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Withdrawing from the Energy Charter Treaty: The End is (not) Near

Fri, 2022-11-04 00:44

In November this year, the Energy Charter Conference will meet to adopt amendments to the ECT in accordance with the agreement in principle on the modernised ECT. However, the text of the modernised ECT has received much criticism in recent weeks (see e.g., here). Despite the fact that the modernised text of the ECT largely reflects the EU proposal for modernisation (see here and here), various EU member States have announced their intention to withdraw from the ECT.

This blogpost outlines the procedure for withdrawing from the ECT and the legal risks that EU States will face once the withdrawal of an EU member State or a coordinated withdrawal of all EU member States takes effect.

 

Withdrawals by EU Member States

Already in 2016 Italy withdrew from the ECT. In August 2022 the Polish government submitted a law to parliament to initiate withdrawal from the ECT (see analysis here and here). Similarly, Spain and the Netherlands have announced their intention to withdraw, followed by France and Belgium. Germany also considers withdrawal from the ECT and the Slovenian Infrastructure Minister has recently stated that Slovenia would probably withdraw from the ECT as well. In contrast, the EU Commission announced that it was not preparing a coordinated withdrawal of EU member States and the EU would still remain party to the ECT.

 

Applicable Legal Framework for Withdrawing from the ECT

A withdrawal from the ECT is not going to happen overnight. According to Article 47(2) ECT, there is a one year notice period before a withdrawal becomes effective (‘shall take effect upon the expiry of one year after the date of the receipt of the notification’). After the withdrawal becomes effective, the survival or sunset clause is triggered. According to the provision, the ECT continues to apply to investments made prior to withdrawal for another 20 years (Article 47(3) ECT). Any investment made during the notice period will be protected under the sunset clause.

For instance, after Italy’s withdrawal from the ECT, Rockhopper started proceedings against Italy because of Italy’s offshore oil and gas drilling ban which resulted in the rejection of Rockhopper’s application for an exploitation concession. On 31 December 2014 Italy had notified the Depository of its withdrawal and on 1st January 2016 the withdrawal became effective. The proceedings were initiated in 2017, thus under the sunset clause regime of the ECT, which will only end on 1st January 2036.

 

Breathing life into an Old ECT

Withdrawing from the ECT might have the paradoxical effect of prolonging protection under the old ECT regime. The EU was the driver behind the modernisation of the ECT. Recently announced intentions to withdraw might very well convince States which are critical of the modernisation process (e.g., Japan) to block the modernised text at the Energy Charter Conference in November and maintain the old version of the ECT.

In addition, under the sunset clause withdrawing States may be subjected to claims with respect to existing investments under the unreformed ECT for another 20 years. Yet, any governmental measures taken by States against fossil fuel investments in order to reduce carbon emissions will have to target already existing fossil fuel investments and thus expose those States to investment claims under the old ECT.

 

Coordinated Withdrawal as a Catch-all Solution?

Some NGOs and scholars have advocated for a coordinated withdrawal for which an inter se agreement is concluded between States withdrawing from the ECT to eliminate the applicability of the sunset clause between withdrawing States (see e.g., here, here). However, it is highly uncertain whether such an inter se modification would be compatible with the ECT (see here).

The ECT includes a safety net in Article 16 to preserve the highest level of investment protection and access to arbitration in case Contracting Parties conclude an agreement relating to investment protection standards or ISDS. Any inter se agreement concluded between EU States to eliminate the sunset clause prior to exiting from the ECT may be considered contrary to this provision and/or ‘incompatible with the effective execution of the object and purpose of the treaty as a whole’ (Article 41(1)(b) VCLT). On the basis of Article 16 ECT and/or Article 41 VCLT arbitral tribunals have repeatedly rejected the argument that EU membership resulted in an inter se modification of the ECT eliminating consent to intra-EU arbitration (see e.g. Vatenfall v. Germany [2018] paras. 221, 229; Landesbank v. Spain [2019] para. 186; Eskosol v. Italy [2019] para. 151; BayWa v. Spain [2019] para. 276; Silver Ridge v. Italy [2021] paras. 228-229; Sevilla Beheer v. Spain [2022], paras. 648-650, 670; see however, Green Power v. Spain [2022] paras. 468-470 which found that EU law prevails over the ECT including Art 16 ECT). Thus, an inter se modification removing the sunset clause prior to withdrawal is fraught with legal uncertainty. It is highly likely that many arbitral tribunals will still uphold jurisdiction given Article 16 ECT and previous case law on inter se modifications.

Even if a coordinated withdrawal eliminating the sunset clause between withdrawing States is successful and tribunals reject jurisdiction, any such inter se modification will only cover those States that have signed up to it. Unless several corporate hubs outside the EU were on board, in particular the UK and Switzerland, a coordinated withdrawal might not have the intended effects. There is more leeway for corporate restructuring under the old ECT than under the modernised version. Corporations most likely affected by governmental measures targeting fossil fuel investments may have already taken steps to ensure continued protection under the ECT if EU States withdraw in a coordinated manner. A case in point is Shell which even moved its headquarters from the Netherlands to the UK in January 2022 – not because of the ECT, but this may have its benefits with respect to investment protection under the ECT and BITs.

The recent Rockhopper case against Italy under the sunset clause of the ECT is the perfect example for the potential futility of a coordinated withdrawal limited to EU States. The company has been incorporated under the laws of the UK and even if the sunset clause had not applied between EU member States or had been successfully removed between EU member States, these arbitration proceedings would have still been possible under the ECT.

 

Modernisation as a Suitable Alternative to Withdrawal

The modernised ECT has its shortcomings, but for EU States it greatly minimizes the risks of successful claims by fossil fuel investors. Importantly, it eliminates intra-EU arbitration (Article 24(3) new ECT) as well as Article 16 ECT and includes the option to phase out protection for fossil fuel investments (annex NI). The EU and the UK have made use of the option to carve out protection for fossil fuel investments: any new fossil fuel investments in their territories will lose protection under the ECT as of 15 August 2023. Most existing fossil fuel investments in the EU will lose protection 10 years after the phase-out period has been triggered either by provisional application of the modernised ECT or its entry into force (see here). The same applies to the UK, although coal-based energy production will already lose protection as of 1 October 2024. Provisional application of the modernised ECT as of 15 August 2023 will be the default rule unless a Contracting Party notifies its opt-out from provisional application before 23 February 2023 (see here).

Even though not all States will apply the ECT provisionally, the majority of ECT Contracting Parties including the EU member States and the UK have a clear incentive to do so. Together with the exclusion of intra-EU disputes, this will eliminate the risk of a large number of investment arbitration claims under the ECT as of August 2023 or August 2033.

In contrast, withdrawal will eliminate protection for all existing energy investments at least ten years later than the phase-out period. For instance, if Poland notifies its withdrawal by 30 November 2022, the withdrawal will take effect on 1 December 2023 and the survival period under the sunset clause will only end on 1 December 2043.

 

Conclusion

Withdrawal has the definitive effect of freeing States from their international obligations under the ECT. Yet access to investment protection under the ECT will be available for much longer than most States desire. The sunset clause preserves protection for existing investments for 20 years after withdrawal, and there is much legal uncertainty about a potential elimination of the sunset clause between withdrawing States. Viewed against the backdrop of the phase out timelines under the modernised ECT, a withdrawal might expose States to claims from fossil fuel investors under the old ECT for a longer period of time than under the modernised ECT. However, it is exactly the existing fossil fuel investments which will most likely be affected by restrictions in the upcoming years. Accordingly, withdrawals motivated by a desire to meet the objectives of the Paris Agreement may be well intentioned, but not achieve the desired results.

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RWE and Uniper: (German) Courts Rule on the Admissibility of ECT-based ICSID Arbitrations in Intra-EU Investor-State Disputes

Thu, 2022-11-03 00:31

On 1 September 2022, the Higher Regional Court of Cologne (“HRC Cologne”) issued two much-awaited decisions granting the Netherlands’ requests (see our report here) to have the German claimants’, RWE and Uniper, ECT-based ICSID arbitrations declared inadmissible pursuant to section 1032(2) of the German Code of Civil Procedure (“ZPO”) due to their intra-EU nature. As we reported, section 1032(2) of the ZPO allows German courts to make an early determination on the admissibility of an arbitral proceeding before a tribunal is constituted. The question of whether a section 1032(2) application can also be made in ICSID proceedings has been controversial, particularly since it affects the broader systemic issue of whether EU law can trump a state’s international law obligations under the ICSID Convention. This post contrasts the HRC Cologne’s reasoning with an earlier diverging order by a Berlin court, and assesses how the issue of intra-EU arbitration will develop in the near future.

 

HRC Cologne Grants the Netherlands’ Anti-arbitration Requests

In the first week of October 2022, the HRC Cologne’s two largely identical decisions in RWE and Uniper, rendered in German, became public. Foreshadowed by a 8 September 2022 press release, the HRC Cologne declared RWE and Uniper’s intra-EU ICSID arbitrations inadmissible and found that such ECT-based arbitrations were, in principle, prohibited. Essentially, the HRC Cologne considered that it was its duty to apply section 1032(2) in light of the rulings of the Court of Justice of the European Union (“CJEU”) on the validity of an arbitration clause in intra-EU investment disputes, and to interpret German law so as to give full effect to EU law. Thus, in case of conflict, EU law would have to prevail over Germany’s international law obligations in intra-EU disputes.

The HRC Cologne first observed that the applications had been properly made before the German “ordinary” civil courts. This was because the arbitrations concerned a claim for damages based on an international treaty, rather than a public law contract for which the administrative courts would be competent. Article 26(5)(b) of the ECT (and its reference to Article I of the 1958 New York Convention) was considered as clarifying that an ECT-arbitration constitutes a commercial dispute. Next, the HRC Cologne ruled that it had territorial jurisdiction under section 1062(2) of the ZPO. The section designates the court of the respondent’s seat as the default court. Both RWE and Uniper have their seats in the federal state of North Rhine-Westphalia, for which jurisdiction is concentrated at the HRC Cologne.

Turning to the admissibility of the section 1032(2) application, the HRC Cologne acknowledged that section 1025 of the ZPO applies to arbitrations with a German, foreign, or undefined seat, and that ICSID arbitrations merely have a place of hearings (but not a seat). The court nevertheless felt compelled to interpret the ambit of section 1032(2) in such a way as to give full effect to the primacy of EU law – for which the HRC Cologne (in a somewhat circular manner) referenced its findings on the merits. The HRC Cologne also denied that the ICSID framework could bar the Netherlands from relying on section 1032(2). It acknowledged that ICSID tribunals are competent to conclusively decide on their own jurisdiction and the validity of an arbitration clause (‘Kompetenz-Kompetenz’). However, to the HRC Cologne, its task was to determine the existence of a valid arbitration agreement under Article 26 of the ECT (which it considered to be part of EU law). Despite acknowledging complexities surrounding the tension between international and EU law, as well as domestic courts’ limited power of scrutiny in ICSID proceedings and the lack of precedent on the issue, the HRC Cologne denied such validity, finding particular comfort in:

  • the EU Member States’ and German Federal Court of Justice’s (“Bundesgerichtshof”, or “BGH”) acceptance of the primacy of EU law even when there are countervailing public international law obligations;
  • section 1032(2)’s purpose of enhancing procedural economy, which the HRC Cologne saw strengthened by its early finding of the invalidity of the arbitration agreement; and
  • the BGH upholding the ruling of the Higher Regional Court of Frankfurt am Main, which had declared Austrian Raiffeisen Bank’s UNCITRAL arbitration against Croatia inadmissible under section 1032(2) of the ZPO (see here and here). The HRC Cologne did not regard as relevant the differences between UNCITRAL and ICSID arbitrations, considering that the BGH had not distinguished between a BIT and the ECT. 1)See Order of the HRC Cologne, 1 September 2022, 19 SchH 14/21, paras. 40-41; Order of the HRC Cologne, 1 September 2022, 19 SchH 15/21, paras. 38-39. jQuery('#footnote_plugin_tooltip_42997_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_42997_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

On the merits, the HRC Cologne found that the CJEU rulings in Achmea, Komstroy and PL Holdings, as well as the CJEU’s 2022 appeal ruling in Micula (I), confirmed that the arbitration clause in Article 26 of the ECT was incompatible with EU law and could not serve as a valid basis in an intra-EU arbitration. On 25 January 2022, the CJEU had reversed the General Court’s decision in Micula (I) and held that EU state aid law prevented Romania from complying with the 2013 ICSID award (see here). Likewise, in September 2021, the CJEU had sided with Advocate General Szpunar’s earlier opinion in the Komstroy case and ruled in an obiter dictum that intra-EU arbitrations under the ECT were EU law incompatible (see here and here). A month later, the CJEU expanded the “Achmea objection” to ad hoc arbitration agreements in relation to PL Holdings (reported here; for a general overview, see here.).

In the HRC Cologne’s view, ICSID tribunals are unable to sufficiently guarantee the principle of EU law autonomy and the CJEU’s judicial monopoly in EU law matters. The HRC Cologne considered that unlike Article 8.31(2) of CETA, which preserves such monopoly, the ICSID Convention contains no similar clause. 2)See Order of the HRC Cologne, 1 September 2022, 19 SchH 14/21, para. 53; Order of the HRC Cologne, 1 September 2022, 19 SchH 15/21, para. 51. jQuery('#footnote_plugin_tooltip_42997_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_42997_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Notably, to the HRC Cologne, granting the final say on EU law matters to ICSID tribunals would leave awards unverified with respect to EU law, particularly because ICSID tribunals, unlike EU Member State courts, are not able to call on the CJEU for a preliminary ruling.

The HRC Cologne found it unnecessary to refer the dispute to the CJEU because it considered the issues to be sufficiently clear (acte clair principle) – despite the contrary decision issued by the Higher Regional Court of Berlin (referred to as ‘Kammergericht’, or “KG Berlin”) in the Mainstream case which has been appealed to the BGH. Accordingly, the HRC Cologne concluded that the RWE and Uniper ICSID claims were inadmissible.

The HRC Cologne’s orders can be appealed to the BGH. It remains to be seen whether RWE and Uniper will make use of this legal remedy and whether, and if so how, the RWE and Uniper ICSID tribunals will opine on the HRC Cologne’s reasoning. This is particularly unclear with regard to Uniper’s arbitration, which is currently suspended until January 2023 following the German Government’s agreement in September 2022 to bail out Uniper subject to it withdrawing its ICSID claim.

 

KG Berlin Dismisses Germany’s Inadmissibility Application

The HRC Cologne’s ruling is not uncontested. In April 2022, the KG Berlin made headlines by finding that section 1032(2) of the ZPO was inapplicable to ICSID disputes and thus dismissing a similar section 1032(2) application Germany had filed in connection with another ECT-based intra-EU ICSID arbitration initiated by Irish company Mainstream and five affiliates (see here).

Like the HRC Cologne, the KG Berlin accepted jurisdiction to determine the case as the default competent German court. It has been reported that, the KG Berlin’s decision was primarily based on considerations which the HRC Cologne acknowledged, i.e., ICSID tribunals’ Kompetenz-Kompetenz and power to conclusively determine the validity of an arbitration clause (Articles 25 and 41 of the ICSID Convention), ICSID’s exclusivity precluding parallel domestic court proceedings (Article 26), the binding nature and enforceability of ICSID awards (Articles 53-54) and the limited role of domestic courts which could only refuse enforcement insofar as an ICSID award had been revised or annulled by an ad hoc Committee (Articles 51-52). To the KG Berlin, by ratifying the ICSID Convention, Germany and Ireland had committed to these international law obligations. Germany’s 1969 law ratifying the ICSID Convention was considered to support this conclusion. The existence of section 1032(2) (in deviation from the UNCITRAL Model Law which does not foresee such provision) was of no bearing as it was merely aimed at procedural efficiency. Neither would the CJEU’s jurisprudence change this fact, particularly, considering that ICSID tribunals were empowered to interpret and apply EU law via Article 26(6) of the ECT and Articles 41 and 42 of the ICSID Convention.

Contrary to the HRC Cologne, the KG Berlin distinguished the Raiffeisen Bank case precisely for its characteristics as a BIT-based UNCITRAL arbitration. Similarly, it found that the Paris Court of Appeal’s setting aside decisions in two intra-EU arbitrations against Poland, one ad hoc (Strabag) and one UNCITRAL (Slot Group), were irrelevant and concerned no section 1032(2)-equivalent provisions.

Germany has appealed the KG Berlin’s decision; a final ruling by the BGH is expected in 2023. Meanwhile, the Mainstream arbitration remains pending (see here).

 

Outlook

While awaiting the BGH’s last word (at least in relation to Mainstream), the German courts’ decisions are a proof of the existing divide and battle between legal orders, with one side stressing the procedural specificities of the ICSID framework, and thus favouring a public international law view, and the other emphasising the increasing entrenchment of the primacy of EU law, at least via the EU Member States and the CJEU.3)See more on the debate: German commentary to the ZPO, Wilske/Markert, BeckOK ZPO, Vorwerk/Wolf, 46th edn., 1 September 2022, ZPO §1062, para. 2.4 (referring to Tietje/Ruff/Schmitt, Beiträge zum Transnationalen Wirtschaftsrecht, Vol. 177, January 2022, vs. Steinbrück/Krahé, EuZW 2022, 357; Rusche, IPPrax 2021, 494 arguing from an EU law perspective). jQuery('#footnote_plugin_tooltip_42997_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_42997_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); So far, arbitral tribunals (including in RWE/Uniper) continue to withstand the CJEU’s Achmea ruling, with the only known exception of Green Power, a non-ICSID (namely, SCC) ECT-based dispute, in which the tribunal upheld Spain’s intra-EU objection.

The resulting uncertainty is unfortunate, and only defers the problem to the stage of enforcement. This development is becoming increasingly noticeable, not least in the Micula (I) saga where the claimants are attempting enforcement in various non-EU jurisdictions. Having said that, the issue of intra-EU ECT arbitrations will likely become moot should the reformed ECT enters into force. In June 2022, the Energy Charter Secretariat announced the ECT Contracting States’ agreement-in-principle on a modernised treaty, expressly carving out intra-EU investment arbitrations. Nevertheless, considering the various pending proceedings, intra-EU ECT arbitration will likely stay a newsworthy topic for the foreseeable future.

References[+]

References ↑1 See Order of the HRC Cologne, 1 September 2022, 19 SchH 14/21, paras. 40-41; Order of the HRC Cologne, 1 September 2022, 19 SchH 15/21, paras. 38-39. ↑2 See Order of the HRC Cologne, 1 September 2022, 19 SchH 14/21, para. 53; Order of the HRC Cologne, 1 September 2022, 19 SchH 15/21, para. 51. ↑3 See more on the debate: German commentary to the ZPO, Wilske/Markert, BeckOK ZPO, Vorwerk/Wolf, 46th edn., 1 September 2022, ZPO §1062, para. 2.4 (referring to Tietje/Ruff/Schmitt, Beiträge zum Transnationalen Wirtschaftsrecht, Vol. 177, January 2022, vs. Steinbrück/Krahé, EuZW 2022, 357; Rusche, IPPrax 2021, 494 arguing from an EU law perspective). function footnote_expand_reference_container_42997_30() { jQuery('#footnote_references_container_42997_30').show(); jQuery('#footnote_reference_container_collapse_button_42997_30').text('−'); } function footnote_collapse_reference_container_42997_30() { jQuery('#footnote_references_container_42997_30').hide(); jQuery('#footnote_reference_container_collapse_button_42997_30').text('+'); } function footnote_expand_collapse_reference_container_42997_30() { if (jQuery('#footnote_references_container_42997_30').is(':hidden')) { footnote_expand_reference_container_42997_30(); } else { footnote_collapse_reference_container_42997_30(); } } function footnote_moveToReference_42997_30(p_str_TargetID) { footnote_expand_reference_container_42997_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_42997_30(p_str_TargetID) { footnote_expand_reference_container_42997_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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CAM-CCBC Arbitration Congress IX Edition: Publication of Arbitral Awards – The Future or Utopia?

