Feed aggregator

Limits, Latitude, and Lacunae: Rare Set-aside of Award in CBX v CBZ

Kluwer Arbitration Blog - Mon, 2021-07-26 01:30

The Singapore Court of Appeal (“CA”) recently handed down CBX and anor v CBZ and ors [2021] SGCA(I) 3 (“CBX”), setting aside, exceptionally, the awards.1)The views expressed in this article are solely the views of the authors, and are not representative of the organisations they are affiliated with. jQuery('#footnote_plugin_tooltip_38158_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Significantly, the law was clarified, to a certain extent, in three key areas:

  1. The risk of an issue which arises late in an arbitration, or is not properly pleaded, falling outside the terms or scope of submission to arbitration, rendering an award (or part of an award) which determines the issue liable to be set aside under Article 34(2)(a)(iii) of the Model Law.
  2. Whether the parties’ agreement on a point can exclude the tribunal’s jurisdiction to determine that point.
  3. Whether a costs award can survive the setting aside of elements of an award, and if not, how costs may then be determined.

 

Facts

CBX arose from two sale and purchase agreements governed by Thai law for the sale and purchase of shares in a company which indirectly owned windfarm projects (the “SPAs”), some of which were incomplete.

Disputes between the parties gave rise in June 2016 to two Singapore-seated ICC arbitrations (the “Arbitrations”). The Arbitrations were heard together by the same Tribunal, and led to, inter alia, two Phase II Partial Awards (“PAs”) and a Final Award (Costs) (the “Costs Award”) in 2019 in favour of the sellers under the SPAs (the “Sellers”). The buyers under the SPAs (the “Buyers”) then applied to set aside parts of the PAs and, consequentially, the whole of the Costs Award.

The impugned parts of the PAs concerned the Tribunal’s decisions that (i) the Buyers pay the Sellers certain amounts described as the “Remaining Amounts”; and (ii) 15% compound interest p.a. should run on those amounts (the “Compound Interest Orders”).

The Remaining Amounts had originally been claimed in the Arbitrations on the basis that they were due because their due dates had been accelerated by the Buyers’ defaults or conduct. The Tribunal did not accept this claim, but instead ordered that the Buyers make payment of the Remaining Amounts when they became due in any event, without acceleration ie. on the Completion of Development dates of the windfarm projects which were incomplete, and other dates thereafter, none of which had occurred at the time of post-hearing briefs but some of which occurred before the PAs were issued (the “Future Dates”).

The Compound Interest Orders were for 15% compound interest p.a. to apply to the Remaining Amounts. They were made following what the Tribunal later described as a “regrettable oversight” on its part as the parties had in fact agreed during the Arbitrations (and prior to the end of the evidentiary hearing) that the compounding of interest was unlawful and unenforceable under Thai law.2)CBX at [7]. jQuery('#footnote_plugin_tooltip_38158_27_2').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The applications to set aside were made on the grounds that the Tribunal had exceeded its jurisdiction and/or failed to afford the Buyers a reasonable opportunity to present their case in relation to whether they were obliged to pay the Remaining Amounts on the Future Dates, and that the awards contravened Singapore’s public policy. Anselmo Reyes IJ dismissed the applications in full. The Buyers appealed.

 

CA’s Judgment

The CA allowed the appeal.

The CA observed in relation to the Remaining Amounts that while the arbitration clauses in the SPAs had provided that “[t]he [Terms of Reference] (“ToRs”) shall not include a list of issues to be determined”, the ToRs themselves indicated that they were subject to Article 23(4) of the ICC Rules, which provides as follows:

After the Terms of Reference have been signed or approved by the Court, no party shall make new claims which fall outside the limits of the Terms of Reference unless it has been authorized to do so by the arbitral tribunal, which shall consider the nature of such new claims, the stage of the arbitration and other relevant circumstances.

The CA held that Article 23(4) clearly contemplated “express consideration and determination” by the Tribunal of whether a new claim should be permitted. However, the Tribunal had failed to determine whether the Sellers should be permitted to pursue any claim to the Remaining Amounts other than on an accelerated basis, and had ignored the Buyer’s objections in their post-hearing briefs to the Tribunal taking jurisdiction over this dispute.

As for the Compound Interest Orders, they fell away given the decision on the Remaining Amounts, but the CA nonetheless observed that they too would have been set aside because the parties had agreed that as a question of Thai law, compounding was unenforceable. The CA held that the parties’ agreement had restricted the scope of the matters which they needed and agreed to submit to the decision of the Tribunal, and that the Compound Interest Orders, which were contrary to the parties’ agreement, were necessarily in excess of jurisdiction.

The CA found that, as well as falling outside the scope of the submission to arbitration, the Tribunal’s decision on the Remaining Amounts and the Compound Interest Orders both involved breaches of the rules of natural justice – given the absence of a sufficient opportunity afforded to the parties to present their case – warranting the decisions being set aside under section 24(b) of Singapore’s International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “IAA”).

The CA also set aside the Costs Award.

 

Analysis

Limits of a Tribunal’s Jurisdiction

The most important takeaway of CBX is likely to be its treatment of issues which arise late in the day and/or are not properly pleaded. The CA was unequivocal that any new claim or cause of action must be clearly identified and admitted by the tribunal, even if that were to occur only by conduct rather than by express words or a pleading amendment.3)At [51]. jQuery('#footnote_plugin_tooltip_38158_27_3').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Future tribunals and parties may thus wish to expressly identify such late-arising issues and the extent to which they fall within the terms and scope of the submission to arbitration.

In ICC arbitrations, this consideration is all the more acute given that ToRs require the issues in dispute to be expressly set out, yet it is very common for tribunals and parties to not fully elucidate the issues in their ToRs and instead to insert a “catch-all” phrase defining the issues as “those contained in the parties’ pleadings and submissions”  including “such other issues as may arise during the course of the arbitration”.4)See, for example, CBX at [45]. jQuery('#footnote_plugin_tooltip_38158_27_4').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); CBX has starkly demonstrated the risks of the “catch-all” approach, in that the absence of clear definitions may lead to issues being so fluid that parties/tribunals lose sight of Article 23(4) of the ICC Rules 2017 (and 2021).

A closely allied observation is that, in practice, tribunals will have to grapple with striking a balance between deciding the real issues in dispute between the parties – which may well evolve and crystallise only during the final merits hearing, or even thereafter – and ensuring that the parties have had a reasonable opportunity to present their cases. PT Prima International Development v Kempinski Hotels SA and other appeals [2012] 4 SLR 98 (“PT Prima”) marked an instance where the Court pointed to a plethora of factors illustrating that, unlike in CBX, the late-arising issue had been fully addressed by both parties, who had not in any event raised any jurisdictional objections. CBX squarely addresses PT Prima, and points to a number of relevant considerations in determining whether the new claim has been admitted and/or if parties have had a reasonable opportunity to address it. These include, inter alia, precisely when the new development in question arose,5)At [51]. jQuery('#footnote_plugin_tooltip_38158_27_5').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); whether the new cause of action relates to matters arising only after the award, if at all,6)At [51]. jQuery('#footnote_plugin_tooltip_38158_27_6').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); the conduct of the parties in having “embraced” (or otherwise) the new issue(s), whether expressly or by conduct,7)At [52]. jQuery('#footnote_plugin_tooltip_38158_27_7').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and the opportunity the parties had to address that issue.8)At [52]. jQuery('#footnote_plugin_tooltip_38158_27_8').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Ultimately, this will be highly fact-specific, and tribunals may be incentivised to expressly clarify potential new points of dispute which arise late in the day.

The Latitude Afforded by Agreement

In relation to the CA’s observations that the parties’ agreement can, in effect, exclude certain matters from the tribunal’s jurisdiction altogether,9)At [93]. jQuery('#footnote_plugin_tooltip_38158_27_9').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_9', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); the CA’s conclusion on the Compound Interest Orders is no doubt sound, but the bold affirmation of the centrality of the parties’ consent is also significant. In particular, the CA left open the question of how far the parties’ agreement can curtail the tribunal’s jurisdiction. For instance, can parties legitimately agree on an obvious falsehood for the purposes of an arbitration, and would the tribunal be bound by such agreement? On one hand, an answer in the affirmative would accord with the resounding emphasis placed on consent in the arbitral context, but the lines do get blurred where the parties’ agreement entails, for instance, a legal nullity (such as assuming the existence of a discretion which does not exist) or an illegal position (such as ignoring that certain criminal transactions are void). In the latter context in particular, there may also be a real risk of the resulting arbitral award being set aside on public policy grounds. Parties’ agreed positions may also have effects on separate proceedings by virtue of the doctrine of res judicata.

Ultimately, the CA acknowledged that the effect of the parties’ agreement was not absolute, particularly where the said agreement conflicts with some overriding mandatory provision of the law governing the parties’ transaction.10)At [93]. jQuery('#footnote_plugin_tooltip_38158_27_10').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_10', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This hints at the limits of parties’ consent in contouring the ambit of a tribunal’s jurisdiction, and, together with the other complications on this point raised above, will no doubt be expounded on in future cases.

A Lacuna in the Law

The third observation we make concerns the Costs Award. As a preliminary point, there may be questions over when, if ever, costs awards may survive the setting aside of part or all of a substantive award, particularly following the CA’s observations that, when considering whether a costs award can survive the setting aside of an element or elements of the substantive award, “[j]ustice will commonly require” that the costs award be set aside.11)At [75]. jQuery('#footnote_plugin_tooltip_38158_27_11').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_11', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Nonetheless, the more pressing point arising from CBX relates to what happens after a costs award is set aside. The CA concluded that it was for the parties to “advise themselves and to agree or decide how to proceed”,12)At [80]. jQuery('#footnote_plugin_tooltip_38158_27_12').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_12', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); potentially by having the tribunal sit to issue a fresh costs award.

This arose because the CA found that it did not have the power to award costs for the arbitration in this context suo motu. Section 10 of the IAA enables an arbitral tribunal’s own ruling on jurisdiction to be appealed to the Court, and section 10(7) specifically provides that in making a ruling or decision under that section that the arbitral tribunal has no jurisdiction, the arbitral tribunal or the Courts may make an award or order of costs of the proceedings, including the arbitral proceedings. However, and crucially, there is no equivalent provision for that in the general provisions relating to setting aside in section 24 of the IAA and Article 34 of the Model Law.13)At [82]. jQuery('#footnote_plugin_tooltip_38158_27_13').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_13', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The CA also noted that its decision in AKN and another v ALC and others and other appeals [2015] 3 SLR 488may indicate that, as a matter of law… the issue of an invalid or partially invalid award renders a tribunal functus officio even in respect of matters such as costs”,14)At [84]. jQuery('#footnote_plugin_tooltip_38158_27_14').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_14', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); which would again preclude the remitting of the question of costs to the tribunal (absent an express provision akin to section 10(7) of the IAA). This gives rise to the unsatisfactory position where there is no real recourse if parties are unable to agree how costs should be determined following the setting aside of an award of costs. To that end, it is hoped that the legislature will act on the CA’s invitation set out in CBX to enact the relevant reforms.15)At [85]. jQuery('#footnote_plugin_tooltip_38158_27_15').tooltip({ tip: '#footnote_plugin_tooltip_text_38158_27_15', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

References[+]

References ↑1 The views expressed in this article are solely the views of the authors, and are not representative of the organisations they are affiliated with. ↑2 CBX at [7]. ↑3, ↑5, ↑6 At [51]. ↑4 See, for example, CBX at [45]. ↑7, ↑8 At [52]. ↑9, ↑10 At [93]. ↑11 At [75]. ↑12 At [80]. ↑13 At [82]. ↑14 At [84]. ↑15 At [85]. function footnote_expand_reference_container_38158_27() { jQuery('#footnote_references_container_38158_27').show(); jQuery('#footnote_reference_container_collapse_button_38158_27').text('−'); } function footnote_collapse_reference_container_38158_27() { jQuery('#footnote_references_container_38158_27').hide(); jQuery('#footnote_reference_container_collapse_button_38158_27').text('+'); } function footnote_expand_collapse_reference_container_38158_27() { if (jQuery('#footnote_references_container_38158_27').is(':hidden')) { footnote_expand_reference_container_38158_27(); } else { footnote_collapse_reference_container_38158_27(); } } function footnote_moveToReference_38158_27(p_str_TargetID) { footnote_expand_reference_container_38158_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_38158_27(p_str_TargetID) { footnote_expand_reference_container_38158_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 Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Guidance from Ukraine: Are Emergency Arbitration Decisions in Investment Treaty Disputes Enforceable?

Kluwer Arbitration Blog - Sun, 2021-07-25 01:00

The institution of emergency arbitration (EA), in general, and its usage in investment treaty-based disputes, in particular, is a relatively new procedural tool. In investment disputes, EA has reportedly been carried out in practice only under the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (the “SCC Rules”). Conducting EA proceedings in investment disputes is usually associated with some procedural questions, including issues related to the jurisdiction of an EA, fairness of the proceedings given the very tight time limits, etc. Another question of major importance is whether EA decisions are enforceable at the seat and in foreign jurisdictions. This is the question I deal with here, focusing on the enforceability of EA decisions from the SCC in the Ukraine, as Ukraine is the first known jurisdiction in which attempts have been made to enforce EA decisions in investment treaty disputes. In this post I will briefly review what the law says, then how it was applied by Ukrainian courts, and finally what conclusions could be drawn from the analyzed cases.

 

The Law

According to Section 27 of the Swedish Arbitration Act, EA decisions are not awards on substance, and therefore could not be recognized as enforceable in Sweden. Paradoxically, SCC EA decisions may perhaps be enforced abroad. For example, under part 3A of Hong Kong Arbitration Ordinance, the award of relief through EA, whether in or outside Hong Kong, is enforceable in the same manner as orders or directions of the local court, but only with the leave of the local court. Yet, many jurisdictions’ arbitration laws remain silent on the question of EA awards’ enforceability.

One more debatable issue which may impact enforceability relates to terminology. Depending on the applicable arbitral rules, the EA decision could be coined as a “decision”, “order”, or “award”. For example, almost all EA decisions in investment disputes under the SCC Rules were coined “awards”. Notwithstanding this, whether terminology renders the product enforceable under the New York Convention (“NY Convention”) ultimately depends on the position of the local court at the place of enforcement.

