality was the investment directly related to this proceeding.” Meanwhile, the Carrizosas tribunal had no opportunity to include naturalization in its analysis because the claimants were dual nationals from birth. The Carrizosas, nonetheless, put emphasis on the lack of motive for treaty-shopping in the bringing of their claims to sway the tribunal’s decision in their favor. Given that Carrizosas dismissed the claims despite the absence of evidence of treaty-shopping, it affirms the view that the prevention of treaty-shopping is not the sole object for restricting dual nationals’ access to ISDS.

As to the test to determine the dominant and effective nationality, the Carrizosas tribunal assessed “the extent to which, together with other factors, the dual national has social, civic, family and other economic ties to the competing States”. In Ballantines, the tribunal looked at “the State of habitual residence, the circumstances in which the second nationality was acquired, the individual’s personal attachment for a particular country, and the center of the person’s economic, social and family life”. The convergence of these two awards as regards the applicable legal standard lies in the fact that both tribunals drew inspiration from Nottebohm and Mergé. Applying that standard, the Carrizosas tribunal found that Colombia was the claimants’ habitual residence, economic center, and familial, social and political centers.

The tribunal analyzed the totality of facts that proved both the Carrizosas’ strong roots in Colombia and the lack of their connections with the US. For instance, although they all traveled primarily with their US passport, the tribunal viewed this more as animated by pragmatism than patriotism due to the relative ease of movement with a US passport. Instead, the tribunal put weight on the fact that all three claimants were born and raised in Colombia, and each of them made Bogotá as his permanent home while maintaining only a vacation home in the US. All three brothers also spoke of returning to Colombia to run their family businesses at the behest of their father. All three were also employed in Bogotá and none held any position in a US company. The tribunal also explained how the claimants have made, raised, and educated their families in Colombia with no major attachment to the US. It was inarguable to the tribunal that Colombia was the focal point of the claimants’ business activities and professional lives. In terms of commitment to public life, all three claimants voted in Colombian elections and even made political campaign contributions. Only Enrique voted by mail in the 2020 US election.

Without dwelling on all the other factors the tribunal examined, there was overwhelming evidence of the claimants’ “long and deep-rooted connections with Colombia over many years” and they had little evidence to anchor their claims as American citizens.

Interestingly, the Carrizosas asked the tribunal to accord weight to their “subjective considerations”, that is, their self-identification as Americans. They alleged that their preference has been to embrace their US heritage. In their Reply, they insisted that “how they see themselves with respect to citizenship and nationality” should be central to the tribunal’s analysis. Alberto, for instance, testified that he “grew up in a family where traditions, customs and festivities were based on U.S. culture”, while Enrique insisted that “[a]ll [his] life, U.S. culture has been the only culture [he] related to”. They even went on to argue that “[t]he only kind of testimony” to refute their self-identification as Americans is “from a declarant having personal knowledge that […] Claimants when being raised in their household were not in fact exposed to U.S. culture as the predominant cultural influence.”

The tribunal flatly rejected the claimants’ argument. First, the test to determine dominant and effective nationality requires the evaluation of “how an individual might hold himself out to the world on the basis of extrinsic evidence”, and second, in any case, it was “impossible to test” subjective feelings. The tribunal was emphatic that its task was to undertake an “objective factual enquiry”, which the claimants failed to satisfy. As the Carrizosas tribunal rightly held, “the [claimants’] lives behind their front doors may be the embodiment of modern American family life, but as to that, the Tribunal has only Claimants’ word and expression of subjective feeling.”

 

The Value of the Carrizosas Award

Carrizosas and Ballantines are similar in many respects, especially regarding the burden of proof and the factors considered in determining a claimant’s dominant and effective nationality. There is value in establishing uniform case law, more so for today’s ISDS system that faces heavy criticism for its fragmented and often inconsistent awards. Additionally, however, Carrizosas’ most significant contribution lies in its exclusion of investors’ untestable subjective feelings from the dominant and effective nationality calculus.