Wed, 2022-11-02 00:57

Between 17-23 October 2022, the São Paulo Arbitration Week (“SPAW”) was held with multiple events in different parts of the biggest city of Latin America. The SPAW is a collaborative event, organized by Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (“CAM-CCBC”), and is conceived as a calendar for law firms, universities, associations, and institutions to promote events in a productive environment in benefit of the development of ADRs in Brazil.

As a tradition, SPAW was opened by the CAM-CCBC Arbitration Conference (“Conference”). At its IXth edition, this year’s Conference aimed at discussing the today and the tomorrow of arbitration. Addressing some of the most relevant challenges faced by the arbitral community nowadays, the event provided an excellent debate with renowned practitioners, as it is reflected in the Conference program.

The purpose of this post is to bring some highlights about the subject of the 4th Panel of the Conference (“Panel”), which discussed the “Publication of Arbitral Awards: The Future or Utopia?” The Panel was moderated by Professor Sheila C. Neder Cerezetti (Partner, Neder Cerezetti Advocacia), and counted on excellent lectures presented by Ank Santens (Partner, White & Case), Jean-Rémi de Maistre (Co-Funder & CEO, Jus Mundi), and Rose Rameau (Professor of Law and Independent International Arbitrator & Mediator).

 

Publication of Arbitral Awards: The Future or Utopia?

The Panel began with Professor Cerezetti’s introductory notes calling the audience’s attention to the fact that publication of awards is only one of the many issues when it comes to the duality between confidentiality vs. transparency in arbitral proceedings.  Professor Cerezetti posed some open-ended questions for the panelists to bear in mind during their presentations.

The first lecture was given by Mrs. Santens, who briefly presented an overview on the history and the current state of play of publication of arbitral awards. Before touching the basis on commercial arbitration, she highlighted how publicity has always been the rule in Maritime Law and in Sports Court; then she mentioned the development of publication of awards in the ISDS, highlighting NAFTA cases, the amendment of the ICSID Rules in 2006 and the creation of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, which is adopted in over one hundred of investment treaties, from which forty three are already in force.

After this introduction, Mrs. Santens highlighted that the current stage of publication of arbitral awards in commercial arbitration has a much different landscape than in investment arbitration, since it deals with private parties and private interests. Despite these discrepancies, as pointed out by Mrs. Santens, even in commercial arbitrations, we are seeing a movement towards transparency. In this regard, Mrs. Santens briefly analysed some arbitration rules, categorizing them in three groups, namely:

  1. institutions with strict rules on confidentiality of awards (for instance, the Swiss Arbitration Rules (2021), the SIAC Arbitration Rules (2016), and the LCIA Rules (2020));
  2. institutions in between confidentiality and publication of awards (such as the HKIAC Rules (2018), the ICDR Rules (2021), and the ICC Rules (2021)); and
  3. institutions pro publication (such as the ICSID Rules (2022), the CAM-CCBC Rules (2012), and CAMARB Rules (2019)).

Mrs. Santens, then, concluded by saying that, although we are seeing a movement towards transparency in commercial arbitration, there is still room for more publication of awards and a lot to be considered in such regard. Following a question from Professor Cerezetti, Mrs. Santens also explained that there is much less publication of procedural orders, for instance, when compared to awards. This is reflected by the fact that most arbitral institutions do not even mention publication of procedural orders in their arbitration rules, but exclusively the publication of arbitral awards (ICC, ICDR and ICSID would be one of the few examples that provide for publication of POs).  However, Mrs. Santens pointed that we are seeing a trend towards the publication of decisions rendered by arbitral institutions themselves, as the LCIA has been doing since 2006 with decisions on challenge of arbitrators (and also HKIAC, albeit its rules are not ‘pro publication’).

The second presentation was made by Mrs. Rose Rameau, who discussed the main objectives sought with the publication of awards.

First, considering her perspective as a professor, Mrs. Rameau mentioned the importance of publication of awards for academic purposes, which allows us to dive into the multiple juridical issues that may arise in an arbitration. Second, in regard to ISDS, she mentioned the importance of publication of awards for the purpose of: (i) an investor’s decision of where to invest (e.g. an investor may not choose a State wherein his investment is very likely to be expropriated); or (ii) a State’s decision of whether to accept a certain investor in its territory (e.g. the evaluation of an investor’s conduct before granting permission for such investor). Finally, Mrs. Rameau mentioned the importance of publication of awards for the purposes of advising clients or as a helpful source for arbitrators’ decisions. He pointed out, however, that there is an important difference between caselaw in commercial and investment arbitration.

The third presentation was in charge of Jean-Rémi de Maistre, who discussed the use of publication of arbitral awards and how it could be helpful for arbitration practitioners.  He mentioned that, despite foreseeing confidentiality as something theoretically and potentially beneficial, publicity of awards and documents can be very helpful in the creation of a more secure arbitral environment. That is precisely the scope of Jus Mundi, created as a global platform aiming at providing a source of comprehensive and reliable data for each area of international law and arbitration. Professor Cerezetti asked how the arbitral community can reach a balance between transparency and confidentiality. Mr. Maistre said that, although it is certain that some aspects about arbitral procedures must be kept confidential, some degree of transparency is crucial for a better and more predictable arbitral system. Mr. Maistre believes that it is possible to reach “the best of both worlds.”  Depending on how the information is disclosed, transparency may not create any harm, especially because one is not talking about publicizing all the information of an arbitral procedure, but rather only necessary ones, such as the tribunals, counsel, experts, industry, etc.

At the end of the debate, Professor Cerezetti concluded that this rich discussion is extremely important, especially considering the moment the Brazilian arbitration community is facing right now, with the threat of a controversial amendment to modify some dispositions of Brazilian Arbitration Act (“BAA”) (previously covered here).

 

Conclusion

In light of the excellent Panel, we may conclude that the arbitral community desires a degree of transparency (as recently pointed out by CBAr’s-IPSOS Research). The CBAr’s-IPSOS Research (2021) is a research conducted by the Brazilian Arbitration Committee, along with Ipsos Institute, that aimed at investigating the degree of satisfaction of the multiple players involved in the arbitral proceedings. Seventy-three per cent (73%) of the participants have indicated they are willing to publicize the awards of the proceedings they are involved, as long as some information are kept confidential.  Hence, more discussion is necessary to find the right balance between transparency and confidentiality in the arbitral procedures.

 

Follow along and see all of Kluwer Arbitration Blog’s coverage of IX CAM-CCBC Arbitration Congress here.

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CAM-CCBC Arbitration Congress IX Edition: Regulating Corporate Law Disputes

Wed, 2022-11-02 00:45

The IXth Edition of the CAM-CCBC Arbitration Congress took place on 17 – 18 October 2022, in São Paulo, Brazil. The congress brought together practitioners to discuss “the today and the tomorrow” of the arbitration market.

After two years of pandemic, the convention provided a unique forum to debate a wide range of topics, including the regulation of corporate disputes, which is the central subject of this article. The panel was moderated by Paula Forgioni (Forgioni Advogados, Partner; USP Faculty of Law, Professor) and the guest speakers were Juliana Krueger Pela (Advocacia Krueger Pela, Partner; USP Faculty of Law, Professor), Marcelo Barbosa (Brazilian Securities and Exchange Commission, Former President), and Rouven Bodenheimer (Bodenheimer, Partner).

 

Regulating Corporate Law Disputes

Paula Forgioni opened the panel by explaining that Brazil is pioneer in arbitration of corporate disputes. But the question to but begin with is the following: should commercial disputes be better regulated? Ms. Forgioni stated that while arbitration is beneficial for the economy and the development of the country, the challenge is to find the right measure of regulation while avoiding the temptation to regulate too much. She also stressed that there are differences between collective arbitration and mere corporate law disputes, concepts that are often confused.

Rouven Bodenheimer, based on a comparative law perspective, mentioned that the regulation of corporate law disputes is challenging in almost all jurisdictions. In Germany, according to the §1030 (1) CCP, any claim involving an economic interest (“vermögensrechtlicher Anspruch“) can be subject of an arbitration agreement. Nevertheless, until 1996 there were no corporate arbitration disputes in Germany. In April 2009, an important decision of the German Supreme Court held that shareholder disputes are arbitrable if the arbitration agreement fulfills the following requirements: (i) there must be consent of all the shareholders to arbitrate their disputes; (ii) the opportunity to participate must be ensured for all shareholders; (iii) there must also be guaranteed equal opportunity of the shareholders to participate in the appointment of the arbitral tribunal; and (iv) lastly, all the proceedings must be consolidated before the same tribunal. If these requirements are not met, then the arbitral award is invalid pursuant to §138 of the BGB.

The DIS Supplementary Rules for Corporate Disputes codified those requirements. According to these rules, all the shareholders must be named in the request for arbitration, must be invited to join and participate, and if any shareholder decides not to join, it must be informed about all the procedural acts during the arbitration. The DIS Rules also have special rules on the appointment of arbitrators and rules on consolidation of jurisdiction in case of parallel proceedings. In Mr. Bodenheimer’s opinion, the DIS Rules reflect most of the concerns of the legislators, regulators, and practitioners.

Juliana Krueger Pela reiterated the terms of Resolution 80 of the Brazilian Securities and Exchange Commission (“CVM”), which provides that publicly traded companies should disclose information on judicial and arbitration claims based on corporate or securities market legislation, or on the rules issued by the CVM. The purpose of the rule is to improve the mechanisms for protecting investors and minority shareholders by allowing them to take knowledge and assess claims that could potentially affect them. The communication obligation applies to corporate claims in which the issuer, its shareholders, or its managers appear as parties and which (i) involve rights or diffuse interests, collective or homogeneous individual; or in which (ii) a decision may affect the legal sphere of the company or other securities’ holders who are not parties to the process.

In Ms. Pela’s opinion, regulation is urgent and there is no room for questioning its relevance. Those involved should only debate what regulatory strategies should be used. For instance, one of the questions to be answered is what should the source of the regulation be, because it can be the CVM, the company itself, or arbitration institutions.

In the same sense, players must also discuss what will be the content of the regulation and the means through which shareholders will be informed about the initiation of the arbitration proceeding. Another issue is to determine how will the arbitral tribunal be selected, the cost allocation, and mechanisms to prevent simultaneous and conflicting awards. Ms. Pela also addressed the possibility of publication of arbitral awards and, consequently, a possible mitigation of confidentiality. Ms. Pela recommended the reading of the OCDE Report on Private Enforcement of Shareholder Rights, which presents a comparison of selected jurisdictions and policy alternatives for Brazil.

Lastly, Marcelo Barbosa highlighted that the B3 (the official stock exchange of Brazil) launched in 2000 the “Novo Mercado”, which is a high corporate governance segment which prescribes the need of the inclusion of arbitration clauses in the bylaws for companies that are seeking to be listed in this branch of the stock exchange. Mr. Barbosa stated that back in the day, nobody questioned if the market was ready for the collective arbitration issues that would arise, so that nothing was foreseen in the regulation in this regard.

Nevertheless, within the scope of publicly held companies, some information is relevant to be disclosed, because, in practice, this announcement may impact company’s share price and influence shareholders’ investment decisions. Who defines what is an “ato ou fato relevante” (relevant act or fact) is the CVM itself, as per its Instruction 358.

The reason behind the abovementioned CVM Resolution 80 is that company costs can interfere with shareholders’ rights. On this point, the CVM considered itself competent to regulate this issue, but the Commission has its competence restrained to the stock market and its powers are limited by law. Based on this restrictions, Mr. Barbosa has doubts if the CVM is competent to establish the regulation. Yet, the panelist said he believes that third-party funding of arbitrations is an issue that has the potential to be re-examined by regulator.

 

Conclusion

The first day of the CAM-CCBC Arbitration Congress is usually dedicated to exploring the current status of arbitration in Brazil and the world, and this year was not the exception. The panelists pointed out that the decision to regulate corporate law disputes is not easy. Usually, as far as regulation is concerned, less is more. At the same time, a well-regulated market can attract investments due to the increase in security and predictability which lower transaction costs.

Follow along and see all of Kluwer Arbitration Blog’s coverage of IX CAM-CCBC Arbitration Congress here.

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CAM-CCBC Arbitration Congress IX Edition: Tribute to Dr. Straube, General Program & Future of Independence and Impartiality in Arbitral Proceedings

Wed, 2022-11-02 00:30

On 17 and 18 October 2022, the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada held its IXth Arbitration Congress (“IX CAM-CCBC Congress” or “Congress”) in São Paulo. The Congress is the opening event of what became the Sao Paulo Arbitration Week (“SPAW”): a collaborative calendar for law firms, universities, associations, and institutions to organize and promote ADR events in Sao Paulo. The 5th edition of SPAW set a record: it registered 35 events from 17 to 23 October 2022.

The IXth CAM-CCBC Congress was also the largest CAM-CCBC’s in-person event in history; it gathered over 540 delegates from all over the world, and 26 speakers from 7 nationalities. The Congress’ Program was carefully designed to tackle hot topics of present and future of arbitration, while reflecting CAM-CCBC’s practical experience (managing over 1.400 arbitration proceedings in the last 10 years), and keeping its commitment to a diverse lineup of speakers.

The Congress held 5 panels, and 2 keynote speeches delivered by Professor Giuditta Cordero-Moss and Bernard Hanotiau. It also launched the CAM-CCBC’s New Arbitration Rules and CAM-CCBC New Generation Commission’s (Newgen) interactive research on diversity, privilege, and inclusion conducted.

Below we detail (i) the highlights of the Conference’s opening remarks, and (ii) Prof. Cordero-Moss’ main discussions on independence and impartiality of international adjudicators.

 

Opening Remarks and Tribute to Dr. Frederico Straube

Ms. Eleonora Coelho, CAM-CCBC’s President, opened the IXth CAM-CCBC Arbitration Congress by praising the privilege of holding in-person events after two years of online conferences and webinars. As her mandate as president will come to an end in the first semester of 2023, Ms. Coelho took a stroll down memory lane and brought out some key CAM-CCBC developments in the last 3 and a half years.

She mentioned how CAM-CCBC reacted promptly to the pandemic. In sum, CAM-CCBC issued rules for electronic proceedings and guidelines for virtual hearings; and enabled the use of new dispute resolution tools such as expedited arbitration rules; emergency arbitrator proceedings; and dispute boards.

Ms. Coelho highlighted CAM-CCBC’s commitment to transparency, diversity, sustainability, and  best practices in international arbitration.  In 2022, for instance, the Center published the “CAM-CCBC Facts and Figures 2020-2021” reporting its relevant data and initiatives.  In the same year, CAM-CCBC proudly announced gender parity among those appointed as chairperson or sole arbitrator.

Under Ms. Coelho’s leadership, CAM-CCBC also became a signatory of the Green Pledge. The Congress itself followed several recommendations set forth by the Green Protocol for Arbitration Conferences, and the event even received a carbon neutral certification.

Then, Ms. Coelho shed a light on the controversial bill (“anti-arbitration bill”) set to amend the Brazilian Arbitration Act (“BAA”). As previously covered here, the bill aims to (i) forbid arbitrators from acting in more than ten ongoing arbitrations, (ii) prohibit the constitution of identical or partially identical arbitral tribunals; (ii) impose a duty of disclosure to arbitrators under minimal doubt; (iii) prevent arbitral institutions’ Executive Committee or Secretariat members from acting as arbitrator and/or counsel in cases administered by the institution they are affiliated with; and (iv) determine the publication of data related to arbitral proceedings and awards. On this matter, Ms. Coelho believes that such a bill is a harmful initiative against an arbitration-friendly jurisdiction such as Brazil. Keynote speakers, Giuditta Cordero-Moss and Bernard Hanotiau, also voiced their concerns regarding the bill.

To close her remarks, Ms. Coelho paid an emotional tribute to former CAM-CCBC’s President Frederico Straube, who passed away earlier this year. Mr. Straube was a remarkable figure that played an important role on the development of arbitration in Brazil and paved the way for CAM-CCBC’s internationalization process by supporting ICCA initiatives, sponsoring the Willem C. Vis Moot, and drafting the 2012 CAM-CCBC Arbitration Rules in accordance with international standards.

 

What the future holds for independence and impartiality in international arbitration?

Following the opening ceremony, the Congress hosted the keynote speech on “Independence and Impartiality in International Adjudication” delivered by Professor Giuditta Cordero-Moss (University of Oslo). Over the past years, Professor Cordero-Moss has conducted an extensive analysis of reports from different countries on this subject. Although her conclusions will be presented at the International Academy of Comparative Law in October 23-27, 2022, in Asuncion, she provided the Congress’ delegates with a first-hand presentation on her study.

Professor Cordero-Moss starter her lecture remembering that independence and impartiality are fundamental principles in adjudications in general, and are laid down in national and international laws, transnational soft laws, arbitration rules, code of conducts and are part of the due process, the rule of law and public policy.

One could say that these two concepts are very often applied together. However, she mentioned that the UK Supreme Court (“Court”) recently mitigated arbitrators’ duty to act independently on a decision dated November 27, 2020. In Halliburton Company v. Chubb Bermuda Insurance Ltd, the Court ruled on the involvement of one arbitrator (Mr. Kenneth Rokison QC) in three arbitrations arising out of the Deepwater Horizon disaster in the Gulf of Mexico (previously covered here and here).

To what is relevant to the present discussion, Halliburton defended a presumption that an arbitrator should never accept appointments in multiple arbitrations involving crossover issues and one common party without disclosing these facts. Chubb, in turn, argued that the relevant test to remove an arbitrator is solely based on whether there are justifiable doubts as to the arbitrator’s impartiality – not independence.

The UK Supreme Court agreed with Chubb and dismissed Halliburton’s appeal. Among other reasons, the Court stated that:

“[t]he 1996 Act contains no provision which directly addresses the arbitrator’s independence and prior knowledge, but it imposes the centrally important obligations of fairness and impartiality. Therefore, an arbitrator would be in breach of the requirements of the 1996 Act if his or her lack of independence compromised the duties of fairness and impartiality” (at §126).

This interpretation was later confirmed by the UK Law Commission. In 2022, the UK Law Commission published a Consultation Paper to update the Arbitration Act 1996 (the Act), where it states that:

“[a]duty of independence is express in some foreign legislation and in some arbitral rules. Nevertheless, we are not persuaded that it is a virtue in itself. To this extent, we tend to agree with the DAC that what matters is impartiality. If the arbitrator is impartial, and is seen to be impartial, it should not matter whether they have a connection to the parties before them” (§3.40 – for more information, please see here).

The English interpretation of arbitrators’ duties to be impartial set the stage for additional interesting discussions. For instance, she detailed the scope of waivable and non-waivable challenges. Also, Professor Codero-Moss listed practices in certain types of arbitration, such as maritime, sports or commodities arbitration, where arbitrators are often chosen from a smaller or specialized pool of individuals. (see, for instance, IBA Guidelines on Conflicts of Interest in International Arbitration, Orange List, item 3.1.3, footnote 5). Considering that it is almost impossible to achieve complete independence in these areas, arbitrators’ competence and expertise are often prioritized over potential issues arising from repetitive appointments, as she confirmed. She also correctly argued that arbitrators with notable experience will have encountered many professionals and actors in their field, and, as such, absolute separation might seem not easily achievable.