Whether EA decisions will be treated as “awards” under the NY Convention has not yet produced a uniform view amongst domestic courts. The debate boils down to whether an EA decision has “binding effect” and should be treated with “finality”. It follows from the wording of the NY Convention that once the award becomes binding, but not necessarily final, it could be recognized and enforced. It is clear that the EA awards, as any interim awards, are not final, as they could be set aside or amended by the arbitral tribunal. At the same time, they are binding for the parties when rendered (e.g. see art. 9 of the Appendix II of the SCC Rules). Binding effect of the EA awards leads to the conclusion that they should be enforceable under NY Convention.

At the end of the day, in absence of express provisions in the domestic law, it is the court at the place of enforcement that decides whether the EA decision is enforceable.

 

The Legal Position in Ukraine

Attempts to enforce EA decisions in investment treaty disputes have been made in two cases. In JKX Oil & Gas plc et al. v. Ukraine (JKX case) in 2018 and in VEB.RF v. Ukraine (VEB case) in early 2021, the Supreme Court rejected recognition and enforcement of two EA awards rendered under the SCC Rules on public policy grounds under the NY Convention. The bottom line is this: the court treated the EA awards as binding and final, moving ahead to hear the grounds under which such awards can be refused enforcement as outlined under Article V. Conversely, the court did not engage with an exclusionary plea, i.e. that the award cannot be enforced per se.

 

JKX case

In the JKX case, the EA ordered Ukraine to refrain from imposing rental payments on the production of gas by JKX’s Ukrainian subsidiary in excess of the rate of 28% (applicable until 21 July 2014), as opposed to the 55% rate that was established under Ukrainian tax law afterwards.

The Supreme Court found that the EA award in fact changed the rates prescribed by the Ukrainian tax law. In view of the court it was not acceptable since according to the Ukrainian tax code taxation issues were regulated by the code and could not be established or amended by other acts. In such situation the court concluded that the EA award contradicted to Ukrainian public policy, and could not be recognized and enforced based on art. V(2)(b) NYC.

 

VEB case

Before VEB’s application for recognition and enforcement of the EA award in Ukraine, the Ukrainian Supreme Court had already recognized and enforced in Ukraine a PCA arbitral award in another investment treaty arbitration case, Everest Estate LLC et al. v. The Russian Federation (Everest Estate case). According to the PCA award in the Everest Estate case, the Russian Federation as the respondent state was obliged to pay compensation for illegal expropriation of assets of the Ukrainian investors in Crimea. When applying for recognition and enforcement of PCA award the claimants requested the Ukrainian court to grant interim measures. Namely they requested the attachment of Prominvestbank PJSC shares (the Ukrainian subsidiary of the Russian state bank, VEB) as those shares were allegedly owned by the Russian Federation. The request was granted.

EA proceedings in the VEB case related to the mentioned decision of the Ukrainian court to attach Prominvestbank PJSC shares. The claimant – the Russian state bank VEB – requested the SCC EA, and the request was granted, to temporarily seize Ukraine from attaching shares of Prominvestbank PJSC and selling them on the auction.

Considering the background of the Everest Estate case, in the VEB case the Supreme Court found that recognition and enforcement of the EA award would de facto preclude the execution of the PCA award in Everest Estate case, which had already been enforced by the Ukrainian court. The cornerstone of the reasoning of the Supreme Court was reference to the Ukrainian Constitution, under which the basic principles of justice in Ukraine included the binding force of judicial decisions. Thus, if VEB’s application to recognize and enforce the EA award was upheld, it would have undermined the binding force of the other decision of the Ukrainian Supreme Court, enforcing the PCA award, which is contrary to public policy.

On this background recognition and enforcement of the EA award was denied with reference to art. V.2(b) NY Convention.

 

Conclusion

The described cases illustrate that in Ukraine foreign EA decisions are considered as awards for the purposes of enforcement and therefore, NY Convention is applicable in such cases ipso facto. In both cases the EA decisions were designated as ‘awards’. Although these awards – as all EA awards – did not decide the disputes on substance and provided only for interim relief, the courts of all instances without express analysis of the issue consistently treated the EA decisions as awards in terms of the NY Convention and directly proceeded with analysis of its provisions. In a situation when practice of enforcement of EA decisions is only emerging and there is no consistent approach as to whether EA decisions are covered by the NY Convention, any positive example, such as these Ukrainian examples, is welcomed and adds to the “arbitration friendly” status of the respective jurisdiction.

When recognition and enforcement of the EA decision in an investment treaty-based dispute is sought under the NY Convention, public policy under art. V(2)(b) may become the central ground to deny recognition and enforcement. Since the boundaries of national public policy are not fixed, a respondent state may base its objections to recognition and enforcement on a wide range of arguments. Herewith, while reviewing the arbitral awards granting monetary compensation for infringement of international investment law, more sophisticated reasoning might be required from local courts to refuse recognition and enforcement of such awards based on local public policy. EA decisions as a rule order specific performance from a respondent state which is to be implemented within its national legal framework. Hence, when it comes to reviewing such decisions, more doors are open for the local courts to explain why the EA decision and the performance it prescribes to the respondent state offends the public policy of the latter.

At the same time, one should keep in mind that the above Ukrainian cases are based on very specific circumstances. Thus, the recognition and enforcement of the EA decision in investment treaty-based dispute under the NY Convention will depend on the interpretation of the notion of public policy by courts at the enforcement jurisdiction and the nature of the relief granted by the EA. Nevertheless, the practice of conducting EA proceedings in investment disputes and subsequently seeking the enforcement of the EA decisions is at its inception. The Ukrainian guidance may contribute to the debate on enforceability of EA decisions and the overall efficiency of using EA mechanisms in investment treaty disputes.

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Mandatory Laws Applicable to an Arbitration: A View from Australia

Kluwer Arbitration Blog - Sat, 2021-07-24 01:51

There have been significant legal developments in recent times in Australia concerning the proper choice of law applicable to an arbitration agreement. Cases have centred on how to give effect to parties’ choice. But there are other laws which, despite not being chosen by the parties as the law applicable to the arbitration agreement, may nonetheless impact on the validity of the arbitration agreement. A mandatory law of the forum where the contract is to be performed may render the arbitration agreement invalid. Applicable mandatory laws may also affect the arbitrability of claims.

Proper context

As a preliminary point, the proper choice of law may differ depending on the precise issue raised.  The choice of law in question may concern:

  • Formation and existence of an arbitration agreement (in Australia, the proper choice of law is the law of the forum, see Dialogue Consulting Pty Ltd v Instagram Inc (Dialogue) [2020] FCA 1846 at [215]); or
  • Validity or scope of an arbitration agreement (see a previous Kluwer Blog for a detailed reference to the choice of law principles in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb (Enka v Chubb) [2020] UKSC 38).

The choice of law principles enunciated by the majority and minority judges in Enka v Chubb place weight on the law chosen by the parties. The majority at [60] (and Lord Sales at [266]) concluded that an express choice of law applicable to the main contract will often also constitute an express choice of law for the arbitration agreement. Failing an express choice, the second stage involves considering whether an implied choice has been made. The third stage is the law that has the closest and most real connection with the arbitration agreement, which will usually be the seat.

Lord Burrows (dissenting) also placed weight on the law chosen by the parties in deciding that an implied choice of law for the main contract should be carried across to the arbitration agreement (at [260]).

Presently, no Australian court has considered the choice of law principles enunciated in Enka v Chubb, although the “three-stage” choice of law approach to determine questions of validity and scope of an arbitration agreement was recently affirmed in Dialogue (at [474], [483]).  Australian choice of law principles thereby also place significant weight to the parties’ choice of law.

However, it is questionable whether Australian courts will wholly adopt the majority’s approach in Enka v Chubb regarding the validation principle. In Rinehart v Hancock Propsecting Pty Ltd [2019] HCA 13 at [21], the majority were not prepared to adopt the presumptive interpretive principle in Fiona Trust & Holding Coporation v Privalov [2007] UKHL 40. However, Edelman J (at [83]) indicated that as part of the conventional contextual approach to contractual interpretation weight should be placed on the consideration that reasonable parties would wish to have a dispute determined in a single forum. See also Lepcanfin Pty Ltd v Lepfin Pty Ltd [2020] NSWCA 155 at [92]-[93].

Recently, an Australian Federal Court judge expressed, extra-judically, a preference for the minority’s approach in Enka v Chubb; see CIArb Australian Branch and Federal Court of Australia Webinar.

Federal Court decision in Freedom Foods

There are other laws, despite not being chosen by the parties as the law applicable to the arbitration agreement, may nonetheless impact on its validity. Australian examples include an arbitration agreement found in:

The last example was recognised in Freedom Foods Pty Ltd v Blue Diamond Growers (Freedom Foods) [2021] FCA 172 at [138].

Freedom Foods involved a licence agreement for the manufacture and sale of almond milk products in Australia. After a careful analysis, the licence agreement was held to not qualify as a franchise agreement within the meaning of the Franchising Code with the consequence that the arbitration agreement was valid (Freedom Foods at [140]).

The case nonetheless highights that mandatory forum laws applying by virtue of where the contract is to be performed can impact on the validity of an arbitration agreement despite the parties expressly choosing a different law to govern the contract and choosing a seat in different country (Freedom Foods at [138]).

Mandatory laws impacting on substantive dispute

Another feature worth highlighting from Freedom Foods is that a mandatory law can affect the outcome of a substantive dispute where the parties have chosen a different law to apply to the main contract.

In Freedom Foods an Australian mandatory statutory law prohibiting misleading or deceptive conduct occurring in trade or commerce applied to the dispute despite the parties explicitly choosing the law of California to govern their contract and selecting Sacramento in California as the seat of the arbitration (see s 18 of the Australian Consumer Law).

This result is uncontentious. Mandatory laws form the framework of laws that may apply to a dispute that the parties have agreed to resolve by arbitration. Party autonomy does not override applicable laws; Gary Born, International Commercial Arbitration (Kluwer Law International, 3rd edition) Chapter 19, p.2913-5, cited with approval in PT Prima International Development v Kempinski Hotels SA [2012] SGCA 35 at [72].

Mandatory laws impacting on arbitrability

Another complication is whether such statutory claims are arbitrable and by which law that should be determined.

The question in Freedom Foods was whether the statutory claims of misleading or deceptive conduct made against Blue Diamond Growers were arbitrable in the Californian arbitration.  Specifically, whether the claims were “capable of settlement by arbitration” under s 7(2)(b) of Australia’s International Arbitration Act 1974 (Cth), being Australian domestic law implementation of Article II of the New York Convention.

Blue Diamond Growers (a Californian company) gave undertakings accepting that the arbitrator must apply Australian statutory laws prohibiting misleading or deceptive conduct (at [66]) and that it would be applied in the arbitration (at [141]). The issue in contention was whether the arbitrator could actually do so (at [87]). There was differing expert opinion presented to the court, with one expert expressing an opinion that such claims could be heard and determined in a Californian arbitration and the other that it could not.

Ultimately, the Court preferred the expert evidence that concluded that such Australian statutory claims were arbitrable in the Californian arbitration (at [87]).

Comments

The outcome in Freedom Foods affirms the ability of parties to choose to resolve their dispute in a single forum, that includes mandatory statutory claims, notwithstanding their choice of a foreign law applicable to the contract and a foreign seat.

The consideration given to the arbitrability of mandatory statutory claims with reference to a foreign law in Freedom Foodsappears to involve a departure from Comandate Marine Corporation v Pan Australia Shipping Pty Ltd (Comandate) [2006] FCAFC 192, where the Full Court considered that arbitrability of the dispute should be determined according to Australian law, being the domestic law of the judicial enforcement forum.

Further, in Comandate the question of how the dispute would be resolved by the arbitrator in light of mandatory Australian statutory law, when English law was chosen by the parties, was considered to be a matter for the arbitrator, which would not be pre-empted by the court; [237], [241]. This approach has been reiterated in Dialogue (at [436]). The court in Comandate was content to rely on an undertaking by Comandate Marine to allow the arbitrator to determine all the issues between the parties (at [241]) which was noted in the orders (at [255]).  The court found it unnecessary in view of the undertaking to consider evidence as to how the mandatory law would be applied in the arbitration (at [241]).

The approach in Freedom Foods seems to accord more closely with Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57 at [72], where the Singapore Court of Appeal considered that it “would be pointless for a court to stay court proceedings in favour of arbitration where the applicable law does not permit the subject matter of the dispute to be resolved by arbitration as it may lead to an award without force or legal value”.

When is it appropriate to leave the matter to the arbitrator?  In Larsen Oil and Gas Pte Ltd v Petroprod Ltd [2011] SGCA 21 at [26], the court was well placed to anticipate the enforceability of an award where the contract was governed by Singapore law. Australian courts, predominately, are content to accept undertakings to ensure that the foreign arbitration will not circumvent the application of mandatory Australian law and not compromise award enforceability.

 

 

 

 

 

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Why It Is Especially Important That States Not Ratify the Hague Choice of Court Agreements Convention, Part I

Kluwer Arbitration Blog - Thu, 2021-07-22 21:25

In a series of recent posts (Part I, Part II and Part III), I argued that states should not ratify the Hague Choice of Court Agreements Convention (“Convention”) and, if they had already done so, that they should denounce the Convention.  Two good friends, Trevor Hartley and João Ribeiro-Bidaoui, recently responded on Kluwer Arbitration Blog and elsewhere, disagreeing with my views.

These responses confirm the need to engage in an objective evaluation of the Convention and the importance of this subject.  In addition, these responses are also highly illuminating: although they are intended to do the opposite, Professor Hartley’s and Mr. Ribeiro’s replies confirm and powerfully underscore the grave defects of the Convention, the threats that the Convention poses to the rule of law and international commerce, and the need for states not to ratify the Convention.

 

New York Convention: The Model or Not?

Both Professor Hartley and Mr. Ribeiro begin their discussions by denying that the New York Convention provided a model for the Convention.  As Professor Hartley puts it, “[t]he Brussels Regulation, rather than the New York Convention, was in fact the model for the Hague Convention.”  According to Mr. Ribeiro, comparisons with the New York Convention are a “fundamental misconception of the genesis and purpose of the [Choice of Court] Convention” that “invalidates the very basis of Born’s indictment.”