As seen, the ISDS doors have become much narrower for dual nationals. However, some dual national investors are still trying their luck, such as those in Raimundo Santamarta v. Venezuela and Ernest Schütz v. Peru. If at all, Carrizosas should serve as guidance for bi-national investors to be more conscientious in their choice of connections and the closeness of their national bonds so they can successfully access the ISDS mechanism. At the end of the day, a dual national investor’s attachment towards one country must be established as a matter of fact; subjective feelings, no matter how deep-seated, play no role in investment arbitration.

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New Opportunities for Arbitration Lawyers: Climate Change, Outer Space and Human Rights

Sat, 2021-07-03 01:14

International arbitration is changing at a fast pace, and opportunities arise every day in this field. In this context, on May 25, 2021, Young Arbitral Women Practitioners, Holland & Knight, and Rising Arbitrators Initiative co-hosted a webinar to discuss emerging fields of practice for arbitration lawyers. This post offers an overview of the variety of novel opportunities in international arbitration regarding outer space, human rights, and environmental protection.

 

The Role of International Arbitration in Developing a New Space Economy

One theme emerging from the discussion was the role of arbitration as an efficient dispute resolution method in developing a new outer space economy. As Laura Zielinski explained, the current legal framework governing outer space limits space law to government action and is silent regarding states’ sovereign rights and private actors’ property rights. However, recent technological developments have reduced the costs of going to space, prompting the privatization of satellite operations, which in turn, has opened the field to commercial actors. Here, arbitration serves the emerging space economy as a crucial tool by providing actors with a flexible, yet certain, dispute resolution method that guarantees the protection of their investments in outer space.

In this regard, to adapt to the needs of the emerging outer space economy, the PCA issued the Optional Rules for Arbitration of Disputes Relating to Outer Space Activities in 2011. These rules provide flexibility to appoint experts in outer space law as arbitrators, guaranteeing that tribunals can have access to highly specialized and technical knowledge related to outer space activities. The rules also allow parties to present to the tribunal a “non-technical document” in which they explain the technical concepts necessary for the tribunal to fully understand the matters in dispute. Finally, the confidentiality provisions of the rules are highly relevant to protecting intellectual property rights and national security matters frequently involved in the field. However, as Zielinski noted, there have been no known cases in which the PCA rules have been applied. Arbitration proceedings regarding outer space actors have nevertheless been conducted under ICC, LCIA, UNCITRAL, and ICSID rules.

By way of illustration, cases such as Deutsche Telekom v. India, Eutelsat v. Mexico and Devas v. India highlight the crucial role of arbitration in the development of the new economies. In particular, in Devas v. India, the Tribunal ruled that India had expropriated the investor’s spectrum and that the territorial nexus of investments does not necessarily require the physical presence of an investment within a state, but, that frequencies are also part of a state’s sovereign interests and thus, can be licensed or expropriated. This broad interpretation by the tribunal of the term “investment” acknowledges the value of intangible assets in unregulated conferred rights such as frequencies, aerial space, oxygen, and outer space property rights. At the same time, this interpretation could also open the floodgates for future investor-state proceedings, in which many regulatory activities related to intangible assets in unregulated conferred rights could potentially be considered as regulatory expropriations.

 

The Role of International Arbitration in Settling Business and Human Rights Disputes

Another interesting topic emerging from the discussion was the role of international arbitration in settling business and human rights disputes. As Juan Ignacio Massun explained, private actors often find themselves carrying out economic activities that can have an impact on individuals’ human rights. In this respect, international arbitration can build a bridge between these opposing, yet highly interrelated topics. It can also serve as a neutral ground to settle disputes, providing a forum where public interests are adequately valued, and the principles of transparency, legitimacy, and predictability are at the core of the dispute settlement process, as outlined in Article 31 of the UN Guiding Principles on Business and Human Rights. While not binding, the UN principles set guidelines for administering public interest disputes and therefore influence the interpretation of the parties’ rights and obligations.