Among other topics discussed, Professor Cordero-Moss touched upon Brazilian party leaders’ anti-arbitration bill to amend the BAA. Considering the discussions set forth above, she criticized the proposed prohibition for arbitrators to act in more than ten ongoing arbitrations. She couldn’t be clearer: restrictions to parties’ right to choose an arbitrator doesn’t correspond to international practice. It is up to the parties to decide whether they want to appoint an arbitrator, including to assess the pros and cons of their adjudicator being currently appointed in more than ten arbitral proceedings.

In light of the above, it seems that the UK Supreme Court decision and the Brazilian anti-arbitration bill demonstrate how discussions on independence and impartiality are on the rise in international arbitration nowadays. They also predict a rather controversial future for arbitration, which shall be subject of intense, but fascinating debates by the arbitration community.

 

Conclusion

As we longed for the return of in-person events, the CAM-CCBC Arbitration Congress proved to be an excellent opportunity to bring the arbitral community together to debate the today and the tomorrow of arbitration. In its first day, the Congress provided an important floor for meaningful discussions on independence and impartiality. As we know, restrictions of parties’ right to appoint an arbitrator are at the epicenter of the Brazilian controversial anti-arbitration bill.

 

Follow along and see all of Kluwer Arbitration Blog’s coverage of IX CAM-CCBC Arbitration Congress here.

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The EU’s Eighth Package of Sanctions Against Russia and the Potential Ramifications of a Blanket Ban on Legal Advisory Services

Tue, 2022-11-01 00:41

Over the past few weeks, Russia has announced a “partial mobilisation,” has illegally annexed the Donetsk, Luhansk, Zaporizhzhia and Kherson regions of Ukraine, and has repeatedly threatened to use weapons of mass destruction, thereby ruthlessly escalating its war of aggression against Ukraine. In response, the EU has imposed its eighth package of sanctions against Russia by adopting inter alia Council Regulation (EU) 2022/1904 of 6 October 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine and Council Regulation (EU) 2022/1905 of 6 October 2022 amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

Among other sanctions, described by the EU Council as “biting measures intended to reinforce pressure on the Russian government and economy, weaken Russia’s capabilities, and make the Kremlin pay for the recent escalation,” the eighth package includes a prohibitionto provide, directly or indirectly, [inter alia] legal advisory services […] to: (a) the Government of Russia; or (b) legal persons, entities or bodies established in Russia.” This ban on legal advisory services follows UK’s announcement, on 30 September 2022, of its own decision to ban the provision of such services in order to “hamper Russia’s businesses’ ability to operate internationally.

Even though the prohibition to provide legal advisory services has been carefully delineated so as not to encroach on the fundamental right of access to justice and to an effective legal remedy, this new prohibition might nonetheless ultimately affect dispute-resolution proceedings, including arbitration proceedings. As explained hereafter, the prohibition indeed risks deterring attorneys and legal counsel that are nationals of EU Member States or are operating within the EU from providing pre-trial/pre-arbitral advice to Russian entities concerning the viability of potential claims and defenses.

 

A Clear Attempt to Fetter Russia’s Economy

The ban on the provision of legal advisory services indiscriminately targets all Russian legal entities, in addition to the Government of Russia. It thus clearly differs from, and comes on top of, other – more targeted – measures which were already in place before the adoption of the eighth package of sanctions and which have the potential of impacting services provided by lawyers.

Indeed, the newly-imposed ban on legal advisory services comes in addition to sectoral sanctions in place against Russia, which prohibit not only the conclusion and performance of contracts involving exports and imports of certain goods or technology or involving certain activities, but also the provision of services related to such goods or technology or such activities, potentially including legal services. It also comes on top of anti-circumvention provisions, which prohibit the participation in activities whose object or effect is to circumvent, directly or indirectly, sanctions (see Council Regulation (EU) No 269/2014, Article 9 and Council Regulation (EU) No 833/2014, Article 12) and which compel attorneys to consider the types of activities prohibited so as toavoid unwittingly committing or becoming an accessory to the commission of a [sanctions] offence.” Anti-circumvention provisions have themselves been reinforced in the eighth package of EU sanctions against Russia, which introduces a new listing criterion allowing the EU to sanction persons who facilitate infringements of the prohibition against circumvention of the provisions of Council Regulation (EU) No 269/2014 (see Council Regulation (EU) 2022/1905, Article 1(1) (amending Article 3(1) of Council Regulation (EU) No 269/2014)).

Clearly, the purpose of the newly-imposed ban on legal advisory services is not just to ensure that attorneys refrain from providing services that might counter the effects of sanctions. Its primary purpose is to forcefully respond to Russia’s annexation of parts of the Ukrainian territory, through measures that have the potential to broadly affect Russia’s economy, knowing that “Russia is highly dependent on Western countries for legal services with 85% of all legal services being imported from G7 countries.

 

The Potential Tension Between the Ban on Legal Advisory Services and the Right to an Effective Legal Remedy

While the EU has imposed, in the context of its sanctions program against Russia, restrictions that might affect the provision of legal services, it has been careful to define these restrictions in such a manner as not to encroach on the fundamental right of access to justice and to an effective legal remedy, enshrined in Article 47 of the EU Charter of Fundamental Rights and Article 6 of the European Convention on Human Rights.

By way of example, as noted in a former blog entry by the same authors regarding the EU’s seventh package of sanctions against Russia, on 21 July 2022, the European Council adopted Council Decision (CFSP) 2022/1271 amending Decision 2014/512/CFSP and Council Regulation (EU) 2022/1269 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, in which the Council explained that “[i]n order to ensure access to justice, Decision (CFSP) 2022/1271 […] allows an exemption from the prohibition to enter into any transactions with Russian public entities necessary to ensure access to judicial, administrative or arbitral proceedings.” Further to these Council Decision and Council Regulation, Article 5aa of Regulation (EU) No 833/2014, which prohibits transactions with publicly-owned or -controlled Russian listed entities, was amended to specify that such prohibition shall not apply to “transactions which are strictly necessary to ensure access to judicial, administrative or arbitral proceedings in a Member State, as well as for the recognition or enforcement of a judgment or an arbitration award rendered in a Member State and if such transactions are consistent with the objectives of this Regulation and Regulation (EU) No 269/2014” (Article 5aa(3)(g)).

Before the adoption of Council Decision (CFSP) 2022/1271 and Council Regulation (EU) 2022/1269, the European Commission had already clarified, in June 2022, that “[w]ith regards to the provision of […] legal services, Article 5aa should be interpreted in light of the fundamental rights protected under the Charter, in particular the right of defence. This provision does not affect the provision of services that are strictly necessary for the exercise of the right of defence in judicial proceedings and the right to an effective legal remedy as referred in Article 47 of the EU Charter of Fundamental Rights and Article 6 of the European Convention on Human Rights.”1)Consolidated FAQs on the implementation of Council Regulation (EU) No 833/2014 and Council Regulation (EU) No 269/2014, p. 211, question no. 5. jQuery('#footnote_plugin_tooltip_43130_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43130_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

In the same vein, the EU Council has made it clear that the ban on legal advisory services that is part of the eighth package of sanctions only proscribes the provision of legal advice regarding non-contentious matters, and that there are certain exceptions to the ban.

Council Regulation (EU) 2022/1904 indeed defines “legal advisory services” as covering “the provision of legal advice to customers in non-contentious matters, including commercial transactions, involving the application or interpretation of law; participation with or on behalf of clients in commercial transactions, negotiations and other dealings with third parties; and preparation, execution and verification of legal documents. ‘Legal advisory services’ does not include any representation, advice, preparation of documents or verification of documents in the context of legal representation services, namely in matters or proceedings before administrative agencies, courts or other duly constituted official tribunals, or in arbitral or mediation proceedings.2)Council Regulation (EU) 2022/1904, recital 19. jQuery('#footnote_plugin_tooltip_43130_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_43130_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Furthermore, Council Regulation (EU) 2022/1904 specifies in Article 1(12) (amending Article 5n of Council Regulation (EU) 833/2014) that the prohibition “shall not apply to the provision of services that are strictly necessary for the exercise of the right of defence in judicial proceedings and the right to an effective legal remedy[,] [nor shall it apply] to the provision of services which are strictly necessary to ensure access to judicial, administrative or arbitral proceedings in a Member State, or for the recognition or enforcement of a judgment or an arbitration award rendered in a Member State, provided that such provision of services is consistent with the objectives of [Council Regulation (EU) No 833/2014] and of Council Regulation (EU) No 269/2014.

The above definition of “legal advisory services” and exceptions to the ban, read in conjunction with Article 47 of the EU Charter of Fundamental Rights – whereby the right to an effective remedy and to a fair trial includes the right to “have the possibility of being advised, defended and represented” – suggest that EU operators are not prohibited from providing legal advice to Russian legal entities ahead of dispute-resolution proceedings, including arbitral proceedings, if such advice concerns the viability of potential claims and defenses in contentious matters.

Knowing, however, that such advice might ultimately lead to a decision not to engage in legal, administrative or arbitral proceedings, the broad prohibition to provide legal advisory services might nonetheless deter EU operators from conducting any pre-trial or pre-arbitral claim assessment. Attorneys and legal counsel that are nationals of EU Member States or are operating within the EU might fear that pre-trial or pre-arbitral advice in fact be regarded as proscribed “legal advice […] involving the application or interpretation of law,” should there ultimately be no dispute. They might therefore choose not to provide any advice to Russian legal entities, so as to err on the side of caution. The coming months will be instructive in this respect.

References[+]

References ↑1 Consolidated FAQs on the implementation of Council Regulation (EU) No 833/2014 and Council Regulation (EU) No 269/2014, p. 211, question no. 5. ↑2 Council Regulation (EU) 2022/1904, recital 19. function footnote_expand_reference_container_43130_30() { jQuery('#footnote_references_container_43130_30').show(); jQuery('#footnote_reference_container_collapse_button_43130_30').text('−'); } function footnote_collapse_reference_container_43130_30() { jQuery('#footnote_references_container_43130_30').hide(); jQuery('#footnote_reference_container_collapse_button_43130_30').text('+'); } function footnote_expand_collapse_reference_container_43130_30() { if (jQuery('#footnote_references_container_43130_30').is(':hidden')) { footnote_expand_reference_container_43130_30(); } else { footnote_collapse_reference_container_43130_30(); } } function footnote_moveToReference_43130_30(p_str_TargetID) { footnote_expand_reference_container_43130_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_43130_30(p_str_TargetID) { footnote_expand_reference_container_43130_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Interviews With Our Editors: In Conversation with Prof. Vladimir Pavić, University of Belgrade, on the Past, Present and Future of Institutional Arbitration in Southeast Europe

Mon, 2022-10-31 00:14

Professor Vladimir Pavić is one of the leading scholars and practitioners in the area of international arbitration in Southeast Europe (SEE). He is Full Professor at the University of Belgrade, Faculty of Law where he teaches an array of courses, including among others, Arbitration Law, Competition Law, and Private International Law. He holds an SJD degree from the Central European University. In addition to being Vice President of the Belgrade Arbitration Center (BAC), Professor Pavić is a member of the VIAC International Advisory Board, ICC Central and Eastern Arbitration Group and is featured on lists of many arbitral institutions.

Professor Pavić, thank you so much for speaking with us about institutional arbitration in the region of Southeast Europe.

 

  1. In your view, what are the most important challenges that arbitration – and in particular institutional arbitration – faces currently in Southeast Europe?

I would say that a certain degree of inertia, perception of arbitration as a domain of solely international disputes or those involving ‘big players’, including governments, remains as a psychological obstacle for prospective new users. For repeat users, I would say it would be the tie-in with the judiciary and its performance in the setting aside and recognition proceedings. Finally, at least some institutions have been relatively slow to introduce administrative practices which implement modern technology.

 

  1. What are arbitral institutions currently doing to address these problems?

The challenges I referred to are almost entirely extraneous and institutions can address them indirectly: popularization of arbitration among prospective users is a matter of permanent and steady engagement and performance of the judiciary is better left to scrutiny of academia. Feedback and correction never happen overnight. As for technological innovations, they are being gradually implemented, and I am happy that the Belgrade Arbitration Center, from its inception, favored paperless arbitration and that almost all of its cases have been concluded through electronic exchange of documents, which is most welcome by experienced arbitration practitioners.

 

  1. There is the perception that parties in Southeast Europe tend to stay away from arbitration and prefer to litigate their commercial disputes. Is this correct? If so, why? And is there anything that arbitral institutions in the region could do to bring about a U-turn in this matter?

Again, most of it is inertia and misperception. During socialism, arbitration was perceived mostly as a channel of dispute settlement with the capitalist West, and the occasional headline in the newspapers is about arbitrations involving state or state-owned entities (investment and commercial). The bulk of the cases should always be domestic, and this stubborn misperception will take more time to eradicate. For repeat players and those involved in foreign trade it is less of a problem – it is more of a question of which rules to choose and where the seat will be. International corporations present in the region have their dispute resolution policies and, to put it mildly, from what I have seen, they tend to be fairly idiosyncratic.

 

  1. When it comes to international commercial arbitration, the big cases are usually administered by the historically most popular institutions such as the ICC International Court of Arbitration, LCIA, and VIAC. Is there scope for regionally-based arbitral institutions in Southeast Europe to compete against these institutions, or should they target a niche of international cases instead?

Case generation will predominantly be influenced by the size and structure of the economy. SEE countries’ economies are relatively small and international trade ties them strongly to the more developed countries. It is not realistic for regionally-based arbitral institutions to compete against the major arbitration centers for big cases; that would be an exercise in futility. But, just as there is no shoe suitable for every weather, I would argue that smaller, regional arbitral institutions can be nimbler and quicker in deciding small and medium-sized disputes, while remaining cheap. This seems to be a model that most of the regional instutitions are following, and this was the type of work for which BAC was established. We looked at the type and value of arbitrations that were generated regionally and domestically and designed our rules and schedule of costs accordingly. We will see if the structure of the caseload and perception of the region and regional arbitral institutions might change in the context of implementation of the Open Balkan economic integration initiative.

 

  1. Do you think there is enough cooperation among the arbitral institutions of Southeast Europe? Do you think there should be more joint efforts to address challenges that are in common for all or the majority of arbitral institutions?

There could be more cooperation, that is for sure, especially when it comes to raising awareness among potential users.

 

  1. In recent years, the arbitration community has been facing criticism for a lack of diversity, including on the grounds of lack of diversity in race, gender, age and socioeconomic factors among arbitrators and counsel. In the context of Southeast Europe, how are these issues being addressed?

I would say that in the context of the SEE (and decades of socialist and communist rule) the above concerns have somewhat different weighted average. At least when it comes to Serbian Arbitration Association and the Belgrade Arbitration Center, I can state with confidence that we have managed to ensure diversity among board members in both Association and the BAC, as well as with respect to appointment of arbitrators, without any need to resort to rigid formulas. Two out of five BAC Board members are women, and one of them, Professor Maja Stanivuković, is the President. Two out of five members of the Board of the Serbian Arbitration Association are women.

 

  1. You were the primary author of the arbitration rules for the Belgrade Arbitration Centre, a relatively young arbitral institution that has managed to establish itself as a significant player when compared to traditional arbitral institutions in Southeast Europe. Based on your experience, how should one approach developing arbitration rules from scratch?

“Something old, something new, something borrowed…” and at least have some clue – with regard to what kind of disputes you expect to administer. We looked at the statistics, polled our practitioners for what they normally encounter and who would be the potential users of the rules and then drafted the rules so as to address pertinent issues. Be flexible, and at the same time make sure not to overwhelm the first-time users among practitioners. As with every set of rules, there are things that could have been done differently, and everyday use immediately singles out provisions that might be improved. But, if there is any advice to be given, it is that, when writing a set of rules for a regional or local arbitration center, one should build the rules around the expected tasks and not necessarily try to replicate the latest amendments to the rules of the major arbitration centers. Ideally, rules should be flexible enough, feel familiar and without surprises to a user coming from outside of the region and, at the same time, not be too ‘foreign’ or even overwhelming to an inexperienced regional user.

For example, we do not have expedited rules and the proceedings are initiated by statement of claim exclusively. Most of the regional users find this approach simpler, it is more intuitive for first-time users and accelerates proceedings in the small and medium cases without the need to add another layer of (expedited) rules.

 

  1. What changes, opportunities and challenges might institutional arbitration in Serbia – and in Southeast Europe, in general – confront in the next ten years or so?

I expect some challenging times because of now enduring and deepening economic problems, which might reflect on the case load and willingness of the parties to pursue arbitration. Ongoing economic woes might lead to more disputes on the basis of the existing clauses. At the same time individual players might become more selective in pursuing arbitration due to cost concerns. This uncertainty is nothing new, just plays out in an ever more difficult market setting. On the other hand, it will be interesting to see whether a period of political and economic polarization might be a boost for arbitration in a way it used to be during the period of the Cold War.

 

Thank you for your time and perspectives – we wish you continued success!

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

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Are Environmental and Investment Protection Mutually Exclusive? Report of the ITA-ALARB Americas Workshop

Mon, 2022-10-31 00:05

This year’s ITA-ALARB Americas Workshop took place in early September and focused on the intersection between domestic environmental protections and international investment law. The workshop was co-chaired by Gabriela Álvarez Ávila (Partner, DLA Piper) and Miguel López Forastier (Partner, Covington & Burling).

The aim of the workshop was to address, from the perspective of states and foreign investors, the following questions: (i) What happens when the state’s interest in environmental protection results in governmental measures which collide with the legitimate interests of foreign investors? (ii) Are environmental regulations per se carved out from investor protections? (iii) To what extent can states be held accountable if their environmental regulations breach investment protections?

The workshop began with welcoming remarks by Tom Sikora (ITA Chair and Senior Counsel, Exxon Mobil Corporation) and Claus von Wobeser (ALARB President and Partner, Von Wobeser y Sierra). Mr. von Wobeser introduced the session stating that environmental protection concerns everybody today. Or as panelist Bernardo de la Garza put it, “the world finally comes to understand that we are heating up the planet” and the tension between environmental and investment protection should fade away. There is a general concern for making sure that investments in general will not hurt the environment and the new generations want to see investments that prioritize social and environmental interests.

Mr. von Wobeser indicated that several bilateral investment treaties (“BITs”) and investment chapters in free trade agreements (“FTAs”) now contain specific provisions regulating environmental issues and their relationship with investors. In most cases, these provisions aim to secure the state’s regulatory prerogatives and expressly recognize the rights of states to adopt and enforce legitimate environmental measures.

 

What have we learned from recent investment cases in which environmental issues were at the center stage?

Sebastian Wuschka (Luther) moderated the panel composed by John A. Terry (Tory’s), Abby Cohen Smutny (White & Case), and Ana María Ordóñez (National Legal Defense Agency of Colombia).

Mr. Terry began the conversation by referencing two specific cases that illustrate the importance of the fair and equitable treatment (“FET”) standard in connection with environmental regulations: Infinito Gold Ltd. v. Costa Rica and Eco Oro v. Colombia.  In Infinito Gold, Costa Rica issued a series of regulations and court decisions that provided contradictory messages to the investor and failed to provide a steady and predictable environment. In Eco Oro, Colombia’s delimitation of high-altitude wetlands, where a significant portion of the investor’s mining operation was to be conducted, amounted to a breach of the Colombia-Canada FTA. In addition to discussing FET, Mr. Terry also identified certain challenges concerning the filing of counterclaims under the state’s domestic law, including that BITs often provide that the law of the arbitration is comprised by the treaty provisions and public international law.