These efforts to distance the Convention from the New York Convention are highly inaccurate, both historically and architecturally.  Historically, the Convention’s various promoters have repeatedly and explicitly linked it to the New York Convention, while virtually never doing so with respect to the Brussels Regulation.  The Hague Conference’s Explanatory Report, co-authored by Professor Hartley, explains “[t]he hope is that the Convention will do for choice of court agreements what the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 has done for arbitration agreements.”  To the same effect, Professor Hartley has written elsewhere that “[t]he New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 is one of the most successful conventions in the legal sphere.  The hope is that the Hague Choice-of-Court Convention will prove equally successful.”1)Trevor C. Hartley, The Hague Choice-of-Court Convention, 31(3) E.L. Rev. 414, 423 (2006). jQuery('#footnote_plugin_tooltip_38144_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38144_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  Or, as Mr. Ribeiro’s predecessor as the First Secretary of the Permanent Bureau, Andrea Schulz, put it: “It is hoped that the new Convention will do for choice-of-court agreements what the highly successful 1958 New York Convention does for arbitration agreements.”2)Andrea Schulz, The Hague Convention of 30 June 2005 on Choice of Court Agreements, 2 J. Priv. Int’l L. 243, 267-68 (2006). jQuery('#footnote_plugin_tooltip_38144_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_38144_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  And, as Louise Ellen Teitz, one of the individuals acknowledged as a contributor to Mr. Ribeiro’s response, previously wrote, the Convention is “the litigation analogue for the New York Convention because it seeks to provide an equal and viable alternative to arbitration.”

These and numerous other similar characterizations of the Convention and its aspirations are historically authentic, in contrast to the revisionist efforts undertaken by Professor Hartley and Mr. Ribeiro in their posts.  They are also substantively and structurally accurate.  The Convention deals with choice-of-court agreements and judgments based on such agreements, just as the New York Convention deals with arbitration agreements and resulting arbitral awards; neither Convention deals with other bases of jurisdiction nor types of decisions.  Likewise, and critically, both Conventions aspire to be global and universal, open to (and, in the case of the Convention, vigorously promoted to) all states.  (These points are explored in a thoughtful recent post by Thomas Grant and F. Scott Kieff, also criticizing the Convention.)

In contrast to the two Conventions, the Brussels Regulation deals with all types of jurisdictional bases (including numerous non-consensual jurisdictional bases, such as domicile, incorporation, necessary party status, and the like) and all types of judgments – not just forum selection and arbitration agreements and their resulting judgments.  Likewise, the Brussels Regulation is emphatically not global or universal, but a regional European instrument, linked to a regional integration project and regional political and judicial institutions.  Thus, there is a world of difference between the character of the Brussels Regulation and that of the Convention, while there are very close parallels between the Convention and the New York Convention – which is why the Convention’s drafters and promoters, quoted above, have hitherto always analogized it to, and based its fundamental structure and aspirations on, the New York Convention, and not on the Brussels Regulation.

This structural analogue between the Convention and the New York Convention has highly important practical consequences.  The Convention is global, meaning that any state can accede to it; indeed, the Convention aspires to being universal.  That means that states with the world’s most corrupt, least independent and least experienced courts may, and likely will, become Contracting Parties to the Convention, with none of the institutional and political safeguards that exist under the Brussels Regulation.  As discussed below, this has several highly important consequences for assessing the Convention’s wisdom and suitability.

 

The Brussels Regulation:  Professor Hartley’s Surprise

Before examining these points, however, it is both surprising and highly revealing that Professor Hartley now asserts, contrary to the Convention’s Explanatory Report and the vast majority of prior commentary, that “[t]he Brussels Regulation … was in fact the model for the [] Convention.”   If that were indeed accurate, notwithstanding what all the Convention’s promoters have previously said, it would be a further serious indictment of the Convention.

There are extraordinarily important differences between the rules appropriate for forum selection and judgment recognition on a global basis (like the Convention) and those appropriate on a regional basis (like the Brussels Regulation).  The Brussels Regulation applies within a limited number of relatively similar European states, linked by both an integration project and common judicial and legislative organs (i.e., the European Court of Justice and the EU Parliament, Council and Commission).  Recognizing judgments and forum selection provisions within this limited (and quantifiably known) community, with central judicial and legislative institutions and safeguards, is utterly different from recognizing those things globally, from any state in the world, and without central adjudicative or other safeguards.

Relying on the Brussels Regulation to justify the Convention is therefore not a defense of the Convention but, in Mr. Ribeiro’s words, a very serious indictment.  There are serious questions as to whether the Brussels Regulation works even within the European Union.  In any event, however, it is entirely inappropriate to extend for global application a regional mechanism that is designed for a specific and singular political and legal context.  Relatedly, one must also ask why states like the United States, China and regions like Latin America, and elsewhere, would wish to replace their own legal systems, and long-standing private international law rules, in favor of a multilateral framework, based on the Brussels Regulation, that was designed by the EU for European use.

Despite this, the Convention’s provisions do what Professor Hartley now acknowledges – namely, dilute important protections of the New York Convention for party autonomy and procedural regularity and integrity, based upon selected provisions of the Brussels Regulation.  In particular, as discussed below and in an accompanying post, the Convention gives final, unreviewable authority to the putatively chosen court to determine whether a valid choice-of-court agreement exists, materially diluting Article V(1)(a) of the New York Convention, while also significantly weakening the protections for procedural regularity contained in Articles V(1)(b) and V(1)(d) of the New York Convention.  Transposing these aspects of the Brussels Regulation to an international context is, as noted above, deeply unsatisfactory.

 

The Choice of Court Convention: Open Doors for Corrupt Courts and Judgments

Importantly, neither Professor Hartley nor Mr. Ribeiro challenges the uniform findings of Transparency International, Freedom House and other respected non-profit organizations regarding endemic corruption and lack of judicial independence is many parts of the world.  On the contrary, Professor Hartley acknowledges, with notable understatement, that there are many “countr[ies] where judicial corruption is a problem.”  Similarly, while noting the existence of “highly efficient, effective commercial courts” in a few states, Mr. Ribeiro concedes that “weaknesses in some court systems cannot be ignored.”

If “some” means “most” or “many,” it is correct.  One can take one’s pick of the countries in the bottom two-thirds of whichever index of corruption one prefers — Afghanistan, Syria, Yemen, Venezuela, Sudan, Libya, Somalia, Congo, and Burundi, as well as China, Russia and countless other states.  The simple, if unpleasant, truth is that a very large number of judicial systems around the world lack either integrity, basic competence or judicial independence.  Despite that, under the Convention, the judgments of all these states would be subject to mandatory recognition under the Convention (without the protections of the New York Convention and without the institutional structure and other characteristics of the EU).

Professor Hartley responds that “none of these countries is a Party to the Hague Convention; so choice-of-court agreements designating their courts would not be covered.”  That is the Convention’s promoters’ best defense, but it is, for obvious reasons, wholly unsatisfactory.  The critical point is that the Convention is open to all these states for ratification.  These states may not be Contracting Parties today, but the Hague Conference and its promoters certainly intend for them to become Contracting Parties in two, five or ten years.  And then, when tainted Sudanese, Venezuelan, Libyan, Russian or Chinese judgments for hundreds of millions of Euro or dollars must be recognized against U.K., Portuguese, Singaporean or other businesses under the Convention, Professor Hartley’s observation will provide no solace to local shareholders, workers, suppliers and communities.

This post continues in Part II.

References[+]

References ↑1 Trevor C. Hartley, The Hague Choice-of-Court Convention, 31(3) E.L. Rev. 414, 423 (2006). ↑2 Andrea Schulz, The Hague Convention of 30 June 2005 on Choice of Court Agreements, 2 J. Priv. Int’l L. 243, 267-68 (2006). function footnote_expand_reference_container_38144_30() { jQuery('#footnote_references_container_38144_30').show(); jQuery('#footnote_reference_container_collapse_button_38144_30').text('−'); } function footnote_collapse_reference_container_38144_30() { jQuery('#footnote_references_container_38144_30').hide(); jQuery('#footnote_reference_container_collapse_button_38144_30').text('+'); } function footnote_expand_collapse_reference_container_38144_30() { if (jQuery('#footnote_references_container_38144_30').is(':hidden')) { footnote_expand_reference_container_38144_30(); } else { footnote_collapse_reference_container_38144_30(); } } function footnote_moveToReference_38144_30(p_str_TargetID) { footnote_expand_reference_container_38144_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_38144_30(p_str_TargetID) { footnote_expand_reference_container_38144_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Why It Is Especially Important That States Not Ratify the Hague Choice of Court Agreements Convention, Part II

Kluwer Arbitration Blog - Thu, 2021-07-22 21:00

This post continues from Part I.

Party Autonomy and Consent:  How the Convention Undermines Them

My previous posts argued that the Convention undermines vital protections that existing law provides for party autonomy and genuine consent.  In response, Mr. Ribeiro argues that the Convention advances notions of party autonomy: it supposedly serves to “enable parties to make an effective choice” and “for that choice to be respected” and “allows both parties to make their choice freely and consciously.”  That is wrong: in fact, the Convention undermines party autonomy and poses distinct threats of denials of justice.

In Mr. Ribeiro’s words, under the Convention, “the chosen court can make a final and unreviewable decision regarding the core question of whether there is a valid choice of court agreement (Article 5(1), Article 9(a)).”  This is a dramatic departure from both existing private international law rules in most developed jurisdictions (in which the recognizing court must re-examine the jurisdictional basis for a foreign judgment) and the treatment of arbitration agreements under Articles V(1)(a) and V(1)(c) of the New York Convention (in which the recognition court may re-examine the existence, validity and scope of the arbitration agreement underlying an award).

Allowing the putatively chosen court to determine – in a final and unreviewable manner – its own jurisdiction is a radical change from existing law.  It is also highly problematic: it permits the courts of all of the countries identified above (from Afghanistan to Zambia) to determine that foreign parties have consented to their jurisdiction and to issue largely unreviewable judgments either in favor of or against them.  The ills resulting from this regime are likely to be exacerbated by the increasing desire of states to establish and vigorously promote their own assertedly “international” courts (like the Chinese International Commercial Court or similar state-sponsored initiatives in a number of other jurisdictions), producing incentives to both procure and uphold choice-of-court agreements.  None of this advances party autonomy; rather, this threatens party autonomy, by removing long-standing safeguards, applied in recognition forums, that are designed to ensure that parties really did consent to a particular dispute resolution mechanism.

Mr. Ribeiro half-heartedly suggests that international arbitration is no better at protecting party autonomy than the Convention because some commentators “have argued strongly that courts should not be allowed to second-guess arbitrators’ decisions on jurisdiction.”  That is fundamentally inaccurate.  As Articles V(1)(a) and V(1)(c) of the New York Convention specifically provide, arbitral awards may be denied recognition based on the recognition court’s determination that there was no valid arbitration agreement or that the scope of that agreement was exceeded.  Contrary to Mr. Ribeiro’s mis-citation of a single prior post that I authored on this issue, the works of virtually every commentator on the New York Convention underscore the fact that recognition courts conduct de novo review of jurisdictional determinations under Article V(1)(a), while annulment courts conduct the same review under Article 34(2)(a)(i) of the UNCITRAL Model Law.  The Convention’s abandonment of these protections is a radical and dangerous departure from existing law.

Mr. Ribeiro attempts to conceal the extent of this departure by asserting that the Convention merely adopts the “quasi-universal rule that the law of the forum governs matters of procedure, including jurisdiction.”  There is no such rule and there never was.  Mr. Ribeiro’s archaic rule that the lex fori governs matters of procedure has nothing to with either jurisdiction or the recognition of judgments; it concerns only the details of the procedural conduct of adjudicative proceedings (such as rules of evidence, pleadings and the like).  Rather, the universal rule, under virtually every other judgment recognition convention, as well as the New York Convention, the Inter-American Convention on International Commercial Arbitration, and the European Convention on International Commercial Arbitration, is that the recognition court may review the jurisdictional basis for the subject judgment or award.

 

Procedural Regularity and Integrity: How the Convention Threatens Them Too

My previous posts also argued that the Convention threatens the rule of law by requiring recognition of corrupt or procedurally unfair or irregular judgments.  Professor Hartley and Mr. Ribeiro respond that the Convention provides adequate safeguards for the procedural fairness and regularity of proceedings leading to judgments subject to the Convention.  Those responses also only underscore the Convention’s defects.

Mr. Ribeiro acknowledges that, under the Convention, “there should be only limited scope to argue, for example, that the procedures of the foreign court were not appropriate”; that acknowledgement is correct, because Article 9(e) of the Convention provides only for non-recognition where “the specific proceedings leading to the judgment” were unfair – not where a particular court, or for that matter, the entire legal system of a national or sub-national territory, lacked independence or was corrupt.  Professor Hartley and Mr. Ribeiro also acknowledge that the Convention omits the highly-important guarantees for due process and procedural regularity contained in Articles V(1)(b) and V(1)(d) of the New York Convention.

That is deeply unsatisfactory.  The Convention once more departs radically from existing law – which, in virtually all developed jurisdictions, permits recognition courts to inquire into the fairness and independence of both individual foreign litigations and foreign judicial systems, while Articles V(1)(b) and V(1)(d) of the New York Convention do the same for arbitral proceedings.  This inquiry is not provided for under the Convention, which also specifically excludes the possibility of challenges to the independence or integrity of foreign legal systems.

Professor Hartley and Mr. Ribeiro claim that truly corrupt foreign judgments can be denied recognition under the Convention, by reason of Article 9(e)’s general public policy exception.  That appeal to the public policy exception is unsettling; it is apparently predicated on the novel and surprising argument that the exception should swallow the rule.  The public policy exception is designed, in virtually all private international law contexts, as an exceptional escape device that permits a state to invoke its own law and policy in rare and unusual cases.

That type of exception is an entirely inadequate means of dealing with a problem that is already well-known and clearly-defined – namely, endemic corruption and lack of judicial independence in many legal systems – and that is already addressed through well-established rules requiring inquiry in recognition courts into the integrity, fairness and procedures of foreign adjudicative proceedings.  The proper way to deal with issues of procedural fairness is to do so transparently and specifically, as previous Hague Conference conventions have done, not by appealing to an inherently uncertain public policy exception.  Basic due process rights and protections against corruption and political interference are too important to be left to the vague catch-all of a public policy exception.

 

Other Hague Judgments Convention: How the Convention Omits Their Protections

It is in this respect in particular that the silence of Professor Hartley and Mr. Ribeiro about other Hague Conference judgments conventions is also striking.  As previously noted, the 1971 Hague Convention on the Recognition and Enforcement of Foreign Judgments included, in Article 21, a provision that the Convention would apply only where two Contracting States had agreed to its application on a bilateral basis.  Similarly, the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments included, in Article 29, a provision allowing states to opt-out of the Convention’s application as to any other Contracting State.

