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LIDW 2022: What is the Role of London for North American Disputes? A North American Perspective on London as an International Dispute Hub

Wed, 2022-05-11 00:48

As part of the 2022 London International Disputes Week, McCarthy Tetrault, Queen Mary University London, Clyde & Co, Hughes Hubbard, and Fountain Court Chambers organized a conference on “What is the role of London for North American disputes? A North American perspective on London as an international dispute hub.”

The panel was composed of Remy Gerbay (QMUL, Hughes Hubbard), Domenico Di Pietro (GST), Miranda Lam (Acuitas Therapeutics), Robin Lööf (Fountain Court), Junior Sirivar (McCarthy Tetrault), and Jamie Spotswood (Clyde & Co).

The panellists discussed London’s role in arbitral disputes from the US and Canadian perspectives. The session focused on a few key topics particularly relevant to North American disputes, especially: (1) the choice of US and Canadian parties of London as a seat of arbitration; and (2) London as a sustainable, ethical and global spot for North American disputes.

 

London as an arbitration hub for North American disputes

Remy Gerbay kick-started the event by asking the panel whether it was common for North American parties to resolve disputes in foreign seated arbitrations and whether London was a preferred choice.

The panelists agreed that dispute resolution regularly takes place outside North America, and English courts and arbitral institutions as forums provide the best choice for international disputes. According to the panellists, London is a very reliable spot for three main reasons:

  1. Traditionally, the UK courts are widely considered reliable and a predictable place to settle disputes. Historically, the UK is one of the first jurisdictions to embrace alternative dispute resolution.
  2. London provides an extremely varied pool of professional expertise in the world, as shown by the composition of the panel.
  3. The English courts are naturally international, as 70% of commercial cases before them had an international nexus, with over 70 countries worldwide using London as a seat. A panellist described London as a commercial “World Court” and a major arbitration hub.

Moving to substantive law, the panellists emphasized the close ties between North American and the English & Welsh legal systems, as they are built upon common law principles. One member said that parties would refer to commercial decisions adopted in English courts even in Canadian-based litigations. London also appears as a “fairly easy and neutral ground” for Canadian parties who do not wish to opt for Canadian courts. Similarly, the members emphasized the culture of cooperation between Canadian and UK courts on topics ranging from freezing orders to enforcement of arbitral awards. A panellist expressed that the recent wave of sanctions against Russia – which was much more coordinated among G7 leaders – might also result in a rise in US sanctions enforcement, driving in turn greater UK sanctions enforcement.

Moving to the advantages of London as an arbitration seat, the panel praised the culture of procedural efficiency the city had to offer compared to prospective venues in Canada or the US. As one of the panellists underlined, the “English Arbitration Act is old but aging very well.” According to the experience of the panel members, the LCIA “came out 9 times out of 10” as the preferred arbitration center when there is an international component to a contract. It was the panel’s view that when London is chosen as a seat, the parties tend to adopt English law as governing law.

Finally, the panellists pondered whether London was a competitor to American or Canadian arbitration forums. New York and Singapore are given as other popular destinations for both litigants and arbitrators from the region. One member expressed the view that Canada is quickly developing a high-standard system able to welcome arbitral activities founded on a well-established judiciary. Others recognized that London presented competitive advantages, particularly for certain types of disputes, such as banking, maritime, shipping, and new types of technological disputes. This ascendency seems not to be undermined by Brexit, as US companies are planning to increase their presence in England. London remains a very attractive place for business – anecdotal evidence for this is that (most) major international law firms have an office in London.

 

London: global, sustainable and ethical?

The panel also addressed the theme of this year’s LIDW, namely “Dispute Resolution – Global, Sustainable, Ethical?”

On sustainability, a panellist admitted that he had to look up the notion in the dictionary before the session, expressing a favourable opinion on developing best practices that reduce our environmental impact. The panel showed consensus that efforts could be made to better allocate budgets and resources for environmental benefits – i.e., reducing the amount of paper and the amount of travel to prepare for hearings and arbitration proceedings. However, it seemed that, in practice, the driving factor for change was not environmental protection but cost-savings, convenience, and efficiency – even though the benefits were intertwined. . The panellists agreed that virtual hearings could dramatically increase efficiency compared to physical venues.

Diversity was considered a topic related to sustainability that is becoming increasingly significant. According to a panellist, external counsel is increasingly chosen according to values, with the team’s diversity being one of the major elements when in-house counsel chooses an outside law firm.

On the global importance of London, the perception was that England provided excellent legal education, deriving great value from training in England, with well-established foundations to practice. This might be reflected in the appointment of arbitrators. A member of the audience raised a question on the cooperation between the US and UK, mentioning that English arbitrators are particularly appreciated in the US and Canada, while US and Canadian arbitrators are often appointed in the UK.

Finally, the panel addressed the topic of ethics and whether the high ethical standard could be an impediment to London as an arbitration seat. The panel was divided on the issue of witness preparation and coaching. Some expressed the view that while Canadian lawyers are subject to high ethical standards, it would be considered negligence not to coach the witness in Canada. What is considered appropriate is to prepare the witness in the best possible way without misleading the court. On the contrary, in England, the line between preparation and coaching – the latter being prohibited – is blurred. This may raise concerns in international disputes. However, the panel agreed that high ethical standards were a long-term asset rather than an obstacle.

 

Conclusion

The panel’s main subject turned out to be the quality of service London may offer to North American parties. Overall, the panellists agreed that the excellence of the legal system, education, and arbitration institutions in England constituted vital reasons why a London seat was preferred over some continental seats. Reflecting on the last 20 to 30 years, the panel agreed on the exponential development of London as an international arbitration hub, rising as a result of resourcefulness, to one of the top three arbitration spots in the world, if not the first.

 

More coverage from LIDW is available here.

More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
by Arif H. Ali & David L. Attanasio
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LIDW 2022: “If You’re Going through Hell, Keep on Going”

Tue, 2022-05-10 10:03

The first day of the LIDW main conference began with a short introduction by Richard Bamforth, Chair of the LIDW Strategy Group, and partner at CMS. Bamforth reiterated the theme of LIDW 2022 reminding those in attendance that there is a question mark at the end of theme: “Dispute Resolution-Global, Sustainable, Ethical?This means, as explained by Bamforth, that it is essential that we ask questions: Is dispute resolution indeed global, sustainable and ethical? If it is, why? And, how are these goals achieved in practice?

 

First Panel Discussion:  Examining the Lives of Dispute Resolution Professionals 

Along these lines, the first panel discussion, “If you’re going through hell, keep on going” – a motivational statement for its time from Winston Churchill, but how sustainable is that approach for the modern-day disputes professional?, examined the life of a commercial disputes lawyer and of those practising in litigation and arbitration, asking whether “winning at all costs” is sustainable in the long term, given our enhanced awareness of the toll that being a dispute resolution professional may take on those involved in our profession.

The panel was moderated by Ed Crosse, Partner, Simmons & Simmons, and included distinguished speakers, each representing different aspects of the industry.: The Rt. Hon. Lady Justice Carr DBE; Simon Davis, Past President, the Law Society of England & Wales; Anya George, Partner, Schellenberg Witmer; Maryann McMahon, Head of Litigation, EMEA, Morgan Stanley; Stuart Ritchie QC, Fountain Court.

As explained by Ed Crosse, in 2021, LawCare published its “Life in the Law Survey”, which showed that 42% of lawyers in the UK identified as being at a high risk of burn out, with 69% reporting that they had experienced mental ill-health in the previous 12 months. While our raison d’etre is the resolution of disputes, are the practices and procedures we use and deploy fit for purpose in today’s environment? Also it is important to note that the panel highlighted that only 24% of the survey respondents were men, which, in itself is an important aspect of the survey.

The panel first focused on the reasons why one makes the choice to practice in dispute resolution, for solicitors, barrister, judges, and arbitrators, invariably, the answer lies in the variety of matters that one comes across. At the same time the speakers confirmed that there is some awareness that this work comes with stress and challenges. Speaking of challenges, Maryann McMahon emphasized that, as disputes are emerging, they already come to lawyers with a ‘domino’ of stress, given the complexity of the relations, negotiations, performance of contracts etc., and as such, practitioners should be careful not to become a conduit of stress, meaning that practitioners must absorb a lot of stress without passing it on. Simon Davis pointed out that great challenges might come from the lawyers themselves: many talented lawyers are highly sensitive to any criticism, while some are so immersed in the matter that the clients’ problems become their burden. Stuart Ritchie QC emphasized that, for barristers, another challenge is that of the solitary profession and, as such, one must realize when help is needed.

Anya George concluded that the challenges for arbitration practitioners come from the fact that there are no common standards in arbitration proceedings and conducts, which can affect the schedule of a case and burden the work-life balance of arbitrators and arbitration practitioners. Lady Justice Carr emphasized that the court sees the complexity of the profession and the challenges faced by practitioners. In particular, these aspects are visible at the end of a trial when responsibility shifts from the parties’ counsel to the judge so that the decision may be rendered.

The panel discussion concluded with top tips for dispute resolution practitioners, highlighting that it is time to address this topic more often and in a proper manner. The main recommendation was to speak up about the challenges as a dispute resolution lawyer, judge or arbitrator, and also ask for help when that is necessary.

 

Second Panel Discussion: The In-house Counsel Perspective on Dispute Resolution

The second panel of the first day of the main LIDW 2022 conference focused on the in-house counsel experience in settlement and the resolution of disputes: Settlement and risk management for businesses: an in-house counsel roundtable. The panel asked various questions: Do business use mediation, or arbitration (or something else?). Do they also seek settlement after they have obtained an award rather than seek enforcement before courts? How do they gain stakeholder engagement for a different course of action? And once decided, how do they prepare?

The panel was moderated by Artem Doudko, Partner, Osborne Clarke, and Rebecca Clark, IPOS Mediation, and included as speakers: Kai-Uwe Karl, Global Chief Litigation Counsel, GE Renewable Energy; Fiona Meany, Head of Litigation, JLL; and Abhijit Mukhopadhyay, President (Legal) and General Counsel, Hinduja Group. The speakers were unanimous in emphasizing that one has to look at the business interests of users in choosing the adequate dispute resolution mechanism. Kai-Uwe Karl noted that in the case of GE, the vast majority of disputes settle, while a minority, not necessarily represented by high value claims, proceed with litigation or arbitration. Furthermore, the speakers mentioned that for in-house counsel, the primary focus is to first negotiate and try to settle disputes. And in doing so, while legal arguments play an important role, the focus should be on the business driven factors. For this, as Fiona Meany emphasized, in a negotiation, one must have the right persons at the table: not only those with the power to decide and commit the parties, but also the in-house counsel who is familiar with the business. In speaking about settlement, Abhijit Mukhopadhyay stressed the importance of the drafting of the contracts: most disputes arise out from poorly drafted contracts, and for this reason the collaboration between internal and external counsel is of utmost importance: the external counsel must be the extended arm of the legal department of the client.

 

More coverage from LIDW is available here.

More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
by Arif H. Ali & David L. Attanasio
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LIDW 2022: London as an International Disputes Hub for East Asia Disputes – the Challenges and Opportunities of East Asia’s Evolving Dispute Resolution Ecosystem

Mon, 2022-05-09 20:30

London International Disputes Week 2022 (LIDW) 2022 kicked off yesterday with outstanding sessions and panellists in a hybrid format all around the city, centred around this year’s theme: Dispute Resolution: Global, Sustainable, Ethical?. Each year, the LIDW concentrates on several hot topics and controversial issues in international dispute resolution from all over the world. Yesterday’s conference addressed key developments for the arbitration market in East Asia, covering the legal and practical consequences of Covid-19 policies to new trends of disputes and the parties’ favourite seats for arbitration.

One of the first sessions of LIDW 2022, “London as an international disputes hub for East Asia disputes: the challenges and opportunities of East Asia’s evolving dispute resolution ecosystem” took place at Herbert Smith Freehills’ London office and focused on a range of topics including navigating Belt and Road disputes; the introduction of adjudication in Hong Kong; and the potential cost of meeting zero-carbon commitments in Asia – with a specific focus on London’s role as an arbitral seat and English law as governing law.

The organisers of the member-hosted event were Herbert Smith Freehills, Morrison Foerster, Penningtons Manches Cooper LLP and Twenty Essex Chambers. The panel was composed of Mathias Cheung (Barrister, Atkin Chambers), Simon C. Milnes QC (Barrister, Twenty Essex); Mark Sachs (Partner, Penningtons Manches Cooper LLP); Sarah Thomas (Partner, Morrison Foerster) and Helen Tang (Partner, Herbert Smith Freehills).

The panel was chaired by Mathias Cheung, who raised questions on emerging trends in the arbitration market, current dispute types and client demands within the dispute resolution realm in the East Asia market – mainly in Hong Kong and Mainland China. Helen Tang stressed that the vast majority of disputes in Mainland China relate to joint venture and trade matters. She observed that a specific trend in the East Asian arbitration market was the growing number of arbitrations arising from bail-out projects in mega construction projects. She argued that the effects of the Chinese Government’s Covid-19 policies would cause several disputes in the region as they affect the global supply chain. In line with these statements, a panel member highlighted that disputes stemming from private equity and merger & acquisitions transactions are highly trendy in Mainland China, as are licencing disputes where arbitration is preferred as a dispute resolution method.

Asked about the most preferred dispute resolution methods for disputes in the East Asia market, Sarah Thomas stressed that Chinese parties often prefer multi-tiered dispute resolution while their counterparties would favour arbitration outright. She also added that despite the controversial jurisdictional problems in Hong Kong on set-aside and enforcement proceedings, arbitration remains the most preferred mechanism as a dispute resolution method in the East Asia ecosystem.

Helen Tang analysed the pros and cons of Hong Kong, Singapore and Mainland China as arbitration seats. Ms. Tang emphasized that Technology, Media, and Telecommunication companies strongly prefer Hong Kong as a seat, whereas Mainland China is becoming a more popular seat for International Investment Banks. Ms. Tang concluded her remarks by stating that Chinese parties insist on selecting mainland China as a seat and China International Economic and Trade Arbitration Commission (CIETAC) as an institution.