Subsequently, Ms. Cohen Smutny referenced the Santa Elena v. Costa Rica arbitration, where the tribunal held that protecting the environment is a valid public purpose for interfering with private properties. However, Ms. Cohen Smutny clarified that any such interference would need to comply with the protections afforded to foreign investors under international law and should be analyzed on a case-by-case basis. For instance, in the referenced Infinito Gold case, the applicable treaty provided that:

“[n]othing in this Agreement shall be construed to prevent a Contracting Party from adopting, maintaining or enforcing any measure otherwise consistent with this Agreement that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns.”  (see para. 770)

To apply such provisions, investment tribunals  must address complex interpretative issues, including: (i) Is this type of language a carve out from the treaty? (ii) Does this provision mean that environmental measures are not to be checked against the protections made available for investments? Or (iii) does this provision provide a special legal regime when it comes to environmental measures?

According to Ms. Cohen Smutny, not all of these provisions are necessarily phrased as exclusions or carve outs. In fact, a number of investment tribunals have consistently found that these provisions do not exclude environmental measures from the treaty’s protective scope. Rather, the exceptions might be construed as a limitation to the remedies available to  parties claiming a breach in relation to environmental measures. In essence, BITs and FTAs should not be interpreted as constraining the state’s environmental prerogatives. However, if these environmental measures – which are attributable to the state– breach international standards of protection, the state will be forced to compensate the investor.

Finally, Ms. Ordoñez addressed certain concerns generated by the ongoing Eco Oro case, namely the non-disputing party submissions and the joint interpretation of the minimum standard of treatment (“MST”) clause contained in the Colombia-Canada FTA. According to Ms. Ordoñez, the proposition that states can take environmental measures while still being liable to foreign investors as a result of those measures eliminates the practical effect of the environmental exceptions contained in certain modern treaties. To conclude, she stressed that counterclaims may be a proper tool to strike a balance between guaranteeing investors’ rights to seek redress for treaty breaches and holding them accountable for their actions during the course of the investment.

 

What are the challenges ahead from both a policy perspective and investment protections?

Attila Massimiliano Tanzi (Associate Member, 3VB Chambers,) moderated this panel, composed by Mairée Uran-Bidegain (Ministry of Foreign Affairs of Chile), Bernardo de la Garza (Independent Consultor), and Mónica Jiménez (Chief Strategy, Sustainability and Legal Officer, GeoPark).

At the outset, Ms. Uran-Bidegain indicated that in her opinion any apparent tension between environmental and investment protections is starting to fade. Among other reasons, because Latin American countries are incorporating in their BITs and FTAs explicit provisions seeking to ensure that environmental concerns are appropriately considered. In addition, she referenced a change in the world’s economic paradigm, making corporations and their owners accountable for any impact on the environment. To conclude, Ms. Uran-Bidegain opined that public demands on sustainable and inclusive developments will slowly be translated into new treaty provisions.

Bernardo de la Garza pointed out that in Mexico the Constitution was amended in 2013 to allow private investment in the energy sector, which included both the electric power and oil industries. This reform basically set a roadmap for Mexico’s energy transition and its implementation is, and will continue to be, crucial for Mexico and the region. Mr. de la Garza added that, even though Mexico has criticized the international investment protection system, he does not anticipate that Mexico will withdraw from any of its investment treaties or from investment arbitration mechanisms.

To finalize the panel, Mónica Jiménez provided a corporate perspective.  She delineated Colombia’s current situation regarding environmental and investment protections, in which the new government intends to enact further regulations aimed at accelerating climate change transitions in Colombia, by decreasing investments in exploration and fracking, among other measures. Companies will now have to see how these proposals are reflected in local law and  how they might impact their investments.

 

Rule of law presentation: Latin America as the crucible for developing a customary international law on state responsibility to aliens

Elena Mereminskaya (ITA Americas Initiative Chair and Partner at Wagemann Abogados & Ingenieros), introduced the workshop’s Rule of Law Latin America Presentation in celebration of the 75th Anniversary of the Center for American and International Law. The presentation was delivered by Santiago Montt (COO at Los Andes Coper Ltd.).

Mr. Montt started by laying out “e-ras” of challenges in protection of foreign investors in Latin America throughout history. During the 19th and early 20th century, the states faced Full Protection and Security (“FPS”) challenges; in the 20th century, states faced expropriation challenges; and, in the 21st century, states faced and continue to face FET challenges. Mr. Montt argued that Latin America has contributed to the development of public international law, especially to develop customary international law on state responsibility to aliens. These contributions to public international law included the prohibition of self-help, national treatment as a general rule, the doctrine of exhaustion of legal remedies as an exception for the protection of aliens, among others.

 

Young Lawyers Roundtable: Extract or not to extract? Legitimate expectations and environmental protections in Latin America

Karina Sauma (Young ITA) and Sebastian Briceño (ALARB) moderated the workshop’s final panel, composed by Daniela Páez (Associate Attorney, Hebert Smith Freehills), Diego Rueda (Senior Associate, Freshfields Bruckhaus Deringer), and Sylvia Sámano (Associate Attorney, Hogan Lovells).

Ms. Sámano provided a definition of “legitimate expectations” according to which states are required to maintain a certain degree of stability in the regulatory framework, which is relied upon by investors when making investments. She emphasized that “expectations” should not be deemed a subjective concept and that they should be restricted: only expectations that are legitimate may be protected under bilateral investment treaties and customary international law. In recent years, some BITs have included a clear reference to legitimate expectations. For instance, CETA makes a reference to legitimate expectations in the FET clause. To conclude, Ms. Sámano noted that in Charanne v. Spain, the tribunal found that Spain’s policy changes regarding the exploitation of photovoltaic plants were justified and did not violate the treaty in question. Specifically, the tribunal held that when Spain decided to promote investments in photovoltaic energies and Charanne invested in Spain, certain circumstances were unforeseeable and Spain’s legislative changes alone did not constitute a violation of Charanne’s legitimate expectations.

Mr. Rueda then took the floor and opined that there is no inherent contradiction between environmental protections and legitimate expectations. Moreover, he considered that: (i) investors do not generally argue that the legal framework cannot change, but request that the state respects the rights generated with the investment; and (ii) investors do not generally seek to bypass environmental regulations, but request compensation assuming that their project will not go forward. For instance, in the Eco Oro case, the investor’s claim concerned expropriation and breach of FET, but it was solely requesting compensation, since it had already renounced to its concession during the course of the arbitration. The one case in which the apparent tension could exist is the ongoing Greenland Minerals case, where the investor publicly announced that it seeks to proceed with its mining project and requested the tribunal to order Denmark to allow the mine’s operation to continue.

To conclude the panel, Ms. Páez discussed legitimate expectations in cases in the tourism sector. One such case is Aven and othes v. Costa Rica, which discussed legitimate expectations with regard to a tourism project in Costa Rica. In that case, the tribunal interpreted the CAFTA-DR based on a provision that subordinated the investor’s rights to the rights of the state to ensure the investments were carried on “in a manner sensitive to environmental concerns.”  Based on this provision, the Tribunal concluded that the state did not have an absolute right to implement environmental regulations—it was subject to principles of due process that must be exercised in a fair and non-discriminatory fashion. Regarding the protection of communities, Ms. Páez mentioned the recent filing of amicus briefs by five NGOs before Colombia’s Constitutional Court, advocating for indigenous communities’ rights in relation to the arbitrations commenced by Glencore and Anglo-American against Colombia.

Ms. Páez also answered a question from the audience regarding the State’s international obligation to consult indigenous people affected by investment projects. She distinguished this situation and noted that, in these cases, States may be sued before the Inter-American Court of Human Rights under the applicable international instrument. However, the organs of the Inter-American System of Human Rights lack competence and jurisdiction to hear direct claims against individuals and foreign investors. In these situations, the State has the obligation to enforce the indigenous communities’ rights pursuant to local and international law, as applicable.

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KluwerArbitration ITA Arbitration Report, Volume No. XX, Issue No. 12 (September 2022)

Sun, 2022-10-30 00:29

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

 

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

 

InterSystems Software (Beijing) Co., Ltd. v. Beijing Shiying Hezhong Digital Technology Co., Ltd., Supreme People’s Court of the People’s Republic of China, (2019) Zui Gao Fa Zhi Min Xia Zhong No. 477, 15 April 2020

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

The laws of the People’s Republic of China (“PRC”) mandate a valid arbitration agreement must manifest the parties’ s clear intent of arbitration, and an arbitration agreement shall be deemed invalid if it provides both arbitration and litigation as methods of dispute resolution. Here the Supreme People’s Court upheld the validity of such an arbitration agreement by distinguishing the disputes to be resolved by arbitration and litigation, which is worth revisiting.

 

Société Rio Tinto et autre v. Société Alteo Gardanne, Court of Appeal of Paris, 19/19201, 11 January 2022

Nataliya Barysheva and Valentine Chessa, MGC Arbitration, ITA Reporters for France

The Paris Court of Appeal refused to set aside an ICC Award confirming that the non-disclosure by the arbitrator of information is not sufficient per se to characterize a lack of independence or impartiality. It should give rise to a reasonable doubt in the parties’ eyes, which was not the case.

 

République de Guinée Équatoriale v. M. Fotso et Société SA Commercial Bank Guinea Ecuatorial (GBGE), Court of Appeal of Paris, 19/05045, 22 February 2022

Nataliya Barysheva and Valentine Chessa, MGC Arbitration, ITA Reporters for France

The Paris Court of Appeal partially annulled an award rendered in favour of a Cameroonian investor and its bank against the Republic of Equatorial Guinea considering that the Arbitral Tribunal exceeded its mandate by ordering payments that were not requested by the parties neither in the Terms of Reference nor in the submissions.

 

Republique de Pologne v. Société CEC Praha et Société Slot Group AS, Court of Appeal of Paris, 20/14581, 19 April 2022

Nataliya Barysheva and Valentine Chessa, MGC Arbitration, ITA Reporters for France

The Paris Court of Appeal set aside an arbitral award rendered in favour of a Czech investor after finding that, pursuant to the ruling in the Achmea case, an intra-EU BIT cannot constitute a valid ground for the Arbitral Tribunal’s jurisdiction.

 

La Republique [A] v. Société Groupement [B], Court of Appeal of Paris, 20/03242, 05 April 2022

Nataliya Barysheva and Valentine Chessa, MGC Arbitration, ITA Reporters for France

The Paris Court of Appeal annulled an award rendered in favour of a consortium that had carried out public road works in the Republic of A, considering that the evidence revealed a set of sufficiently serious, precise and concordant indicia of corruption, so that the recognition and the enforcement of the award would violate international public policy.

 

Plaintiffs X1 and X2 v. Defendants Y1, Y2 and Y3, District Court of Sapporo, , 08 February 2022

Akiko Inoue, Hisaya Kimura and Koki Yanagisawa, Nagashima, Ohno & Tsunematsu, ITA Reporters for Japan

Non-parties were bound by arbitration agreements in a construction dispute. The court granted a motion to dismiss by Defendants holding that the arbitration agreements shall bind Defendants who were non-parties to the agreements, taking into consideration various circumstances such as the history of the conclusion and performance of the relevant construction contracts and heavy involvement of the Defendants in conclusion and performance of the contracts.

 

Juan Ernesto Villamayor Tommasi and Sergio Andrés Coscia v. Municipalidad de Asunción, Court of Appeal in Civil and Commercial Affairs of Asunción, 40/2020, 29 July 2020

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

On July 29, 2020, an Asunción Appeals Court rejected an annulment and appeal request, as it considered that the First Instance Judge correctly determined that national awards should go directly to an enforcement stage, omitting the recognition stage that is required for foreign awards.

 

Seatramp Tankers Inc. y otro v. Proyectos y Construcciones S.R.L., Court of Appeal in Civil and Commercial Affairs of Asunción, 146/2021, 07 December 2021

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

On December 7, 2021, after considering that the grounds for denying enforcement of the New York Convention were not met, an Asunción Appeals Court partially granted an annulment request and overturned the ruling of the First Instance Judge that had denied the enforcement of an arbitral award.

 

Naviera Yeruti S.A. v. Naviera Conosur S.A., Court of Appeal in Civil and Commercial Affairs of Asunción, 17/2022, 14 March 2022

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

On March 14, 2022, an Asunción Appeals Court rejected an appeal presented against a judgment that ordered the enforcement of a national arbitral award, thereby confirming the First Instance Ruling.

 

Reginald Middleton and Veritaseum, LLC v. T-Mobile US, Inc., United States District Court, Eastern District of New York, 20-CV-3276 (NGG) (JRC), 24 August 2022

Nicolas D. Franco, King & Spalding LLP, ITA Reporter for the United States of America

Defendant T-Mobile moved to compel arbitration of Plaintiffs Reginald Middleton and Veritaseum, LLC’s claims under the Terms and Conditions included in Mr. Reginald’s agreements for his T-Mobile account.

T-Mobile’s motion to compel raised two issues:  whether Mr. Middleton was sufficiently on notice of T-Mobile’s contract terms and whether he assented to them.

The district court compelled arbitration of Mr. Middleton’s claims, finding for T-Mobile on both issues.  Mr. Middleton was deemed sufficiently on notice of the terms because the receipts of his purchases—displayed on a device at checkout or via DocuSign—included the entire agreement and referenced arbitration.  Mr. Middleton assented to being bound by those terms by signing about 10 such agreements with T-Mobile over the course of about two years with T-Mobile.

The district court further compelled arbitration of Veritaseum, LLC’s claims, concluding that, as a company whose sole owner was Mr. Middleton, Veritaseum received a direct benefit from the agreements from Mr. Middleton’s use of T-Mobile’s services to conduct business.

 

Jones Day v. Orrick, Herrington & Sutcliffe, LLP et al., United States Court of Appeals, Ninth Circuit, No. 21-16642, D.C. No. 4:21-mc-80181-JST, 01 August 2022

Chris Smith, King & Spalding LLP, ITA Reporter for the United States of America

Appellant-Petitioner Jones Day initiated JAMS arbitration in Washington, D.C., against former partner Michael Bühler, alleging that the Paris-based attorney breached his partnership agreement with Jones Day when he negotiated to join the partnership of Appellee-Respondent, Orrick, Herrington & Sutcliffe, LLP (“Orrick”). The JAMS arbitrator issued subpoenas to Orrick to appear before the arbitrator and produce documents. Orrick refused to comply with the subpoenas.

Jones Day petitioned the Superior Court of the District of Columbia to compel Orrick to comply with the arbitrator’s subpoena. The court declined to do so, finding that it did not have personal jurisdiction over Orrick, whose principal place of business was in San Francisco. The court also declined Jones Day’s request based on the fact that Section 7 of the Federal Arbitration Act (“FAA”) “requires Jones Day to file its action to enforce an arbitral subpoena in a United States district court.”

Jones Day then requested that the arbitrator sit for a hearing in the Northern District of California (the “District”) and issue a revised subpoena requiring two Orrick partners residing in that District to appear at a hearing there. The arbitrator granted the request and issued the subpoenas. Orrick again refused to comply, and Jones Day filed an action in the District Court for the Northern District of California (the “District Court”) to enforce the arbitrator’s order.

The District Court denied Jones Day’s petition, concluding that under Section 7 of the FAA only the federal district court where the arbitrator sits has the authority to compel attendance. Because the seat of arbitration was Washington, D.C., the District Court concluded that the enforcement action must be brought there. The District Court rejected Jones Day’s argument that an arbitrator can be seated in more than one location.

The United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit” or the “Court”) disagreed. The Court held that because Orrick resided in the District of Columbia, for jurisdictional purposes, and Mr. Bühler was not a U.S. citizen, the New York Convention governed the arbitration, giving the District Court subject matter jurisdiction. Next, the Ninth Circuit moved to consider the issues of venue. The Court held that the general venue statute at 28 U.S.C.A. § 1391 provided that so long as a federal court has personal jurisdiction over the defendant, venue always will lie somewhere. The Ninth Circuit held that the FAA’s venue provision supplements, rather than replaces, other venue rules such as those found in the general venue statute. The Court then found that the Northern District of California was the proper venue under the statute to enforce an arbitral summons issued by an arbitrator sitting in that district, where the District Court had personal jurisdiction over Orrick because its principal place of business was in the District.

 

ACE American Insurance Company v. University of Ghana, United States District Court, Southern District of New York, 21 Civ. 6472 (NRB), 15 August 2022

Xiaomao Min, King & Spalding LLP, ITA Reporter for the United States of America

Petitioner, ACE American Insurance Company (“ACE”), sought confirmation and enforcement of an alleged foreign arbitral award against Respondent, University of Ghana (“UG”), in the Southern District of New York.  UG moved to dismiss the petition for lack of personal jurisdiction, lack of subject matter jurisdiction, and improper venue, or to stay the action in the alternative pending the outcome of the arbitration in London.  The district court granted UG’s motion to dismiss the petition for lack of personal jurisdiction.

 

ConocoPhillips Petrozuata B.V., ConocoPhillips Hamaca B.V. and ConocoPhillips Gulf of Paria B.V v. Bolivarian Republic of Venezuela, United States District Court, District of Columbia, Civil Action No. 1:19-cv-0683 (CJN), 19 August 2022

Elizabeth Warwick, King & Spalding LLP, ITA Reporter for the United States of America

Petitioners, three Dutch subsidiaries of ConocoPhillips, sought to confirm and enforce an arbitration award against the Bolivarian Republic of Venezuela, Respondent, rendered 15 years prior. The U.S. District Court for the District of Colombia granted default judgment in favor of Petitioners after Respondent failed to appear in the proceedings.

An ICSID tribunal had rendered an award in favor of Petitioners in September 2013, holding that Respondent had expropriated Petitioners’ business interests in three oil projects in violation of the bilateral investment treaty (“BIT”) between the Netherlands and Venezuela.

Respondent moved for reconsideration of the award, but the tribunal rendered an Interim Decision in January 2017 reaffirming its prior findings. In March 2019, a final award was rendered by the tribunal ordering Respondent to pay Petitioners US$8,754,907,155, with post-award interest to accrue from May 2019 until the date of full and final payment.

Respondent applied to ICSID for a stay of the enforcement, and ultimately annulment, of the Award.

In March 2019, Petitioners commenced an action in the United States District Court for the District of Columbia to enforce the Award. Respondent failed to respond, and Petitioners moved for entry of default judgment.

On finding (i) the Court had subject-matter jurisdiction, (ii) the Court had personal jurisdiction over Respondent, (iii) Respondent had failed to respond to proper service, (iv) Petitioners’ claim for relief had been sufficiently established, and (v) the annulment proceedings did not disturb entry of Default Judgment, the Court granted Petitioners’ Motion for Default Judgment.

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Open Position: Assistant Editor of Kluwer Arbitration Blog

Sat, 2022-10-29 00:47

The Editorial Board of Kluwer Arbitration Blog announces the opening of the following position with Kluwer Arbitration Blog: Assistant Editor for Technology.

The Assistant Editor reports directly to the coordinating Associate Editor and is expected to (1) collect, edit and review guest submissions on technology-related issues for posting on the Blog, while actively being involved in the coverage of technology-related issues; and (2) write blog posts as contributor. You have the opportunity to work with a dynamic and dedicated team and liaise with the best arbitration counsel in the world.

The Assistant Editor will work remotely. Please note that this is a non-remunerated position. If you are interested, please submit a resume and cover letter by email to Dr Crina Baltag, [email protected].