Similarly, the Hague Rules on Business and Human Rights Arbitration develop and fill the gaps of UN principles and allow for greater party autonomy and flexibility, with parties being able to modify procedural rules if they agree in writing. To facilitate the enforcement of awards under the New York Convention, the rules clarify that any dispute submitted to arbitration under the Hague Rules is deemed to have arisen from a commercial relationship or transaction.

The Hague Rules also recognize the urgency of a timely decision to prevent greater impacts on human rights. Consequently, the rules create an interim measures system, whereby an emergency arbitrator can grant interim measures where violation of human rights is plausible. The key difference between the Hague Rules with the current system set out in the UNCITRAL Rules is that the former allows the tribunal to grant interim measures even in the cases where there may be an affectation of human rights. Thus, yielding the tribunal broader power to prevent imminent human rights violations and not only prevent the aggravation of the status quo. The Hague rules aim to balance the interests of businesses, individuals, and third parties that might have an interest in the matter. For instance, while Article 19 allows parties to consolidate claims and join mass claims of human rights violations, Article 25 grants the tribunal power to disregard meritless claims. Additionally, Article 28 encourages third-party amicus curiae submissions, thus, rendering the process more transparent and efficient.

The Hague Rules are aligned with the above-cited UN Principles, in the sense that they encourage parties to settle disputes amicably and to resort to contentious proceedings only as a means of last resort. By way of example, the rules proved to be efficient in solving the 2013 Rana Plaza disaster, in which an eight-story commercial building collapsed, leading to more than a thousand deaths. Initially, there was an institutional arbitration proceeding established under the Hague Rules; however, the parties ended the dispute with a settlement, from which the Bangladesh Accord on Fire and Building Safety derive. The case eventually settled; however, the rules proved to be capable of attaining a desirable outcome by granting the parties a dispute resolution method that promoted both the business’ affairs and the victim’s interests and placed efficiency and transparency at the center of the proceeding. As Massun and the moderator, Kristle Baptista, agreed: “A bad settlement is always better than a good arbitration.”

 

Climate Change, Environmental Protection, and Investment Arbitration

ISDS has been strongly criticized for not addressing environmental protection. Indeed, the third speaker Gretta Walters,  noted that there are limited, if any, references to climate change and the environment in investment treaties. Regardless of this perception, arbitration is slowly moving towards a sustainable system where environmental protection is fundamental.

In this regard, the Netherlands Model BIT is the first to include provisions on environmental protection. Among the key elements of the treaty, the Model BIT reaffirms the investors’ duty to comply with domestic laws, including environmental laws, as well as highlights the importance of having members of arbitral tribunals with expertise on public international law, environmental law, and human rights.

Another advance in the protection of the environment is the inclusion of carve-out provisions in BITs, which are a clear response to huge arbitral awards punishing states for policing environment matters. Under these provisions, states reaffirm their right to regulate in relation to the environment, and as such, regulation of these issues is not considered a treaty violation. By way of illustration, in the 2021 Singapore-Indonesian BIT, Article 11 expressly provides for the state’s right to regulate to achieve environmental protection without this constituting a treaty breach, including the modification of laws that might adversely affect an investor.

On the other hand, Walters noted that states also have their own environmental obligations that might trigger ISDS proceedings. In this regard, the source of a state’s environmental obligations is twofold: state action and state inaction. Concerning state action, a clear example is the saga of Spanish renewable energy cases, in which Spain implemented regulatory measures in 2007 to incentivize clean energy, which they later retracted in 2010. This prompted numerous investment claims under the European Charter Treaty. On the contrary, states inactions to target climate change can also give rise to investment claims. For example, in Peter A. Allard v. Barbados, the claimant sued the state of Barbados due to its failure to comply with environmental laws and climate change obligations, which in turn damaged the claimant’s property and its ecotourism business. While the claimant was unsuccessful, the Tribunal acknowledged that a host State’s international obligations may be relevant in the application of environmental standards to particular circumstances.