In both cases, these provisions applied even where jurisdiction over the judgment-debtor was undisputed (and indisputable), including where it was established by consent.  The reason for these provisions, under both of these Hague Conventions, was the pervasive doubts about the integrity, independence and competence of courts in many countries – which led to insistence on provisions allowing Contracting States to opt-out of application of the relevant Hague Convention as to such states.  Critically, the Convention omits those safeguards.  Tellingly, Professor Hartley and Mr. Ribeiro make no effort to address or justify that omission.

 

Supposedly Enhancing Judicial Integrity and Competence

Finally, Mr. Ribeiro argues that, if nothing else, the Convention will “enhance the rule of law, which, in turn, has the welcome corollary of incrementally developing judiciaries and judicial cooperation.”  He, alongside Professor Hartley, suggests that, by recognizing judgments from countries with “under-developed or allegedly corrupt judiciaries in the global arena,” the Convention will advance the rule of law and incrementally improve those judiciaries.

That is highly unrealistic.  It is reminiscent of the European Court of Justice’s principle of “mutual trust” that EU Member State courts will properly apply EU law, even if experience shows that they don’t.  That principle is naive and unsatisfactory in the European context (as Professor Hartley has previously (and quite persuasively) emphasized).  It is vastly more unsatisfactory in a global context.

Stated simply, Mr. Ribeiro’s argument is that by requiring recognition of judgments of corrupt or non-independent courts, the Convention will induce those courts to be less corrupt and more independent.  Mr. Ribeiro does not address, or appear concerned by, the fact that doing so would entail individual denials of justice to individual litigants along the way towards “incrementally developing judiciaries” – an approach that entails serious departures from the rule of law.  Moreover, there is no conceivable empirical justification for Mr. Ribeiro’s speculation that recognizing corrupt judgments will induce courts not to be corrupt; on the contrary, doing so would likely encourage them to continue their corrupt, but profitable, ways, by giving global effect to their illegally-procured judgments.  Rather, denying recognition of corrupt judgments – and explaining publicly the reasons for doing so – is the proper way to discourage corruption and to create incentives for rendering independent and honest judgments.  Yet the Convention would significantly inhibit exactly this from happening.

 

Bad International Treaties Don’t Improve the Rule of Law

Finally, Mr. Ribeiro also argues, more generally, that it is preferable to “have an international system governing choice of court agreements, … instead [of] a myriad of domestic and regional regimes,” and that advancing the Hague Conference’s work generally is desirable.  The Convention is not rescued by appeals to the asserted general superiority of international law, as compared to domestic law, or by institutional appeals for the Hague Conference.

It may well be that a properly drafted international treaty governing choice-of-court agreements would be preferable to existing law.  But the Convention is just not that treaty; it is a gravely flawed instrument that threatens the rule of law.  Replacing long-standing domestic and regional law with bad international treaties is not progress; it is damaging to the rule of law and to international commerce, which such treaties are meant to serve.  And promoting the Convention is not good for the Hague Conference, for exactly the same reasons: persuading states to adopt flawed treaties will not strengthen, but ultimately weak, both the Conference and its other treaties.

There may well be good reasons for the Hague Conference to think and draft again – providing a new choice-of-court convention for international consideration.  That is not a reason, however, for any state to ratify, or remain a Contracting Party to, the current Convention.

 

Conclusion: Don’t Blame Businesses for A Bad Convention

Professor Hartley concludes his defense of the Convention as follows: “If the parties insist [sic] on choosing the courts of a state where judicial corruption is a problem, they have only themselves to blame.”  That is inaccurate, but it usefully illustrates the Convention’s fundamental weakness.

It is fundamentally wrong to say that if parties choose corrupt courts, “they have only themselves to blame.”  Today, that may be partially true, because the consequences of such choices are relatively limited: most national courts will deny recognition of corrupt judgments and companies will have only themselves to blame for the expense and distraction of litigation.

Under the Convention, however, corrupt judgments would be subject to mandatory recognition – as part of the Hague Conference’s goal of “incrementally developing judiciaries.”  In those cases, it would not be just ill-advised or commercially-vulnerable businesses who accept choices of corrupt or inept courts that would have “themselves to blame.”  Instead, it would be the Convention, and the national legislatures that ratified it, that would be to blame for the recognition of these courts’ judgments; it would be the Convention, and its promoters, that removed existing, long-standing and vital protections that exist for party autonomy and against corrupt and otherwise tainted judgments, thereby facilitating the recognition of such judgments.  When that occurs, Professor Hartley’s question of who to blame would be asked with heightened attention and care.

For the reasons I have previously summarized, states therefore should not ratify the Convention and, if they have done so, they should take steps to denounce it.

 

 

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Three New ABA Books Hot Off the Press!

ADR Prof Blog - Thu, 2021-07-22 12:24
The ABA Section of Dispute Resolution published three books this year that you, your colleagues, and your students might be interested in. Mediating Legal Disputes: Effective Techniques to Resolve Cases, Second Edition, by Dwight Golann. Psychology for Lawyers: Understanding the Human Factors in Negotiation, Litigation, and Decision Making, Second Edition, by Jennifer K. Robbennolt and … Continue reading Three New ABA Books Hot Off the Press! →

Scrutinizing the 2005 Hague Convention: Two Further Reasons to Keep Arbitration a Viable Option

Kluwer Arbitration Blog - Wed, 2021-07-21 21:20

Gary Born, in a three-part series in Kluwer Arbitration Blog last month, addressed why States should not participate in the 2005 Hague Convention on Choice Of Court Agreements (“Hague Convention”). We assume that readers are familiar with Mr. Born’s posts (available as Part IPart II, and Part III), and so we will confine ourselves to recalling this proposition in Mr. Born’s argument: the 2005 Hague Convention, though drafted and promoted as a sort of congener to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), is so very different from the New York Convention that to equate the two is to make a fundamental mistake. We agree with the cogent reasons that Mr. Born supplies to explain why equating the Hague Convention and the New York Convention is a mistake. We also think that readers would benefit from considering a further difference between the two Conventions: because they address different subject matter—judgments adopted by courts, on the one hand, awards adopted by arbitral tribunals, on the other hand—the courts that apply them are not likely to do so in a similar way. As we will suggest, there are grounds to be concerned that courts will be more deferential to foreign judgments than to foreign awards, and this would be so, even if the terms of the treaties were all but identical.

To start with the terms—which are analogous but not identical—both Conventions are built around provisions that require contracting States to recognize as binding, and to enforce, certain decisions reached by foreign dispute settlement organs. Obligations to recognize and enforce are contained in Article 8 of the Hague Convention and Article III of the New York Convention. Both Conventions also contain provisions permitting contracting States to refuse to recognize or enforce—Article 9 and Article V, respectively.

Let us, for convenience, refer to these latter two provisions as “scrutiny provisions,” because they reserve an option for the contracting States to scrutinize the instruments that the treaties otherwise obligate the contracting States to recognize and enforce. We use this expression without prejudice to the precise modalities of reasoning and procedure that a judge or other authority (though in practice typically a judge) might be called upon to apply under the two Conventions.

Comparing the scrutiny provisions, one sees that they display structural and substantive likeness, at least to a degree. Mr. Born amply demonstrates that the formal similarities are largely illusory and outweighed by the differences.

However, even to the extent that the drafting suggests an intention to produce similar outcomes, there are grounds to be concerned that, in practice, courts implementing the two Conventions will approach them differently and that dissimilar outcomes will result. At least two factors are likely to influence judges to apply the Hague Convention’s scrutiny provisions more leniently than they apply the corresponding provisions of the New York Convention.

First, under the Hague Convention, it is a judgment that the judge is invited to scrutinize, which is to say an authoritative decision reached by a public officer in the judiciary. Notwithstanding the empirical evidence gathered, for example, by the UN Development Programme, the International Bar Association, and Transparency International, that the judiciary in many countries lack independence or competence or both, the formal trappings of the judiciary are likely to impart to the judgment a patina of credibility. We do not posit that this is a factor that a judge would articulate. We suggest, even, that this factor may exert its influence in less than conscious ways, even on perfectly self-aware judges. The influence that we have in mind is in the nature of one of those subtle prejudices that arise from verbal cues, feelings of solidarity, and professional amour propre.  That foreign judges, not arbitrators, are involved here, on the terms of the Hague Convention, should not matter. But, when the advocates of the Convention say that those terms, when implemented, will place much the same scrutiny on foreign judgments that the scrutiny provisions of the New York Convention place on arbitral awards, skepticism is in order. We suggest that the scrutiny will not in practice be the same, and this is in part because judges will treat other judges differently than they treat arbitrators.

It is interesting to note that empirical research seems to identify a latent preference for decisions reached by organs labeled “courts” over organs labeled “arbitral tribunals.” A study concerning investor-State dispute settlement (ISDS) recently found that, all else being equal, the general public prefers decisions reached by judges to decisions reached by arbitrators. We argue elsewhere (in a forthcoming article) that further study is needed, before confident conclusions can be reached as to what, precisely, the general public finds suspect about arbitration; we think that, when it comes to ISDS cases involving issues that attract considerable public attention, the public profile of the individuals who make the decisions may matter more than the institutional format—court or arbitral tribunal—in which the decisions are made.1)Grant & Kieff, Appointing Arbitrators: Tenure, public confidence, and a middle road for ISDS reform, forthcoming in Michigan Journal of International Law (2022). jQuery('#footnote_plugin_tooltip_38140_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38140_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Judges are not the general public, and so a study of public sentiment at large is even less sure a guide to how judges think. Moreover, the judges applying the Hague Convention will deal with a much larger number and diversity of decisions than do tribunals arbitrating investor-State claims. The professionalism of the judge, one would hope, would prevail over the sorts of sentiment that, evidently, lead the general public to have a priori confidence in courts and suspicion toward arbitral tribunals. However, judges do not live in a vacuum. The evident popular current against arbitration—which presumably extends beyond ISDS—should not influence judges, but in practice, at least in some instances, it might.

A second factor may influence judges to apply the Hague Convention provisions more leniently as well. In most courts, there exists a nexus of considerations relating to deference toward other sovereigns—considerations that are denoted variously across countries and settings as “comity,” “non-justiciability,” “act of state,” etc., that caution judges against second-guessing the legal acts of foreign governments.2)As to comity and act of state in the US setting, see the classic articulation in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 408-11 (1964) and id. at 417-18 (“To permit the validity of the acts of one sovereign state to be re-examined and perhaps condemned by the courts of another would very certainly imperil the amicable relations between governments and vex the peace of nations” (internal quotation marks omitted)). Notwithstanding statutory enactments to qualify and confine those doctrines, disputation continues. See Federal Republic of Germany v. Philipp, 141 S.Ct. 703, 709-711 (2021). As to non-justiciability, see the excellent summary of the case law by Dapo Akande (current UK candidate for election to the International Law Commission). jQuery('#footnote_plugin_tooltip_38140_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_38140_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Added to these considerations are doctrines, also present in many countries, that call on judges to exercise deference to executive officers of their own country in matters that pertain to foreign affairs.3)As to the US jurisprudence and related academic commentary, see David H. Moore, Beyond One Voice, 98 Minn. L. Rev. 953 (2014). For a recent précis of the English jurisprudence, see Mrs. Justice Roberts’ judgment in MM v. NA (Declaration of Marital Status: Unrecognised State) [2020] EWHC 93 (Fam), paras. 17-36 (Jan. 22, 2020). jQuery('#footnote_plugin_tooltip_38140_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_38140_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The Hague Convention, unlike the New York Convention, addresses itself to the work product of other sovereigns (national courts being organs of the States to which they belong)4)See International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, draft art. 4(1): 2001 I.L.C. Yearbook Vol. II, Part Two, p. 40; and id. Comment (6), pp. 40-41. jQuery('#footnote_plugin_tooltip_38140_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_38140_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and in this way is involved in sovereign-to-sovereign relations—a linkage absent (or much less pronounced) in the New York Convention, which addresses itself to arbitral awards, the work product of private arbitrators.

True, judges applying the Hague Convention are supplied a self-contained régime5)We use the expression “self-contained régime” to indicate that the Convention is intended to set the terms for recognition and enforcement, not that it seals the process of decision hermetically against any and all other rules. We take note the caveats identified some time ago against exaggerated notions of self-containment in treaty systems, as to which see Bruno Simma & Dirk Pulkowski, Of Planets and the Universe: Self-contained Regimes in International Law, 17(3) Eur’n J. Int’l L. 483-529 (2006). jQuery('#footnote_plugin_tooltip_38140_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_38140_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); for addressing the judgments that parties call upon them to recognize. The nexus of considerations that we identify here should not enter the picture, except to the extent required by formal reasons contained in the applicable law. From the standpoint of the judicial function as properly discharged, those considerations are otherwise irrelevant: none of the considerations here should influence judges to apply anything less than the scrutiny to foreign judgments that the Hague Convention invites. The likelihood, however, is that these considerations will influence judges. They will shift the judges’ frame of mind toward deference, rather than scrutiny.

Both of the factors that we identify here owe to the circumstance that it will be judgments of foreign judges comprising foreign courts, rather than awards of arbitrators comprising arbitral tribunals, that the Hague Convention will call on judges to recognize and enforce. Mr. Born adduces reasons to doubt the analogy that champions of the Hague Convention make between the Hague Convention and the New York Convention. We think those reasons, which are reasons of both black letter law and empirical evidence, are salient. We also think that the factors that we have suggested here, though largely of a socio-legal character, support much the same conclusion. Judicial determinations will simply tend to get less scrutiny than arbitral awards. Judges called on to recognize and enforce foreign decisions—whether by courts or by arbitral tribunals—should focus on the substantive and procedural merits of each decision, not on the mere label of how the decision is reached or by whom it is reached.6)Of course, how and by whom a decision is reached matter in a variety of ways and are properly considered by a judge. Our concern here is that mere labels—e.g. “court proceedings” versus “arbitral proceedings”; “judgment” versus “arbitral award”—might influence judges independently of those considerations properly considered in reaching a legal decision jQuery('#footnote_plugin_tooltip_38140_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_38140_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The risk is that, in practice, the label will affect the scrutiny that a judge places on any decision under review. This is a further reason why we join Mr. Born in his conclusion that to participate in the Hague Convention is unlikely to serve the interests either of parties seeking fair and competent settlement of their disputes or the general interest in building and maintaining rule of law.