Only shortlisted candidates will be contacted. The deadline for receiving the applications is 14 November 2022. Interviews of the shortlisted candidates likely to be scheduled between 15 and 25 November 2022.

More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Arbitration in Egypt: A Practitioner\'s Guide
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C v D: Hong Kong in Step with the Admissibility Versus Jurisdiction Debate

Fri, 2022-10-28 00:30

The differences between admissibility and jurisdiction in arbitration have been recognized in various jurisdictions, such as the UK, US and Singapore, and they have been covered extensively in academic scholarship. This post will discuss the distinctions drawn between admissibility and jurisdiction by the Court of Appeal in Hong Kong in C v D.1)[2022] HKCA 729; CACV 387/2021 (7 June 2022) jQuery('#footnote_plugin_tooltip_42909_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_42909_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

C v D marks an important development in the judicial landscape of Hong Kong, as it confirms the arbitral tribunal’s prerogative to decide on pre-arbitration procedural requirements as an issue of admissibility, thereby precluding subsequent review by the Courts.

 

Background 

Procedural pre-conditions sometimes require parties to use more consensual methods of alternative dispute resolution (such as negotiation, joint fact-finding teams or mediation) before resorting to arbitration. Such pre-conditions may be optional or mandatory, depending on the language used in the clause.

Before going into the question of whether such procedural pre-conditions are a matter of admissibility or jurisdiction, it is important to understand the distinction between the two concepts. While admissibility of a claim relates to whether it is appropriate for the claim to be brought before the tribunal, jurisdiction concerns the power of the tribunal to decide the matter.2)Dissenting Opinion of Keith Highet, in Waste Management, Inc v United Mexican States, ICSID Case No ARB(AF)/98/2. jQuery('#footnote_plugin_tooltip_42909_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_42909_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); While explaining this core aspect of the distinction between jurisdiction and admissibility, Jan Paulsson3)Jan Paulsson, “Jurisdiction and Admissibility” (2005) in Global Reflections on International Law, Commerce and Dispute Resolution, LiberAmicorum in honour of Robert Briner (Gerald Aksen et al, eds) (ICC Publishing, 2005) at pp 616 and 617; see also CIArb Guideline on Jurisdictional Challenges (2015) at paras 6–8 of the preamble and the commentary on Article 3). jQuery('#footnote_plugin_tooltip_42909_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_42909_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); laid down a “tribunal versus claim” test. If the objection negates consent to the forum and thereby affects arbitrability of the matter, it is targeted at the tribunal, whereas if the objection is that the claim itself is defective and should not be raised at all, it is targeted at the claim.

 

Judgment 

In C v D, the Court of Appeal in Hong Kong held that the question of whether a pre-arbitration procedural requirement, such as negotiation, has been fulfilled or not is a question suitable for determination by an arbitral tribunal, i.e., a matter of admissibility. In doing so, it made a firm distinction between admissibility and jurisdiction of claims in arbitration, in line with international best practice and jurisprudence.

In brief, the facts of the case are that the dispute resolution clause in the contract between the parties for the development and building of a satellite, stipulated that the parties shall resolve their disputes, first and foremost, by negotiation. Thereafter, if within 60 days, the negotiation is unsuccessful, the parties may refer the dispute to arbitration for further determination.

C contended that since there was no request for negotiation as per the dispute resolution clause, the arbitral tribunal did not have jurisdiction over the matter. In its Partial Award, the tribunal found that D had made a request for negotiation, rejected C’s objections on jurisdiction and held that C was liable to pay damages.

C sought a declaration to set aside the Partial Award before the Court of First Instance, citing a lack of jurisdiction under Article 81 of the Hong Kong Ordinance, CAP 609 (“Ordinance”), which mirrors Article 34 of the Model Law (“Model Law”). The grounds in the setting aside application were that the award deals with a dispute that is not within the ambit of the terms of submission to arbitration (Article 34 (2)(a)(iii) of the Model Law) and that the arbitral procedure was not in accordance with the agreement of the Parties (Article 34 2 (a)(iv) of the Model Law).

Following an in-depth analysis of judgments on the topic in the UK,4)See PAO Tatneft v Ukraine [2018] 1 WLR 5947, in Sierra Leone v. SL Mining Limited [2021] EWHC 286. jQuery('#footnote_plugin_tooltip_42909_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_42909_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Singapore,5)See BBA v. BAZ [2020] 2 SLR 453, BTN V. BTP [2021] 1 SLR 276. jQuery('#footnote_plugin_tooltip_42909_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_42909_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and the U.S.,6)BG Group PLC v Republic of Argentina 134 S Ct 1198 (2014). jQuery('#footnote_plugin_tooltip_42909_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_42909_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); as well as various authorities,7)Gary Born, International Commercial Arbitration (3rd ed 2021), at pp 997-1001, Jan Paulsson, in Jurisdiction and Admissibility in Global Reflections on International Law, Commerce and Dispute Resolution (ICC Publishing, 2005), at pp 615-617; Merkin and Flannery on the Arbitration Act 1996 (6th ed 2019), at §§30.3 and 30.13; Merkin and Flannery, Emirates Trading, good faith, and pre-arbitral ADR clauses: a jurisdictional precondition?, in Arbitration, International (OUP 2015), 31, 63-106, at p 105; and Chartered Institute of Arbitrators, International Arbitration Practice Guideline on Jurisdictional Challenges (29 November 2016), at Preamble 6 and pp 15-16. jQuery('#footnote_plugin_tooltip_42909_30_7').tooltip({ tip: '#footnote_plugin_tooltip_text_42909_30_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); the Court of First Instance observed that although the distinction between jurisdiction and admissibility may not be found in written law, it is “a concept rooted in the nature of arbitration itself.”8) C v D [2021] HKCFI 1474   jQuery('#footnote_plugin_tooltip_42909_30_8').tooltip({ tip: '#footnote_plugin_tooltip_text_42909_30_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Although Section 81 of the Ordinance on setting aside proceedings, which essentially aligns with Article 34 of the Model Law, does not distinguish between the two, the distinction may be relied upon to inform the construction and application of Section 81. This was based on the approach of achieving the underlying principles and object of the Ordinance, i.e., to facilitate efficient dispute resolution without unnecessary expense, and to uphold party autonomy whilst limiting the court’s interference to a minimum.

Against this backdrop, the Hong Kong Court clarified that compliance with procedural pre-arbitration conditions must be considered a matter of admissibility (and not of jurisdiction), regarding which the decision of the arbitral tribunal is considered final.

This ruling in C v D has been confirmed in two further cases before the Hong Kong Courts. In Kinley Civil Engineering Ltd v Geotech Engineering Ltd [2021] HKCFI 2503, Kinley initiated proceedings against Geotech, for payment under a construction sub-contract for a public housing development project. The dispute resolution clause under the contract provided that the arbitration shall not be conducted before either the completion of the main contract or the completion of the sub-contract. The Hon. Madam Justice Mimmie Chan held that the question of compliance with the procedure or pre-conditions to arbitrate, as set out in the arbitration agreement, is a question of admissibility to be decided by the tribunal. The Court had no role to play in such a matter, as it does not go to the jurisdiction of the tribunal. In T v B [2021] HKCFI 3645, the claimant sought to refer certain disputes arising out of a sub-contract in relation to reclamation and advance works to arbitration. The defendant objected on the basis that it was premature as the completion certificate had not been issued, which was confirmed by the arbitrator in an interim award. The claimant subsequently filed a setting aside application. In this case too, the Court upheld C v D, and refused to set aside the arbitral award while holding that the issue of prematurity was a matter of admissibility.

The first instance court’s decision in C v D was thereafter appealed to the Court of Appeal, which observed that it was necessary to gauge whether the parties intended or agreed for the question of fulfillment of the pre-arbitration procedural requirement to be determined by the arbitral tribunal.9)Fiona Trust Corp v. Privalov [2007] 4 All ER 952 jQuery('#footnote_plugin_tooltip_42909_30_9').tooltip({ tip: '#footnote_plugin_tooltip_text_42909_30_9', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Considering the intention of the parties to refer the dispute to arbitration, the Hon. Justice G Lam of the Court of Appeal held that any dispute on whether a pre-arbitration procedural requirement is met was best decided by the arbitral tribunal, and is an issue that goes to the admissibility of the matter.

The Court further held that, since disputes on fulfillment of pre-arbitration procedural requirements were not excluded by parties from the jurisdiction of the arbitral tribunal, an inference could be made about parties’ intention to refer such disputes to the same tribunal. Therefore, disputes relating to fulfillment of pre-procedural requirements were within the scope of submission to arbitration and could not be set aside under Article 34(2)(a)(iii) of the Model Law.  Accordingly, in C v D, the Court found that it was not the parties’ intention to treat non-fulfillment of such requirement as disagreement to arbitration.

 

Commentary and Conclusion

Gary Born has opined that parties presumably desire arbitration to be a centralized forum or a “one stop shop” for dispute resolution. In this regard, determining compliance with pre-arbitrational procedural requirements is better suited for resolution by the arbitral tribunal, as this pertains to admissibility and is subject to minimal judicial review, unlike other procedural decisions.10)Gary Born, International Commercial Arbitration (3rd ed 2021), at pp 997-1001 jQuery('#footnote_plugin_tooltip_42909_30_10').tooltip({ tip: '#footnote_plugin_tooltip_text_42909_30_10', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Debates on admissibility and jurisdiction often involve the question of why distinguishing them is necessary. The distinction is important for two main reasons. Primarily, it elucidates the difference between questions of whether it is appropriate for the tribunal to proceed with the matter (admissibility) and whether the tribunal has the power to decide on the merits of the matter (jurisdiction). Depending on whether an issue is one of admissibility or jurisdiction, one can tell if the tribunal’s decision on that issue will be subject to de novo review by the Court or not. In the case of admissibility issues, the hands of the Court are tied, while in the case of jurisdiction issues, the decision may be set aside pursuant to Article 34 of the Model Law.

Although the distinction between admissibility and jurisdiction is not explicitly articulated in the Ordinance, the judgment in C v D has firmly established that it shall be relied upon for the construction and application of setting aside of awards under Section 81, which mirrors Article 34 of the Model Law. By referring to the parties’ intentions in its reasoning to decide whether non-compliance with pre-arbitration procedural requirements falls within the scope of arbitration, the Hong Kong Court essentially validated the arbitration proceedings. This result in C v D, in turn, validates the pro-arbitration nature of Hong Kong’s arbitration regime by encouraging party autonomy, restricting court interference in arbitration proceedings, and satisfying the objective of arbitration to achieve efficient dispute resolution.

References[+]

References ↑1 [2022] HKCA 729; CACV 387/2021 (7 June 2022) ↑2 Dissenting Opinion of Keith Highet, in Waste Management, Inc v United Mexican States, ICSID Case No ARB(AF)/98/2. ↑3 Jan Paulsson, “Jurisdiction and Admissibility” (2005) in Global Reflections on International Law, Commerce and Dispute Resolution, LiberAmicorum in honour of Robert Briner (Gerald Aksen et al, eds) (ICC Publishing, 2005) at pp 616 and 617; see also CIArb Guideline on Jurisdictional Challenges (2015) at paras 6–8 of the preamble and the commentary on Article 3). ↑4 See PAO Tatneft v Ukraine [2018] 1 WLR 5947, in Sierra Leone v. SL Mining Limited [2021] EWHC 286. ↑5 See BBA v. BAZ [2020] 2 SLR 453, BTN V. BTP [2021] 1 SLR 276. ↑6 BG Group PLC v Republic of Argentina 134 S Ct 1198 (2014). ↑7 Gary Born, International Commercial Arbitration (3rd ed 2021), at pp 997-1001, Jan Paulsson, in Jurisdiction and Admissibility in Global Reflections on International Law, Commerce and Dispute Resolution (ICC Publishing, 2005), at pp 615-617; Merkin and Flannery on the Arbitration Act 1996 (6th ed 2019), at §§30.3 and 30.13; Merkin and Flannery, Emirates Trading, good faith, and pre-arbitral ADR clauses: a jurisdictional precondition?, in Arbitration, International (OUP 2015), 31, 63-106, at p 105; and Chartered Institute of Arbitrators, International Arbitration Practice Guideline on Jurisdictional Challenges (29 November 2016), at Preamble 6 and pp 15-16. ↑8 C v D [2021] HKCFI 1474   ↑9 Fiona Trust Corp v. Privalov [2007] 4 All ER 952 ↑10 Gary Born, International Commercial Arbitration (3rd ed 2021), at pp 997-1001 function footnote_expand_reference_container_42909_30() { jQuery('#footnote_references_container_42909_30').show(); jQuery('#footnote_reference_container_collapse_button_42909_30').text('−'); } function footnote_collapse_reference_container_42909_30() { jQuery('#footnote_references_container_42909_30').hide(); jQuery('#footnote_reference_container_collapse_button_42909_30').text('+'); } function footnote_expand_collapse_reference_container_42909_30() { if (jQuery('#footnote_references_container_42909_30').is(':hidden')) { footnote_expand_reference_container_42909_30(); } else { footnote_collapse_reference_container_42909_30(); } } function footnote_moveToReference_42909_30(p_str_TargetID) { footnote_expand_reference_container_42909_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_42909_30(p_str_TargetID) { footnote_expand_reference_container_42909_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Yonsei Arbitration Day: War and Arbitration

Fri, 2022-10-28 00:10

The Third Annual Yonsei Arbitration Day (YAD) was held virtually on 26 August 2022. With the war raging in Ukraine, “War and Arbitration” was the event’s main topic, and the keynote speaker and headline session dealt with the present and future of international arbitration regarding armed conflicts. More than 140 participants from at least 24 countries joined this year’s webinar.1)The event was organized by the Yonsei International Arbitration Association (YIAA), based at Yonsei University in Seoul, Korea, under the guidance of Professor Joongi Kim. Hyewon Yoon, Hwan Kang, and Seyeob Kim were on this year’s organizing committee. KCAB INTERNATIONAL participated as the partner institution, and Peter & Kim, Vienna International Arbitral Centre, and Hong Kong International Arbitration Centre sponsored the event.

Started in 2020, YAD is the first student-led conference in Asia where practitioners, scholars, and students come together annually to reflect on issues in the international arbitration field. The conference aims to provide a platform for eminent scholars, practitioners, and students to convene and gain insight into fast-changing matters in the international arbitration community. jQuery('#footnote_plugin_tooltip_43157_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_43157_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

War causes complex entanglements between states, individuals, corporations, and other groups. The impacts range from human rights to investments. YAD 2022 demonstrated to the audience why and how arbitration could be an effective method to undo the knots, however complex they may be.

 

Keynote: The Need for Change in the International Arbitration System in the Face of War

Keynote speaker Ms. Olena Perepelynska (President of the Ukrainian Arbitration Association; Partner, Integrites) suggested improving the current international arbitration system’s ability to deal with international law violations when it comes to war. The international arbitration system, alongside treaties such as bilateral investment treaties (BITs), exists on the premise that states follow the rule of law. Some clauses within these treaties concern war, but they do not properly address the situation where one state invades and occupies another. Therefore, if one state chooses to break the law by committing acts of aggression without fear of consequences, as Russia has been doing in Ukraine according to Perepelynska, there is no clear answer as to what the system can do in response.

As a Ukrainian practitioner specializing in international arbitration, Perepelynska asserted the need for the system and BITs to consider the harsh reality of armed conflicts between contracting states. Definitive answers are required to questions such as how to address the aggressors’ jurisdictional immunity, how awards are going to be enforced, and how to bring aggressors to the table so they can be held accountable for their violations. She went as far as to say that there should be an exception to jurisdictional immunity of the aggressor if one state invades another. According to Perepelynska, if a new mechanism is not devised to solve these issues after the Ukraine War and the system fails to hold Russia accountable, the world will easily witness another war in the future.

 

The Relationship between War and Arbitration

The keynote speech was followed by a panel moderated by Ms. Mimi Ahn (Associate Director, Focus Law Asia LLC), who engaged the panelists, Professor Chiara Giorgetti (Richmond Law School), Mr. Jeremy K. Sharpe (Senior Fellow, Columbia Law School), Ms. Carolyn Lamm (Partner, White & Case), along with the keynote speaker Perepelynska, in a discussion on the relationship between arbitration and war.

 

Arbitration After War

Giorgetti discussed the aftermath and effects of war concerning the basis for a claim or enforcement. She opined that international arbitration could provide a necessary remedy for parties in conflict concerning a variety of claims. Past examples provide some indications that international arbitration can be helpful for Ukrainians, connected individuals, and corporations that have suffered a wide range of damages, including displacement, economic and personal harm, and damage to property.

She explained how history has proven that international arbitration is an effective mechanism for post-conflict dispute resolution. Arbitration was the dispute resolution mechanism used to resolve disputes between the U.S. and Great Britain after American independence (1794 John Jay’s Treaty), to determine compensation for injuries (1872 arbitration of the Alabama Claims), and to settle boundary issues (1896 arbitration after Venezuela Boundary Dispute between British Guiana and Venezuela). It was also effective not only between states, but also between states and non-state actors (2008 Abyei Arbitration), and ad hoc agreements similar to the arbitration process have previously created a chance for individual victims to be included as claimants. Examples include the Iran-US Claims Tribunal (IUSCT) and the Commission for Real Property Claims of Displaced Persons and Refugees for Bosnia and Herzegovina.

Giorgetti then expanded on how arbitration can provide for a variety of claims and actors. One useful example is the Algiers Peace Agreement (2000) between Ethiopia and Eritrea, where arbitration committees (the Eritrea-Ethiopia Boundary Commission (EEBC), and the Eritrea-Ethiopia Claims Commission (EECC)) were created to settle boundaries and claims for loss, damages, or injury. The committees were successful in ending the violence as both parties were able to agree on the boundary and no further conflicts ensued.

 

Arbitration and Economic Sanctions

Sharpe delved into the implications of economic sanctions during the war and how to deal with them in the arbitration field. He first pointed out that economic sanctions add significant complexity to international arbitration due to the diversity of types, objects, and authorities of sanctions.

Sharpe called attention to how economic sanctions can cut across international arbitration processes. Sanctions may present obstacles to the admissibility of a case to arbitration or may activate denial of benefits provisions of the investment treaties as was the case with the Ukrainian Ministry of Foreign Affairs officially expressing denial of benefits to Russian investors via letter to the Energy Charter Secretariat. Sanctions are also likely to impact the arbitration process all around: the merits, defense, and up to the award recognition and enforcement stage.

Sharpe also discussed the impact on the participants, such as counsel and institutions. Uncoordinated sanctions regimes pose particular challenges to practitioners of international arbitration in that they require keeping up with the varying contexts and languages of the restrictions. Arbitrators may also sometimes decline appointments involving sanctioned entities. Arbitrators or arbitration institutions have difficulty navigating sanctions regimes, having to conduct due diligence on parties and sometimes unfamiliar subject matter.

The reach of economic sanctions may mean setting aside or non-enforcement of arbitral awards and may span from individual civil liability to criminal liability. Sharpe concluded that all the above contribute to the growing complexity of international arbitration when war and economic sanctions come into play.

 

Arbitration During War

Concerning how arbitral procedures are impacted by war, Lamm emphasized the importance of preserving the rule of law and due process.

According to Lamm, adherence to the rule of law in international arbitration ensures a robust global legal regime for investors where there is predictability in commercial arrangements, along with fairness and integrity in business. In international arbitration, the rule of law is “a concept of universal validity” that “requires a system of certain and foreseeable law” and “opportunity to challenge decisions before independent and impartial courts through fair procedures (Cairn Energy v. India, Award (2020)).” This should not change in times of war. Quoting from the United Nations International Law Commission, Lamm reminded the audience that “the existence of an armed conflict does not ipso facto terminate or suspend the operation of treaties” between states in conflicts (Article 3 of the draft articles on the effect of armed conflicts on treaties with commentaries).