 

Conclusion

As the world evolves, arbitration adapts to the needs and developments of emerging markets, and this is the reason for opportunities to arise every day in this area. Arbitration serves as an alternative dispute resolution method that bridges opposite concepts and helps develop new industries. While arbitral tribunals cannot compel governments or market actors to act in a particular way, they can exercise substantial pressure by holding actors financially accountable when they do not comply with their obligations; hence, giving arbitration a privileged position to advance legitimate interests such as human rights protection, climate change mitigation, and outer space development.

 

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The Cairn Energy v. India Saga: A Case of Retrospective Tax and Sovereign Resistance against Investor State Awards

Fri, 2021-07-02 02:00

In the last decade, fifteen cases have been filed by foreign investors against India under various bilateral investment treaties (BITs).  Of these, three major cases were spurred by the ill-reputed retrospective taxation by India in 2012, allegedly targeted towards certain foreign investors namely: (i) Vodafone International Holdings BV v. The Republic of India (Vodafone case); (ii) Cairn Energy Plc and Cairn UK Holdings Limited v The Republic of India (Cairn case); and (iii) Vedanta Resources Plc v. The Republic of India (Vedanta case).

The most controversial of these was the Cairn case. This followed India’s 2012 decision to retrospectively amend the income tax laws, and its 2015 imposition of a tax liability of USD 1.6 billion on Cairn India Ltd for its failure to deduct withholding tax on alleged capital gains arising during a restructuring transaction in 2006 in the hands of its parent Cairn UK Holdings Ltd (“CUHL”). After Cairn initiated arbitration under the 1994 India – United Kingdom BIT in 2016 (the “BIT”), India seized CUHL’s shares in another entity, seized dividends due to CUHL, and offset a tax refund due to CUHL as a result of overpayment of capital gains tax on a separate matter, to enforce the tax demand.

On December 21, 2020, the international arbitral tribunal (the “Tribunal”) constituted in the Cairn case held that India had failed to uphold its fair and equitable treatment obligations under the BIT and under international law, by imposing the tax liability retrospectively and adopting measures to enforce the liability. The Tribunal ordered India to pay to Cairn USD 1.2 billion in damages for the ‘total harm’ suffered by Cairn as a result of India’s breaches.

However, the post award developments in the case exemplify the arduous battle for a foreign investor to enforce the award against a State. The post will focus on these aspects.

In early 2021, Cairn had reportedly initiated proceedings in courts of the US, UK, France, Netherlands, Quebec and Singapore in order to enforce the award against India. Cairn can initiate proceedings to enforce the award in jurisdictions where India has assets, and which recognise and enforce the award made in Netherlands.

 

India’s Attempt to Remove Funds from Overseas Banks

In May 2021, the Indian Finance Ministry reportedly issued a guidance to state-run banks to withdraw funds from their nostro accounts. With this alleged instruction, India attempted to remove a key Indian asset type from Cairn’s enforcement kitty. However, on May 23, 2021, the Finance Minister of India denied issuing any such order.

 

Cairn’s Petition to Attach India’s State-Run Airline in New York

On May 14, 2021, Cairn filed a lawsuit in the United States District Court for the Southern District Of New York against Air India Ltd (“Air India”), requesting a Money Judgment against Air India and to hold Air India jointly and severally liable in pursuance of the pending petition for the enforcement of the award against India.

Cairn’s case is built on the factors laid down by the United States Supreme Court (“US SCt”) in the case of National City Bank v. Banco Para El Comercio Exterior de Cuba (“Bancec”). In Bancec, the US SCt held that a foreign creditor can enforce its judgement against an instrumentality of the sovereign debtor. However, such enforcement against an instrumentality is justified only in exceptional circumstances where such instrumentality is “so extensively controlled by the State that a relationship of principal and agent is created, or giving a separate legal identity to the instrumentality would result in fraud or injustice.