Sarah Thomas argued that Hong Kong remains the most preferred seat for “sensitive contracts”, while closely tied as preferred seat with Singapore – according to the Queen Mary University Survey. The tendency to see Singapore as a top spot seems to grow. Given the extremely strict pandemic restrictions, she shared her practical concerns about Hong Kong. She expressed concerns that entire court proceedings, including in-person hearings, are negatively affected. The panellists agreed that Hong Kong remained the preferred seat, given its arbitration friendly ecosystem and ease in granting enforceable interim measures in Mainland China – as Chinese courts are very inclined to enforce those provisional measures.

On the enforceability of arbitral awards, the panellists discussed China’s enforcement system and problematic supervisory authority’s decisions, with focus on anti-suit injunctions. For example, Simon C. Milnes QC advised that granting an antisuit injunction from UK Courts requires initiating the proceedings before them as soon as possible. Otherwise, the “delay” for application itself would probably be a countervailing issue in the UK courts’ eyes. After highlighting English law’s importance as governing law and London’s dominance as a seat, Mr. Milnes argued that establishing an institutional body for commodities arbitration in London would expand London’s role in international arbitration and reinforce its position as a powerful seat.

 

Conclusion

The panellists concluded their valuable and stimulating remarks by arguing that English law as governing law and London as a seat of arbitration are “safe ports” in resolving East Asia disputes. London retains vital assets, with its ad-hoc and institutional arbitration at the London Court of International Arbitration (LCIA) and sector-specific specialised counsel, judges and the entire legal community.

 

More coverage from LIDW is available here.

More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
by Arif H. Ali & David L. Attanasio
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Arbitration in Egypt: A Practitioner\'s Guide
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LIDW 2022: London as a Dispute Resolution Hub for Disputes Involving Parties from Ukraine and Kazakhstan – Disputes in Turbulent Times

Mon, 2022-05-09 09:00

Since the first edition in 2019, Kluwer Arbitration Blog has partnered with London International Disputes Week (LIDW) for the live coverage of an exceptional week addressing topical issues related to the resolution of commercial disputes.

The first panel on 9 May 2022, on London as a dispute resolution hub for disputes involving parties from Ukraine and Kazakhstan: disputes in turbulent times, was also the one to open the first edition of the International Day at the London International Disputes Week. It was hosted by LK Law, QMUL, Quadrant Chambers, Quinn Emanuel Urquhart & Sullivan LLP, RPC, and in person attended at RPC’s beautiful office opposite the Tower of London. The panel was moderated by Prof. Loukas Mistelis, QMUL and Clyde and Co., and with panellists representing both the jurisdictions discussed, as well as London and the London based law firms advising clients from these jurisdictions: Adam Greaves, LK Law; Askar Konysbayev, GRATA international; Tatiana Minaeva, RPC; Olena Perepelynska, Integrites; Epaminontas Triantafilou, Quinn Emanuel Urquhart & Sullivan LLP; and Alexander Uff, Quadrant Chambers.

This session addressed disputes involving parties from Ukraine and Kazakhstan in the current turbulent environment and it broadly considered the role of London arbitration and London courts, the role of English law and how lawyers have been adapting their work in these challenging times.

Loukas Mistelis introduced the panel by framing the discussion being focused on the post-pandemic developments in the face of the ongoing war in Ukraine and the turbulent times in Kazakhstan in January 2022. The discussion comes naturally, as Mistelis explained, as Ukraine and Kazakhstan are frequent litigants before the English courts and the arbitrations seated in London frequently have parties from both jurisdictions. The panellists addressed the effects of the sanctions in connection with the war in Ukraine on the conduct of arbitration proceedings, the recognition and enforcement of arbitral awards in Ukraine and Kazakhstan, respectively, and lastly on the possible proliferation of Crimea-like arbitration cases in the face of the new developments in Ukraine.

Alexander Uff addressed the impact of the economic sanctions imposed by the EU, US, UK, and Switzerland and other countries, on Russia in light of the war in Ukraine, by focusing the discussion from the perspective of arbitrators and counsel. First, Uff mentioned the consequences on the independence and impartially of arbitrators, highlighting that the standard under English law is the absence of appearance of bias, which implies, in light of the sanctions regime, the disclosure of any situations likely to affect the arbitrator’s independence and impartiality. This resulted, Uff added, in some arbitrators having to resign during the arbitration proceedings, while others were prevented from accepting appointments. Further, the imposition of sanctions also raised the concern of eventual conflicts between arbitrators and counsel of parties. Uff clarified that while this situation is covered by the IBA Guidelines on Conflicts of Interest in International Arbitration 2014 when there is enmity between arbitrators and counsel, in practice this mainly concerned situations of conflicts arising because of previous arbitrations involving the same counsel and arbitrators, and not as a result of economic sanctions. Of course, Uff added, arbitrators also have the possibility to exercise their powers to exclude counsel from the proceedings if that affects the constitution of the arbitral tribunal, under the IBA Guidelines on Party Representation in International Arbitration. Uff also mentioned other implications of the war more broadly and the economic sanctions in particular. For example, the smaller pool of arbitrators, less availability of arbitrators and counsel from Ukraine, inability of arbitrators and counsel from Ukraine to travel and for arbitrators to sign their awards etc. Adam Greaves added to Uff’s insightful comments that, from the perspective of counsel, the war in Ukraine put a lot of pressure on law firms in making a choice on whether to continue representing Russian clients or even to continue to take more work involving Ukrainian clients given the screening requirements currently in place. In Greaves’ view, there will be a shift in how law firms will approach these disputes, a specialisation of counsel in these matters involving Russian and Ukrainian clients, and even an increase in the number of smaller law firms which would accept these matters. In any case, in Greaves’ opinion, matters involving Russian and Ukrainian clients will continue to come to London. Tatiana Minaeva explained that law firms are increasingly making their risk compliance processes more thorough and complex, given the implications of the economic sanctions. As such, Minaeva, added, it is not only for potential Russian involvement, but also equally applicable to potential Ukrainian clients. Because these processes are elaborate, they are taking longer than in normal circumstances; this, in turn, has an impact on the appetite of law firms to accept these clients. Epaminontas Triantafilou raised the question whether all these concerns raised are justified. In his opinion, there has been significant market pressure on counsel which ultimately is multifaceted. For example, for large law firms there can also be internal pressure to not accept certain clients because of the position of existing clients towards the war in Ukraine. To this, Loukas Mistelis asked the question – which is the theme of this year’s LIDW – whether London is becoming ‘Global, Sustainable, Ethical?’, and rather ethical in this sense.

Moving to the jurisdiction-specific discussion, Olena Perepelynska, connected remotely from Ukraine, has highlighted the significance of keeping the work flowing for Ukrainian arbitrators and counsel, also mentioning that ICAC Ukraine is currently operational and hearings are taking place, albeit remotely. On the recognition and enforcement of arbitral awards in Ukraine, Perepelynska highlighted the excellent track record of the Ukrainian courts, with a pro-arbitration stance and 90% enforcement rate of foreign arbitral awards. At the same time, Perepelynska emphasized that for arbitrations seated in Ukraine, only 1% of the ICAC awards are set aside by the Ukrainian courts. Askar Konysbayev addressed the recognition and enforcement of arbitral awards in Kazakhstan. While Kazakhstan is a contracting state to the New York Convention 1958, it is only recently that courts have become more familiar with the Convention and its application. The procedure is fairly straightforward and the Kazakh courts routinely enforce foreign arbitral awards. However, as mentioned by Konysbayev, Kazakh courts are still prone to influence and put administrative pressure on the judiciary. As to recognition and enforcement of court judgments, Konysbayev highlighted that this is not that straightforward, as Kazakh courts are not familiar yet with the reciprocity principle, which is not tested in Kazakh courts and, thus, the question remains open.

To conclude the panel discussion, Loukas Mistelis inquired whether we will witness a boom of Crimea-like cases in the near future. Epaminontas Triantafilou mentioned that, indeed the cases based on the 2014 invasion of Crimea may offer hope for future like disputes. However, one must be careful and observe how the situation is evolving, as the current situation is a dynamic one. The war is still ongoing and the effective control, which was upheld in the Crimea cases, is fluid in the present circumstances.

The panel concluded that, indeed, we live in interesting times for the legal profession, dynamic and with significant consequences.

 

More coverage from LIDW is available here.

More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
by Arif H. Ali & David L. Attanasio
€ 202
Arbitration in Egypt: A Practitioner\'s Guide
by Ibrahim Shehata
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LIDW 2022: London as an International Disputes Hub for Dubai, UAE and Region Disputes: is it Still Safe to Arbitrate in Dubai, and Other Hot Topics

Mon, 2022-05-09 07:57

As part of the 2022 London International Disputes Week, Arbitration Chambers, Clyde & Co, Hausfeld, Jones Day and LexisNexis organized a conference on “London as an international disputes hub for Dubai, UAE and region disputes: arbitration and the courts – is it still safe to arbitrate in Dubai, and other hot topics”.

The panel was composed of Hussain Hadi (LexisNexis), Ned Beale (Hausfeld), Philip Devenish (Jones Day), Sara Koleilat-Aranjo (Al Tamimi & Co), Alexandra Lester (Clyde & Co) and Niels Schiersing (Arbitration Chambers).

The session focused on key topics from the world of dispute resolution that are particularly relevant to Dubai, UAE and Middle East region disputes. In particular, the panel engaged in a fruitful conversation on: (1) the attractiveness of Dubai since Decree No. 34 of 2021 from the perspective of international arbitration users – either counsel, arbitrators, or parties; and (2) the development of commercial and investment arbitration in the Middle East region.

 

Dubai’s Decree No. 34 – One bump in a long road?

The panel expressed mixed views on the most significant transformation in the region in 2021, namely Dubai’s 2021 Decree No. 34 Concerning the Dubai International Arbitration Centre (“Decree”, previously discussed on the Blog here and here).

To recall, the Decree came into force on 20 September 2021 and essentially reformed the arbitration framework in the UAE. The Decree abolished the Dubai International Finance Centre’s Arbitration Institution (i.e., the DIFC-LCIA Arbitration Centre) and the Emirates Maritime Arbitration Centre.  It transferred the responsibility of other institutions, including all of their assets, employees, financial allocations, and lists of arbitrators to the Dubai International Arbitration Centre (“DIAC”).

Some members of the panel expressed concerns over the Decree. They criticized the way it came into force, without prior consultation with the arbitration community, a certain lack of transparency concerning its promulgation, and its impact on ongoing arbitration cases, including challenges those related to arbitral costs.

Other members adopted a long-term approach to the Decree, emphasizing the much-needed clarity it brings to the UAE jurisdiction. They view the unification of Dubai’s different arbitral institutions under the umbrella of an improved DIAC with a revised set of arbitral rules and the clarity on the supervisory court as essential developments in the long run for the attractiveness of the seat.

Regarding whether Dubai could retain its top-10 position as an international arbitration hub (as ranked according to the 2021 Arbitration Survey by the School of International Arbitration at Queen Mary University), the panel members were cautiously optimistic.

Dubai is a unique jurisdiction, with its confluence of common and civil law and its position in a thriving region with strong arbitral development – all natural reasons which suggest Dubai remains an attractive seat. The panel members nevertheless emphasized the need for greater transparency, outstanding level of case management and service to the parties, and a strong autonomy for the arbitral tribunals as conditions for the attractiveness of the seat, particularly for foreign nationals or entities that are not registered in the seat of the arbitration.

From a historical perspective, the Decree was seen as a “hiccup” on the long road of UAE and the Middle East region in their relationship with arbitration. A member of the panel reminded the audience those 75 to 80 years back, UAE was not a welcoming arbitration environment, especially for disputes concerning the oil & gas industry. In hindsight, the 21st century has seen a spectacular effort from an institutional perspective, with significant investments put in place to support arbitration in the region.

Nevertheless, for users of international arbitration in Dubai, the Decree came as a surprise, if not a shock. The agreement between LCIA and DIAC on ongoing cases provides that the LCIA will continue to administer all existing cases under DIFC-LCIA rules from its London offices. However, the main issue remains the interpretation of arbitration clauses that mention the DFILC-LCIA rules and the present circumstance’s challenge to party autonomy. Similarly, some considered that the Decree might create windows of opportunity for other arbitral seats, either in the region or in globally well-established arbitration jurisdictions. For example, London would be a natural choice for users of international arbitration that seek as a stable and transparent seat.

 

The Middle East – An Arab Spring for commercial arbitration and investor-state arbitration?

The panel agreed that the Middle East region saw a spectacular increase in arbitral institutions and laws across the last decade, if not in the last five years – for instance, the addition in 2018 of the Oman Commercial Arbitration Centre.

In the investor-state arbitration space, there has been a spectacular growth in investment arbitration in the Middle East, with increasing opportunities for the seat of Dubai. The data shows a growth in the number of investment treaties and cases across the region. While 500 investment treaties are in force across the Middle East, one third have been ratified in the last decade only. Similarly, it was put forward that over 50% of the known arbitration proceedings have been launched in the last five years – reflecting that there has been no backlash for investment arbitration in the Middle East, which is alive and well.

One panel member mentioned the recent Israel-UAE BIT and referred to it as a token of appeased relationships, reflecting developments in the region more broadly. This growth in investment arbitration was comparable to a sort of Arab spring, i.e. a response to corruption and economic stagnation – two ills that investment treaties seek to cure by securing the rule of law.

In the region, most ad hoc cases are pursued under UNCITRAL rules, suggesting that the DIAC could be a neutral institution for administration, and one that could be more popular than other options, particularly for Russian parties.

 

Conclusion

The Middle East region is a space to watch with its significant developments both in commercial and investment arbitration. Some panel members expressed concerns about the immediate and middle term outcome of the latest Decree, particularly regarding the transparency and stability of the arbitration framework in the UAE – making London perhaps appealing to some users. They were nevertheless cautiously optimistic about the long-term potential of the region and UAE for arbitration.

 

More coverage from LIDW is available here.