Above all, she stressed that due process of international arbitration should be protected especially in times of crisis. Arbitral tribunals can ensure the integrity of proceedings by providing each party with reasonable opportunities to present their cases. Lamm also suggested that arbitrators must be active guardians of due process given its importance. Lamm stated that arbitral tribunals and arbitrators are empowered to protect the process and assure respect for the international arbitration system. As a fervent proponent of international arbitration, she emphasized that all parties should be ensured effective legal representation. Everyone is entitled to zealous and effective representation by counsel, even in arbitrations that are to follow the ongoing conflict in Ukraine.

 

Different Careers in Arbitration: from Private to Public Sector

In Session 2, Mr. Jin Kyu Lee (Associate, Peter & Kim) moderated a discussion featuring Ms. Myung Ahn Kim (Partner, Yoon & Yang), Ms. Young Shin Um (Senior Deputy Director, International Dispute Settlement Division at the Ministry of Justice, Republic of Korea), and Mr. Tae Hee Ahn (Counsel at KCAB INTERNATIONAL). The panelists shared their experiences with the audience about the wide variety of careers in international arbitration.

While their tips were very useful for aspiring students or young practitioners, the theme was directly in line with the implications from Session 1. All three experts agreed that arbitration is a very practical and practice-driven area of law. Accordingly, a firm grasp of the facts of the case, the ability to understand different nuances of context, and being able to communicate clearly were all equal parts of an essential skillset. These basic skills become an even greater necessity in resolving disputes involving the turmoil of war.

For further discussion with these practitioners, please click here.

 

Concluding Remarks

The discussion at YAD 2022, above all, showed how important the international arbitration system is in the context of armed conflicts, such as the Ukraine War. Economic sanctions, which can be a substitute, forerunner, or part of a conflict, affect ordinary transactions, adding to difficulties already present in military conflict. The arbitration process has the potential to provide parties who find themselves in violent conflict a chance to work toward a binding resolution that contributes to the prevention of ongoing and future disputes. This is because the mechanism of arbitration, by its nature, provides all related parties with an opportunity to be heard, which is the key to resolving conflicts effectively. Respect for the rule of law and due process in the international arbitration field is, as always, integral in pursuing these goals.

However, amid ongoing crises and conflicts, which themselves take considerable time to deal with, changing the system in the near future in the way Perepelynska envisages will prove difficult. Nonetheless, international arbitration can effectively fill that crevasse. After all, in a world where economic ties cannot be extinguished by traditional inter-state conflicts, arbitration has proved to be one of the most viable mechanisms for managing relationships between any state and non-state actors.

References[+]

References ↑1 The event was organized by the Yonsei International Arbitration Association (YIAA), based at Yonsei University in Seoul, Korea, under the guidance of Professor Joongi Kim. Hyewon Yoon, Hwan Kang, and Seyeob Kim were on this year’s organizing committee. KCAB INTERNATIONAL participated as the partner institution, and Peter & Kim, Vienna International Arbitral Centre, and Hong Kong International Arbitration Centre sponsored the event.

Started in 2020, YAD is the first student-led conference in Asia where practitioners, scholars, and students come together annually to reflect on issues in the international arbitration field. The conference aims to provide a platform for eminent scholars, practitioners, and students to convene and gain insight into fast-changing matters in the international arbitration community. function footnote_expand_reference_container_43157_30() { jQuery('#footnote_references_container_43157_30').show(); jQuery('#footnote_reference_container_collapse_button_43157_30').text('−'); } function footnote_collapse_reference_container_43157_30() { jQuery('#footnote_references_container_43157_30').hide(); jQuery('#footnote_reference_container_collapse_button_43157_30').text('+'); } function footnote_expand_collapse_reference_container_43157_30() { if (jQuery('#footnote_references_container_43157_30').is(':hidden')) { footnote_expand_reference_container_43157_30(); } else { footnote_collapse_reference_container_43157_30(); } } function footnote_moveToReference_43157_30(p_str_TargetID) { footnote_expand_reference_container_43157_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_43157_30(p_str_TargetID) { footnote_expand_reference_container_43157_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Hong Kong Arbitration Week Recap: ADR in Asia Conference – Beyond Mere Greenwashing? The Impact of ESG on International Arbitration

Thu, 2022-10-27 00:27

On the third day of Hong Kong Arbitration Week 2022, HKIAC hosted a panel as part of the ADR in Asia Conference entitled “Beyond Mere Greenwashing? The Impact of ESG on International Arbitration”. This panel brought together a group of specialists who discussed what environmental, social, and governance (“ESG”) is, how it impacts dispute resolution, how it affects the way in which clients conduct their business and mark investments, how arbitral proceedings can become more sustainable, and the growing trend of disputes arising out of ESG issues.

The panel was comprised of Mr. Christopher Tung (Partner, K&L Gates), Mr. Leiming Chen (Senior Vice President, Ant Group), and Ms. Wendy Miles KC (Barrister, Twenty Essex). The panel discussion was moderated by Ms. Denise Fung (Partner, Linklaters).

 

What is ESG?

Historical & Theoretical Perspective

Mr. Tung kicked off the panel by responding to the question of whether ESG still has meaning despite the recent concerns over “greenwashing”. Greater scrutiny and reporting (positive or negative) tended to suggest that ESG is gaining increasing traction worldwide.

Emphasizing the importance of conceptual accuracy and the need for clear terminology in sustainability and ESG matters, Mr. Tung made the point that ESG should always be theoretically underpinned by the sustainable development principles which encompass “economic”, “social” and “environmental” spheres or pillars of sustainability. For ESG to be fully effective, all three spheres of sustainability must be considered to achieve a balanced and sustainable result. Sustainability concepts, principles and laws sit above ESG concepts, principles and laws, and should not be used interchangeably, especially if the ESG rules, criteria, disclosure and reporting have a narrower and selective scope (in other words, a smaller number of environmental, social and governance factors are chosen or required). By contrast, optimal sustainability practice should address all relevant economic, environmental and social issues and not “cherry pick” issues.

Mr. Tung referred to various sources of sustainable development laws, principles, and goals, as well as specific ESG regulations and stock exchange rules, such as the Hong Kong Stock Exchange Listing Rules ESG Guide, which has mandated ESG disclosure and reporting by listed companies in Hong Kong since 2020. A considerable number of Hong Kong-listed companies reporting under these rules are opting for full sustainability disclosure and reports, rather than narrower ESG disclosure and reports.

Private Sector’s Perspective

Mr. Chen highlighted the drivers behind Ant Group’s ESG strategy, shedding light on how ESG considerations and obligations influence the way in which Ant Group conducts business. Ant Group, a technology provider that operates Alipay, believes that commercial value creation is integrated with social value. This is because the social value created can in turn add to the momentum of the commercial value growth and make it truly sustainable as a business. Mr. Chen made the point that commercial entities must keep up with the times in order to offer their services to end users. As the users of its financial services become more aware of ESG issues, Ant Group’s “customer first” approach means its ESG strategy is now a necessary driver in how it seeks to reach consumers and small and micro-sized enterprises, and to ultimately become a long-lasting company itself. This echoed Mr. Tung’s point on the importance of considering all three aspects of sustainability.

Mr. Chen also demonstrated how Ant Group’s business policies and initiatives seek to adopt the best practice in pushing for a greener future. For example, Alipay launched a green initiative within the Alipay app in 2016 called “Ant Forest” that encourages low-carbon lifestyle choices by awarding users with green energy points. This Green Energy Points Initiative included more than 100 brands to promote moderate consumption, low carbon and eco-friendly lifestyle.

Ant Group has also established an ESG Sustainable Development Committee and ESG Sustainable Development Advisory Committee. The Chief Sustainability Development Officer works closely with the CEO and various working groups to integrate new ESG initiatives in the business of Ant Group.

Legal Practitioner’s Perspective

Ms. Miles KC shared her insights on how ESG considerations impacted the legal sector and how ESG featured as an element of professional competence. Referring to the codes of conduct for solicitors and barristers practicing in Hong Kong as well as the United Kingdom, Ms. Miles KC tied the idea of ESG back to the fundamental duty of care of legal counsel. The codes of conduct require all legal counsel to advise their client to a reasonable standard. With the increasingly comprehensive global regulations, ESG and sustainability issues will inevitably become more prevalent in the commercial world and the daily lives of our clients. The same should become a brick in the brain of all competent lawyers in their advice to clients. Ms. Miles KC demonstrated this point with the example of a conveyancing lawyer needing to advise their clients on climate risks involved in relation to real property.

 

How does ESG Impact Disputes?

International Arbitration

The panelists agreed that international arbitration will also become more sustainable over time as the arbitration industry continues to look for ways to reduce its own carbon footprint.

Given the cross-border nature of international arbitration, practitioners who were used to travelling to places for conferences and hearings were forced to switch to online virtual meetings. Ms. Miles KC said she hopes that the arbitration community will hang on to some of the better and greener habits that grew out of the pandemic. As the world opens up again, not everything should revert back to the old norm. While there is no one size that fits all, and face-to-face meetings and in person hearings may well be preferred for certain substantive hearings, legal counsel and arbitrators should give more thought to the possible alternatives, especially when dealing with procedural matters that do not involve witnesses.

Climate Disputes

The energy transition has and will continue to be fraught with obstacles and challenges, creating fertile ground for disputes in times of uncertainty and change. Mr. Tung highlighted key trends and developments that are on the rise with respect to ESG disputes.

While ESG liability and disputes arose across a broad range of subject matters and issues, Mr. Tung noted that climate and environment claims were two of the more prominent types of claims being pursued, with ESG also quickly broadening the legal risk exposure of organizations of all types and sizes. These increasing legal risks included potential breach of contract, duty of care/negligence, misrepresentation, misleading/false descriptions and advertising, non-compliance with ESG regulations and stock exchange disclosure and reporting rules. Potential breaches of fiduciary duties by directors, companies and asset managers would be another source of claims from disappointed shareholders and investors. In addition to the above bases of claim, climate claims could also be made against states under multilateral or bilateral investment treaties for unfair treatment or expropriation of traditional fossil fuel investments. Claims in tort for harm caused by greenhouse gas (“GHG”) emissions would continue to be challenging in common law jurisdictions due to difficulties in establishing causation between harm done and the GHG emissions attributable to the respondent.

 

Conclusion

As the business world becomes more conscious of ESG, its underlying sustainability concepts and principles, and mandatory ESG requirements in finance and other industries, arbitration lawyers are expected to play an important part in advising on ESG liability and disputes and in striving to make international arbitration itself more sustainable.

 

This concludes our coverage of Hong Kong Arbitration Week 2022.  More coverage from Hong Kong Arbitration Week is available here. More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Hong Kong Arbitration Week Recap: Examining the Creditor’s Toolkit in International Arbitration, Cross-Border Insolvency and Enforcement

Wed, 2022-10-26 00:26

Allen & Overy’s webinar on the second day of Hong Kong Arbitration Week 2022 brought together six practitioners from the fields of arbitration, insolvency and enforcement to discuss the key practical and strategic considerations when acting for and against parties in financial distress.

Guided through a hypothetical case study involving jurisdictions such as Hong Kong, Mainland China, Singapore, the Cayman Islands and Thailand, the panellists provided a comprehensive overview of the onshore and offshore options available to creditors in debt recovery, discussed the interplay between arbitration and insolvency proceedings, and shared tips on maximising the chances of recovery in an enforcement scenario.

Co-Chair of HK45 Joanne Lau (Partner, Allen & Overy, Hong Kong) moderated the event, and was joined by a panel that included Ms Sheila Ahuja (Partner and Co-Head of India Group, Allen & Overy, Singapore); Mr Cosimo Borrelli (Managing Director and Head of Asia Pacific and the Caribbean Restructuring, Kroll, Hong Kong); Ms Joanne Collett (Partner, Walkers, Hong Kong); Ms Ruth Stackpool-Moore (Investment Manager, Omni Bridgeway, Singapore); and Mr Abraham Vergis, SC (Founder and Managing Director, Providence Law Asia LLC, Singapore).

 

Enforcement Toolkit for Achieving Recovery: What Is Available?

Ms Lau opened the session by observing that clients often look for an overall recovery strategy.  She noted that many disputes similar to the case study presented in the webinar have been observed in the Greater China region in recent years, particularly in the technology, real estate and education sectors.  Whilst there are differences in features and policy objectives of an arbitration and the insolvency regime, it is almost invariably the case that the creditor would be asking what tools are available to them to achieve a quick and successful recovery of its debt. Various tools may be available, including the exercise of contractual rights in transaction and security documents, commencement of a debt recovery action through arbitration or litigation, or invoking the statutory insolvency regime.  It is important for practitioners to consider how best to utilise the tools at their disposal.

Mr Borrelli, a restructuring specialist, observed that the first port of call for creditors is often the enforcement of secured assets.  In common law jurisdictions such as Hong Kong and Singapore, receivers can usually be appointed by simply executing a deed of appointment.  Mr Borrelli highlighted the advantages of receivership as it does not involve any court procedures and receivers primarily act for the benefit of the secured creditor so would be able to adapt their actions in accordance with the recovery objectives of the appointing creditor.  In contrast, civil law jurisdictions often take a different approach.  Mr Borrelli used the example of Mainland China, where the enforcement of security is court-driven and may lack the speed and flexibility offered in common law jurisdictions.  Therefore, Mr Borrelli noted that other alternatives such as a winding up procedure may be preferred in certain circumstances.

Ms Collett offered an offshore angle to the discussion.  She highlighted that one of the benefits of presenting a winding-up petition is the possibility of appointing a liquidator to the parent company at the top of the corporate chain.  This allows the liquidator to remove the directors at the parent company and then take control of the subsidiaries.  Ms Collett noted that, as compared to other common law jurisdictions such as Hong Kong and Singapore, offshore courts in the Cayman Islands, BVI and Bermuda take a more restrictive approach to staying winding-up proceedings in favour of arbitration.  This potentially allows parties to get relief from the offshore courts more quickly without the need to go through the entire arbitral process.

Commenting on whether a debtor may impede the winding-up process by disputing the existence of the debt, Mr Vergis gave a snapshot of the Singapore law position.  Where the disputed debt is subject to an arbitration agreement, he explained, Singapore courts would adopt a light-touch review on the prima facie standard, such that the court may dismiss or stay the winding-up so long as there is a valid arbitration agreement and the dispute falls within the scope of that arbitration agreement, provided that the debtor is not raising the dispute as an abuse of process.  Ms Lau noted that the legal position in Hong Kong remains unclear, despite recent judgments from Hong Kong courts.

 

Arbitration as a Tool within the Enforcement Toolkit

Ms Ahuja started off with a comment that arbitration practitioners cannot simply tell their clients to go to arbitrate every dispute; instead, it is important to consider different enforcement options, including non-arbitration routes, holistically and strategically in light of the jurisdictions involved at the outset.  This is especially so given it will take time for an arbitration to conclude, and the arbitral procedure may be of limited utility if the counterparty becomes insolvent and/or dissipates assets before an award is issued.

Ms Ahuja reminded the audience of the different tools available to maximise efficiency and secure assets for enforcement, including Emergency Arbitrator procedures, interim measures, expedited procedures and disclosure orders, etc.  In particular, Ms Ahuja highlighted the Interim Measures Arrangement between Mainland China and Hong Kong as a game changer, as it allows parties to Hong Kong seated arbitrations administered by the HKIAC and a few other institutions to seek interim relief such as asset preservation measures before Mainland Chinese courts.

 

Taking a Holistic View of the Enforcement Options at One’s Disposal

Drawing the threads of discussion of the different panellists together, Ms Stackpool-Moore emphasised the importance for creditors to take a global view of the availability of enforceable assets early on in the process, with the involvement of litigation funders with assets tracing and investigation capabilities.  This allows creditors to verify disclosures of financial conditions and assets of the funders or to discover whether further assets are hidden in jurisdictions not disclosed. In addition to assisting interim applications for asset freezing, this would allow creditors to plan ahead to consider how and where to enforce any award eventually obtained. Such advance planning is necessary, as different jurisdictions may have specific time limits for enforcement.  In-depth knowledge of the financial standing of the debtor will also assist structuring of settlement discussion, such as avoiding repayment by instalments by impecunious debtors.

Ms Collett highlighted the importance of considering options available to creditors at different stages of the recovery process. For instance, where both the winding-up and arbitration proceedings are at an advanced stage, it may be valuable to see to the end of the arbitration process. This is because in complex claims, the arbitral tribunal may be better suited to quantifying claims than liquidators in the proof of debt process. On the other hand, in simple debt claims, it may not be worthwhile to proceed with arbitration simply for the purpose of obtaining an award, particularly where the debtor’s assets are already under the control of liquidators. Ms Ahuja concurred, and called for arbitration practitioners to be nimble in considering how to push the case forward to suit the client’s objectives in the circumstances.

In a recovery situation, matters do not end with obtaining an award, and Mr Borrelli set out options available to creditors facing a recalcitrant award debtor. Where the award debtor is still solvent, obtaining a charging order over its assets would be one way to earmark assets for enforcement of the award and shield them from other assets to be shared with the general pool of creditors. An alternative would be to bring winding-up proceedings alive again, but as liquidation is a class remedy, it does not leave the creditor with a lot of control over the process. If recovery is considered too difficult for the creditor’s appetite, then the sale of the award to professional investors and recovery specialists would be an option, for which he noted there is a fast growing industry focused in this area.

 

Conclusion

This webinar was insightful in stressing the importance of a coordinated approach in pursuing a global recovery strategy.  At different stages of the recovery process, one should consider and constantly re-evaluate whether the legal tools chosen would achieve the client’s commercial objective.  One should start by asking what assets the debtor has, and where those assets are located.  It is clear that there are many opportunities for practitioners of different disciplines – including arbitration practitioners, insolvency experts and litigations funders – across both onshore and offshore jurisdictions to work together in debt recovery matters.

 

More coverage from Hong Kong Arbitration Week is available here.

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Hong Kong Arbitration Week Recap: Implications of PRC’s Evolving Data Protection Laws in International Arbitration

Tue, 2022-10-25 00:26

On the first day of Hong Kong Arbitration Week 2022, Morrison & Foerster hosted a hybrid panel on “Implications of PRC’s Evolving Data Protection Laws on Disclosure and Participation of PRC Parties in International Arbitration.” The panel introduced the latest developments in the data protection legal regime of the People’s Republic of China (“PRC”) and explored the challenges it posed to international arbitration proceedings.

Panelists included Ms. Sarah Thomas (Morrison & Foerster, Hong Kong), Mr. Samuel Yang (Anjie Law Firm, Beijing), Ms. Fanghan Chen (Hong Kong International Arbitration Centre, Hong Kong), and Ms. Kathleen Paisley (AMBOS Lawyers, Brussels). The panel discussion was moderated by Ms. Cheryl Zhu (Morrison & Foerster, Hong Kong).