Arbitration, with its principle of party autonomy and its backstop of New York Convention scrutiny, continues to offer the better choice. As Chief Justice of Singapore Sundaresh Menon has described it, party autonomy is “the cornerstone of arbitration. Party autonomy finds its expression in the parties’ voluntary submission and participation in arbitration in a form and manner of their choosing, which extends also to the manner of appointing and constituting the tribunal.”7)Sundaresh Menon, Adjudicator, advocate or something in between? Coming to terms with the role of the party-appointed arbitrator, 83 Arbitration 185, 195 (2017), citing Gary Born, International Commercial Arbitration, 2nd edn (2014) 1639. jQuery('#footnote_plugin_tooltip_38140_30_7').tooltip({ tip: '#footnote_plugin_tooltip_text_38140_30_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Prudent parties can ensure that arbitrators are carefully selected for their demonstrated track record of professionalism in the conduct of live proceedings and for producing carefully written opinions firmly grounded in the factual record and applicable legal texts. Determinations made through such a process serve the interests of the parties, any courts involved, as well as all interested policy-makers and members of the public.

 

 

 

 

 

 

 

 

 

 

 

 

 

References[+]

References ↑1 Grant & Kieff, Appointing Arbitrators: Tenure, public confidence, and a middle road for ISDS reform, forthcoming in Michigan Journal of International Law (2022). ↑2 As to comity and act of state in the US setting, see the classic articulation in Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 408-11 (1964) and id. at 417-18 (“To permit the validity of the acts of one sovereign state to be re-examined and perhaps condemned by the courts of another would very certainly imperil the amicable relations between governments and vex the peace of nations” (internal quotation marks omitted)). Notwithstanding statutory enactments to qualify and confine those doctrines, disputation continues. See Federal Republic of Germany v. Philipp, 141 S.Ct. 703, 709-711 (2021). As to non-justiciability, see the excellent summary of the case law by Dapo Akande (current UK candidate for election to the International Law Commission). ↑3 As to the US jurisprudence and related academic commentary, see David H. Moore, Beyond One Voice, 98 Minn. L. Rev. 953 (2014). For a recent précis of the English jurisprudence, see Mrs. Justice Roberts’ judgment in MM v. NA (Declaration of Marital Status: Unrecognised State) [2020] EWHC 93 (Fam), paras. 17-36 (Jan. 22, 2020). ↑4 See International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts, draft art. 4(1): 2001 I.L.C. Yearbook Vol. II, Part Two, p. 40; and id. Comment (6), pp. 40-41. ↑5 We use the expression “self-contained régime” to indicate that the Convention is intended to set the terms for recognition and enforcement, not that it seals the process of decision hermetically against any and all other rules. We take note the caveats identified some time ago against exaggerated notions of self-containment in treaty systems, as to which see Bruno Simma & Dirk Pulkowski, Of Planets and the Universe: Self-contained Regimes in International Law, 17(3) Eur’n J. Int’l L. 483-529 (2006). ↑6 Of course, how and by whom a decision is reached matter in a variety of ways and are properly considered by a judge. Our concern here is that mere labels—e.g. “court proceedings” versus “arbitral proceedings”; “judgment” versus “arbitral award”—might influence judges independently of those considerations properly considered in reaching a legal decision ↑7 Sundaresh Menon, Adjudicator, advocate or something in between? Coming to terms with the role of the party-appointed arbitrator, 83 Arbitration 185, 195 (2017), citing Gary Born, International Commercial Arbitration, 2nd edn (2014) 1639. function footnote_expand_reference_container_38140_30() { jQuery('#footnote_references_container_38140_30').show(); jQuery('#footnote_reference_container_collapse_button_38140_30').text('−'); } function footnote_collapse_reference_container_38140_30() { jQuery('#footnote_references_container_38140_30').hide(); jQuery('#footnote_reference_container_collapse_button_38140_30').text('+'); } function footnote_expand_collapse_reference_container_38140_30() { if (jQuery('#footnote_references_container_38140_30').is(':hidden')) { footnote_expand_reference_container_38140_30(); } else { footnote_collapse_reference_container_38140_30(); } } function footnote_moveToReference_38140_30(p_str_TargetID) { footnote_expand_reference_container_38140_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_38140_30(p_str_TargetID) { footnote_expand_reference_container_38140_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Hailing the HCCH (Hague) 2005 Choice of Court Convention, A Response to Gary Born

Kluwer Arbitration Blog - Tue, 2021-07-20 21:24

The HCCH 2005 Choice of Court Convention (“Convention“), adopted over fifteen years ago, has recently become the subject of damning criticism from Gary Born in a series of posts published on the Blog (see Part I, Part II, and Part III). In the series, Born dramatically suggests that states bound by the Convention should denounce it, and that other states, including those like the United States, China, and Israel whose signature foreshadows ratification, should discontinue their work. Now that the Convention appears to stand in the dock, it seems fitting to respond, firmly, against the charges laid at the Convention’s feet.

In Part I of his series, Born asserts: “the Convention seeks to transpose the New York Convention’s legal regime, which was designed specifically for international arbitration, to the very different context of forum selection clauses and national court judgments.” Not only is this a fundamental misconception of the genesis and purpose of the Convention, one that invalidates the very basis of Born’s indictment, but it also applies an incorrect standard when comparing the Convention to the New York Convention. First, the negotiators were well aware of the differences between, on the one hand, exclusive choice of court agreements and judgments based upon them, and, on the other, international arbitration clauses and the judicial recognition and enforcement of their resulting awards. This is why they drafted an instrument specifically tailored to choice of court agreements and the court judgments that are issued pursuant to this.1) Trevor Hartley & Masato Dogauchi, Hague Conference on Private International Law Convention of 30 June 2005 on Choice of Court Agreements Explanatory Report, para 1. Cited by Born. jQuery('#footnote_plugin_tooltip_38142_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38142_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Second, the proper standard for a realistic and fair appreciation of the Convention is the kaleidoscopic treatment of choice of court agreements, and the uncertainty and unpredictability that judgments based upon such agreements face in the absence of a global legal regime.

The two instruments are, therefore, each in their own field, comparable with respect to their ultimate objectives, and different as regards their structures, precisely because of the differences between the fields. As such, arbitration and litigation ought to be regarded as co-ordinates rather than rivals.

This post responds to Born’s key arguments, asserting that: (1) both the Convention and the HCCH more generally have a role to play in enhancing judicial integrity and competence, (2) the Convention does not dilute safeguards of party autonomy, and (3) the Convention contains sufficient safeguards to guarantee procedural fairness.

 

Enhancing Judicial Integrity and Competence: Benefits of the HCCH (Hague) System

Born’s call to arms against the Convention suggests a prevalence of under-developed or allegedly corrupt judiciaries in the global arena. While the weaknesses in some court systems cannot be ignored, a rise in highly efficient, effective commercial courts has been witnessed over the past decade, with talented and experienced judges, working with integrity within transnational litigation and enhancing its accessibility, especially for micro-, small- and medium-sized entreprises. And that is why states are increasingly aware that this Convention is crucial to the development of judicial cooperation (e.g., between the United Kingdom and the European Union following Brexit) and the role it plays in the development of a transnational system of international commercial courts.

More broadly, joining a HCCH Convention means joining a system of transnational litigation – the HCCH (Hague) system – with a plethora of experiences and decades of case law on topics ranging from service of process, taking of evidence, legal aid, and choice of law, as well as an infrastructure of central authorities, all aiding the operation of cross-border dispute resolution. The HCCH system contributes, therefore, to enhance the rule of law, which, in turn, has the welcome corollary of incrementally developing judiciaries and judicial cooperation. This has a positive impact on international arbitration. The arbitral system cannot operate autonomously and as Born repeatedly emphasises, itself relies on judiciaries to exercise supervisory jurisdiction and to recognise and enforce arbitral awards.

There are also specific benefits to states who choose to join the Convention that reach beyond the content of the provisions themselves. In the context of this debate on the interpretation of Article 9, a particular benefit is the regular convening of Special Commission meetings where contracting parties may consider the practical operation of specific HCCH instruments.2)Article 24 of the Convention jQuery('#footnote_plugin_tooltip_38142_27_2').tooltip({ tip: '#footnote_plugin_tooltip_text_38142_27_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The Special Commission can issue authoritative recommendations and advice on uniform interpretation of the Convention,3)Article 23 jQuery('#footnote_plugin_tooltip_38142_27_3').tooltip({ tip: '#footnote_plugin_tooltip_text_38142_27_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); including sharing of good practices and facilitation of judicial dialogue. Indeed, the Special Commission can resolve the real and practical issues faced by the Convention, removing the need for any more ink to be spilled. There is no equivalent mechanism in the arbitration realm.

By joining the Convention, states ensure that judgments rendered by their courts can circulate in accordance with international standards. More contracting parties mean more international accountability and more foreseeability in circulation of judgments. That means more rule of law at the international level, not less, as Born daringly suggests.

 

Party Autonomy

The main criticism that Born levels at the Convention’s treatment of party autonomy is that the chosen court can make a final and unreviewable decision regarding the core question of whether there is a valid choice of court agreement (Article 5(1), Article 9(a)). Unlike the New York Convention, the enforcing court does not have the opportunity to review that decision (in the absence of particular circumstances to be discussed below). This is in line with a quasi-universal rule that the law of the forum governs matters of procedure, including jurisdiction – forum regit processum.4) Wolfgang Hau, Proceedings, law governing, in Encyclopedia of Private International Law. Cheltenham, UK: Edward Elgar Publishing Limited (2017). jQuery('#footnote_plugin_tooltip_38142_27_4').tooltip({ tip: '#footnote_plugin_tooltip_text_38142_27_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

At this point, one cannot avoid noting that the provision allowing judicial review has not always been seen as a benefit of the New York Convention. Commentators in the arbitration community, including Born, have argued strongly that courts should not be allowed to second-guess arbitrators’ decisions on jurisdiction. It is thus surprising that one of those same commentators now argues that multiple levels of court review on questions of jurisdiction are a benefit of the arbitral system – even more so in the light of Born’s vehement criticism of the integrity of courts in many countries around the world (see in particular Part III of Born’s series).

A more consistent and constructive approach would suggest that the courts should have a residual role in reviewing decisions on jurisdiction which excessively or fundamentally offend notions of due process. And the Convention, indeed, contains scope for such review in its provisions on public policy (Article 9(e)) (discussed below).

Once it is understood that the chosen court is allowed to make the final determination on the validity of the choice of court agreement, absent anything contrary to public policy, the question of whether the chosen court of the parties is deemed to be “good” or “bad” is largely dependent on the parties’ circumstances. In Part II of his series, Born suggests that the Convention “is subjecting the players to arbitrary, incompetent and corrupt decisions by foreign referees.” This perspective is skewed; the Convention does not subject the parties to any court, rather the parties subject themselves. By excluding, from its scope, typical contracts between parties with uneven bargaining power, such as consumer and employment agreements, the Convention allows both parties to make their choice freely and consciously, akin to any arbitration agreement. Other than the residual scrutiny on public policy grounds, policing the parties’ choice is undesirable and runs counter to the principle of party autonomy. Born’s argument is even more puzzling when we know that, in accordance with the UNCITRAL Model Law on International Commercial Arbitration, judicial assistance and supervision of the arbitral process is a cornerstone of the system. How the same courts would show distinct levels of integrity when dealing with choice of court agreements as compared with assisting arbitral tribunals and enforcing their awards remains a mystery.

Crucially, choice of court agreements under the Convention are consensual and thus litigation in the chosen forum is predominantly consensual; comparing it with the benefits of arbitration, real or perceived, is irrelevant. Regardless of whether the Convention is in operation, there will be choice of court agreements. The real question is whether it is preferable to have choice of court agreements subject to an international system of enforcement, or to have agreements without such a mechanism, and potentially leading to conflicting judgments.

 

Procedural Fairness

One of the central criticisms levelled by Born at the Convention is its alleged failure to safeguard procedural fairness. As Hartley points out in another response to Born’s recent three-part series, the wide ranging grounds in Article 9 of the Convention are sufficient to address such concerns.

Provided that certain jurisdictional criteria are met, there should be only limited scope to argue, for example, that the procedures of the foreign court were not appropriate. However, where there has been a denial of procedural fairness in the proceedings, such as a failure to provide due notice, denial of an opportunity to be heard, corruption or lack of a fair trial, the case should fall squarely within the Convention’s Article 9(e) ground to refuse recognition or enforcement. In Part III of his series, Born criticises a so-called “two-pronged standard of proof”. However, it is, in fact, the New York Convention itself which introduces a “two pronged” approach to procedural fairness and procedural public policy. Enforcing courts address many cases involving procedural fairness under either Article V(1)(b)(d) (procedural grounds) or Article V(2) (public policy grounds) or both. There is no clear delineation in the New York Convention, or in national caselaw, as to the boundaries between the two provisions. Moreover, contrary to Born’s assertion in Part III of his series, the fact that the Convention avoids this overlap does not in any way mean that enforcing courts need to “dilute” the procedural fairness in Article V(1)(b) of the New York Convention, or the procedural fairness standard in the U.S. Supreme Court decision Hilton v Guyot. It is not envisaged that either of those mechanisms would allow for a “broad scale attack”5) Ronald A. Brand & Paul M. Herrup, The 2005 Hague Convention on Choice of Court Agreements: Commentary and Documents 118 (3rd ed. 2008). jQuery('#footnote_plugin_tooltip_38142_27_5').tooltip({ tip: '#footnote_plugin_tooltip_text_38142_27_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); on a foreign legal system, but appropriate allegations of procedural unfairness can be considered under those provisions. In that respect, Article 9(e) of the Convention offers a comparable protection in its field.

 

Conclusion

The main purpose of the Convention is to enable parties to make an effective choice, for that choice to be respected and judgments from the chosen court enforced. And to accurately and fairly assess the benefits of the Convention, we must be careful through which lens we view its value and accomplishments. The spheres of transnational litigation and arbitration in which these Conventions operate have substantial, inherent differences, hence, as pointed out above, different structures.

The international community should insist that the only appropriate question is this: is it preferable to have an international system governing choice of court agreements, or instead a myriad of domestic and regional regimes? That is the alternative option against which the Convention’s success must be measured. Considering the key criticisms levelled at the Convention, it is difficult to see how a common international framework could be more prone to undermine party autonomy than an array of domestic regimes. It is also inconceivable that judicial corruption would thrive more under a global standard monitored by the international community than in the absence of one.

Party autonomy is an underlying principle of both the New York Convention and the Convention. It may be implemented variedly in the different instruments but should not be categorically rejected solely because forum selection clauses designate judges and not arbitrators.