More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
by Arif H. Ali & David L. Attanasio
€ 202
Arbitration in Egypt: A Practitioner\'s Guide
by Ibrahim Shehata
€ 190


New Arbitration Rules For The Economic And Monetary Community of Central Africa (CEMAC)

Fri, 2022-05-06 01:00

The Economic and Monetary Community of Central Africa, also known as the Central African Economic and Monetary Community (CEMAC),1)CEMAC is the French acronym for “Communauté Economique et Monétaire de l’Afrique Centrale” jQuery('#footnote_plugin_tooltip_41479_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41479_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); has recently enacted a Supplementary Act N° 01/21-CEMAC-CJ-CCE-15 establishing the Statute of the Arbitration Center of the Community Court of Justice (Supplementary Act No 01) and a Supplementary Act N° 02/21-CEMAC-CJ-CCE-15 on the Arbitration Rules of the Court of Justice of the CEMAC (CEMAC Arbitration Rules). The Supplementary Act No 01 became enforceable upon its signing by the President of the Conference of Heads of States of the CEMAC on October 5, 2021. This post provides an overview of and commentary on the Supplementary Act No 01, the CEMAC Arbitration and related issues/developments.

 

Structure of the Newly Created Arbitration Center and Highlights of the Supplementary Act No 01

The institutions of the CEMAC include a Community Court of Justice (Court of Justice). Like the Common Court of Justice and Arbitration under the OHADA Treaty (which encompasses seventeen African countries including the six member States of the CEMAC) the Court of Justice has been entrusted with three main functions: judicial, advisory and administration of arbitration proceedings. The Arbitration Center which is established by Supplementary Act No 01 forms part of the Court of Justice and by virtue of Article 35 §1 of the Convention governing the Court of Justice, arbitration cases can be referred to the Center by any of the CEMAC Member States, and Institutions and Bodies of the CEMAC, pursuant to an arbitration agreement.

The Center is responsible for organizing and administering arbitration proceedings as provided under Article 1 of the Supplementary Act No 01. Article 13 of the Supplementary Act No 01 further provides that the bylaw of the Arbitration Center is expected to set its functions. However, the bylaw is yet to be enacted by the Conference of Heads of States which, under Article 36 of Convention governing the Court of Justice, is competent and no information is publicly available on the date of its enactment. The Center’s jurisdiction is derived from Article 5 of Supplementary Act N°01 which states that ‘[t]he Center is competent to hear disputes arising from an agreement stipulating a clause conferring on it the right to rule in the case regardless of the domicile or usual place of residence of the parties concerned’.

There are three main bodies that make up the Center:

  • the Case Management Committee;
  • the Secretariat General; and
  • the Arbitral Awards Review Committee (Appellate Body).

Each is discussed in more detail in the following sections.

  1. The Case Management Committee

The Case Management Committee has a broad mandate spanning from appointing authority to supporting judges via scrutiny of arbitral awards, among others. As an appointing authority, it appoints and confirms arbitrators, assesses their performance, and contributes to the renewal of the roster of arbitrators. It ensures that arbitral proceedings run smoothly and that the rules on procedural incidents and arbitrator misconduct are in compliance with the ethics of the Center. Additional tasks of the Case Management Committee include suggesting amendments to the CEMAC Arbitration Rules and contributing, along with the Court of Justice, to the research, training, and promotion of the Arbitration Center. These functions are similar to the courts of arbitration in some arbtiraiton centers. However, unlike the general practice within most arbitration centers, where each arbitral tribunal has the power to draft their terms of reference in consultation with parties to the proceedings, it is noteworthy that the Case Management Committee, and not the arbitral panel, is entrusted with the task of drafting the terms of reference of arbitral tribunals per Article 6 of Supplementary Act No 01. Given the importance of the terms of reference in any arbitration proceedings, an arbitral tribunal acting under the CEMAC Arbitration Rules should pay close attention to the phase during which the terms of reference are drafted, since they do not have the upper hand.

  1. The Secretariat General

The Secretariat General assumes the tasks usually reserved for the secretary general of arbitration centers such as the one of the CCJA or the ICC. Additionally, it proposes amendments on the arbitrators’ schedule of fees to the Case Management Committee. The Secretariat General is solely authorized by Article 7 of the Supplementary Act No 01 to receive and transfer all communications during arbitral proceedings. Such practice can be potentially risky as there may be instances where the Secretariat fails to forward all communications simultaneously or fails to do so within the required time. This may lead to a violation of due process and a detrimental risk to the arbitration.

  1. The Arbitral Awards Review Committee

The Arbitral Awards Review Committee functions as an appellate body. It is chaired by the President of the Court of Justice assisted with two Justices of the Court. It handles exequatur requests and hears challenges to arbitral awards rendered under the CEMAC Arbitration Rules.

It is pertinent to point out the provisions dealing with appointment and sanctions of arbitrators under the Supplementary Act No 01, the reason for which will be seen shortly. Article 9 §1 of the Supplementary Act No 01 suggests that only citizens of Member States can be appointed as arbitrator under the CEMAC Arbitration Rules, however Section 9 §2 allows the appointment of arbitrators outside the list, after they are confirmed by the Case Management Committee. In addition to this, under Article 9 §3(2), arbitrators can be removed by a ¾ majority ruling of the Court of Justice. This provision seems to be in conflict with Article 6 §1 of the Supplementary Act No 01 which authorizes the Case Management Committee to rule on any violation of the ethical code of arbitrators. It is unclear the type of sanctions the Case Management Committee can issue while handling disciplinary matters involving an arbitrator, since as mentioned above, only the Court of Justice has the power to remove an arbitrator. The Court of Justice may provide more clarity on this in due time when a related issue arises.

 

Highlights of the CEMAC Arbitration Rules

The Rules entered into force upon their signature by the President of the Conference of Heads of State of the CEMAC on October 5, 2021. This section highlights some noteworthy aspects.

Interim measures: Under Article 7 §1 and 7 §2 of the CEMAC Arbitration Rules, the Arbitration Center can order provisional measures where it deems necessary. Such measures may be ordered in the form of an interim arbitral award or provisional arbitral award for which enforcement can be sought.

Representation of parties: Contrary to the rules applicable in several African countries which do not require any licensed attorney appearing on behalf of a party in judicial or quasi-judicial proceedings to display a special power of attorney, anyone appearing on behalf of a party to arbitral proceedings under the CEMAC Arbitration Rules must be given, by their client, a duly signed special power of attorney (“Mandat special”), which must specify whether representation, assistance or both are contemplated (Article 9 of the Supplementary Act No 02).

Appointment and confirmation of arbitrators: It is noteworthy that under Article 10 of the Rules, any arbitrator appointed by a party must be approved by the other party. The wording of the rule seems to suggest that, contrary to the CCJA or ICC Rules, each party appointed arbitrator must be approved by the other party before confirmation by the Center. Under the CCJA and ICC Rules, a party appointed arbitrator does not have to be approved by the opposing party, who may only challenge the party-appointed arbitrator by raising a reasoned objection to their confirmation. There is a difference between allowing a party to object to the appointment of an arbitrator by the opposing party, as is the case under the CCJA and ICC Rules on one hand, and requiring that a party-appointed arbitrator must be approved by the opposing party, which seems to result in joint appointment of all arbitrators by parties, under the the CEMAC Arbitration Rules.

Case management conference: The case management conference is convened by the Case Management Committee (Article 18 of the CEMAC Arbitration Rules), which is also different from the pattern in the majority of other arbitration rules. For instance, under Article 15 of the Arbitration Rules of the OHADA Common Court of Justice and Arbitration, the case management conrefence is to be convened by the arbitral tribunal. So is the case under Article 24 of the ICC Arbitration Rules currently in force.

Post hearing submissions: Under Article 24 of the CEMAC Arbitration Rules, after the closure of debates, and before the issuance of the award, any party can take the initiative of a post-hearing submission (“Note en cours de délibéré”) and send it to the tribunal after having submitted a copy to the opposing party. This practice is contrary to the practice under the majority of arbitration rules, under which a post hearing submission must be authorized, unless requested by the tribunal itself. See for example, Article 27 §4 of the ICC Arbitration Rules 2021 and Article 19 §1 of the Arbitration Rules of the OHADA Common Court of Justice and Arbitration (2017). This majority rule ensures avoidance of dilatory tactics by parties that may be acting in bad faith. It also limits the risk of proceedings being dragged over the time allowed.

Drafting of awards: Under Article 27 of the CEMAC Arbitration Rules, an arbitral award must be drafted in full after it has been read to the parties. It remains unclear how the scrutiny will be made if the award is not already drafted at that stage.

Dissenting opinions: Where an arbitrator dissents and refuses to sign an arbitral award, the reason of refusal must be indicated in the award (Article 27, § 4 of the CEMAC Arbitration Rules).

Publication of awards: The publication of arbitral awards is allowed, subject to prior and written consent of the parties (Article 11, § 2 of the Supplementary Act No 01).

Liquidation of costs: Under Article 34 of the CEMAC Arbitration Rules, costs of an arbitration proceedings are liquidated by the Case Management Committee, not by the arbitral tribunal; however, it is still the tribunal that allocates cost among the parties.

 

Concluding Remarks

The new arbitration rules of the CEMAC have been enacted to comply with the revised Treaty establishing the CEMAC. Since the new arbitration center of the CEMAC has been created inside the Court of Justice, its jurisdiction is limited to the matters governed by the CEMAC Treaty and its subsequent legal instruments (pursuant to Article 22 and 35 of the Convention governing the Court of Justice), there is no risk of conflict between the OHADA Arbitration Rules which are enforceable in all the six member States of the CEMAC. The innovations reflected in the newly enacted CEMAC Arbitration Rules bring CEMAC’s procedures and practices in line with the latest global best practices.

 

Dr. Mahutodji Jimmy Vital Kodo, FCIArb, is a lawyer.

References[+]

References ↑1 CEMAC is the French acronym for “Communauté Economique et Monétaire de l’Afrique Centrale” function footnote_expand_reference_container_41479_27() { jQuery('#footnote_references_container_41479_27').show(); jQuery('#footnote_reference_container_collapse_button_41479_27').text('−'); } function footnote_collapse_reference_container_41479_27() { jQuery('#footnote_references_container_41479_27').hide(); jQuery('#footnote_reference_container_collapse_button_41479_27').text('+'); } function footnote_expand_collapse_reference_container_41479_27() { if (jQuery('#footnote_references_container_41479_27').is(':hidden')) { footnote_expand_reference_container_41479_27(); } else { footnote_collapse_reference_container_41479_27(); } } function footnote_moveToReference_41479_27(p_str_TargetID) { footnote_expand_reference_container_41479_27(); 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_41479_27(p_str_TargetID) { footnote_expand_reference_container_41479_27(); 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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Fine line? A New Case on Arbitrators’ Power to Impose Sanctions

Thu, 2022-05-05 05:35

It is not uncommon in arbitration proceedings for interim measures to be necessary to avoid the relief intended on the merits from being frustrated. Interim measures in support of arbitration can now fortunately be ordered not only by national courts but also by arbitrators in most jurisdictions. In most instances, interim measures granted by arbitral tribunals are usually observed voluntarily by the parties.1) A 2012 survey found that 62% of interim measures granted by arbitral tribunals were observed voluntarily. International Arbitration Survey: Current and Preferred Practices in the Arbitral Process (2012), p. 17. jQuery('#footnote_plugin_tooltip_41520_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41520_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); But what happens when they are not? Indeed, do arbitrators have any power to compel a party to comply with an interim measure? This is precisely the question that arose in an ICC case in which we were recently involved and that we discuss in this article.

 

Case summary

The claimant was a construction company that entered into an agreement to refurbish infrastructure with a public entity, which was ultimately the respondent. The contract was terminated by the claimant due to breaches by the respondent. However, the respondent refused to pay the claimant the amounts triggered by termination of the contract and also refused to return the bank guarantee that the claimant had furnished to secure the fulfilment of its obligations while the contract was in force. After the claimant had started the arbitration proceedings, the respondent continued to refuse to return the bank guarantee and, ultimately, called on that guarantee.

As a result, the claimant requested that the arbitral tribunal grant interim relief ordering that the respondent deposit the amount of the bank guarantee into an escrow account. Although the arbitral tribunal granted the request, the respondent did not comply for more than six months. As a result, the claimant requested that a pecuniary sanction be imposed on the respondent for its continued refusal to comply with the arbitral tribunal’s order.

In deciding on whether to grant the requested sanction, the arbitral tribunal asked the parties to comment on three key issues: (i) the power of the tribunal to impose coercive economic sanctions under the potentially applicable laws (i.e. law of the seat and law of the respondent’s jurisdiction, where the sanction was expected to be enforced); (ii) the criteria for determining the amount of the sanction; and (iii) how the sanction should be paid and to whom. We break down below the response given by the claimant in relation to each of these issues and the arbitral tribunal’s conclusions.

 

Issue 1: Arbitral tribunals’ power to impose sanctions

Neither the law of the seat nor the law of the respondent’s jurisdiction explicitly establish that arbitral tribunals have the power to impose pecuniary sanctions, but they do not include a prohibition to that effect either. Moreover, the parties in the present case had not made any agreement limiting or confirming the tribunal’s power to do so.

In support of its request, the claimant argued that the power to impose pecuniary sanctions on parties is implicit in the powers granted to arbitrators. The claimant relied on a number of authorities,2) Alexis Mourre, “Multas coercitivas y ejecución en especie en arbitraje internacional“, Spain Arbitration Review 10, 2011, p. 25. jQuery('#footnote_plugin_tooltip_41520_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41520_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); in particular citing ICC case No. 7895, which concluded that, under the ICC Rules, in the absence of an agreement by the parties to the contrary, the arbitral tribunal has the power to impose sanctions.3) See, for example, Final Award in Case 7895 (Extract), ICC International Court of Arbitration Bulletin, Vol. 11. No. 1, 64, 2000. jQuery('#footnote_plugin_tooltip_41520_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41520_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The claimant also relied on Hamstein v Williams, a US case decided by the Court of Appeals for the Fifth Circuit, which noted that the inherent powers of arbitrators include the power to sanction parties and, therefore, arbitrators do not exceed their authority when imposing sanctions on a party.4) Hamstein Cumberland Music Group; Howlin Hits Music INC; Hamstein Cumberland Music Co; BH Associates INC, d/b/a Hamstein Music co; Bill Ham v Jerry Lynn Williams and Robert S Farris, 10 May 2013, Nos. 05-51666, pp. 8-9. jQuery('#footnote_plugin_tooltip_41520_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_41520_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Further, the claimant pointed out that the two potentially relevant laws permitted the imposition of sanctions by judges in civil proceedings and, therefore, sanctions were not alien to those legal systems. The claimant also mentioned that the UNIDROIT Principles on International Commercial Contracts provide in article 7.2.4 that courts shall be able to order the payment of a penalty to force a party to comply with a specific order and indicated that those principles could be considered by the arbitral tribunal pursuant to the terms of reference and the ICC Rules.