 

Overview on PRC Data Protection Laws

Mr. Yang provided a brief introduction to the three pillars of the PRC’s data protection legal regime, namely the Cybersecurity Law (“CSL”), Personal Information Protection Law (“PIPL”), and Data Security Law (“DSL”), as well as the restrictions on cross-border data transfer imposed by PRC data protection laws. Viewed as being more restrictive than the EU General Data Protection Regulation (“GDPR”), PRC data protection laws first require the exporting entity to carry out a self-assessment, including whether it is legal, necessary, and appropriate to transfer the data abroad and what impacts the data transfer may have on the PRC’s national security and public interests, and produce a self-assessment report. Then, depending on the volume and nature of the data and whether a critical information operator is involved, the exporting entity faces three potential legal options: sign a standard contract clause (in the form issued by the Cyberspace Administration of China (“CAC”)) with the overseas data recipient; obtain a personal information protection certification from a CAC-recognized professional institution; or pass a security assessment by the CAC. Finally, the exporting entity needs to obtain the consent of the data subjects in every instance of data export and provide a detailed notification to data subjects of, inter alia, the name and contact information of the overseas recipient, as well as the purpose and method of the data processing.

Mr. Yang specifically discussed the application of DSL Article 36 and PIPL Article 41 in international arbitration. These two provisions contain special restrictions on data export to “foreign judicial or law enforcement authorities.” However, the government has not published any clear guidance on their application in the arbitration context. Mr. Yang explained that per unofficial inquiries with the Ministry of Justice (“MOJ”), data export to arbitral tribunals or institutions currently requires approval by the MOJ (which usually takes one month) or at least a security assessment by the CAC.

 

Impact of the PRC’s Data Protection Laws on the Arbitral Process

Ms. Thomas highlighted that conflicts pertaining to data protection law issues often materialized in the disclosure process in arbitrations. PRC parties are increasingly relying on the PRC’s data protection laws to resist a counterparty’s production requests or to substantially delay the proceedings by citing a need to conduct a self-assessment and/or obtain approval from the relevant PRC authorities.

Ms. Chen concurred and noted that the HKIAC had recently seen several cases in which the legislative gaps in DSL Article 36 and PIPL Article 41 led to challenges in arbitral proceedings. Parties have raised different interpretations of DSL Article 36 and PIPL Article 41 before tribunals, occasionally even adopting double standards to produce documents in their favor but decline other production requests citing data protection concerns.

Both Ms. Thomas and Ms. Chen observed that the issues were further complicated by the lack of consistency in the PRC authorities’ approach toward data export in international arbitration. Ms. Thomas shared that, in Morrison & Foerster’s experience, the MOJ had in some cases concluded that approval on data export in arbitration proceedings was needed. Yet, in other cases, the MOJ concluded that such approval was not necessary. Ms. Chen also shared that in one arbitration, the PRC party conducted a self-assessment and submitted an approval request for the export of data to five different PRC authorities. In response, some of the authorities provided only high-level feedback (orally) on the circumstances in which submissions in an arbitration could be transferred across the border, whereas others declined to review the party’s request on the basis that arbitration affairs were outside the scope of their responsibilities.

Given the present uncertainties, Ms. Thomas proposed that where a PRC party cited PRC data protection laws and was unable and/or unwilling to provide disclosure in an arbitration, potential solutions available to a tribunal included drawing adverse inferences and/or imposing cost consequences on the non-disclosing party pursuant to Articles 9.6 and 9.8 of the IBA Rules on the Taking of Evidence in International Arbitration (2020) or releasing both parties from document production obligations to level the playing field. However, Ms. Thomas highlighted that dealing with such issues at the disclosure stage would inevitably result in delays to the proceedings and urged parties and tribunals to consider data protection issues in advance to minimize delays in the arbitration process.

 

Best Practices in Dealing with Data Protection Issues in Arbitration

As the co-chair of the IBA-ICCA Joint Task Force on Data Protection in International Arbitration Proceedings, Ms. Paisley shared her insights on the interplay between data protection issues and international arbitration based on her experience with the GDPR. Ms. Paisley echoed Ms. Thomas’ views that parties should consider data protection issues at the outset of the arbitral proceedings. She suggested that parties map out all data points when the dispute initially surfaces, e.g., applicable data protection regulations, governing authorities, data subjects, processors, recipients, and potential data export routes. Given the foreseeable delay caused by government review and approval, it is essential that a party timely manage the expectations of the counterparty, tribunal, and arbitral institution with regard to the procedural timetable. It will be too late if parties only start considering these issues at the disclosure phase of the proceedings.

 

Conclusion

The panel discussion was very enlightening and provided abundant insights into PRC data protection laws as well as the arbitration community’s response to the evolving data protection regime. By addressing data protection issues at the outset of arbitral proceedings and actively engaging with PRC government authorities on the interplay between data protection issues and international arbitration, parties will not only be able to minimize delays in arbitration (especially in the disclosure process), but also potentially assist the PRC government authorities with developing a consistent approach to dealing with data protection issues in international arbitration.

 

More coverage from Hong Kong Arbitration Week is available here.

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Interviews with Our Editors: In Conversation with Dr. Mariel Dimsey, Secretary-General of the Hong Kong International Arbitration Centre

Mon, 2022-10-24 00:23

This August, Dr. Mariel Dimsey assumed the position of HKIAC Secretary-General, succeeding Ms. Sarah Grimmer, who served in the position for six years. Mariel brings with her extensive, 15-years’ experience as counsel and arbitrator in international arbitration, spanning various jurisdictions and legal traditions. Mariel takes the helm during an exciting period at HKIAC and for international arbitration in Hong Kong.

For the fifth year, our Blog is providing live coverage of Hong Kong Arbitration Week. We are privileged to interview Mariel as she takes on this new role.

 

  1. First, congratulations on your new role as HKIAC Secretary-General! What has your experience been like during the first two months in this role?

The first two months have been intense. I consider it my Phase 1, focusing on absorption of information, ideas, and practices. It has been a steep learning curve, and I have greatly appreciated the patience and kindness that everyone—including those at the Secretariat, the HKIAC Council, and the Standing Committees—has afforded me. There were certain areas that I was more familiar with because of the overlap with private practice, such as case management and arbitrator appointment. But there are other areas that have fewer overlaps, such as corporate governance, budgets, and office management. I took on the role precisely for the breadth of responsibilities, so it is great.

Now, I feel that I am up to speed on most topics and am turning to Phase 2: digging deeper on particular aspects and formulating my own visions and plans for the future.

 

  1. What does a “typical” day look like?

There isn’t a typical day, but I have typical approaches to my day. One of my biggest challenges in the first few weeks was learning how to prioritize, given all that is happening simultaneously. All else being equal, I tend to first tackle case management, which is ongoing. The rest of the day depends on the projects we have at the time. At the moment, the team is focused on Hong Kong Arbitration Week, which commenced on 24 October, and related marketing and business development. The team has prepared a fantastic program with over 20 events. We also recently returned from Edinburgh, which hosted the ICCA Congress. Hong Kong will be the next host in 2024, so a lot of my time in the next 18 months will be taken up with preparatory activities and ensuring the events come together wonderfully.

 

  1. You have worked in firms and institutions in Hong Kong, Germany, and France; you qualified in Australia and Hong Kong; and you read law in Germany and Switzerland. What was your first foray into international arbitration?

I have a wonderful collection of Vis Moot mugs! My first foray into international arbitration was the Vis Moot. I saw an ad for it when I was a law student in Australia. I tried out and was exposed to the wonderful world of arbitration that would allow me to travel, which I was very keen to do as a 21-year-old law student in Brisbane.

 

  1. What have been your guiding principles as you built a global career in the field?

It’s hard to say what the guiding principles have been. Because we change as people and lawyers throughout our careers, our priorities and principles change depending on our personal growth and development. But I’d like to highlight three. First, I’ve always been keen to do things I was interested in. I was very fortunate to have landed in arbitration when I did because I worked in Germany for a long time and had the fortune to be an English speaker in a foreign jurisdiction, which exposed me to a whole different world of opportunities. I also believe in the importance of “shaking things up,” and if we perhaps feel stuck or like we are not progressing the way we want to be, then it’s up to us to make the change. Second, I believe in the importance of seeking advice and mentorship—and to offer mentorship to others. I’ve had mentors who have championed for me and from whom I have learned, and continue to learn, a lot, but I also learn from my mentees. As they say, mentorship is really a two-way street. Third, I believe in the importance of getting others’ ideas and input. We all have tendencies to be set in our own ways, especially as we become more experienced. Getting input from others, whether that person is experienced or not, makes ideas better. This also applies at the HKIAC now, where I have the privilege of obtaining input from a team of great, diverse people who help in ensuring better decision-making.

 

  1. You have previously led an international arbitration group at a law firm and are now leading an arbitral institution. What qualities do you think the role of Secretary-General requires?

I actually worked with an executive coach before taking on this role because I realized that personal leadership skills and management skills were so important in this role. One point I discovered in that process is that I value harmony. Perhaps because of my Australian upbringing, titles or overly formalistic styles don’t really work for me. That’s not to be critical of more formal cultures, but that is not what I became used to while growing up. While I might personally strive for harmony, I have learned through my career that it’s equally important for everyone to have a voice because each person is viewing the topic from a different perspective. Something that I’m trying to encourage in this new role is to create an environment where everybody feels that they can speak up and speak from a position of strength and confidence. I think that is key to the functioning of an organization and also hopefully to creating a happy workplace.

 

  1. What initiatives are you excited about as Secretary-General?

There are so many things. First, I have to say our case management team is fantastic. We have a wonderfully diverse group of talented, competent case managers who have experience in a wide range of cases.

Second, we are hoping to spearhead revisions for the HKIAC Administered Arbitration Rules next year. Similar to the previous Rules revision, there will be a Rules Revision Committee and a lot of interaction and consultation with the community. We will be leaning on the community heavily to give feedback on areas to address or optimize, which will complement our internal notes of areas that we wish to look at in more detail.

Third, I am very excited about the ICCA Congress. It’s such a wonderful opportunity for Hong Kong, and we would really like to get the whole community involved. Hong Kong can throw a great event when it wants to, with the venues, the boats, the rooftops, and the cultural activities. I think that it will be a terrific event and that will be something that will give us a lot of momentum over the next 18 months.

Fourth, we’re looking to expand our Case Digest and Case Connect initiatives, so they are more accessible and meet users’ expectations.

Sarah did incredible work as HKIAC’s previous Secretary-General, and it’s daunting to come into an institution that is already working so well. So, the big challenge for me is to maintain that and to see what we could further enhance or adjust. But at the end of the day, it’s fantastic that HKIAC is in that position.

 

  1. As you just mentioned, in the past year, HKIAC has launched HKIAC Case Digest—a database of HKIAC’s procedural decisions with decisions also accessible through Wolters Kluwer and Jus Mundi. What impact has HKIAC seen?

Case Digest has had a good uptake. Over the next year, we want to ensure that our users are seeing it, aware of the possibilities, and able to provide feedback. One notable point is that the HKIAC team handpicks cases that we think are particularly interesting. The cases provide summaries of, and shed light on, key issues and can be useful for practitioners and help better shed light on how the HKIAC Rules play out in practice. Case Digest also showcases the variety and diversity of our cases and the rigorous approaches in our Appointments and Proceedings Committees. We hope it gives users confidence in HKIAC proceedings.

 

  1. HKIAC is considered one of the most preferred arbitral institutions globally, most recently ranking third in the 2021 Queen Mary University of London/White & Case International Arbitration Survey. What do you think are the remaining untapped markets for HKIAC? How do you hope to meet those markets’ needs?

I’m thrilled with our ranking, and I think it is a real reflection of everyone that came before me and all their work to enhance the HKIAC.

Looking at the caseload, there are many cases involving PRC and offshore companies, many with connections to PRC. PRC is one of our most important markets and one that we are continually growing and enhancing.

I have many regions that I would like to focus on. Firstly, the APAC region, which would go hand in hand with our many capacity-building initiatives in ASEAN. Further, I believe HKIAC arbitration is underutilized in Europe, particularly given the trade and supply relationships with PRC. It is a region that is not untapped but perhaps not yet fully explored. The US market similarly has untapped potential. There is a large amount of trade between the United States and China, so many companies may be interested in the benefits that Hong Kong and HKIAC offer.

Part of my job will be to participate in roadshows and explain the benefits of HKIAC arbitration in person. Given the resurgence of travel, now is a great time to do so.

 

  1. When you are giving roadshows, what are some specific aspects of HKIAC that you highlight?

I often use case studies to illustrate the HKIAC process, not only to show the external-facing processes and the overall pace, but also the rigorous processes in the background. For example, to explain the process when an arbitrator is nominated or appointed.

Another aspect to highlight is the many unique advantages that HKIAC and Hong Kong-seated arbitrations offer. We are also working to remind people that Hong Kong has strong arbitration laws and a robust judiciary.

 

  1. In June 2022, HKIAC became the first arbitral institution outside Mainland China to be included in the China International Commercial Court’s “One-Stop” Platform for Diversified International Commercial Dispute Resolution, allowing parties in HKIAC-administered cases with “an amount in dispute over RMB 300 million or with a significant impact” to directly request interim relief or the enforcement of arbitral awards from the CICC, a court for international commercial disputes established by the Supreme People’s Court. How do you think this initiative will affect HKIAC arbitration?

I think it’s a great vote of confidence from the Mainland institutions that HKIAC and Hong Kong have been included as the first institution and jurisdiction, respectively, outside Mainland China to have access to these benefits. Substantively, I see it as an extension of our existing arrangements on interim measures and enforcement of awards, which will continue to be valuable for disputes that do not meet the threshold requirements for the “one-stop” platform. One of the wonderful advantages of going directly to the CICC is that you bypass one level of court proceedings (the intermediate people’s court) and go straight to the SPC level, thus saving time and costs for users. I think this will be especially impactful in the enforcement context.

 

Mariel, thank you very much for your time and invaluable insights.

 

More coverage from Hong Kong Arbitration Week is available here.

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

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The Contents of Journal of International Arbitration, Volume 39, Issue 5 (October 2022)

Sun, 2022-10-23 01:00

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

 

Rekha Rangachari, Fatima Aslam, Kabir Duggal & Adeel Wahid, It Is Not a BIT Race, It Is a BIT Marathon: Comparing Pakistan’s and India’s Evolving Approach to Investment Policy

India and Pakistan initiated their journeys from distinct starting points, yet have since adopted similar approaches to structuring their investment policies. These two large, developing nations differ politically, but both seek to attract foreign investment and have faced many complicated investment disputes. Because of the significant role that each of these countries play in the developing world within their respective spheres of influence, it is worth examining their experience. Indeed, India has recently terminated numerous Bilateral Investment Treaties (BITs) after restructuring its investment policy while Pakistan is contemplating amendments to its existing investment regime and may adopt a similar approach. Related developments on the international plane could also further support the countries’ stances on renegotiating and adopting a balanced approach to their investment policies. In the future, it would be interesting to observe whether other countries adopt similar approaches.

 

Dirk Wiegandt, Blockchain, Smart Contracts and the Role of Arbitration

Blockchain technology is considered one of the most disruptive technologies of our times. At the same time, by means of smart contracts stored on a blockchain, all or parts of an agreement can be executed automatically upon certain triggering events. Some consider that with smart contracts becoming more and more complete and self-executing, we will enter into an era of dispute resolution without the involvement of a neutral third party (conciliator, mediator, arbitrator) or even an entirely dispute-free environment. By contrast, it is submitted that disputes are inevitable. The question is not whether disputes arise, but which means of dispute resolution are best suited to resolve disputes arising in the context of blockchains and smart contracts. While not the only mechanism, it is submitted that arbitration is particularly well-suited for many types of disputes and, if adapted to the specific expectations and needs of (enterprise) users of blockchains and smart contracts, may play a central role in a blockchain and smart contract environment.

 

Lisa-Marie Ross & Kathrin Asschenfeldt, Recent Developments of Third Party Joinder in International Arbitration

This article analyses the impact of the Singapore High Court decision CJD v. CJE and another [2021] SGHC 61 on the highly topical issue of third party joinder in international commercial arbitration. In its 2021 decision, the court applied a strict yardstick in view of party autonomy when interpreting consent requirements for joinder under the London Court of International Arbitration Rules 2014. A closer comparative analysis of the procedural rules of leading international arbitration institutions identifies the judgment’s guidance to similarly constructed joinder rules, such as the International Chamber of Commerce Rules 2021. The comparative analysis recognizes a larger growth of caseloads in Asia and results suggest an incrementally developing preference for joinder rules which are constructed in a wide manner. This includes the arbitral tribunal’s power to allow third parties to join already commenced arbitration proceedings based on a prima facie test, alongside express unanimous parties’ consent.

 

Mark Mangan & Lukas Lim, The Pursuit of Net Zero Arbitration With the Aid of Carbon Emissions Scorecards

Carbon emissions scorecards could help achieve net zero arbitration within a reasonable timeframe. The scorecards could be prepared at the conclusion of an arbitration and the tribunal empowered, either through party agreement, a change to existing arbitration rules, or a procedural order, to take both the monetary and environmental costs into account when allocating the costs of the proceedings.

Carbon market forces could be brought to bear on the entire arbitral process to encourage a profound shift in behavior. All arbitration stakeholders, including counsel, experts, and even arbitrators could be required to account for their emissions at the point of their being paid. Likewise, arbitral institutions could be encouraged to report their annual emissions, which could be considered by parties when determining which institutions to support.

This would align the practice of arbitration with the journey to net zero that many users of arbitration have already embarked upon. Indeed, many corporations have recently linked executive and senior management remuneration to their ability to achieve stipulated climate goals. It would be a small leap to apply the same standards to arbitration professionals, and over time clients will demand it.

 

Marie-Laure Bizeau & Aleksandra Fedosova, ‘Forum of Necessity’: Using French Law’s ‘Juge d’appui’ in Foreign-Seated Arbitrations as a Cure for Denial of Justice

This article explains how French arbitration law enables a party to turn to the French courts for arbitrations seated outside of France, when faced with the risk of denial of justice. It describes the jurisdiction and role of the French ‘juge d’appui’ (or ‘supporting judge’), in preventing a denial of justice in arbitrations that bear no connection to France. An analysis of French arbitration law and jurisprudence demonstrates that the French supporting judge is an effective solution to prevent a denial of justice when the arbitration agreement does not provide for a supporting judge.

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Korean Supreme Court’s Recent Recognition of Treble Damages: Implications for the Enforcement of Arbitral Awards

Sat, 2022-10-22 01:41

Introduction

Until recently, there was no definitive Korean court decision on whether a foreign award that includes an award of exemplary (or punitive) damages should be recognized and enforced (1) in its entirety or (2) only partially (i.e. without the award of exemplary damages).1)Wonsik Yoon, Rieu Kim and Hyukjun Jung, “Recognition and Enforcement of the Exemplary Damages Portion of an International Arbitral Award in Korean,” Korean Arbitration Review, 9th Issue (2018).  This article is available for downloading through the KCAB International’s website (www.kcabinternational.or.kr). jQuery('#footnote_plugin_tooltip_42891_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_42891_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

On 11 March 2022, this issue was conclusively decided by the Korean Supreme Court, which found that an award of treble damages by a Hawaii court (“Hawaii Court”) is enforceable in the Republic of Korea (“Korea”).

The Korean Supreme Court’s decision is positive news for parties seeking enforcement of an award of exemplary damages from an arbitral tribunal. However, as explained below, parties should be mindful that not all awards of exemplary damages are likely to be enforced by the Korean courts. The court’s decision will depend largely on whether the awarded exemplary damages fall within the increasingly broad scope of exemplary damages under Korean statutory law.

Korea Historically Rejected Punitive Damages

The Korean civil law system initially recognized only awards of actual damages that were intended to compensate victims for proven injuries sustained. Thus, Korean courts had the power to refuse to recognize a foreign court award or an arbitral award that grants exemplary damages.