The jury is asked to commend Born’s seminal work in the field of international arbitration, but to reject the indictment against the Convention. The New York Convention and the Convention each have their own field of application and their own specific structure and features. Both will continue to be necessary in a world where arbitration agreements and exclusive choice of court agreements coexist, and both are here to stay.

 

The author heads the Transnational Litigation Team, and oversees the operation of the HCCH 2005 Choice of Court Convention, at the Permanent Bureau of the Hague Conference on Private International Law. Previously, he was Head of the UNCITRAL Regional Centre for Asia and the Pacific, and between 2013 and 2018, he was in charge of promoting the 1958 New York Convention in that region.

The author wishes to give special thanks to David Holloway (barrister and arbitrator at Outer Temple Chambers, London and Dubai) who contributed substantively to the article with his extensive experience and knowledge. The article also benefitted from generous, insightful and authoritative contributions and comments by Christophe Bernasconi (Secretary General of the HCCH), Ning Zhao (Senior Legal Officer at the Permanent Bureau of the HCCH), Hans van Loon (former Secretary General of the HCCH), Marta Pertegás (former First Secretary of the HCCH, who oversaw work relating to the Choice of Court Convention), Louise Ellen Teitz (former First Secretary of the HCCH and member of the US delegation to the Diplomatic Session adopting the Choice of Court Convention), and Danielle Carrington, intern at the Permanent Bureau of the HCCH. All remaining errors are the author’s.

References[+]

References ↑1 Trevor Hartley & Masato Dogauchi, Hague Conference on Private International Law Convention of 30 June 2005 on Choice of Court Agreements Explanatory Report, para 1. Cited by Born. ↑2 Article 24 of the Convention ↑3 Article 23 ↑4 Wolfgang Hau, Proceedings, law governing, in Encyclopedia of Private International Law. Cheltenham, UK: Edward Elgar Publishing Limited (2017). ↑5 Ronald A. Brand & Paul M. Herrup, The 2005 Hague Convention on Choice of Court Agreements: Commentary and Documents 118 (3rd ed. 2008). function footnote_expand_reference_container_38142_27() { jQuery('#footnote_references_container_38142_27').show(); jQuery('#footnote_reference_container_collapse_button_38142_27').text('−'); } function footnote_collapse_reference_container_38142_27() { jQuery('#footnote_references_container_38142_27').hide(); jQuery('#footnote_reference_container_collapse_button_38142_27').text('+'); } function footnote_expand_collapse_reference_container_38142_27() { if (jQuery('#footnote_references_container_38142_27').is(':hidden')) { footnote_expand_reference_container_38142_27(); } else { footnote_collapse_reference_container_38142_27(); } } function footnote_moveToReference_38142_27(p_str_TargetID) { footnote_expand_reference_container_38142_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_38142_27(p_str_TargetID) { footnote_expand_reference_container_38142_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 Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


The Pendulum Swings: Parties to UNCITRAL Arbitrations Can Tender New Evidence as of Right on Jurisdictional Challenges

International Arbitration Blog - Tue, 2021-07-20 12:07

The Russian Federation v Luxtona Limited, 2021 ONSC 4604 (“Luxtona 2021”) is the latest installment in a series of decisions addressing the admissibility of new or “fresh” evidence on appeals from an arbitral tribunal’s jurisdiction decision arising in the context of the UNCITRAL Model Law on International Commercial Arbitration (the “ModelLaw”).

Interviews with Our Editors: A New York Minute with Rekha Rangachari, Executive Director of New York International Arbitration Center (NYIAC)

Kluwer Arbitration Blog - Tue, 2021-07-20 01:18

Founded in 2013, the New York International Arbitration Center (“NYIAC”) is a non-profit organization that promotes and enhances the conduct of international arbitration in New York, offers educational programming, and operates arbitration hearing facilities in New York City.  Rekha Rangachari is NYIAC’s current Executive Director.  In addition to her work with NYIAC, Rekha holds leadership roles with a number of national and international organizations, including the New York State Bar Association (NYSBA) Dispute Resolution Section, the American Society of International Law (ASIL), and ArbitralWomen.  Rekha is also a Co-Founder of R.E.A.L. – Racial Equality for Arbitration Lawyers (which was nominated for Global Arbitration Review’s Award for “Best Development” in 2021).

 

Ms. Rangachari, thank you for joining us on the Kluwer Arbitration Blog!  We are grateful to have the opportunity to learn more about NYIAC, how it fits into the New York arbitration scene, and your various endeavors.

  1. To set the stage, could you tell us more about what attracted you to taking up a leadership role at NYIAC? How does this position align with your broader career goals and ambitions?

I’ll borrow here from the great Seneca, “Luck is what happens when preparation meets opportunity.” While I was working as Director of the New York Commercial Division of the AAA-ICDR, I was approached by some of my mentors from NYIAC’s leadership. (NYIAC, incidentally, sat across the hallway.)  I enjoyed my time as Case Counsel at the AAA-ICDR, ensconced in the evolving role of arbitral institutions within the dispute resolution terrain, complete with a bird’s eye view to all elements of a case.  NYIAC offered a growth opportunity: to lead a multi-faceted organization with a focus on New York’s increasing and evolving role in the international arbitration space, which included highlighting New York commercial law and its application, New York as a venue and seat, and in many aspects serving as a legal brand manager for New York.  It was an exciting moment to serve at the major port of call to the Americas.

As Executive Director, I have built upon the fluid sphere of commerce-driven substantive law, leading law firms, law schools, and headquarters of global institutions and NGOs to showcase the international flare and community of this glorious city that never sleeps.  Spotlighting these elements with colleagues across arbitral institutions remains a primary goal.  This is allied with creating the best, neutral venue for all elements of the arbitral process. In this role, I have broadened my abilities and scope of practice and met some of the most inspiring professionals that have buttressed my career trajectory.  Never hesitate to jump, even if only to the opposite side of the floor!

 

  1. In many ways it seems NYIAC was established to serve as a physical “hub” for international arbitration in New York – including an emphasis on connecting members of the community, while also offering high-quality hearing space. How has NYIAC adapted to a metaphysical post-COVID-19 virtual world?  What were your greatest challenges and successes as you quickly transitioned to “all virtual”? Now that New York is returning to a semblance of normalcy, how will NYIAC again revise its programs and services?

As you note, since its inception NYIAC has been a gathering point for all stakeholders, be it for a hearing, substantive session, book launch, or reception.  The pandemic introduced the need to be a metaphysical space that allies and includes all, not only for those looking to maintain a deep connection to New York from abroad, but equally for the community that thrives here in this “concrete jungle where dreams are made.”

One example that comes to mind was when New York declared its State of Emergency. At that time, we were hosting a contentious, multi-million-dollar arbitral hearing. We pivoted with the world (and the parties stationed in our venue) to the remote, ever-online world of connections, and we became stronger for it.  It was an unprecedented opportunity to market the salience of international arbitration against national court closures and border lockdowns. And it created pathways to ally with colleagues, build programs agnostic of the lead logo, and focus on the human element: the people, the evolution of best practices, and the clash of cultures that will forever underlie an international practice with dynamic (and differing) legal cultures.

With New York now open and more people vaccinated, we are seeing an incredible uptick in interest to venue in-person and hybrid arbitral proceedings in New York, with queries incoming from a myriad of institutions that were able to thrive through the pandemic.  In parallel, NYIAC is in the process of building new, state-of-the-art hearing space to take us into our next chapter.  We look forward to building collaboration in our new space as we did in our prior space with the AAA-ICDR, strengthening an inclusive community and reinforcing NYIAC as a lead center, thought leader, and knowledge manager. It will be an absolute pleasure to welcome all those reading when they next are in Midtown Manhattan, signaling the world is truly open again.

 

  1. As NYIAC enters its ninth year, it certainly has established a track record. Can you tell us more about NYIAC’s users and their disputes? What kinds of parties, industries and disputes are prevalent among them? How does NYIAC use this information to enhance its services and approach?

As you can appreciate, privity and confidentiality are top priorities.  It’s unsurprising that the microcosm we see at NYIAC tows nicely with general trends of industry and party origin juxtaposed with New York counsel who get the job done!  Perhaps it’s fair to begin with the institutions that administer and venue cases at NYIAC, from those in our backyard, e.g., the ICC-SICANA, AAA-ICDR, and ICSID, to those across ponds, the LCIA, PCA, CRCICA, SIAC, HKIAC, and the list goes on. Parties similarly are from a variety of backgrounds and demographics, although there has been a concerted focus on the Americas, and particularly Latin America, reinforced by the major Latin America-focused practice groups based in the New York offices of NYIAC’s Founding Firms.  Disputes are weighted more to international commercial arbitration than investor-state disputes, with some international construction disputes.  Taking a peek through the QMUL-White and Case 2021 International Arbitration Survey, we see similar industries represented in both the Survey and in hearings hosted by NYIAC, which include, for example, banking and financial services, telecom, insurance, pharmaceuticals and life sciences, energy, entertainment, and hospitality. Ultimately, people from all walks of life come through NYIAC’s doors and the goal is always the same: top flight service and venue for all your arbitration needs.

 

  1. Notably, NYIAC does not administer arbitrations or publish arbitration rules. However, the “NYIAC Rules” webpage expressly accounts for the possibility that prospective users might, nonetheless, mention NYIAC in their dispute resolution clause.  Accordingly, NYIAC Rule #1 explains how inclusion of NYIAC in a dispute resolution clause can be interpreted and provides the mechanisms that would ensure that the clause remains robust and practical, thereby avoiding any argument that it is pathological. Can you tell us more about how this “rule” was conceived and how it has been received by prospective users?

When NYIAC launched in 2013, there were few brick-and-mortar spaces focused singularly on strengthening a jurisdiction by offering a venue for arbitral proceedings allied with thought leadership that is privately funded by stakeholders.  NYIAC does not administer cases nor serve as an arbitration chambers (i.e., no roster of arbitrators).  Nevertheless, NYIAC has been written into some contracts as if it were an administering body or appointing authority.  In order to avoid market confusion and efficiently advance the process if a party writes NYIAC into a contract, our sole rule ensures New York is the place of arbitration and NYIAC the venue, defaulting to the UNCITRAL Arbitration Rules and appointing authority as provided therein (absent a different selection through party agreement or impracticability).

 

  1. We note that the Equal Representation in Arbitration (ERA) Pledge just celebrated its fifth anniversary, and NYIAC has been a long-time supporter of the initiative. Can you tell us more about NYIAC’s commitment to diversity and inclusion generally, and the ERA Pledge specifically?  How have you seen the field evolve in the years since the ERA Pledge’s launch?

Initiatives like the ERA Pledge and ArbitralWomen have been such inspirations in our field – driving community, reporting, inclusivity, and ultimately, change.  Acknowledging the need to speak more directly on these topics, this year NYIAC introduced a Diversity & Inclusion Policy, allied with a drive to expand our Board of Directors with Alternate Directors. It’s an avenue to bring our Founding Firms closer to NYIAC’s mission, while building a robust talent pipeline and preserving New York’s lead role in the international community for years to come.  I am most impressed with how the ERA Pledge has expanded its committee work, now including corporates who can reinforce the importance of diversity with outside counsel teams, in addition to its newly launched Corporate Guidelines.  This allies well with regional focus committees, mapping perspectives, access, and representation, while offering a bounty of resources including an arbitrator search platform.  Ultimately, the ERA Pledge and ArbitralWomen provide necessary outlets to come together as a community, to evolve, and to become stronger together with support (and admiration) from organizations like NYIAC.

 

  1. Even outside of your role with NYIAC, you are active in the arbitration community. Can you tell us about one of the initiatives you’re passionate about and how this “extracurricular” activity enhances and supports your work with NYIAC?

Against the backdrop of troubled race relations in the U.S., an informal group began discussing the paucity of conversations on race and identity in our international law circles.  Enter Racial Equality for Arbitration Lawyers (R.E.A.L.), launched in January 2021 on Martin Luther King, Jr., Day. As a Co-Founder and Steering Committee Member, I have the immense pleasure to help create a safe, interconnected space that better unifies our community across all R.E.A.L. access points: Members & Allies; Ambassadors; 80+ organizational Partners; Committee Chairs and Vice-Chairs; and the Steering Committee.  Our rallying chants have been access, advocacy, and accountability.  Grateful for broad community support, we have been able to offer 40 scholarships in the 7 months since we launched (with many in the works)!  Ultimately, groups like R.E.A.L. partner with leaders in the space like the ERA Pledge and ArbitralWomen, to demonstrate that all are truly welcome in our field. R.E.A.L. community, R.E.A.L. conversation, and in time, R.E.A.L. progress.  It takes many villages coming together to foster meaningful, enduring change.

 

  1. What are your top three tips for a young lawyer looking for a non-traditional way to break in to a career in international arbitration?

For me, three anchoring words are tenacity, civility, and creativity.  To be tenacious of spirit and bold.  To study hard, test boundaries, and live by conviction.  To bring civility to the table and never lose sight of the humanity of others; to be kind.  And finally, to be creative.  However you define your path, things often will not work out the way you imagined.  How you approach these details, how you pivot and thereby construct your narrative in technicolor, can open the door to finding true fulfillment in your life’s work.

 

  1. Final question: (Assuming a non-COVID-19 environment), what would your perfect day in New York involve?

Let’s construct a sunny, spring Saturday in New York.  Black coffee and brunch in the window nook of the Gramercy Park Hotel’s Maialino, New York Times in hand.  A stroll through Greenwich Village and Washington Square Park (with ample people watching).  Extra cardamom chai with Neruda’s essential poems.  Dinner al fresco at the McKittrick Hotel’s Gallow Greens rooftop.  Energy and time permitting, optionality to pop downstairs to hear live music.

 

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

 

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

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


What’s in a Name? Of Misnomers and Nullities in Arbitration

Kluwer Arbitration Blog - Mon, 2021-07-19 01:56

Where C commences an arbitration against a non-existent entity E, and D defends the arbitration in the guise of E, can an award rendered in favour of E be enforced by D against C?1)This article is written in the author’s personal capacity. The opinions expressed are entirely the author’s own, and do not reflect the views of the Singapore Attorney-General’s Chambers. jQuery('#footnote_plugin_tooltip_38014_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38014_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This was the key question in National Oilwell Varco Norway AS (formerly known as Hydralift AS) v Keppel FELS Ltd (formerly known as Far East Levingston Shipbuilding Ltd) [2021] SGHC 124 (“Judgment”).