The arbitral tribunal concluded that it had power to impose a pecuniary sanction on the respondent in this case considering in particular (i) the authorities and precedents submitted by the claimant; (ii) that neither the parties had explicitly excluded the aforesaid power and no provision had been identified under the law of the seat or the law of the respondent’s jurisdiction which excluded that power; and (iii) that the imposition of pecuniary sanctions was in line with public policy in the two relevant jurisdictions given that such sanctions were permitted in civil proceedings.

 

Issue 2: Quantifying the sanction

The second question raised by the arbitral tribunal was how the amount of the sanction should be determined. The claimant argued that sanctions must afford an incentive for the misbehaving party to comply and, therefore, that the amount should be set at a level that was high enough to encourage that behaviour.

In our case, the claimant requested a sanction that would accrue per day of non-compliance and proposed as a benchmark the amount provided in the contract for delays to the completion of the works (0.1% per day of delay). In particular, the claimant suggested applying that percentage to the amount of the bank guarantee cashed by the respondent and for the sanction to accrue with that amount as a cap.

The arbitral tribunal concluded that the claimant’s proposal was reasonable as it imposed sufficient financial pressure on the respondent to make it comply with the order to deposit the amounts in escrow.

 

Issue 3: How and to whom?

The third and final issue was how the sanction should be paid and who should be the beneficiary of the pecuniary sanction.

In relation to the latter point, the claimant explained that the general rule in judicial proceedings is for sanctions to be paid to the courts themselves as they are to some extent responsible for protecting the integrity of the judicial system. However, sanctions in arbitration cannot have that purpose and, therefore, as suggested by a number of authorities, the beneficiary should be the party suffering the consequences of the non-compliance (i.e. the claimant).

As for how the sanction should be paid, the claimant proposed that any amount accrued as a sanction be granted in the award and be paid as established by the tribunal in the award.

The tribunal accepted the claimant’s proposals on both points.

 

Conclusion

Despite the pecuniary sanction, the respondent did not comply with the interim measure and the pecuniary sanction thus continued to accrue until the award was rendered. As ruled by the tribunal in its decision on the pecuniary sanction, the award granted the claimant the entire amount accrued as a result of the sanction and added that amount to the payment order contained in the award for the damages suffered due to breach of contract.

 

To further deepen your knowledge on interim measures in international arbitration, including a summary introduction, important considerations, practical guidance, suggested reading and more, please consult the Wolters Kluwer Practical Insights page, available here.

References[+]

References ↑1 A 2012 survey found that 62% of interim measures granted by arbitral tribunals were observed voluntarily. International Arbitration Survey: Current and Preferred Practices in the Arbitral Process (2012), p. 17. ↑2 Alexis Mourre, “Multas coercitivas y ejecución en especie en arbitraje internacional“, Spain Arbitration Review 10, 2011, p. 25. ↑3 See, for example, Final Award in Case 7895 (Extract), ICC International Court of Arbitration Bulletin, Vol. 11. No. 1, 64, 2000. ↑4 Hamstein Cumberland Music Group; Howlin Hits Music INC; Hamstein Cumberland Music Co; BH Associates INC, d/b/a Hamstein Music co; Bill Ham v Jerry Lynn Williams and Robert S Farris, 10 May 2013, Nos. 05-51666, pp. 8-9. function footnote_expand_reference_container_41520_30() { jQuery('#footnote_references_container_41520_30').show(); jQuery('#footnote_reference_container_collapse_button_41520_30').text('−'); } function footnote_collapse_reference_container_41520_30() { jQuery('#footnote_references_container_41520_30').hide(); jQuery('#footnote_reference_container_collapse_button_41520_30').text('+'); } function footnote_expand_collapse_reference_container_41520_30() { if (jQuery('#footnote_references_container_41520_30').is(':hidden')) { footnote_expand_reference_container_41520_30(); } else { footnote_collapse_reference_container_41520_30(); } } function footnote_moveToReference_41520_30(p_str_TargetID) { footnote_expand_reference_container_41520_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_41520_30(p_str_TargetID) { footnote_expand_reference_container_41520_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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When an Unplanned Flight to Canada Lands You in the Paris International Court of Arbitration

Wed, 2022-05-04 01:00

Aircraft seizures tend to come up at the enforcement stage, oftentimes in relation to investment arbitration awards (see, e.g., proceedings against Tanzania or Equatorial Guinea). In Specter Aviation v. Laprade, however, the seizure of the Beechcraft Super King Air 300 (the “Aircraft”) is what triggered proceedings before the courts of the Canadian province of Québec, the US State of Oklahoma and Guinea, as well as an arbitration tribunal under the auspices of the Paris International Court of Arbitration (the “CAIP”). The main point of contention is the ownership of the Aircraft. In late 2020 the Superior Court of Québec (the “SC”) ruled that this issue belonged in court (2020 QCCS 4392), however a year later the Québec Court of Appeal (the “CA”) referred the parties to arbitration (2021 QCCA 1811). Such disparate conclusions stemmed from, among other things, different takes on separability and arbitrability. In addition to clarifying the interplay between the various provisions of the Civil Code of Québec (the “CCQ”) which regulate the international jurisdiction of Québec authorities, and shining the light on the enforceability of multi-tiered dispute resolution clauses (of which there were two in this case), the CA’s judgment reaffirms the province’s pro-arbitration stance.

 

How it started

The Parties’ 2012 joint venture aimed to develop air transportation services in Africa and came to an end when in 2019 they decided to part ways, formalizing the terms of their break-up in an Addendum to the original Agreement. The Addendum regulated the division of property, including the Aircraft in dispute. In the summer of 2019, the Aircraft left Guinea to undergo maintenance in France. Thereafter, instead of returning to Guinea, one of the Defendants illegally flew the Aircraft to Canada. Upon landing in Canada, the Plaintiffs seized it and requested the SC to: (i) recognize such seizure as valid; (ii) order the Defendants to pay legal costs related to the seizure in the amount of $100K; (iii) acknowledge that one of the Plaintiffs was the registered owner of the Aircraft; and (iv) acknowledge the Plaintiffs’ right to take immediate possession of the Aircraft. After the Defendants filed their defense and counterclaim asking the SC to declare them as Aircraft’s owners, Plaintiffs filed a motion to dismiss or, alternatively, to suspend on grounds of international lis pendens. By this point, Plaintiffs had sought to have their ownership recognized in Guinea (where the court ultimately referred the Parties to arbitration at the Defendants’ request) and Oklahoma. While the status of the latter proceeding is omitted from the CA’s judgment, in the judgment granting leave to appeal (paras. 2, 27-28), the CA had refused to issue an anti-suit injunction to prevent Plaintiffs from taking further steps before the Oklahoma court.

 

How it evolved in the Québec courts

The SC refused to refer the Parties to arbitration because the Plaintiffs had attorned to the jurisdiction of Québec authorities, the dispute was not arbitrable and neither of the two dispute resolution clauses was applicable. The CA reversed all these findings, referring the Parties to arbitration pursuant to the 2019 dispute resolution clause.

 

Tacit renunciation to arbitrate

The SC briefly concluded that Plaintiffs’ numerous procedural steps and failure to request referral to arbitration for 10 months demonstrated its attornment to Québec jurisdiction. The CA, conversely, considered Plaintiffs’ actions more closely, noting the distinction between steps related to the Aircraft’s seizure (for which Québec authorities undisputedly have jurisdiction under Art. 623 of the Code of Civil Procedure, “CCP”) and submissions on the merits (i.e. the Aircraft’s ownership). According to the CA, Plaintiffs’ early actions did not concern the merits of the dispute, but only the seizure’s validity (paras. 38, 40). It was only after the Defendants filed their written defense and counterclaim, i.e. the first submission on the merits, that the 90-day deadline for requesting referral to arbitration under Art. 622 CCP was triggered. As the Plaintiffs made their request within this timeframe, they could not be considered to have waived their right to arbitration (paras. 42, 44).

 

Arbitrability and international jurisdiction of Québec courts

The parties’ dispute does not fall into any of the non-arbitrable categories listed in Art. 2639 CCQ: disputes over the status and capacity of persons, family matters or other matters of public order. Nonetheless, according to the SC, the parties’ dispute could not be resolved through arbitration because of the interplay of  three provisions of the CCQ: (i) 3139 which provides that a court’s jurisdiction over the principal demand entitles it to rule on an incidental or cross demand; (ii) 3148(2) which provides that in personal actions of patrimonial nature courts have no jurisdiction if the parties have agreed to arbitrate their differences; (iii) 3152 which grants Québec authorities jurisdiction over real actions if the disputed property is located in the province.

While acknowledging the Supreme Court of Canada’s judgment in GreCon Dimter Inc. v. J.R. Normand Inc. (previously discussed here) which held that Art. 3148(2) trumped Art. 3139 CCQ, the SC found it had jurisdiction under Art. 3152 CCQ because this was a real action and the Aircraft was in the province (paras. 38-42).

The CA opposed this view, noting that Art. 3152 CCQ merely defined the limits of international jurisdiction of Québec authorities and could not be used to bring real actions within the realm of non-arbitrable matters which are clearly identified in the CCQ and must be interpreted narrowly (paras. 14, 22, 48-51). In his concurring reasons Justice Frédéric Bachand emphasized that arbitrability was the rule and, relying on Gary Born’s treatise, pointed to the prevailing view that disputes related to real rights are arbitrable.

 

Separability

Plaintiffs sought to rely on the dispute resolution clause contained in the 2019 Addendum, albeit arguing that their consent to this Addendum had been vitiated by fraud. The SC held Plaintiffs could not have their cake and eat it too. While acknowledging that, in principle, this clause would be presumed valid and any decision as to its nullity would be deferred to the arbitrator (para. 55), the SC concluded that logic did not apply here because the Plaintiffs themselves denied having consented to the Addendum that contained the dispute resolution clause they themselves sought to apply. Emphasizing the separability of arbitration agreements (enshrined in Art. 2642 CCQ) and echoing the findings of the arbitral tribunal which had rendered a partial award on jurisdiction in the meantime, the CA held that Plaintiffs’ reliance on the 2019 dispute resolution clause was well-founded.

 

A closer look at the multiple multi-tiered dispute resolution clauses

Considering the SC’s dismissal of the 2019 clause, it only analyzed the one contained in the 2012 Agreement.1) See para. 12: “Toute litige sera réglé à l’amiable. À défaut de règlement à l’amiable, le cabinet d’audit PWC sera désigné comme arbitre. À défaut de résolution du litige par l’arbitre, le litige sera porté devant le tribunal arbitral de Paris.” jQuery('#footnote_plugin_tooltip_41481_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41481_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This clause required all disputes to be resolved amicably, failing which Price Waterhouse Coopers would act as arbitrator. This clause further provided that, should the arbitrator fail to resolve the parties’ dispute, the matter would be brought before the “tribunal arbitral de Paris”. Since that clause lacked clarity and imperativeness, and Plaintiffs never felt bound by it, as manifested by their actions before the courts of Québec and Guinea, the SC concluded it was competent to decide which party owned the Aircraft (paras. 60-73).

One can hardly disagree that this clause is flawed or, at best, rather ambiguous. First, it names a legal person as an arbitrator, which is rarely seen nowadays2) Gary B. Born, International Commercial Arbitration (2021), pp. 1875-1876. jQuery('#footnote_plugin_tooltip_41481_27_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41481_27_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and even excluded in some countries.3) See, e.g. Art. 1450 of the French Code of Civil Procedure which applies to domestic matters, or Art. 19 of the Serbian Arbitration Act. jQuery('#footnote_plugin_tooltip_41481_27_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41481_27_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Though the issue of legal persons acting as arbitrators is not expressly dealt with in Québec legislation, when commenting on the previous CCP the Supreme Court of Canada in Sport Maska Inc. v. Zittrer noted that its provisions “suggest that only a natural person can act as an arbitrator” (para. 127). Second, it omits to clarify at what point arbitration will be considered to have failed. Finally, “tribunal arbitral de Paris” could mean a multitude of things.

Without commenting on the 2012 clause and while acknowledging that the ultimate decision as to which provision applies rested with the arbitrator under the competence-competence principle, the CA opined that it was rather the 2019 clause that governed. In the CA’s view this clause clearly and imperatively conferred exclusive jurisdiction upon an arbitrator (paras. 17-19).

Again, one cannot deny that this is a better provision. However, this is true only if one considers the clause as it was reproduced by the CA:

Any dispute arising in connection with this addendum and its consequences shall be subject to a prior mediation procedure conducted under the auspices of PriceWaterhouseCoopers.

If the mediation fails, the dispute shall be resolved by arbitration under the auspices of the CHAMBRE ARBITRALE INTERNATIONALE DE PARIS, in accordance with its Rules, which the parties declare that they know and accept.4)See para. 17 : “Toute contestation survenant à l’occasion du présent avenant et de ses suites fera l’objet d’une procédure de médiation préalable conduite sous l’égide de Price WaterhouseCoopers. En cas d’échec de la médiation, le différend sera résolu par arbitrage sous l’égide de la CHAMBRE ARBITRALE INTERNATIONALE DE PARIS, conformément à son Règlement que les parties déclarent connaître et accepter.” jQuery('#footnote_plugin_tooltip_41481_27_4').tooltip({ tip: '#footnote_plugin_tooltip_text_41481_27_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

For reasons unknown, the 2019 clause considered by the SC was slightly, yet sufficiently different to make it ambiguous. In particular, the second paragraph stated:

If the mediation fails, the dispute shall be resolved under the auspices of the CHAMBRE ARBITRALE INTERNATIONALE DE PARIS, in accordance with its Rules, which the parties declare that they know and accept, without however identifying the mediator.5) See para. 13 :  “[…] En cas d’échec de la médiation, le différend sera résolu sous l’égide de la Chambre Arbitrale Internationale de Paris, conformément à son règlement que les parties déclarent connaître et accepter, sans toutefois identifier le médiateur.” jQuery('#footnote_plugin_tooltip_41481_27_5').tooltip({ tip: '#footnote_plugin_tooltip_text_41481_27_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Considering that CAIP offers both mediation and arbitration services, the absence of “by arbitration” before “under the auspices” coupled with the reference to a “mediator” hardly makes this a mandatory and unambiguous arbitration clause. In the face of two rather poorly drafted dispute resolution clauses, the SC’s decision is, perhaps, a tad less surprising.