In Korea, Article 217 of the Korean Civil Procedure Act addresses the effect of foreign court judgments in Korea. Article 217-2(1) states as follows: “[w]here a final judgment, etc. on compensation for damages gives rise to a result being markedly against the basic order of the Acts of the Republic of Korea or international treaties entered into by the Republic of Korea, a court shall not approve the whole or part of the relevant final judgment, etc.” Thus, Korean courts may recognize and enforce foreign court judgments as long as the awarded reliefs fall within the scope of what Korean courts may award and do not conflict with Korea’s public policy.

In the context of arbitration, Article 39 of Korea’s Arbitration Act (“Arbitration Act”) states that the recognition and enforcement of arbitral awards in Korea is governed by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). If an arbitral award is recognized under the New York Convention, the prevailing party must submit the original arbitral award and arbitration agreement to the Korean court.2)Article IV. jQuery('#footnote_plugin_tooltip_42891_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_42891_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The Korean court will then issue what is known as a “judgment of execution,” enabling the party to collect upon its award.

While the New York Convention generally requires member states to recognize and enforce arbitral awards issued in other member jurisdictions, Article V(2)(b) allows member states to refuse recognition and enforcement when the arbitral award goes against the public policy of that country. Article 39 of the Arbitration Act, in line with Article V(2)(b), mandates that arbitral awards from other member states will not be recognized when “the award is in conflict with the good morals and other forms of social order in the Republic of Korea.” This gives Korean courts the power to refuse to recognize an arbitral award that grants exemplary damages where such damages would not be recognized under Korean statutory law.

Landmark Korean Supreme Court Case

On 11 March 2022, the Korean Supreme Court recognized a judgment by the Hawaii Court, which awarded the plaintiffs treble damages under Hawaii’s Unfair or Deceptive Acts or Practices (“UDAP”) statute.3)Case Number 2018Da231550. jQuery('#footnote_plugin_tooltip_42891_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_42891_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Finding that each of the two plaintiff companies sustained actual damages of USD 200,000 and USD 381,000, respectively, the Hawaii Court found that the plaintiffs were each entitled to three times these amounts under the UDAP.

The two plaintiffs then sought recognition and enforcement of the Hawaii Court’s judgment in a Korean district court against the defendant. While the district court granted the plaintiffs’ application, this decision was overturned on appeal. The Korean appellate court (Seoul High Court) limited the plaintiffs’ damages to the actual losses suffered in the sums of USD 200,000 and USD 381,000, on the basis that Korea’s civil law system has historically rejected punitive damages.

On further appeal by the plaintiffs, the Korean Supreme Court allowed the plaintiffs to enforce the full award. The Korean Supreme Court reasoned that Korea’s laws on damages originally only permitted recovery for actual losses sustained by the plaintiff. However, there have been changes to these laws over time. Since 2011, various laws enacted, such as antitrust laws, labor/employment laws, intellectual property laws, privacy laws and more, allow exemplary damages of up to three to five times the actual losses suffered. This increased recognition of exemplary damages under Korean statutory law meant that in certain circumstances, a foreign court’s granting of such damages would not be contrary to Korea’s damages laws. On that basis, the Korean Supreme Court found that the award of treble damages under the UDAP was not contrary to the principles underlying Korea’s damages laws, given that treble damages are also allowed under the corresponding Korean statute, i.e. the Korean Fair Trade Act.

Implications for Enforcing Arbitral Awards that Award Treble Damages   

The Korean Supreme Court’s decision is positive news for parties seeking to enforce arbitral awards containing treble or other forms of exemplary damages in Korea. When the foreign law that the arbitral award is based on has a similar counterpart under Korean law that allows exemplary damages, the successful plaintiff will have a better chance of obtaining a judgment of execution from the Korean courts that covers the full award. This is because the respondent will have greater difficulty in persuading the court that the award goes against Korea’s public policy.

However, even then, it may be possible for the respondent to successfully argue that the exemplary damages awarded should be capped at what is allowed under the relevant Korean statute. For example, some Korean statutes allow exemplary damages of up to three times the actual losses suffered – if the arbitral award grants damages that are five times the actual losses suffered, the Korean court may cap the quantum of the award being enforced at three times the actual losses suffered.

Concluding Remarks 

While Korea has historically not recognized exemplary damages, it has increasingly allowed such damages over the last decade through statutory revisions. The Korean Supreme Court has acknowledged that courts can no longer automatically refuse recognition and enforcement of awards of exemplary damages, given that some of these awards would fall within the scope of exemplary damages allowed under Korean law. This is a space to watch as subsequent case precedent will further clarify and define the limits of the Korean Supreme Court’s decision.

References[+]

References ↑1 Wonsik Yoon, Rieu Kim and Hyukjun Jung, “Recognition and Enforcement of the Exemplary Damages Portion of an International Arbitral Award in Korean,” Korean Arbitration Review, 9th Issue (2018).  This article is available for downloading through the KCAB International’s website (www.kcabinternational.or.kr). ↑2 Article IV. ↑3 Case Number 2018Da231550. function footnote_expand_reference_container_42891_30() { jQuery('#footnote_references_container_42891_30').show(); jQuery('#footnote_reference_container_collapse_button_42891_30').text('−'); } function footnote_collapse_reference_container_42891_30() { jQuery('#footnote_references_container_42891_30').hide(); jQuery('#footnote_reference_container_collapse_button_42891_30').text('+'); } function footnote_expand_collapse_reference_container_42891_30() { if (jQuery('#footnote_references_container_42891_30').is(':hidden')) { footnote_expand_reference_container_42891_30(); } else { footnote_collapse_reference_container_42891_30(); } } function footnote_moveToReference_42891_30(p_str_TargetID) { footnote_expand_reference_container_42891_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_42891_30(p_str_TargetID) { footnote_expand_reference_container_42891_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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French Supreme Court Confirms Sorelec: Towards a Substantive Review on the Merits

Fri, 2022-10-21 00:59

In a decision dated 7 September 2022, the French Supreme Court confirmed the Sorelec decision issued by the Paris Court of Appeal in 2020. For the first time, France’s highest civil court has directly approved a shift in the jurisprudence of the Paris Court of Appeal that might have important implications for France as a place of arbitration. This post explains the background of the Sorelec award and demonstrates the significance of its annulment by the Paris Court of Appeal based on allegations of corruption. It goes on by analyzing the confirmation of the new approach by the French Supreme Court and concludes that while the effectiveness of this approach in the global fight against corruption is doubtful, the avenue taken has some important drawbacks.

 

Background: The Sorelec Awards

In 1979, the French company Sorelec S.A. (“Sorelec”) concluded a contract with the Libyan government for the construction of schools and apartments. When the parties disagreed on the execution of the contract, they submitted their dispute to ICC arbitration in 2013 under the France-Libya bilateral investment treaty (BIT). In 2017, the arbitral tribunal recorded in a partial award a settlement between the company and the Libyan government. The State was finally ordered to pay the sum of 230,000,000 EUR by a final award in 2018. This settlement agreement and the circumstances leading to its conclusion proved to be crucial for the annulment proceedings before the Paris Court of Appeal.

 

The Annulment by the Paris Court of Appeal

The Libyan government sought to set aside the two arbitral awards, alleging that the settlement agreement was the result of bribery of the public officials in charge at the time, which in addition only represented a part of the country (there were two governments at the time). Libya argued that by validating bribery ex post, the award violated France’s international public policy (“ordre public international”).

An interesting element is that this allegation was neither raised nor discussed before the arbitral tribunal. Nevertheless, the Paris Court of Appeal felt entitled to conduct a full investigation, without limits, in law and in fact. It tried to justify such an investigation by reference to its powers to ensure the award was consistent with the interest of (French) international public policy, as distinguished from a (still prohibited) review of the award on the merits. Yet, what it did was nothing other than a substantive review – a review on the merits. It assessed in detail circumstantial evidence for corruption raised by the Libyan government in the annulment proceedings.

The benchmark was whether the indicators were ‘grave, precise and congruent’ enough to establish corruption (the “bunch of indicator” test for criminal allegations was for the first time used by the Paris Court of Appeal in its Belokon decision in 2017, and has developed into a jurisprudence constante since then, see e.g. the Alstom, Cengiz and Global Voice decisions). Direct evidence of corruption was not required. Instead, it was sufficient for the Paris court that the Libyan government referred to external circumstances (the context of the Libyan civil war, where two governments existed at the same time; but also the ‘general climate of corruption’) and circumstances of the negotiations of the settlement agreement (the minister had changed his legal opinion suddenly, the negotiations lasted only one day and were not documented). As a result, the burden of proof shifted towards the investor to justify the irregularities. This was strengthened by the fact that the settlement essentially resulted in the Libyan government conceding all of Sorelec’s positions, without having an objective interest in doing so. The only evidence that was missing was direct evidence of payments of bribes to the acting officials, and the court waived the requirement.

The Sorelec decision shows that the Paris Court of Appeal’s willingness to investigate the allegation of corruption, even raised before the set aside court for the first time. It thus operated a review on the merits although this is said to be prohibited since the groundbreaking decisions in Thales and Cytec. The court accepted circumstantial evidence in order to “establish” corrupt practices that violated (French) international public policy.

 

Indirect Confirmation in the Supreme Court’s Alstom Decision

The Paris Court of Appeal also operated a full review on the merits in the two recent Alstom cases (see here and here), where the court even ordered the parties to produce additional evidence. This was also the first case where the French Supreme Court had to rule on the new standard of review – and avoided a direct answer. It quashed the decision ruling that the Paris court had distorted evidence before it. However, the control operated was not questioned by the Supreme Court as such, neither was the reopening of the debate – the Supreme Court seemed to get involved in the debate itself. This already indicated a confirmation of the approach taken by the Paris Court of Appeal, however, the Supreme Court did not expressly say so.

 

Direct Confirmation in the Sorelec Decision

In its Sorelec decision dating 7 September 2022, the French Supreme Court has now confirmed the shift undertaken by the Paris Court of Appeal, for the first time explicitly. According to the court, the assessment of international public policy may not be determined by the attitude of one party during the arbitration. Accordingly, the allegation that the Libyan State has proven to be “disloyal” by not invoking the corruption defense before the arbitrators, but only in the set aside proceedings, does not deprive the court of conducting its own research on the issue. In other words, the Supreme Court refuses to recognize the established principle of preclusion, i.e., the principle whereby a party that fails to invoke arguments or related evidence before the arbitrators may not invoke it at a later stage.

Also, the Supreme Court reaffirms the specificity of French jurisprudence in recent years, according to which the Court of Appeal, in its control of the arbitral decision, is without limits regarding its powers to investigate ‘in law and in fact’. Consequently, the Paris Court of Appeal was entitled to examine all the evidence submitted, no matter whether it was raised before the arbitrators at an earlier stage. Furthermore, the Supreme Court did not take offence with the Paris Court of Appeal conducting its assessment on the basis of circumstantial evidence.

 

Implications

The French approach as confirmed by the Supreme Court marks a shift from a practice of domestic courts favoring the autonomy of international arbitration and the effectiveness of arbitral awards: towards a more substantive review, accepting circumstantial evidence (‘red flags’). So far, other jurisdictions are hesitant to follow (the Alstom award, for example, was sanctioned in France, after a Swiss court had refused to set it aside; the English High Court even granted enforcement after the decision of the Paris Court of Appeal). Given that French courts do not operate in a legal void, there might be some concerns. The potential for the corruption defense to be abused as an additional ‘joker card’ is inherent, especially if States (or certain public officials) are complicit in corrupt practices, or even encourage them. Unpopular investors might be discredited and discouraged from pursuing international arbitration for fear of being condemned for corruption without direct evidence on the basis of presumptions or just in the ‘court of public opinion’.

Unpredictability as to which ‘red flags’ are used and to the outcome of set aside cases might hamper Paris as a place of arbitration. As long as the review on the merits, combined with the ‘red flag’ approach, is applied this strictly only in France, investors might avoid Paris as a place for arbitration. More international coordination and cooperation is thus needed. Otherwise, contradictory outcomes like in the Alstom case risk to undermine the legitimacy, not mainly of the system of international arbitration, but of the role that domestic courts play in the fight against corruption.

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Keeping a Distance: India’s Approach towards Investment Treaties

Thu, 2022-10-20 00:42

India’s Parliamentary Committee on External Affairs (the “PCEA”) recently submitted two reports to the Parliament relating to bilateral investment treaties (“BITs”). The first report –submitted in December 2021 – contained a broad review of India’s engagement with BITs and made several recommendations. The second report – submitted in July 2022 – took note of the replies given and the action taken by the Government in response to these recommendations. The two reports cast much-needed light on India’s approach towards investment treaties. This blog post identifies three key concerns expressed by the PCEA and briefly comments on India’s approach towards investment treaties based on observations gathered from the deliberations of the PCEA.

 

1. Key Concerns Expressed by the PCEA

(i) Insufficient Progress in Negotiating New BITs

The first key concern expressed by the PCEA was the insufficient progress made by India in negotiating new BITs after the adoption of its 2015 Model BIT. The PCEA noted with some surprise that India has signed investment agreements with only four countries since 2015: Belarus, Kyrgyzstan, Taiwan and Brazil. It observed that the number of BITs signed after 2015 and currently being negotiated was “inadequate” and “not commensurate with the growth of India’s interest in this domain and [its] rising stature in global affairs”.

In this context, we note that despite serious concerns about BITs, India has expressed an intention to continue negotiating and signing BITs and to remain a part of the investment treaty system. It is currently negotiating BITs with 37 States and/or blocs – including several key economies.

At the same time, India seems to have adopted an extremely conservative mindset towards BITs. It has terminated all but six of its earlier BITs, and proposes to terminate a further three as soon as possible. India also does not appear to be actively engaged in negotiating new BITs to replace those terminated. India’s negotiations with 17 States / blocs – which include key economies such as the European Union, Hong Kong and Australia – remain stuck at the preliminary stage. This slow progress is in stark contrast to the initial period from 1994 to 2011 where India signed multiple BITs almost every year. The Department of Economic Affairs, Ministry of Finance (the “DEA”) has acknowledged this fact and stated before the PCEA that “[the] Government of India has been lately pursuing a very cautious approach to signing BITs”.

This mindset finds its origins in the aftermath of the White Industries Award (the first investment dispute India ever lost) and the subsequent flood of investment claims against India. It appears that while India signed these BITs to attract foreign investment, it only later became aware of the consequences of the broad investor rights and protections granted in them and the consequential limitations on the state’s regulatory powers.

 

(ii) Cost-benefit Analysis of BITs

The second key concern identified by the PCEA relates to the assessment of the costs and benefits of BITs. The DEA argued before the PCEA that the costs of BITs (including exorbitant litigation costs, large awards, loss of reputation, reduced policy space and legal uncertainty) outweighed the benefits (including expected higher foreign investment and legal protection of foreign investment). It also argued that there was no “direct causal relationship” between BITs and the inflow of foreign investment. While the DEA noted that a robust BIT regime seems to result in higher investment inflows, it dismissed this as a “charitable reading” of empirical data. It then referred to the sharp decline in the number of BITs in force after the termination of BITs by India and noted that such decline had not resulted in a fall in foreign investment. It asserted that the signing of BITs was not “a necessary condition for investments”.

While the PCEA acknowledged that BITs were not the sole driving factor for investment inflows, it ultimately did not endorse the DEA’s negative assessment of the costs and benefits of BITs. It observed that BITs provide greater confidence to businesses while investing — and to that extent — have the potential to attract foreign investment.

In our view, while there is some justification for the DEA’s negative assessment of the costs and benefits of BITs, this assessment is not entirely accurate since it does not adequately weigh the benefits of BITs. Firstly, BITs foster the international rule of law by creating norms governing relations between foreign investors and States and holding States accountable for arbitrary, discriminatory or unfair conduct. Secondly, a robust BIT regime assures foreign investors that host States are committed to observing obligations under international law towards them. Thirdly, BITs are critical to protect Indian investments abroad – a key consideration that has received little attention, despite the substantial growth of outbound investments.

 

(iii) 2015 Model BIT

The third key concern was the need for revisions to the 2015 Model BIT. The PCEA observed that while the 2015 Model BIT strived to “create a balance between the Government’s right to regulate and investment protection” and was “an improvement over the earlier and older BITs”, it still needed “fine tuning” – particularly concerning dispute settlement, the definition of investment and investors’ obligations.

In this context, we note that the 2015 Model BIT is viewed favourably and there is no specific interest in making significant revisions to address major points of divergence from global standards regarding the most favoured nation clause, the fair and equitable treatment clause, the investor-state dispute settlement (ISDS) mechanism, etc. Further, there is no inquiry into whether the 2015 Model BIT adequately serves the interests of Indian investors investing abroad.

Nevertheless, India appears to be facing significant challenges in negotiating new BITs based on the 2015 Model BIT. The Ministry of External Affairs (the “MEA”) has informed  the PCEA that negotiations with the United States have stalled since 2016 because “both sides had different positions on issues related to Market access, Definition of Investments, Dispute settlement, taxation issues etc”. Two things should be noted here – (i) the negotiations, which were ongoing since 2009, stalled shortly after India adopted the 2015 Model BIT; and (ii) neither the MEA nor the PCEA explore or even acknowledge the possibility of the 2015 Model BIT being an obstacle for negotiating new BITs.

In our view, the 2015 Model BIT is likely to be perceived as excessively State-centric and not providing sufficient protection for investors. It is therefore unlikely to find acceptance amongst key capital exporting economies that place emphasis on investor protection. In that scenario, finding a middle ground is likely to be difficult and negotiations are likely to be protracted.

 

2. India’s Approach towards Investment Treaties

India’s approach towards investment treaties is one of consciously limited engagement. While India notionally remains a part of the investment treaty system, it has taken several steps to heavily limit its actual engagement with that system.

The question is whether this approach can adequately serve India’s interests – including protecting India from the pitfalls of the investment treaty system. In theory, by heavily curtailing its engagement with the investment treaty system, India could restrict claims from foreign investors and thereby avoid the pitfalls of the investment treaty system. In practice, however, we believe this approach may not be of substantial benefit.

Firstly, by not signing new BITs to replace its earlier BITs, India is likely to be exposed to claims from foreign investors under its earlier BITs – which grant broad investor rights and substantially curtail the state’s regulatory powers – for a significant period under their sunset clauses. This problem can only be solved by entering into new BITs that explicitly supersede or terminate sunset clauses under the earlier BITs.

Secondly, by adopting the 2015 Model BIT, which substantially diverges from global norms on several issues, India is likely to face considerable difficulties in negotiating investment agreements or investment protection chapters in trade agreements with key economies. It is likely that the 2015 Model BIT will not be accepted as a starting point for negotiations, and India may have to make significant concessions at the very outset.

Thirdly, by not maintaining a robust BIT regime, Indian investments abroad are likely to be vulnerable to arbitrary, discriminatory and unfair State conduct which could adversely affect India’s foreign interests and, as a consequence, its domestic economy.

 

Conclusion

The investment treaty system today faces a legitimacy crisis as both developed and developing States ask serious questions about the legitimacy and functioning of the system and the outcomes it creates. From that perspective, India’s approach of consciously limited engagement is understandable. India is also not alone in distancing itself from the investment treaty system. That said, this approach is unlikely to serve its interests.

Clearly, the better approach is to actively engage with the investment treaty system and to seek reforms by building broad consensus. The reform process is already underway and several proposals – particularly, the proposal for a multilateral investment court – deserve and require India’s attention. India can play a significant role in the ongoing reform process, given its position as one of the largest economies in the world and a major recipient of FDI, and should strongly consider doing so.

 

 

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