Facts

In 1996, a dispute arose under a contract between the defendant and a company named Hydralift. In 2004, Hydralift merged with its parent company and was struck off from the Register of Companies. The same year, the merged entity merged with, and took the name of, the plaintiff.

In 2007, the defendant commenced arbitration in Singapore against Hydralift. It claimed not to have known that Hydralift no longer existed. In the name of Hydralift, the plaintiff defended the claim and counterclaimed. In 2019, the tribunal ruled against the defendant (“Award”).

The plaintiff then commenced enforcement proceedings in the Singapore High Court (“Court”) under s 19 of Singapore’s International Arbitration Act. The defendant resisted enforcement.

Decision

The Court set aside leave to enforce the Award on three grounds.

First, because the tribunal objectively intended to and did issue the Award in favour of Hydralift, the court had no power to allow the plaintiff to enforce the Award. This followed from the policy of minimal curial intervention and the “mechanical approach” to enforcement, under which the court would only grant leave to enforce an award and enter judgment “in terms which mirror, precisely and mechanically, the dipositive terms of the award”.2)Judgment at [39]–[53]. jQuery('#footnote_plugin_tooltip_38014_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_38014_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Second, the Award was a nullity incapable of being enforced because the arbitration was a nullity from the outset. An arbitration commenced against a non-existent legal person was a nullity unless the use of the name could be characterised as a misnomer. On the facts, there was no misnomer. Both parties objectively intended Hydralift’s name to refer to Hydralift: the defendant because it genuinely did not know of Hydralift’s merger, and the plaintiff because it intended to conceal the fact that Hydralift no longer existed.3)Judgment at [145]. jQuery('#footnote_plugin_tooltip_38014_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_38014_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Third, the plaintiff was estopped from denying that Hydralift was the respondent.4)Judgment at [188]. jQuery('#footnote_plugin_tooltip_38014_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_38014_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Discussion

The Judgment raises numerous interesting issues. This section explores a few of them.

Setting aside versus resisting enforcement

First, would the outcome have differed if the defendant had attempted to set aside the Award, rather than resist enforcement? The court explained that in an application to enforce an award, it is appropriate to take the award as the starting point and “move backwards” in time, rather than take the arbitration agreement as the starting point and “move forwards”.5)Judgment at [15]–[17]. jQuery('#footnote_plugin_tooltip_38014_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_38014_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

On the latter approach, there would arguably have been no basis for impugning the arbitration agreement. The most promising ground for setting aside would be the ground of incapacity of a party under Art 34(2)(a)(i) of the Model Law. However, it has been held that a party’s incapacity must be assessed as of the time the parties concluded the arbitration agreement.6)G Born, International Commercial Arbitration (Kluwer Law International, 3rd Ed, 2021) at p 3486. jQuery('#footnote_plugin_tooltip_38014_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_38014_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Given that Hydralift ceased to exist only after the arbitration agreement was entered into, this ground could not have applied.

Apart from the lack of an applicable ground for setting aside, there is a more serious problem. A setting aside application is premised on there being an award to set aside. But if proceedings are a nullity due to the involvement of a non-existent entity, they cannot lead to any “award” capable of being set aside; attempting to set aside a nullity is a contradiction in terms. Therefore, counsel rightly decided not to mount any setting aside application, quite apart from the reason for this identified by the court (that there was no breach of natural justice).7)Judgment at [190]. jQuery('#footnote_plugin_tooltip_38014_30_7').tooltip({ tip: '#footnote_plugin_tooltip_text_38014_30_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Proceedings commenced by or against non-existent persons

Second, should proceedings against non-existent persons be treated differently from proceedings commenced by them? The Court decided they should be regarded as equally invalid. It rejected the argument that the former should be valid because they only lacked a target, rather than lacking legal foundation altogether. The contrary view would mean that a party could be sued even without legal personality, stripping a key feature of legal personality (the capacity to sue and be sued) of meaning.8)Judgment at [62]–[66]. jQuery('#footnote_plugin_tooltip_38014_30_8').tooltip({ tip: '#footnote_plugin_tooltip_text_38014_30_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

This analysis is arguably correct. Apart from the reason given by the Court, it is also artificial to regard proceedings as valid or invalid depending on who commenced proceedings because that would make little sense once counterclaims – in which the roles of initiator versus target of the complaint are reversed – come into the picture. Not only would it be messy to have proceedings that are partially valid and partially invalid, there is also an element of chance that goes into determining which is the claim and which is the counterclaim. In a case where both parties have complaints, it may simply be fortuitous which party happens to sue first. Determining validity on this basis would be unsatisfactory.

The test for identifying a misnomer

Third, is a bilateral or unilateral test preferable for identifying a misnomer? The Court’s formulation was bilateral, in asking to whom each party intended to refer to when it used the non-existent legal person’s name. The alternative it rejected was a unilateral formulation, which identifies whether there is a misnomer solely from the perspective of the party opposite the misnamed person.

Prima facie, English case authorities suggest a unilateral test. In AMB Generali Holding AG v SEB Trygg Liv Holding AB [2005] EWCA Civ 1237 (“Trygg”), the English court held that the test was “who would reasonably have been understood by the party against whom the claim was asserted to be the entity bringing the claim?” [emphasis added].9)At [51]. jQuery('#footnote_plugin_tooltip_38014_30_9').tooltip({ tip: '#footnote_plugin_tooltip_text_38014_30_9', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); A similar approach was adopted in Harper Versicherungs AG v Indemnity Marine Assurance Co Ltd [2006] 2 Lloyd’s Rep 263.

The Judgment distinguished Trygg on the basis that the test was framed as a unilateral one only because the party who introduced the mistaken name into the arbitration and the party who was better placed to correct the mistake were the same person (an “overlapped roles” situation), such that it was fair to assess the matter from the perspective of only the party who was not notionally at fault.10)Judgment at [80]–[81]. jQuery('#footnote_plugin_tooltip_38014_30_10').tooltip({ tip: '#footnote_plugin_tooltip_text_38014_30_10', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Where, however, one party introduced the mistaken name and the other was better placed to correct this (a “split roles” situation), a unilateral test would lead to an “incomplete analysis”.

The reasoning here is not entirely convincing. It is not always the case that “notional responsibility for misnaming” falls neatly along the lines of the introducing party or the better-placed rectifier. One could envision a case where the introducing party only used the mistaken name because it had been taken in by a misrepresentation and is thus relatively blameless, despite it technically having introduced the error. On balance, it may be preferable to avoid prescribing whether a bilateral or unilateral test should apply depending on whether the situation involves split or overlapped roles, and to instead apply the bilateral test across the board. To assuage concerns over the unfairness of a party relying on an error it induced, introduced or perpetuated to nullify proceedings, it is worth recalling that the analysis of intention is objective. In some circumstances, it may well be that a party cannot objectively have intended anything but a certain outcome by virtue of its conduct.

That said, a bilateral test works best when the parties’ intentions are aligned. If the parties both intended to refer to the named entity, there is no misnomer, because they meant what they said (this arose on the facts of Hydralift). If they both intended to refer to (the same) “someone else”, there would be a misnomer. Where difficulties arise is in cases involving no discernible common intention. Rather than attempting to choose between perspectives by going back to considerations of relative fault, the more principled alternative might be to reject the potential application of the misnomer doctrine entirely in such cases. After all, as stated in Trygg, “if… it was clear who the party was, but there was simply an error in naming him, the proceedings were not a nullity and the error can, in appropriate circumstances, be corrected” [emphasis added]. Where parties’ intentions differ, there is unlikely to be the requisite clarity.

The Judgment is presently on appeal. Pending decision by the Singapore Court of Appeal, the practical takeaway is to always do proper background checks before commencing or responding to an arbitration, to avoid wasted time and effort.

References[+]

References ↑1 This article is written in the author’s personal capacity. The opinions expressed are entirely the author’s own, and do not reflect the views of the Singapore Attorney-General’s Chambers. ↑2 Judgment at [39]–[53]. ↑3 Judgment at [145]. ↑4 Judgment at [188]. ↑5 Judgment at [15]–[17]. ↑6 G Born, International Commercial Arbitration (Kluwer Law International, 3rd Ed, 2021) at p 3486. ↑7 Judgment at [190]. ↑8 Judgment at [62]–[66]. ↑9 At [51]. ↑10 Judgment at [80]–[81]. function footnote_expand_reference_container_38014_30() { jQuery('#footnote_references_container_38014_30').show(); jQuery('#footnote_reference_container_collapse_button_38014_30').text('−'); } function footnote_collapse_reference_container_38014_30() { jQuery('#footnote_references_container_38014_30').hide(); jQuery('#footnote_reference_container_collapse_button_38014_30').text('+'); } function footnote_expand_collapse_reference_container_38014_30() { if (jQuery('#footnote_references_container_38014_30').is(':hidden')) { footnote_expand_reference_container_38014_30(); } else { footnote_collapse_reference_container_38014_30(); } } function footnote_moveToReference_38014_30(p_str_TargetID) { footnote_expand_reference_container_38014_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_38014_30(p_str_TargetID) { footnote_expand_reference_container_38014_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


New UK Report on Mandatory ADR

ADR Prof Blog - Sun, 2021-07-18 22:02
The UK Civil Justice Council recently issued a report determining that parties to a civil dispute can legally be compelled to participate in an ADR process (e.g., mandatory mediation) and that doing so could also be desirable under certain circumstances. The report is a significant addition to existing debates in the UK about the permissibility … Continue reading New UK Report on Mandatory ADR →

Two More Things

ADR Prof Blog - Sun, 2021-07-18 12:03
I forgot to include two things in my list of readings and resources you might want to think about as you plan for the coming academic year. The Theory-of-Change Book, which can be downloaded for free, contains 63 bite-size think pieces, averaging less than 4 pages each, written by 59 contributors in the following sections: … Continue reading Two More Things →

The Paradox of Artificial Intelligence in the Legal Industry: Both Treasure Trove and Trojan Horse? – The Perils of Deepfakes

Kluwer Arbitration Blog - Sun, 2021-07-18 01:48

The legal industry has benefited tremendously from recent technological advancements, leading to the expansion of Legal Tech as the driving force for progress in this field. More and more tools – more or less Artificial Intelligence (“AI”)1)Generally, the term “Artificial Intelligence (AI)” refers to machines capable of replicating human intelligence. However, the technological status quo is rather limiting, with mainly so called “weak (or narrow) AI”, i.e., machines able to replicate (and outperform humans at) specific tasks, being available. In contrast, “strong AI”, i.e., machines able fully simulate the human mind, are (still) a log way out. jQuery('#footnote_plugin_tooltip_38025_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); reliant – are developed to successfully simplify, automate, and expedite the work of legal professionals. To name just a few: contract automation services (e.g., Lawlift), e-discovery software (e.g., Everlaw), case management applications (e.g., App4Legal), information aggregators allowing for more informed decisions in choosing ADR neutrals (e.g., Arbitrator Intelligence), or litigation prediction solutions (e.g., Lex Machina).

However, until recently the legal industry was reluctant to fully embrace technology, despite growing interest. Notwithstanding the many setbacks and challenges posed, it was the current pandemic that acted as the accelerator for the largescale acceptance of technology in this field, though some are still skeptical.

The international arbitration community was particularly quick to adapt to the new socio-economic reality with the help of technology, owing to the inherent flexibility of this dispute resolution method. From the very beginning, most arbitral institutions actively employed mitigating measures by adopting new procedures and issuing guidelines to encourage virtual hearings, while some arbitral institutions even drafted protocols on the conduct of such virtual hearings. In doing so, they addressed several potential perils, like hacking – which turned out to be a big problem – but some issues remained (e.g. specific due process concerns) so the actual measures implemented depended on the experience and tech savviness of the participants.

At a slower pace and with outright unwillingness in some cases even the judicial system eventually employed largescale virtual video and/or audio hearings and adopted relevant rules.

Yet, despite the wide implementation of officially sanctioned remote means of communication, the danger posed by potentially unethical technological advancements, such as AI manipulated media, was largely disregarded.

 

The problem with AI-generated or manipulated media

Nowadays, anyone can pretend they’re someone else in the online realm via a misrepresented photo, video or audio recording, and lately apparently even in live transmissions,  most of the time with the help of a simple app on a smartphone without necessarily having any tech expertise. Technologies once extremely expensive and only used by experts are now imbedded in virtually every electronic camera. Novel audio-video editing software can create forged audios and/or videos of anyone and have them say or do potentially anything.

This kind of manipulated media is colloquially called a Deepfake. It’s a synthetic or altered media based on “deep learning”, itself a subfield of machine learning inspired by the human brain and employing huge sets of data with the help of AI.2) Deepfakes are sometime distinguished from other manipulated media, like Cheepfakes or Shallowfakes (which are of a lower quality, created with simpler/cheaper tools, and less AI reliant). In this paper, however, all manipulated media will be labeled “Deepfake” since this will arguably be the norm as the technology advances. jQuery('#footnote_plugin_tooltip_38025_27_2').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The concept has long been used for special effects in the movie industry but only recently similar software became available to the public at large, getting more and more advanced each year. Some are going as far as to consider deepfakes the “future of content creation” based on recent reports of news anchors being replaced by deepfake versions of themselves.

And this is just the beginning – AI can now generate fake people virtually indistinguishable from real ones, famous paintings are coming to life, hologram concerts have been employed for years, and soon enough we’ll have multisensorial interactions with our long past ancestors. Analogous manipulation is possible beyond media presenting people – for example, it seems geography as we know it is in danger as well with deepfakes potentially becoming a security threat and posing challenges for geospatial agencies and the entire intelligence community. For that matter, for the legal community as well.