 

Conclusion

Certain Canadian judgments may have recently raised doubts about the judiciary’s support for arbitration (see, e.g., discussions about the Supreme Court of Canada’s judgments here and here, as well as those of British Columbia and Ontario courts). Meanwhile, the CA’s judgment in Specter Aviation v. Laprade unambiguously demonstrates respect for some of the most fundamental principles of arbitration: party autonomy, competence-competence and separability.

 

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

References[+]

References ↑1 See para. 12: “Toute litige sera réglé à l’amiable. À défaut de règlement à l’amiable, le cabinet d’audit PWC sera désigné comme arbitre. À défaut de résolution du litige par l’arbitre, le litige sera porté devant le tribunal arbitral de Paris.↑2 Gary B. Born, International Commercial Arbitration (2021), pp. 1875-1876. ↑3 See, e.g. Art. 1450 of the French Code of Civil Procedure which applies to domestic matters, or Art. 19 of the Serbian Arbitration Act. ↑4 See para. 17 : “Toute contestation survenant à l’occasion du présent avenant et de ses suites fera l’objet d’une procédure de médiation préalable conduite sous l’égide de Price WaterhouseCoopers. En cas d’échec de la médiation, le différend sera résolu par arbitrage sous l’égide de la CHAMBRE ARBITRALE INTERNATIONALE DE PARIS, conformément à son Règlement que les parties déclarent connaître et accepter.” ↑5 See para. 13 :  “[…] En cas d’échec de la médiation, le différend sera résolu sous l’égide de la Chambre Arbitrale Internationale de Paris, conformément à son règlement que les parties déclarent connaître et accepter, sans toutefois identifier le médiateur.” function footnote_expand_reference_container_41481_27() { jQuery('#footnote_references_container_41481_27').show(); jQuery('#footnote_reference_container_collapse_button_41481_27').text('−'); } function footnote_collapse_reference_container_41481_27() { jQuery('#footnote_references_container_41481_27').hide(); jQuery('#footnote_reference_container_collapse_button_41481_27').text('+'); } function footnote_expand_collapse_reference_container_41481_27() { if (jQuery('#footnote_references_container_41481_27').is(':hidden')) { footnote_expand_reference_container_41481_27(); } else { footnote_collapse_reference_container_41481_27(); } } function footnote_moveToReference_41481_27(p_str_TargetID) { footnote_expand_reference_container_41481_27(); 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_41481_27(p_str_TargetID) { footnote_expand_reference_container_41481_27(); 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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Paris Arbitration Week Recap: Affaires d’Etats: Practical Considerations When Defending States In International Arbitration

Tue, 2022-05-03 01:00

In the last three decades, the advent of investment treaty arbitration and more recently third-party funding have led to an exponential rise in the number of international arbitrations pursued by private parties against sovereign States. Against this background, on March 28, 2022, as part of Paris Arbitration Week, Curtis, Mallet-Prevost, Colt & Mosle hosted the webinar “Affaires d’Etats: Practical Considerations When Defending States in International Arbitration.”  This session examined the practical challenges faced by States when defending themselves against these claims.  The event featured Marie-Claire Argac, Jaroslav Kudrna, Claudia Salgado Levy and Jeremy Sharpe, and was moderated by Simon Batifort.  This post encapsulates key takeaways from the webinar.

 

The Lack of Institutionalization of Investor-State Dispute Settlement (ISDS)

The speakers noted the differences between ISDS and other forms of dispute settlement involving States. Mr. Sharpe pointed out, for instance, that a first structural difference between ISDS and other forms of international dispute settlement lies in the absence of institutionalization. ISDS differs in this respect from the international trade regime institutionalized around the WTO. The WTO regime is comprised of treaties setting out obligations common to all member States, which facilitates the system’s accessibility. At the domestic level, a bureaucratization is implemented through the establishment of offices and ambassadors. ISDS is different in that there is generally no single body of laws that apply to all States, and BITs may differ greatly from one another. There is also no overarching supervisory international institution managing disputes or delimiting State obligations. As a result, it falls upon each State to organize itself.  However, in practice many States have focused on ISDS episodically, when faced with a claim, rather than through a systemized approach towards arbitration claims.

Dr. Salgado illustrated the impact of these features of ISDS by reference to the evolution since the early 2000s of Ecuador’s legal mechanisms for responding to ISDS claims. Initially, although the Attorney General Office (“AGO”) already existed, there was no specialized team in charge of handling international investment disputes. Ecuador’s first arbitration cases illustrated the need for specialized counsel and experienced arbitrators. The AGO is now a 12-member division dedicated to international affairs, which includes international commercial and investment arbitration. Ecuador combines retaining outside firms to handle arbitral proceedings, while ensuring that they collaborate with the local team for research on domestic law and liaison with public entities. Depending on the workload (currently 15 international commercial arbitrations and 7 investment arbitrations) the local team can play a more active role within the arbitrations.

Dr. Kudrna explained that the Czech Republic has adopted a hybrid model for its defense.  A 10-member internal team is heavily involved in the cases and to the extent necessary is supplemented by outside firms that are chosen after taking into account the initial analysis of the case, the amounts claimed, the expected complexity and risks, and the quality of the opposing counsel.  Boutique law firms tend to be favored for smaller cases.  He went on to list some of the attributes that States value most in outside counsel, including: the experience of the lead counsel and excellent pleadings skills; organizational skills to avoid unnecessary hastiness or delays; an understanding of the State’s needs, interests and inner workings; attention to the client-relationship, including having the lead counsel devote the necessary amount of time to the case; and effective cost management, for example to ensure that not too many resources are spent on secondary issues.

Mr. Sharpe spoke about the importance of formally designating a State agent, i.e., someone within the State bureaucracy who will take the lead on the State’s defense and oversee inter-agency coordination, drawing lessons from the way agents operate in international litigation. Such agents would officially represent States before tribunals, thereby enhancing the reliability of the State by reflecting its consistent position on a given issue. They may also help to coordinate and manage litigations and liaise with outside counsel. Finally, agents can help States articulate their views, as Mr. Sharpe detailed in an article.

 

Access to Documents and Witnesses

Panelists also engaged with certain practical difficulties that may be faced by States defending ISDS claims. Dr. Kudrna mentioned some of the specific challenges that may be encountered during the document production phase such as the fact that many document requests are drafted in an overly broad manner.  Furthermore, he noted that, given the lack of any statute of limitations in old BITs, some investment claims related to facts that occurred decades ago, when documents were not digitalized and have since been destroyed. Dr. Kudrna also referred to the misconception that the State entity in charge of the State’s defense can access any documents produced by other state organs, such as those relating to criminal investigations. Ms. Argac also stressed how difficult it can be to gain access to all of the relevant information and individuals in some cases due to the fact that claims are often brought years after the fact, when the relevant individuals have left and documents may have been lost or destroyed.

Dr. Salgado underscored difficulties arising from the lack of inter-institutional coordination between public entities. In the case of Ecuador, she explained that the law now requires public entities to provide the AGO with relevant documents within a few days. Dr. Kudrna added that it can be more challenging to find witnesses who will testify on behalf of a State, as opposed to employees of the claimant, a difficulty that may be compounded if hearings become open to the public.

 

Procedural Challenges

The session also addressed several difficulties that might arise procedurally for States in ISDS, including challenges associated with frivolous claims and with information asymmetry and limited preparation time.

The proliferation of third-party funding has led to an increase in the number of frivolous claims, said Dr. Salgado. Some investors resort to arbitration as a means of pressure against States.  Even if States ultimately prevail in such scenarios, it may represent a waste of costs and human resources.

Another significant challenge in the defense of States relates to the fact that claimants have months to prepare their case with outside counsel and come up with their optimal case strategy, while States rarely have this luxury.  Ms. Argac noted that in investment arbitration in particular, States receive a request for arbitration with a basic description of the claims and little more to work off of and that they have to wait until the memorial on the merits to get a proper view of the claims.  The limited information available to the States at such early stages may affect their ability to effectively present their case.  In addition, many arbitration rules require that certain rights be exercised early on, such as the right to raise counterclaims for instance.

Ms. Argac emphasized the importance of retaining outside counsel sufficiently early in the case to advise on the composition of the tribunal, noting that arbitration rules generally provide for tight deadlines within which to constitute the tribunal and that there is a limited pool of arbitrators who are sufficiently sensitive to the interests of States.  Another important aspect resides in the arbitrator’s approach towards quantum and DCF, as this can have a devastating effect on potential damages.  Dr. Salgado also referred to the fact that the significant amount of cases faced by Ecuador and the limited pool of arbitrators have led to situations where the same arbitrators who had already decided cases involving Ecuador were reappointed in other cases against the State, which could lead to them being influenced by their previous decisions.  One solution proposed by Mr. Sharpe was to increase the pool of arbitrators sensitive to the interests of States by encouraging former State agents who were directly involved in the defense of States in international arbitration to act as arbitrator.

 

Recommendations for States

In closing, Ms. Argac offered recommendations to States seeking to improve their defense practice:

  1. select outside counsel as soon as possible to be advised early on, especially regarding the constitution of the arbitral tribunal.
  2. think carefully about the selection of outside counsel: prior experience in international arbitration, particularly representing States, is fundamental; parallel representation of investors with diametrically opposed positions on key recurring issues may raise difficulties.
  3. pay attention to the early stages of a case: while it may be tempting to respond to all the accusations raised in a notice of dispute or a request for arbitration, it is often prudent for the respondent to limit itself to what is required by the applicable rules and stay concise.
  4. facilitate counsel’s access to relevant documents and individuals, for example through the designation of an agent to liaise with external counsel or assist with the search for potential witnesses and document gathering.

A final recommendation was directed towards tribunals and arbitral institutions: the legitimate push towards expediency should not come to the detriment of States’ rights to plead their case, locate and gather evidence or witnesses in these often complex, high-stakes disputes, and have sufficient time to liaise among the relevant agencies and obtain necessary approvals.  Having a more realistic schedule from the start will ultimately ensure a smoother arbitration.

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Unearthing FET: What Did States Intend, and Does It Matter?

Mon, 2022-05-02 01:00

FET is often described as the core standard of international investment law.  Recently, there has been renewed discussion on its intended meaning, by reference to a range of source materials that arguably reflect States’ intentions at the time of concluding investment treaties.  On December 10, 2021, the Dispute Resolution Interest Group of the American Society of International Law hosted the webinar “Unearthing FET:  What Did States Intend, and Does It Matter?”.  The event featured Jaroslav Kudrna, Ana María Ordóñez Puentes, Martins Paparinskis and Jennifer Thornton, all speaking in their individual capacities, and was moderated by DRIG co-chairs Simon Batifort and Rémy Gerbay. This post summarizes the key takeaways.

 

States’ Different Negotiating Approaches on the Scope of FET

Quoting the tribunal in Pawlowski v. Czech Republic, which described FET as “a rule of laconic brevity and delphic obscurity”, Jaroslav Kudrna noted that tribunals’ interpretations of FET are sometimes unanticipated due to a lack of universal agreement on the standard’s scope.  Thus, one of the cross-cutting themes of the event was the different negotiating approaches by different States towards FET provisions.

Martins Paparinskis explained how British and German treaty drafters approached FET, drawing on research contained in an article “Investment Law Before Arbitration” he co-authored with Hepburn, Poulsen, and Waibel.  Recalling the provisions of Articles 31(1) and 31(4) of the VCLT, he suggested that FET can have two special meanings and one ordinary meaning.  One special meaning is found in pleadings before the ICJ and PCIJ, according to which FET is thought of as a technically equivalent reference to customary international law, analogous to denial of justice.  The second special meaning comes from the League of Nations’ treaty practice on international trade, given that Article 23(e) of the Treaty of Versailles referred to “equitable treatment.”  Later on, States concluded bilateral treaties in which FET was applied in the context of non-discriminatory competition.  The third – the ordinary meaning – is that FET is a vague term, similar to other vague terms used in fields such as the law of the sea, State succession, human rights, and environmental law.  Paparinskis explained that in applying these alternatives, it is difficult to maintain that British and German treaty negotiators considered that FET had a certain special meaning in the sense of VCLT Article 31(4).  FET was not treated with a great deal of interest, not due to treaty negotiators’ lack of knowledge – they were leading international lawyers – but because it was not something treaty negotiators focused on, unlike the national treatment and expropriation standards.

In turn, Kudrna explained that the negotiating history of investment treaties concluded by the Czech Republic provides scarce evidence of FET’s intended role.  Negotiations focused mostly on provisions regarding national treatment, free transfers of profits, and dispute settlement.  The only treaty negotiations in which the FET standard was touched upon were those conducted with France, as the travaux préparatoires indicate that France suggested a clause in which FET would be afforded in accordance with international law.  Czech representatives conveyed to their French counterparts that this provision should be concretized, but no specification was made in the final text of the treaty, in which the FET standard is linked to principles of international law.

Jennifer Thornton explained that the United States’ consistent position is that FET refers to a developed body of customary international law that evolved in the era of diplomatic protection and requires that States provide certain minimum standards of protection to the property interests of foreign nationals.  The U.S. has always maintained that no single standard applies to all FET claims or to all MST claims.  Rather, the U.S. maintains that it is an umbrella concept, and a floor beneath which no State can fall, but that ultimately it is akin to a set of common law tort claims with unique elements that claimants must prove.  The U.S. has acknowledged that the obligation prohibits States from denying justice to foreign nationals in their courts, as well as unlawfully expropriating foreign property interests and repudiating their contractual commitments to foreign nationals in certain circumstances, in addition to requiring States to offer full protection and security to foreign property interests. Notwithstanding its best efforts to use conventional mechanisms to clarify the obligation’s scope, such as NAFTA’s Free Trade Commission’s Note of Interpretation and non-disputing party (“NDP”) submissions, the U.S. has never been able to persuade tribunals to completely embrace its approach on FET.  The consequence of this lingering ambiguity is that U.S. treaty negotiators have been unable to persuade Congress that the obligation is sufficiently well-defined so it can be fully embraced in future agreements.