Relying on the Bancec doctrine, Cairn has submitted that the India maintains a high level of economic control over Air India inter alia by providing benefits like direct contribution to capital, loans, and grants or special treatment under the Income Tax Law of India. Furthermore, India also ensures that Air India has smooth access to other sources of funding, such as securing private bank loans etc. Additionally, India is also involved in Air India’s day-to-day operations by having the authority to appoint its managing director, board members, and decide their pay scale. In this light, it should be noted that Air India’s board is also filled by politicians and civil servants who dictate the airline’s daily policy. Finally, India also regulates the fares and routes of the airline, and reviews the performance of the airline.

Further, relying on the exception of fraud and injustice to justify piercing the corporate veil, Cairn argues that a ruling on separate legal status of Air India without looking through at the real controlling entity, i.e. India, would enable India to shield its assets from enforcement of the award, and cause an unjust result.

 

Challenge to the Award by India

On May 22, 2021, India challenged the award in a Dutch court, reportedly terming the award as “highly flawed”. India contends that the exercise of jurisdiction by the tribunal over a national tax dispute is improper. India argues that the claim is based on the alleged violation of the Indian Income tax laws, which is not covered within the scope of the India – United Kingdom BIT, and that India did not offer or accept the offer to arbitrate a tax dispute. Moreover, India has reportedly made an argument that the award ratifies Cairn’s scheme to avoid paying taxes to any sovereign, which is a matter of significant concern to all the governments worldwide and a matter of public policy.

 

Piercing the Corporate Veil and Sovereign Immunity

While the challenge to the award is pending, India will be required to resist enforcement proceedings in parallel. Though no codified treaty exists that grants immunity to states in foreign jurisdiction, states usually recognise sovereign immunity under their national laws against enforcement of foreign judgments or arbitral awards. The extent of sovereign immunity differs from one jurisdiction to another, and can be absolute or restrictive. The engagement of the concept of sovereign immunity also involves an analysis of whether the State asset or entity under potential attachment carries out a sovereign or commercial activity.

Reportedly, Cairn’s enforcement kitty includes airlines, shipping corporation vessels, bank accounts, oil and gas fields and cargoes of the Indian state-owned enterprises (“SOEs”). SOEs are generally presumed to be immune from attachment and execution as they are considered to be separate commercial entities. However, if the corporate veil is pierced and the SOE is found to be extensively controlled by the State or to be its alter ego, its assets can be attached towards enforcement of the award. If Cairn is able to satisfy the test of the respective jurisdictions on piercing of corporate veil and defend against sovereign immunity, India may have slim chance of protecting its SOEs from enforcement of the award.

 

Conclusions: India’s Approach to Foreign Investors

The milestones and growth achieved by India on the FDI landscape in 2020, despite the pandemic, is testament to the attractive investment opportunities available for foreign investors in India.

However, the much discussed cases of Vodafone and Cairn are a stark reminder of limits placed by international law even upon States’ sovereign rights of taxation. States have the sovereign right to tax and to determine whether a transaction is taxable or not. Accordingly, India can defend the exercise of its sovereign right in respect of measures taken to protect its security or taxation authority. However, the manner in which tax is imposed such as where it is employed as a means to target, discriminate, or arbitrarily impose liability on foreign investors – can reasonably be tested under a BIT.

On the FDI disputes front, India is increasingly embroiled in arbitration proceedings initiated by other foreign investors under BITs, and subsequently in post award proceedings including complexities in enforcement of the award. The recent case of Devas Multimedia Private Ltd v. Antrix Corporation, NCLT, Bengaluru Bench, C.P. No. 06/BB/2021 is testament to the multiple complexities that can arise even after a foreign investor or the company receives an award in its favour. In the Antrix case, Devas received a commercial arbitration award, and its investors received several treaty arbitration awards in their favour. However, at the stage of enforcement of the award in India, upon India’s petition, a National Company Law Tribunal has passed an order in late May 2021 to liquidate Devas on the ground that the company was incorporated fraudulently in India.

As India strives to create its reputation as an investment-friendly nation, it is essential for India to make pragmatic decisions with respect to foreign investment and foreign investors, and abide by its sovereign commitments to other nations under international treaties. The way forward is to recognise sovereign powers, but exercise them in a manner that honours international law and practice.

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