So, even if there are many positive uses for deepfakes, the problem is that the technology has become so advanced that we’re almost no longer able to rely on our own senses in distinguishing fake from real. We can’t unquestionably believe anymore what we see and hear even in direct interactions. Principles by which we’re normally abiding in uncertain situations – like “trust your own eyes” or “a picture is worth a thousand words” – are becoming obsolete. There’s no illusionist to watch out for in real time, the “magic”3)“Any sufficiently advanced technology is indistinguishable from magic”, Arthur C. Clark. jQuery('#footnote_plugin_tooltip_38025_27_3').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); is happening before the “act” is even presented, and the illusion is “real”4)If we see and hear something with our own eyes and ears, can we say it’s not real? Based on what criteria would real be defined objectively since it relates to a subjective experience, purpose, or perspective? To that end, (digital) reality can no longer be unqualified… jQuery('#footnote_plugin_tooltip_38025_27_4').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });. Objective truth is getting increasingly difficult to ascertain,5)Since fake-detection measures are always immediately countered with newer technologies, paradoxically, the more we’ll try to determine the genuineness of digital media the less possible it will be. So ― analogizing this with the wonderfully weird world of quantum mechanics ― there’s a Heisenberg (like) uncertainty to it in the long run. jQuery('#footnote_plugin_tooltip_38025_27_5').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); bringing epistemological relativism to new heights6)Facts themselves become relative. Take, for example, the recording of someone with the exact features of person X (face shape, eye and hair color, voice, etc.) of such high technical quality that for all intents and purposes it seems a genuine recording of person X. Would it be a true or false to say that it is a recording of person X? A random viewer would know the (subjective) truth to be what he or she is able to asses through their own senses (i.e., true), while the person apparently in the video or the one who manipulated the media would know a different (subjective) truth (i.e., false). jQuery('#footnote_plugin_tooltip_38025_27_6').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and putting Schrödinger’s cat to shame.

Granted, there’s a trove of software that can be used to detect manipulated media through diverse methods like heartbeat detection, eye reflection mapping, or lip-sync analysis as most deepfakes are not (yet) very sophisticated. However, not only that are not infallible but fake detection counter-measures will always be one step behind as the technology progresses exponentially. For all intents and purposes, this is an “arms race”. A digital one.

Thus, such technological advancements pose an excessive risk of unethical use and are potentially threatening the authenticity of the online identities of the participants to and of the evidence presented in (virtual) legal proceedings, with huge implications on the safety and security of the proceedings, on due process, and on the overall legal certainty of the outcome raising many challenges for the justice system as a whole.

Although arbitration seems especially vulnerable to the dangers of Deepfakes7)Even if experts could determine the authenticity of documentary evidence in advance, the identity of the participants in virtual hearings would still have to be verified in real time which would raise additional impediments (legal and otherwise), e.g., higher costs or privacy issues. jQuery('#footnote_plugin_tooltip_38025_27_7').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); since it’s more difficult to implement adequate fake-detection measures in private settings, the potential implications are too serious for the entire legal system for this not to be addressed by all important actors.

 

The solution(s)

Generally, best suited to implement enforceable preventive measures are the governments.  Some are already researching ways to counteract the dangers of deepfakes with enticing stratagems for scouting the best proposals, like prize competitions, but so far there are no coordinated global efforts and no cohesive policies, not even at the national level.

Second in line are social media companies, in a position to enforce virtually any “behavior – modulating” terms of use throughout their platforms.8)Whether or not such enforced behavior is infringing on fundamental rights, like free speech, as well social media’s potential liability for their users’ behavior is debatable jQuery('#footnote_plugin_tooltip_38025_27_8').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  But, for the most part, the range of restrictions employed by them is too narrow, thus inefficient.

Additionally, other private and public actors are working on identifying potential solutions and coming up with diverse ideas, like insurance coverage or adding some type of graphic label to the manipulated media. Still, one would have to first identify the media as deepfake, which, as we’ve seen, is getting harder to do.

A solution more apt to resolve the problem from the “digitally inceptionist” perspective would be to create an origination label, i.e., embedding digital “fingerprints” in the relevant media, by capitalizing on the emergence of blockchain technology. The art world has already adopted equivalent procedures by ingeniously and very lucratively using so called NFT’s (non-fungible tokens) to certify the uniqueness of digitally stored art. Similar proposals are also being tested for legal purposes by governmental institutions.

However, no matter what solutions are ultimately adopted (even if sanctioned by legislative bodies) the justice system must scrutinize them first in order to be widely accepted at the societal level when it comes to legally bounding issues.

As for the legal status quo, things are debatable. Anything from harassment laws to copyright laws to privacy laws to consumer protection laws could apply, as appropriate. Nonetheless, there are inherent limitations in solving novel problems with old tools. For example, establishing causality to discern who would be liable for an incident caused by an Autonomous Vehicle – the manufacturer, the software developer, the user, or the AI? This last option has potentially controversial AI legal personhood implications but was suggested by some for the purpose of insurance coverage. In any case, existing norms may prove anachronistic.

So, an important part of any successful strategy would be to ensure the appropriate legal framework. On this front, no comprehensive steps have been taken yet but recent EU and US (proposed) legislation is promising.

In conclusion, the best approach would be to involve all responsible factors from the beginning, with a multi-disciplinary approach. This would allow for quicker identifications of threats and improved decision making and implementation strategies, rendering the best results.

 

The Moral of the Story?

It’s only fair to question AI even though it comes bearing gifts.9) Paraphrase of the old Latin saying of “Timeo Danaos et dona ferentes” (I fear the Greeks even when they bear gifts), spoken by Laocoön as a warning on potential dangers posed by the Trojan Horse. According to Vergil’s Aeneid (II, 49), see Christopher Francese and Meghan Reedy (eds.), Dickinson College Commentaries on Book 2 of the Aeneid. jQuery('#footnote_plugin_tooltip_38025_27_9').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_9', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Although Tech innovations should be welcomed as agents of progress for the legal profession, to ensure the future integrity of the justice system, we have to prevent AI innovations with a high risk for unethical use, like Deepfakes, from becoming justice’s nemesis. And – no matter how implausible they may seem today – we can’t ignore theories contending that to maintain the relevance of human lawyering it’s better to have technology as a mere enabler instead of the driving force for innovation. So, while we’re enjoying the obvious benefits of AI, let’s not lose sight of the potential perils.

The sooner we act, the easier it will be to implement the necessary checks and balances. To develop digital forensics as an interdisciplinary field to easily recognize and address such dangers. To include the necessary restraints in the core structures of AI. To envision and agree on legally relevant AI ethical principles and on implementing bias-free procedures.

Si vis iustitia, cole aequitas.10)If you desire justice, cultivate fairness (equity). Play on words based on the motto of the International Labor Organization: “Si vis pacem, cole iustitia” (If you desire peace, cultivate justice). Even if justice and equity are sometimes used interchangeably, the two are sensibly different. jQuery('#footnote_plugin_tooltip_38025_27_10').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_10', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Si vis [AI] aequitas, para pactum.11) If you desire [AI] fairness, agree on it. Andrew Carnegie, promoter of universal peace, reportedly said during the National Arbitration and Peace Congress of 1907: “Si vis pacem, para pactum” (If you desire peace, agree to keep it) itself a paraphrase of the Latin adagio of “Si vis pacem, para bellum” (If you desire peace, prepare for war) often attributed to Publius Flavius Vegetius Renatus and to this day motto of the UK naval warfare force, the Royal Navy. Carnegie was advocating for a safer way to keep peace, in opposition with the time’s usage of deterring enemies by show of force. See “The National Arbitration and Peace Congress at New York.” The American Journal of International Law, vol. 1, no. 3, 1907, JSTOR. The idea is that in order to ensure AI fairness we should first agree that we need it, how to define it, and how to implement it and keep it. jQuery('#footnote_plugin_tooltip_38025_27_11').tooltip({ tip: '#footnote_plugin_tooltip_text_38025_27_11', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

 

References[+]

References ↑1 Generally, the term “Artificial Intelligence (AI)” refers to machines capable of replicating human intelligence. However, the technological status quo is rather limiting, with mainly so called “weak (or narrow) AI”, i.e., machines able to replicate (and outperform humans at) specific tasks, being available. In contrast, “strong AI”, i.e., machines able fully simulate the human mind, are (still) a log way out. ↑2 Deepfakes are sometime distinguished from other manipulated media, like Cheepfakes or Shallowfakes (which are of a lower quality, created with simpler/cheaper tools, and less AI reliant). In this paper, however, all manipulated media will be labeled “Deepfake” since this will arguably be the norm as the technology advances. ↑3 “Any sufficiently advanced technology is indistinguishable from magic”, Arthur C. Clark. ↑4 If we see and hear something with our own eyes and ears, can we say it’s not real? Based on what criteria would real be defined objectively since it relates to a subjective experience, purpose, or perspective? To that end, (digital) reality can no longer be unqualified… ↑5 Since fake-detection measures are always immediately countered with newer technologies, paradoxically, the more we’ll try to determine the genuineness of digital media the less possible it will be. So ― analogizing this with the wonderfully weird world of quantum mechanics ― there’s a Heisenberg (like) uncertainty to it in the long run. ↑6 Facts themselves become relative. Take, for example, the recording of someone with the exact features of person X (face shape, eye and hair color, voice, etc.) of such high technical quality that for all intents and purposes it seems a genuine recording of person X. Would it be a true or false to say that it is a recording of person X? A random viewer would know the (subjective) truth to be what he or she is able to asses through their own senses (i.e., true), while the person apparently in the video or the one who manipulated the media would know a different (subjective) truth (i.e., false). ↑7 Even if experts could determine the authenticity of documentary evidence in advance, the identity of the participants in virtual hearings would still have to be verified in real time which would raise additional impediments (legal and otherwise), e.g., higher costs or privacy issues. ↑8 Whether or not such enforced behavior is infringing on fundamental rights, like free speech, as well social media’s potential liability for their users’ behavior is debatable ↑9 Paraphrase of the old Latin saying of “Timeo Danaos et dona ferentes” (I fear the Greeks even when they bear gifts), spoken by Laocoön as a warning on potential dangers posed by the Trojan Horse. According to Vergil’s Aeneid (II, 49), see Christopher Francese and Meghan Reedy (eds.), Dickinson College Commentaries on Book 2 of the Aeneid. ↑10 If you desire justice, cultivate fairness (equity). Play on words based on the motto of the International Labor Organization: “Si vis pacem, cole iustitia” (If you desire peace, cultivate justice). Even if justice and equity are sometimes used interchangeably, the two are sensibly different. ↑11 If you desire [AI] fairness, agree on it. Andrew Carnegie, promoter of universal peace, reportedly said during the National Arbitration and Peace Congress of 1907: “Si vis pacem, para pactum” (If you desire peace, agree to keep it) itself a paraphrase of the Latin adagio of “Si vis pacem, para bellum” (If you desire peace, prepare for war) often attributed to Publius Flavius Vegetius Renatus and to this day motto of the UK naval warfare force, the Royal Navy. Carnegie was advocating for a safer way to keep peace, in opposition with the time’s usage of deterring enemies by show of force. See “The National Arbitration and Peace Congress at New York.” The American Journal of International Law, vol. 1, no. 3, 1907, JSTOR. The idea is that in order to ensure AI fairness we should first agree that we need it, how to define it, and how to implement it and keep it. function footnote_expand_reference_container_38025_27() { jQuery('#footnote_references_container_38025_27').show(); jQuery('#footnote_reference_container_collapse_button_38025_27').text('−'); } function footnote_collapse_reference_container_38025_27() { jQuery('#footnote_references_container_38025_27').hide(); jQuery('#footnote_reference_container_collapse_button_38025_27').text('+'); } function footnote_expand_collapse_reference_container_38025_27() { if (jQuery('#footnote_references_container_38025_27').is(':hidden')) { footnote_expand_reference_container_38025_27(); } else { footnote_collapse_reference_container_38025_27(); } } function footnote_moveToReference_38025_27(p_str_TargetID) { footnote_expand_reference_container_38025_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_38025_27(p_str_TargetID) { footnote_expand_reference_container_38025_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 Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


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

Kluwer Arbitration Blog - Sat, 2021-07-17 01:53

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

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

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

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

 

Institutional perspective: what candidates can be appointed as arbitrators?

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

 

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

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

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

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

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

 

Conclusion

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

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Will Taiwan Become a Model Law Jurisdiction?

Kluwer Arbitration Blog - Fri, 2021-07-16 01:53

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

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

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

 

Amendment Highlights

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

 

Unitary approach

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

 

Challenges

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

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

 

Applicable law

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

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

 

Interim measures

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

 

Arbitrator qualifications

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

 

Time limits

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

 

Annulment

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

 

Law applicable to arbitration agreement

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

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

 

Confidentiality

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

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

 

Reflections

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

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

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

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


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

Kluwer Arbitration Blog - Thu, 2021-07-15 01:15

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

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

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

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

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

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

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

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

 

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

 

 

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

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


UNCITRAL, Expedited!

Kluwer Arbitration Blog - Wed, 2021-07-14 01:07

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

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

 

A Unique Process

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

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

 

Scope of Application and Interaction with the UNCITRAL Arbitration Rules

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

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

 

Initial Steps of an Arbitration

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

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

 

Designating and Appointing Authorities

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

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

 

Tribunal Discretion in Shaping the Proceedings

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

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

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

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

 

Time Period for Rendering the Award

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

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

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

 

Conclusion

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

More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


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

Kluwer Arbitration Blog - Tue, 2021-07-13 01:00

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

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

 

Mainland China Approach

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

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

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

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

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

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

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

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

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

 

Hong Kong Approach

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

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

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

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

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

 

Comments

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

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

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

References[+]

References ↑1 Thanks to Lingming Xu for his contribution to this blog post. The views expressed herein are personal and do not reflect the views or the position of the Hong Kong International Arbitration Centre. The author reserves the right to amend her position if appropriate. function footnote_expand_reference_container_37191_30() { jQuery('#footnote_references_container_37191_30').show(); jQuery('#footnote_reference_container_collapse_button_37191_30').text('−'); } function footnote_collapse_reference_container_37191_30() { jQuery('#footnote_references_container_37191_30').hide(); jQuery('#footnote_reference_container_collapse_button_37191_30').text('+'); } function footnote_expand_collapse_reference_container_37191_30() { if (jQuery('#footnote_references_container_37191_30').is(':hidden')) { footnote_expand_reference_container_37191_30(); } else { footnote_collapse_reference_container_37191_30(); } } function footnote_moveToReference_37191_30(p_str_TargetID) { footnote_expand_reference_container_37191_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_37191_30(p_str_TargetID) { footnote_expand_reference_container_37191_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
by Edited by Maxi Scherer, Niuscha Bassiri & Mohamed S. Abdel Wahab
€ 188
International Commercial Arbitration, Third Edition
by Gary B. Born
€ 509


Readings and Resources for Teaching

ADR Prof Blog - Mon, 2021-07-12 14:12
As an annual tradition, this is a reminder of some of my favorite things you might use in your courses as you gear up for next academic year. Here’s a link to the latest and greatest version of the “resource share” compiled by Sharon Press and Noam Ebner. Here’s a post suggesting how you can … Continue reading Readings and Resources for Teaching →
Syndicate content