 

Joint Interpretations, NDP Submissions, Amendments

The event also addressed the role of joint interpretations, NDP submissions and amendments calibrating the scope of FET.  Ana María Ordóñez explained that joint interpretations and NDP submissions are valid international law instruments that States rely on to define the scope of concepts such as FET.  These do not constitute a supplementary source of interpretation but a keystone of treaty interpretation, which in the context of ISDS exist precisely because States are aware of current arbitral practice that sees standards such as FET as empty clauses needing interpretation.  As to whether these instruments are taken into consideration in practice, Ordóñez opined that arbitral practice was inconsistent.  She held that whenever NDP submissions were taken into account, tribunals’ level of engagement with them seemed more concerned with the need to avoid allegations of failure to state reasons than with engaging with the arguments raised.  Ordóñez also noted that in 2020, UNCITRAL Working Group III (“WGIII”) issued a note in which it made specific reference to NDP submissions as authoritative interpretation mechanisms under VCLT Article 31(3)(b).  She pointed out that WGIII meetings show that States share a concern about tribunals adopting questionable interpretative approaches, and that WGIII’s work could indicate a general understanding between States that tools such as joint interpretations or NDP submissions can ensure that vague treaty provisions are not interpreted in a manner inconsistent with States’ intentions.

As to the proposition that States should amend their treaties if they are unsatisfied with tribunals’ interpretations of FET, Thornton opined that amending treaties is easier said than done, as the process can be complicated.  She concluded that States need to be more precise in their treaties when identifying FET’s scope, while recognizing that even their best efforts to clarify the obligation may not be fully embraced by a tribunal interpreting the treaty.  She stressed that this is the sort of bargain that States make when entering into these agreements to protect the offensive interests of their investors.

 

New-generation FET Clauses and the Uncertain Impact of Current Reform Efforts

Speakers also considered the possibility for new-generation FET clauses to clarify the meaning of FET provisions into the future.  In recent treaties, some States have opted for a more elaborate concept of FET, in order to set a higher threshold for the application of this standard for tribunals, which in turn results in more predictability.

Kudrna referred to the European Union’s practice and explained that the scope of FET was an issue in the negotiations of CETA, in which Canada wanted to link the FET standard to the MST under customary international law, a proposal which was strongly opposed by the EU.  The EU instead proposed to set out elements of the FET standard, codifying existing elements appearing in case law.  New agreements concluded by the EU containing its revised FET standard provide for an exhaustive list of conduct that can result in an FET standard violation.  This new approach is also being used by EU Member States individually when negotiating new investment treaties with third States or renegotiating existing treaties.  Regarding future treaty negotiations, Thornton opined that States should be clear about FET’s scope because conventional control mechanisms can be ignored.  She considered that the U.S. needs to move towards the CETA approach if the FET obligation is to remain in U.S. agreements.  Still, the devil is in the details: every time an attempt was made to enumerate the norms that had sufficient State practice and opinio juris to have crystallized into custom, there was fierce debate within the U.S. government about what those norms actually were.

Paparinskis contended that European and American approaches to FET are not similar but rather address very different points.  He explained that in examining FET, one intellectual exercise goes to the determination of the content of the rule, i.e. interpretation, and another goes to the application of that rule.  We have sophisticated machinery for determining whether interpretation of a treaty provision or the determination of the content of custom is correct or persuasive:  the VCLT for one, and rules of determination of customary law for the other.  Application of FET on the other hand is something about which international law says little.  We must be clear about these different exercises.  He referred to the above-mentioned quote by the Pawlowski v. Czech Republic tribunal, and explained that the tribunal conflated two meanings of vagueness.  One is vagueness as opposed to concreteness.  The other is vagueness as something similar to what VCLT Article 32 refers to, namely a meaning that is obscure.  He explained that there was nothing wrong with a rule being vague in the sense of not being concrete.  That is a plausible conclusion – after all, international law is full of vague but applicable and routinely applied rules.  The problem appears at the application level, where we can identify good and bad examples of the rule’s application.  Thus, U.S.is addressing the first point, namely clarifying and concretizing the content of the rule.  Europe is addressing the second point, namely identifying examples of application that fit within the rule.

However, these new approaches to FET do not come without difficulties. Kudrna noted that it is not always easy in practice when States attempt to negotiate reforms to unqualified FET clauses with third States, as some prefer to link the FET standard to the MST under customary international law.  As he concluded, we still remain far from a uniform understanding of the scope of the FET standard.

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International Arbitration as an Instrument of Economic Development: The Indo-Pacific Case Study

Fri, 2022-04-29 01:00

Historical records indicate that Tuesday, 10 June 1958 must have been a busy day in the corridors of the United Nations.1)Gary Born and the author are Expert International Commercial Arbitration Consultants retained by the Asian Development Bank to advise states on accession to the Convention, legislative reform and capacity building. jQuery('#footnote_plugin_tooltip_41369_24_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); On that day, following the diplomatic conference which had taken place in May and June 1958 as a precursor to the adoption of the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “Convention”), 10 states formally signalled their intent to become the first contracting parties to the Convention by becoming the Convention’s first signatories. A further 14 states followed later that year. In subsequent years, all of those original signatories eventually ratified the Convention, but not necessarily with immediate effect.2)Pakistan did not ratify the Convention until 2005. jQuery('#footnote_plugin_tooltip_41369_24_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

It is noteworthy that the initial signatory states represented a diverse cross-section of developing and developed economies. Amongst them, India, Pakistan, the Philippines, Sri Lanka and Egypt joined France and The Netherlands as first adopters on 10 June 1958. Almost 65 years later the current count of states which are parties to the Convention is 166 out of the 193 states presently represented at the United Nations.3)In the South Pacific the Cook Islands is a party to the Convention but is not a Member State of the United Nations. jQuery('#footnote_plugin_tooltip_41369_24_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Whilst that number represents an array of states on all inhabited continents and across the five oceans, it is instructive to consider which states remain to accede to the Convention and why that might be the case.

One area where, en bloc, the Convention had gained limited traction was the Indo-Pacific, and in particular the South Pacific. Of the 14 states comprising the South Pacific very few had acceded to the Convention prior to 2018.4)The South Pacific states which had acceded included the Cook Islands and the Marshall Islands. Fiji had acceded to the Convention in 2010 but did not enact legislation ratifying until the International Arbitration Act 2017. jQuery('#footnote_plugin_tooltip_41369_24_4').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); That statistic is curious in circumstances where many of those same states which had not acceded to the Convention had in fact acceded to the ICSID Convention, some as far back as the 1970s.5)Fiji, Samoa and Papua New Guinea acceded to the ICSID Convention in 1978. jQuery('#footnote_plugin_tooltip_41369_24_5').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

There has been a concerted push in recent years to bring the South Pacific under the umbrella of the Convention. This initiative, led by the Asian Development Bank in cooperation with UNCITRAL has been supported across the academic, institutional and professional arbitration community.6)Asian Development Bank technical assistance program entitled “Promotion of International Arbitration Reform for Better Investment Climate in the South Pacific”. jQuery('#footnote_plugin_tooltip_41369_24_6').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); What are the reasons for this reform and why now?

The answer is multidimensional. When a state considers whether to adopt such a reform the underlying policy case for the reform must run deeper than the argument that most states have acceded to the Convention and therefore Pacific states should follow suit. The real case for the reform is founded in the theory of economic development and the role international arbitration can play in facilitating foreign direct investment. In their Journal of Law and Economics article entitled “Does International Commercial Arbitration Promote Foreign Direct Investment?” the authors conducted empirical research on bilateral investment flows and concluded that foreign direct investment followed arbitration reform.7)Andrew Myburgh & Jordi Paniagua, 2016. “Does International Commercial Arbitration Promote Foreign Direct Investment?,” The Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 597-627. jQuery('#footnote_plugin_tooltip_41369_24_7').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The reasons for this are multi-faceted but prominent amongst them are that investors and the recipients of the investment have a neutral and level playing field, avoid one another’s home jurisdictions and have an enforceable award as a result. This increased foreign direct investment flow appears particularly pronounced in countries with weaker institutions and in relation to larger projects.8)Ibid. jQuery('#footnote_plugin_tooltip_41369_24_8').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The effects of accession to the Convention and arbitration reform across the South Pacific resonate in two principal ways: first, the combination of accession and reform signals to the world that the country is open to business. Second, the effects of increased flows from foreign direct investment have been measured at as high as an 11% increase in gross domestic product for the South Pacific.9)Jordi Paniagua, “The Economic Impact of International Commercial Arbitration” Third South Pacific International Arbitration Conference, Sydney, 17 March 2021. jQuery('#footnote_plugin_tooltip_41369_24_9').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_9', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

In developing economies, where foreign investment inflows are crucial to employment, education, training and infrastructure, and also to current and future climate adaptation and mitigation efforts, arbitration reform alone will not be a magic bullet but rather an important condition precedent to attracting such investment. That investment is needed even more urgently given the impact of COVID-19 which has devasted all South Pacific economies and particularly the many Pacific economies which rely heavily on tourism. For example, the economies of Fiji and Palau have depended on tourism for between approximately 40-55% of their GDP.10)Fiji Market Insights 2021, Department of Foreign Affairs and Trade (Australia) https://www.dfat.gov.au/sites/default/files/fiji-market-insights-2021.pdf and World Tourism Organisation for Palau in 2015 https://www.theglobaleconomy.com/Palau/international_tourism_revenue_to_GDP/. jQuery('#footnote_plugin_tooltip_41369_24_10').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_10', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

As to the impetus of the timing of the reform, the Asian Development Bank helped drive the reform by investing ongoing in-country time and resources over a considerable period by assisting governments in developing policy papers, and by briefing all relevant government departments, businesses and the legal community on the potential benefits of the reform. This was in response to the growth of arbitration as the primary means of dispute resolution and the recognition of the potential benefits of foreign direct investment as a development tool which may have been underappreciated in the South Pacific prior to the Asian Development Bank’s involvement.

Following the Asian Development Bank’s technical advisory program, states which have acceded to the Convention and/or enacted arbitration legislation include Fiji, Palau, Tonga, Papua New Guinea and Timor-Leste. The Asian Development Bank has invested significant resources into not only assisting these states with reform but also in capacity building of judiciary, government and the private sector so that there is a sufficient knowledge base to implement the reform and to use arbitration with confidence. As a result, arbitration continues to grow in those states in a concrete sense and there is no reason to believe there is resistance in other states in the South Pacific to adopting similar measures.

The Asian Development Bank’s reform program is ongoing but the single most important factor in whether other states in the South Pacific will elect to undertake arbitration reform is likely to be the ongoing capacity and commitment to on-the-ground engagement which necessarily was curtailed during COVID-19. Personal relationships are highly valued in the South Pacific and ministers and ministerial departments need specialised advice and consultation. Such legislative reform requires considerable bandwidth from politicians and public servants in developing states who have other pressing commitments, takes time to percolate amongst stakeholders through public consultations and is subject to parliamentary sitting calendars and election cycles.

It is positive to note that institutional arbitrations have been filed before such institutions as SIAC and ACICA and arbitration-related proceedings have occurred before various courts in the region under new best practice legislation.11)See for example South Pacific Fertilizer Ltd v Allied Harvest International Pte Ltd [2019] FJHC 400; HBC142.2017 (8 May 2019); Stantec New Zealand Ltd v Fiji Roads Authority [2018] FJHC 867; HBC324.2016, HBC227.2017 (14 September 2018). jQuery('#footnote_plugin_tooltip_41369_24_11').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_11', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); It is hoped that foreign direct investment will grow concurrently for those states which have engaged in the reform and signalled to the world they are open for business with reliable, predictable and dependable dispute resolution scaffolding in place.

References[+]

References ↑1 Gary Born and the author are Expert International Commercial Arbitration Consultants retained by the Asian Development Bank to advise states on accession to the Convention, legislative reform and capacity building. ↑2 Pakistan did not ratify the Convention until 2005. ↑3 In the South Pacific the Cook Islands is a party to the Convention but is not a Member State of the United Nations. ↑4 The South Pacific states which had acceded included the Cook Islands and the Marshall Islands. Fiji had acceded to the Convention in 2010 but did not enact legislation ratifying until the International Arbitration Act 2017. ↑5 Fiji, Samoa and Papua New Guinea acceded to the ICSID Convention in 1978. ↑6 Asian Development Bank technical assistance program entitled “Promotion of International Arbitration Reform for Better Investment Climate in the South Pacific”. ↑7 Andrew Myburgh & Jordi Paniagua, 2016. “Does International Commercial Arbitration Promote Foreign Direct Investment?,” The Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 597-627. ↑8 Ibid. ↑9 Jordi Paniagua, “The Economic Impact of International Commercial Arbitration” Third South Pacific International Arbitration Conference, Sydney, 17 March 2021. ↑10 Fiji Market Insights 2021, Department of Foreign Affairs and Trade (Australia) https://www.dfat.gov.au/sites/default/files/fiji-market-insights-2021.pdf and World Tourism Organisation for Palau in 2015 https://www.theglobaleconomy.com/Palau/international_tourism_revenue_to_GDP/. ↑11 See for example South Pacific Fertilizer Ltd v Allied Harvest International Pte Ltd [2019] FJHC 400; HBC142.2017 (8 May 2019); Stantec New Zealand Ltd v Fiji Roads Authority [2018] FJHC 867; HBC324.2016, HBC227.2017 (14 September 2018). function footnote_expand_reference_container_41369_24() { jQuery('#footnote_references_container_41369_24').show(); jQuery('#footnote_reference_container_collapse_button_41369_24').text('−'); } function footnote_collapse_reference_container_41369_24() { jQuery('#footnote_references_container_41369_24').hide(); jQuery('#footnote_reference_container_collapse_button_41369_24').text('+'); } function footnote_expand_collapse_reference_container_41369_24() { if (jQuery('#footnote_references_container_41369_24').is(':hidden')) { footnote_expand_reference_container_41369_24(); } else { footnote_collapse_reference_container_41369_24(); } } function footnote_moveToReference_41369_24(p_str_TargetID) { footnote_expand_reference_container_41369_24(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_41369_24(p_str_TargetID) { footnote_expand_reference_container_41369_24(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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What do the Turkish Courts Think about Article 54 ICSID Convention?

Thu, 2022-04-28 01:37

It is trite to suggest that the awards rendered under the aegis of the International Centre for Settlement of Investment Disputes (“ICSID”) are insulated from national court review. In the context of recognition and enforcement, national courts are not permitted to examine ICSID arbitral awards. In 2006, 50 years after the ICSID Convention came into force, commentators noted that no court of the Contracting State had ever denied enforcement of an ICSID award. This very effective enforcement system also contributed to the prevailing practice of voluntary compliance with the ICSID awards.

To the surprise of many, questions have arisen regarding a national court’s scope of examination (if any) of ICSID awards. Article 54(1) of the ICSID Convention has started to be understood as allowing the courts of a Contracting State to examine awards from substantial and jurisdictional perspectives. The EU and its member states are prime examples. In the Achmea judgment, for example, the European Court of Justice has in effect directed Member State courts to examine ICSID awards in terms of substance or jurisdiction if the parties raise these matters (for related posts on the Achmea judgement click here).

This post examines how the Turkish Court of Cassation has interpreted Article 54 of the ICSID Convention in a recent case in 20211)Turkish Court of Cassation, 12th Civil Division, Case No: 2021/875 Decision No: 2021/4586 dated 28.04.2021 jQuery('#footnote_plugin_tooltip_41427_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41427_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });. To the best of the authors’ knowledge, this was the first decision in which the Turkish Court of Cassation has discussed the meaning of Article 54 of the ICSID Convention after the Achmea judgment. Hence, this decision may shed some light on how the Turkish courts will treat the question of the availability of national court examination of ICSID awards in Turkey going forward.

 

Legal Proceedings in Turkey

The dispute arose out of the failed investment arbitration claim made against Turkmenistan by a Turkish construction company (İçkale İnşaat Limited Şirketi (“İçkale”))2)İçkale İnşaat Limited Şirketi v. Turkmenistan (ICSID Case No. ARB/10/24) jQuery('#footnote_plugin_tooltip_41427_27_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41427_27_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });. The arbitral tribunal dismissed the claim as meritless and ordered the claimant to pay 20 per cent of the legal and expert fees and expenses of Turkmenistan (approximately US$1.75 million). The claimant did not comply with the adverse cost award, and Turkmenistan initiated legal proceedings in Turkey in 2016.

However, when the claimant commenced the legal proceedings in 2016, Turkey had not yet designated a competent court or other authority as per Article 54(2) of the ICSID Convention. In the absence of a designated competent court and authority, Turkmenistan sought to execute the ICSID award using the procedure applicable to the execution of a judgment of a local court. Accordingly, the claimant commenced the proceedings before the Turkish execution offices and sent an execution order, as if the ICSID award is a Turkish court judgement. The basis for this, presumably, was that, given Article 54(1) requires the contracting states to enforce an ICSID award “as if it were a final judgment of a court in that State”, in the absence of a designated competent court and authority, Turkmenistan could rely on the procedure available for local court judgments.

İçkale sought to dismiss execution proceedings commenced by Turkmenistan on two grounds: first, the procedure for the execution of a judgment of a local court does not apply to the execution of an ICSID award; and secondly, an ICSID award cannot be executed in Turkey without a competent court or authority being first designated in accordance with Article 54(2). Whilst these arguments were rejected at first instance, and on appeal to the regional appellate court, in 2021, the Turkish Court of Cassation overruled these decisions.

The Court confirmed that Turkey, as a Contracting State, shall recognise an ICSID award as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in Turkey, pursuant to Article 54(1). Nevertheless, the Court found that such obligations can only be triggered where the procedural requirements set out in Article 54(2) have been satisfied; that is, where the award-creditors have applied to a competent court or other authority designated by Turkey, and have furnished a copy of the award certified by the Secretary-General of ICSID.

Predicting potential criticism of the Turkish Court of Cassation taking a formalistic approach,3)See for example Nuray Ekşi, ICSID Hakem Kararlarının Tanınması Tenfizi ve İcrası, İstanbul-2009 jQuery('#footnote_plugin_tooltip_41427_27_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41427_27_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); the Turkish Court of Cassation went on to suggest that any other interpretation would be contrary to the wording of the ICSID Convention. The Court noted that the ICSID Convention aims to facilitate the conciliation and arbitration of investment disputes and, in this respect does not make ICSID awards subject to the procedures that are applicable for the recognition and enforcement of a judgment of a foreign court. Instead, the ICSID Convention makes these awards subject to the procedure as set out in Article 54(2) ICSID Convention, which provides less restrictive requirements for execution.

In the Court’s view, the ICSID Convention could not provide for such a procedure, nor could it be suggested that, if the Contracting State has failed to designate a competent court or authority, an ICSID award could be executed as if it were a judgment of a local court. The fact that the ICSID Convention does not regulate such provisions supports the conclusion that an ICSID award cannot be executed without first complying with the procedure set out in Article 54(2).

Although Turkey designated the competent court in accordance with Article 54(2) in 2017, there was still no use for the claimant. This was because Turkey required award creditors to furnish a copy of the award to the competent commercial courts of first instance, whilst the claimant, in this matter, provided such award to the Turkish execution office.

Finally, the Court concluded its reasoning with a puzzling (and rather worrying) reference to the domestic law of Turkey. The Court stated that, given that a judgment of a foreign court can only be enforced in Turkey by an enforcement decision of a Turkish court, it would be contrary to both Turkish law and the ICSID Convention to suggest that an ICSID award can be enforced in Turkey without any examination by any national authority.

 

Evaluation

Somewhat unexpectedly, serious divergences have recently arisen over the exact import of the ICSID Convention provisions on the enforcement of ICSID awards. It is, therefore, no longer sufficient to proceed solely on the basis of a prior assumption that all ICSID awards can be successfully enforced if not complied voluntarily.

With regards to Turkey, the Turkish Court of Cassation clarifies that Turkey’s failure to designate a competent court or other authority as per Article 54(2) does not entitle the award creditors to trigger procedures available to the local court judgements when executing ICSID awards. According to the Turkish Court of Cassation, Turkey is required to enforce ICSID awards “as if it were a final judgment of a court in that State”, only if the procedure under Article 54(2) is followed, and failure to designate such competent court or authority would bar enforcement under ICSID Convention.

Whilst the Court’s reasoning can be adopted by other national courts in circumstances where such a designation has not been made, this judgment seems no issue for Turkey as it made such a designation on 1 February 2017.

What is worrying is that in the same decision, the Turkish Court of Cassation implied that some sort of “examination” by the national authorities is necessary before executing ICSID awards in Turkey. The Court did not explain the scope of such examination. It may adopt its EU counterparts’ reasoning and examine the ICSID awards both on jurisdiction and substantive grounds, or it might simply consider this examination to the confirmation of the certification of the award by the Secretary-General of ICSID.

References[+]

References ↑1 Turkish Court of Cassation, 12th Civil Division, Case No: 2021/875 Decision No: 2021/4586 dated 28.04.2021 ↑2 İçkale İnşaat Limited Şirketi v. Turkmenistan (ICSID Case No. ARB/10/24) ↑3 See for example Nuray Ekşi, ICSID Hakem Kararlarının Tanınması Tenfizi ve İcrası, İstanbul-2009 function footnote_expand_reference_container_41427_27() { jQuery('#footnote_references_container_41427_27').show(); jQuery('#footnote_reference_container_collapse_button_41427_27').text('−'); } function footnote_collapse_reference_container_41427_27() { jQuery('#footnote_references_container_41427_27').hide(); jQuery('#footnote_reference_container_collapse_button_41427_27').text('+'); } function footnote_expand_collapse_reference_container_41427_27() { if (jQuery('#footnote_references_container_41427_27').is(':hidden')) { footnote_expand_reference_container_41427_27(); } else { footnote_collapse_reference_container_41427_27(); } } function footnote_moveToReference_41427_27(p_str_TargetID) { footnote_expand_reference_container_41427_27(); 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_41427_27(p_str_TargetID) { footnote_expand_reference_container_41427_27(); 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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Arbitration Tech Toolbox: Arbitrating Digital Asset Disputes

Wed, 2022-04-27 01:00

At the YSIAC Conference 2021 ARBXTalk symposium at the end of 2021, it was noted that “[a] consensus shared amongst the panellists was that arbitral disputes surrounding [cryptocurrencies, blockchains and non-fungible tokens; collectively, ‘digital assets’] do not differ greatly from disputes in other industries beyond the change in underlying subject-matter of the disputes.”

Yet even if the differences between digital asset disputes and other commercial arbitrations might not be described as “great”, there is something separate and distinct about digital asset arbitrations as recognised in several developments arising from the work of the UK Jurisdiction Taskforce (“UKJT”).

 

The Legal Statement on Cryptoassets and Smart Contracts

The British Ministry of Justice set up the UKJT in 2019, in conjunction with the English judiciary and the Law Society of England and Wales, to consult the legal and technology communities over the status of distributed ledger technology, cryptoassets, smart contracts and associated technologies, and to produce an authoritative legal statement on the status of cryptoassets and smart contracts under English private law.

The UKJT published the fruits of its consultation and research in November that year in the form of the Legal Statement on Cryptoassets and Smart Contracts (the “Statement”). The Statement concludes inter alia that as cryptoassets cannot be physically possessed but are “purely ‘virtual’”, as a matter of English law they cannot be the object of bailment and only some types of security can be granted over them.1)Statement, para. 17, page 7. jQuery('#footnote_plugin_tooltip_41356_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The Statement has had persuasive traction in the English Courts including in AA v Persons Unknown and ors [2019] EWHC 3556 (Comm), the first English case to expressly discuss and recognise cryptocurrencies as property under English law. The Statement has also been repeatedly relied upon in later cases including Ion Science Limited & Anr v Persons Unknown (21 December 2020), Fetch.ai Ltd v Persons Unknown [2021] EWHC 2254 (Comm), and Zi Wang v Graham Darby [2021] EWHC 3054 (Comm).

 

The Digital Dispute Resolution Rules

While it remains to be seen whether other common law courts agree with these propositions, the UKJT has not sat still. In 2021, it published rules for the resolution of digital disputes known as the Digital Dispute Resolution Rules (“DDRR“). This is one of the first major efforts to create arbitration rules for digital asset disputes, noticeable not least because the major arbitral institutions have at present not introduced any special rules for cryptocurrency disputes. The DDRR is designed to be incorporated into on-chain digital relationships and smart contracts. The sixteen rules allow for arbitral or expert dispute resolution within a very short period of time.

There are many notable aspects of the DDRR:

  1. Extremely broad applicability to digital asset disputes coupled with maximum flexibility. The DDRR “may be incorporated into a contract, digital asset or digital asset system by including the text (which may be in electronic or encoded form) “Any dispute shall be resolved in accordance with UKJT Digital Dispute Resolution Rules” and, optionally, by specifying: a. whether any particular issue or type of dispute (an expert issue) should be resolved by expert determination instead of arbitration; b. any preferences as to the number, identity or qualifications of any persons to be appointed as arbitrators or experts; c. any preferences as to the procedure to be adopted for the resolution of a dispute, including as to form and timing of any decision or arbitral award (as applicable), recoverable costs and anonymity; d. any modifications to the application or operation of the rules.”2)Rule 3. jQuery('#footnote_plugin_tooltip_41356_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This rule and the proposed arbitration clause capture both the range of disputes that may arise (“[a]ny dispute…”) and offer maximum flexibility in the application of the DDRR, permitting “any modifications” to their application or operation. This is appropriate given the wide definition of a “digital asset” under the DDRR.3)Rule 2(a) states that “a digital asset includes a cryptoasset, digital token, smart contract or other digital or coded representation of an asset or transaction; and a digital asset system means the digital environment or platform in which a digital asset exists”. jQuery('#footnote_plugin_tooltip_41356_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });
  2. Accommodation of automatic dispute resolution processes. The DDRR define an automatic dispute resolution process as “a process associated with a digital asset that is intended to resolve a dispute between interested parties by the automatic selection of a person or panel or artificial intelligence agent whose vote or decision is implemented directly within the digital asset system (including by operating, modifying, cancelling, creating or transferring digital assets)”.4)Rule 2(c). jQuery('#footnote_plugin_tooltip_41356_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Rule 4 gives considerable legal force to automatic dispute resolution processes by stating that “[t]he outcome of any automatic dispute resolution process shall be legally binding on interested parties” and rule 5 states that the DDRR shall not apply to disputes that have been subjected to an automatic dispute resolution process.
  3. Preference for use of electronic means of communication. Rule 6(b) mandates that a request for arbitration “shall include” the “electronic contact details for the claimant and each respondent”, and the respondent is obliged to include its electronic contact details in its response to the request. No definition of “electronic contact details” is stipulated in the Rules. They are distinguished from the “identity details” of the parties (also undefined). Rule 10 contains the nub of the preference for electronic means: the tribunal shall “have absolute discretion as to what evidence and argument it receives and in what form but shall as far as practicable permit parties to submit evidence and argument electronically”.
  4. Arbitrator appointments by a specialist, expert body. The DDRR provide for the arbitrators to be appointed by the Society for Computers and Law (“SCL“) if not chosen by the parties (rule 8). The SCL, which also administers arbitrations under the DDRR, is expected to develop a panel of arbitrators with experience in relevant technologies, well-versed in the particular language and concepts of cryptocurrencies, including the technical coding side and the business practices of their trade.
  5. Direct enforcement by the tribunal. Rule 11 grants powers to arbitrators “at any time to operate, modify, sign or cancel any digital asset relevant to the dispute using any digital signature, cryptographic key, password or other digital access or control mechanism available to it. The tribunal shall also have the power to direct any interested party to do any of those things”. This provision echoes the automatic dispute resolution processes permitted by the DDRR, but relies on the parties granting access to the arbitrator to the relevant digital assets.
  6. Extension of the usual principles of anonymity – but permissive publication of the award. There is an interesting extension of the usual principles of confidentiality in rule 13: parties are obliged to provide details and evidence of their identity to the reasonable satisfaction of the tribunal, but the parties may agree to provide that evidence to the tribunal alone and not include them in the notice of claim or initial response. The tribunal is obliged not to disclose the identification details unless disclosure is necessary for the fair resolution of the dispute, enforcement, protection of the tribunal’s own interests, or if required by law, regulation or court order. This clearly goes well beyond mere right of confidentiality over process. Furthermore, rule 15 permits the tribunal to provide the award in an anonymised format to the SCL for publication, if the tribunal “considers that an award or decision is of general interest” and the parties do not object. This raises the curious spectre of a discrete body of DDRR jurisprudence potentially arising.
  7. Courts experienced in cryptocurrency arbitrations as the default seat, in a jurisdiction friendly to digital assets. The default seat is England and Wales (rule 16), whose courts are gathering considerable early experience in digital asset disputes.5)E.g. Ion Science, Fetch.ai and Zi Wang; Vorotyntseva v Money-4 Limited, trading as Nebeus.com [2018] EWHC 2598 (Ch) and Liam David Robertson v Persons Unknown (unreported 15th July 2019), where bitcoin was recognised as property; Toma v Murray [2020] 2295 (Ch), where an injunction over bitcoin was discharged because damages were an inadequate remedy given the price volatility of bitcoin; and Tulip Trading v Bitcoin Association for BSV & Ors [2022] EWHC 141 (Ch), where cryptocurrency was insufficient security for costs, again given its price volatility. jQuery('#footnote_plugin_tooltip_41356_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Conclusion

The DDRR have not (to this author’s knowledge) yet been tested, and there appears to be no publicly available awards or judicial treatment in any cases. They were, however, described by the Law Commission of England and Wales in its advice to the UK Government on smart legal contracts as being “particularly well-suited” for digital asset disputes.6)Para. 5.156, page 14. jQuery('#footnote_plugin_tooltip_41356_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); In all, the DDRR are a very welcome addition to the panoply of tech-bespoke arbitral dispute resolution mechanisms that include Codelegit (which uses human arbitrators), Kleros, a decentralised arbitration service that enables peers to sit as ‘jurors’ and pass judgment over the dispute, and the draft JAMS Rules Governing Disputes Arising out of Smart Contracts.

 

Further posts on our Arbitration Tech Toolbox series can be found here.

The content of this post is intended for educational and general information. It is not intended for any promotional purposes. Kluwer Arbitration Blog, the Editorial Board, and this post’s author make no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information in this post.

References[+]

References ↑1 Statement, para. 17, page 7. ↑2 Rule 3. ↑3 Rule 2(a) states that “a digital asset includes a cryptoasset, digital token, smart contract or other digital or coded representation of an asset or transaction; and a digital asset system means the digital environment or platform in which a digital asset exists”. ↑4 Rule 2(c). ↑5 E.g. Ion Science, Fetch.ai and Zi Wang; Vorotyntseva v Money-4 Limited, trading as Nebeus.com [2018] EWHC 2598 (Ch) and Liam David Robertson v Persons Unknown (unreported 15th July 2019), where bitcoin was recognised as property; Toma v Murray [2020] 2295 (Ch), where an injunction over bitcoin was discharged because damages were an inadequate remedy given the price volatility of bitcoin; and Tulip Trading v Bitcoin Association for BSV & Ors [2022] EWHC 141 (Ch), where cryptocurrency was insufficient security for costs, again given its price volatility. ↑6 Para. 5.156, page 14. function footnote_expand_reference_container_41356_30() { jQuery('#footnote_references_container_41356_30').show(); jQuery('#footnote_reference_container_collapse_button_41356_30').text('−'); } function footnote_collapse_reference_container_41356_30() { jQuery('#footnote_references_container_41356_30').hide(); jQuery('#footnote_reference_container_collapse_button_41356_30').text('+'); } function footnote_expand_collapse_reference_container_41356_30() { if (jQuery('#footnote_references_container_41356_30').is(':hidden')) { footnote_expand_reference_container_41356_30(); } else { footnote_collapse_reference_container_41356_30(); } } function footnote_moveToReference_41356_30(p_str_TargetID) { footnote_expand_reference_container_41356_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_41356_30(p_str_TargetID) { footnote_expand_reference_container_41356_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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The Contents of the Yearbook Commercial Arbitration, Volume XLVII (2022), Upload 1

Tue, 2022-04-26 01:00

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

The first upload of materials for the 2022 volume of ICCA’s Yearbook Commercial Arbitration is now available in the KluwerArbitration database. It consists of 25 court decisions from 17 countries and includes, among others, an update of jurisprudence from El Salvador on the 1958 New York Convention, two decisions of the Court of Cassation of Qatar, and a decision rendered by the recently established Specialized Commercial Branch of the Civil Court of Tehran. Here are some of the highlights.

The Supreme Court of India in Amazon held that an interim award rendered by a SIAC emergency arbitrator was enforceable under the 1996 Indian Arbitration and Conciliation Act. It reasoned that the Act gave parties the freedom to refer disputes to the arbitral institution of their choice, and did not prohibit them from resorting to emergency arbitration. Hence, if the rules of the chosen arbitral institution provided for emergency arbitration, as was the case with the SIAC, the emergency award fell within the scope of the Indian Arbitration and Conciliation Act.

The Egyptian Court of Cassation, in an October 2020 decision, found that it need not set aside a CRCICA award rendered in an international arbitration seated in Egypt on the ground that foreign lawyers had represented the parties. The Court reasoned first that this was not one of the grounds for annulment exhaustively listed in the Egyptian Arbitration Law, which mirrored the grounds for refusal of enforcement in the 1958 New York Convention. Further, it could not be a reason to annul the award on grounds of public policy, because the rules on party representation in arbitration did not pertain to public policy and thus did not supersede the provision in the Egyptian Arbitration Law allowing the parties to be represented by foreign lawyers.

The Austrian Supreme Court concluded on 23 July 2020 that a VIAC arbitral tribunal had not acted unfairly in deciding that the arbitration hearing would be held via videoconference due to the COVID-19 pandemic. The Court reasoned that by allowing the administration of justice to continue despite the pandemic, the tribunal had not breached, but rather implemented the principles of a fair trial and the right to be heard laid down in Art. 6 of the European Convention on Human Rights.

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“Do You Know What Your Neighbour Is Doing?”: Understanding Key Differences in International Arbitration in the U.S and Canada

Mon, 2022-04-25 01:33

A dual webinar series “Do You Know What Your Neighbour is Doing?” (available at links here and here) recently hosted by Dentons provided an overview of how to navigate international arbitration in the United States (“US”) and Canada. The first webinar was moderated by Rachel Howie, FCIArb (Calgary). It featured three panelists who discussed international arbitration in the US:  John J. Hay (New York, Head of the US International Dispute Resolution group), Kristen Weil (New York) and Diora Ziyaeva (New York). The second webinar was moderated by Diora Ziyaeva, with three panelists: Mike Schafler, FCIArb, QArb (Toronto, Member of the Dentons Canada Region Board), Chloe Snider (Toronto), and Rachel Howie, all of whom addressed international arbitration in Canada.

The two webinars engaged in wide ranging discussions to familiarize businesses operating in either the US or Canada with practical differences in international arbitration systems between these countries. While similar in some respects, there are also critical differences as discussed below.

 

Arbitration Legislation

International arbitration in the US is governed by the Federal Arbitration Act (“FAA“). However, state law can also be relevant, if not contradictory to federal law (e.g., parties can contract to apply state arbitration law in commercial transactions. If there is a conflict between state and federal arbitration law, parties’ choice of law will not override the FAA. (Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995)). This is in contrast to Canada where each province and territory has separate and specific legislation governing international arbitration, except for Quebec where the Code of Civil Procedure governs both domestic and international arbitrations. Generally, these statutes addressing international arbitration (including in Quebec) are based on the UNCITRAL Model Law. That does not mean these statutes are without difference. Some provinces have customized their legislation adding specific details. There is also federal legislation, the Commercial Arbitration Act, which applies when an international arbitration involves the Crown or any Crown corporation, or admiralty and maritime matters.

 

Arbitral Institutions

There is a strong tradition of ad hoc arbitration in Canada that is not shared in the US. While there has been a shift of late toward institutional arbitration, and an increase in Canadian-based arbitral institutions, many dispute resolution clauses still refer disputes to ad hoc arbitration. See an earlier blog posting for more detail on this tradition. A key issue flagged by the panel in this regard is that under most legislation in Canada, if the arbitration is truly ad hoc then if the parties cannot agree on an arbitrator a party will need to apply to the appropriate court to have an arbitrator appointed. Given the timelines for this type of an application in many courts it may be prudent to, at a minimum, include in the dispute resolution clause agreement on an arbitral institution to act as appointing authority (and there are many institutions that will do this, even if their rules are not subsequently used and the institute does not ultimately administer the dispute).

The arbitral institutions commonly referred to in both countries provide to parties a range of choices in applicable rules for an arbitration. Institutional rules can differ in certain respects (for example, different thresholds for expedited procedure rules, or different approaches to consolidation), and therefore businesses must recognize what rules would benefit them the most when choosing an arbitral institution. One example highlighted by the panel is the potential for companies with smaller, more routine disputes, that they wish to refer to arbitration to draft into their dispute resolution clauses agreement to institutional arbitration using rules with an expedited procedure. This way those companies can look to streamline their own approaches to the disputes with their business and in-house teams.

 

Arbitration Procedure

The procedure for an arbitration is essentially a function of the arbitration clause, governing legislation and the rules (if any) governing the arbitration; this did not vary between the countries. With that in mind, the panelists from both webinars raised three differences between the US and Canadian systems that businesses should remain conscious of: arbitral jurisdiction, discovery and costs.

Arbitral Jurisdiction

An important discussion between the panelists centered on the arbitrator’s jurisdiction. In Canada, as in many jurisdictions, the principle of competence-competence generally dictates that the arbitrator has the power to rule on questions of their jurisdiction. This is enshrined in legislation and case law. As a result, the arbitrator will usually be the one to determine their jurisdiction and whether a matter is arbitrable. In contrast, in the US, there is no default rule giving the arbitrators the authority to decide their own jurisdiction and the arbitrability of the matter at issue. Rather, the court will decide whether the question of arbitrability has been delegated to the arbitrators. In doing so, the FAA provides that a presumption of arbitrability is applied when assessing whether a matter falls within the scope of the arbitration clause.

Generally, the courts in the US will determine arbitrability, unless there is clear and unmistakable evidence that the parties agreed to have the issue decided by the arbitrator. Therefore, as explained by Diora Ziyaeva, “the recent trend has been for courts to find that the issue of arbitrability has been delegated to the arbitrator.” (See e.g., First Options of Chicago, Inc v Kaplan, 514 US 938, 944-45 (1995); AT&T Technologies, Inc v Communications Workers, 475 US 643, 649 (1986) and further discussion here.)  However, the language of the arbitration clause or institutional rules can provide that the arbitrator shall decide upon their own jurisdiction. Notably, in its fairly recent decision, the US Supreme Court held that when an arbitration agreement contains a clear and unmistakable delegation of authority to the arbitrator, the issue of arbitrability must be decided by the arbitrator. (Henry Schein, Inc v Archer & White Sales, Inc, 139 S Ct 524 (2019).)  However, there are lower courts that still found that when an arbitration claim is groundless, the issue of arbitrability is to be decided by the court, notwithstanding a clear and unmistakable delegation of authority. (See e.g., Metropolitan Life Insurance Co v Bucsek, 919 F3d 184 (2d Cir), cert. denied, 140 S Ct 256, 205 L Ed 2d 134 (2019); 20/20 Communications, Inc v Crawford, 930 F3d 715 (5th Cir 2019).)

In Canada, the arbitrator generally decides on their jurisdiction in international arbitrations unless the issue was one of a pure question of law or a question of mixed fact and law that necessitated only a superficial consideration of the evidence. As such, Canadian courts are directed to follow this procedure, but may depart from this rule if there are issues of access to justice, such as where an agreement to arbitrate is unconscionable, as Dentons has discussed in the past.

Discovery

Other procedural differences can influence the arbitration process. As is well-known, the discovery process in US litigation is long and tedious. In the words of one of the panelists, US lawyers depose “anything that moves,” and this process will sometimes find its way into international arbitrations. In contrast, Canadian lawyers rarely incorporate an oral discovery process in international arbitration cases. The significance of this difference is that businesses can avoid time-consuming discovery in the US by ensuring that the institutional rules agreed to by the parties are those that limit discovery processes. As pointed out by Kristen Weil, “careful drafting of [a] dispute resolution clause can avoid very costly problems in the future.”

Costs

As for lawyer fees, generally the case in Canadian law is that costs follow the event and are awarded to the successful party (see e.g., Alberta Rules of Court, AR 124/2010, rule 10.29(1)). However, in the US, the general legal principle is that parties bear their own costs unless they have contracted otherwise. As such, in order for a prevailing party to obtain an award on costs in the US, it must carefully consider the applicable arbitration rules that actually provide for prevailing party fees (because some do not). On the other hand, a party can overcome the provision in the rules by agreeing to the costs allocation in the contract. Parties in Canada may also want to address costs in their dispute resolution provision if they want to be clear that the successful party shall be awarded costs (local laws or rules may not apply to an international arbitration), or if they would prefer that each party bear their own costs.

 

Takeaway Points

The guidance from the panelists’ insights on navigating international arbitration in the US and Canada can be summarized in the following points: first, always be mindful of the applicable statutes in either country, both federal and state/provincial; second, always be conscious of the above-mentioned differences especially when drafting arbitration clauses.  In particular, when drafting arbitration clauses, it is important to: (1) look for key items, such as a clause that provides for a binding submission of all disputes to arbitration, the applicable laws, a recognized seat and language; (2) determine whether an ad hoc arbitration or a specific institution are preferrable to you (as appointing authority or for the entire dispute), considering whether their applicable rules best fit the circumstances of your business relationship; (3) consider, when choosing a seat of arbitration, the applicable court system’s treatment of arbitration, as the court will have a supervisory role; and (4) in the US, be aware of including or excluding discovery procedures and, most importantly, the delegation of the power to rule on arbitrability to the arbitrator.

 

* The authors wish to thank Melika Mostowfi, student-at-law at Dentons, for her assistance in the preparation of this post.

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