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The New and Improved CMAP Rules of Arbitration: Continuity and Innovation

Kluwer Arbitration Blog - Wed, 2021-11-10 00:49

Established in 1995 by the Paris Chamber of Commerce and Industry, the Paris Centre for Mediation and Arbitration (“CMAP”) is a prominent Parisian institution specializing in both arbitration and mediation, which adopts a resolutely business-focused approach to dispute resolution. If the CMAP mostly deals with internal matters, approximately one third of the disputes submitted to arbitration under its rules are international.

Following the trend observed among other arbitral institutions in the past year, the CMAP unveiled a draft update of its new Arbitration Rules (“CMAP Rules”), on 23 September 2021, at the peak of Paris Arbitration Week. The final version was approved by the General Assembly on 1 October 2021 and will apply to all CMAP arbitral proceedings initiated after 1 January 2022 (except for certain provisions that will apply only to arbitration agreements entered from 1 January 2022 onwards).

Reflecting the dynamism of Paris’ arbitration market, the revision focused on adapting the CMAP Rules to the ever-changing needs of arbitration users, consolidating the efficiency of the CMAP procedure to guarantee a swift and satisfactory resolution of any dispute, and on maintaining the pre-existing flexibility of the Rules, thus ensuring a degree of continuity. As a result, the 2021 CMAP Rules contain both awaited developments (I) and some bold innovations that reflect, or even surpass, those recently adopted by other leading arbitration institutions (II).

 

I) Awaited Developments: Digitalization, Consolidation, Transparency Regarding the Use of Funders, and Details Relating to the Emergency Proceedings

a) Stepping into the Digital Age: Electronic Communication and Awards

Here, the CMAP acknowledges the needs resulting from the Covid-19 pandemic and the users’ requests to limit costs and the environmental impact of arbitration, while at the same time increasing its efficiency.

Going a step further, the CMAP authorizes electronic communications between the parties, the arbitral tribunal, and the institution from the submission of the arbitration request to the issuance of the award. The Rules also provide the possibility for an award to be rendered exclusively in an electronic format, that is if none of the parties requests a paper original (Article 28.5) (a change similar to that performed recently by the LCIA). Likewise, the holding of a hearing remains mandatory if at least one of the parties requests it (Article 23.7). If the parties fail to agree on the modalities of said hearing (virtual, physical or hybrid), the arbitral tribunal shall determine them.

b) The Consolidation of Complex Arbitral Proceedings

Following a trend in all major institutional rules, the 2021 CMAP Rules include specific provisions relating to third-party intervention (Article 13), multipartite or multi-contract arbitration proceedings (Article 14) and the joinder of proceedings (Article 15), thus facilitating the consolidation of related proceedings and promoting cost-mitigation.

Of course, these mechanisms are conditional and require the pre-existing or subsequent consent of all parties involved. For example, pursuant to Article 15 of the Rules, the arbitral tribunal may, of its own motion or at the request of the parties, order the consolidation of several arbitral proceedings in the following situations:

  • The jurisdiction of the arbitral tribunal has been accepted by all involved parties,
  • All claims were raised based on the same arbitration agreement, or
  • The claims were raised based on different, yet compatible arbitration agreements, and relate to the same legal relationship, to contracts consisting of a main contract and ancillary contracts or to the same operation or series of operations.

In our view, the CMAP has managed to strike a difficult balance between upholding the core characteristics of arbitration, such as party autonomy and efficiency, and creating new procedural tools, which give the parties the agency over complex arbitration proceedings. These wide-reaching tools will also undoubtedly contribute to prevent the fragmentation of litigation and the rendition of incompatible or contradictory arbitral awards and/or court decisions.

c) Third-Party Funding

Article 11.11 of the CMAP Rules includes a new obligation to disclose third party funding “immediately”, either in the request for arbitration or in the response, in order to allow for the arbitrators to reveal any circumstances that may give rise to a conflict of interest. This safeguard promotes a culture of transparency and seems necessary to uphold the independence and impartiality of any arbitral tribunal.

d) The Emergency Proceedings

The Emergency Proceedings have been clarified in the updated CMAP Rules. Specifically, they provide that only one exchange of memoranda and exhibits will take place between the parties, unless the arbitral tribunal grants them an exemption. The President of the Tribunal may also request that these documents be submitted within a determined time frame. Finally, the rules add that only the President shall sign procedural orders, after receiving consent from its co-arbitrators relating to their content.

If the above revisions fall in line with the recent tendencies observed in most arbitration rules revisions, other additions constitute more daring statements by the CMAP.

 

II) Bold Innovations

a) Choice of the CMAP Rules Results in the Automatic Adoption of the Emergency Decision Rules

For arbitration agreements concluded after 1 January 2022, adherence to the CMAP Arbitration Rules will automatically constitute adherence to its Emergency Decision Rules, unless otherwise specified by the parties in their arbitration agreement (Article 1.2). Through application of these latter Rules, the parties may, before the constitution of the arbitral tribunal, obtain an interim measure from a third-party decision-maker designated by the CMAP. These measures merely have contractual value and cannot be enforced directly.

It should be noted that, if the parties do not exclude the application of the Emergency Decision Rules, they will not be able to petition any state court to obtain interim relief, unless the court has exclusive jurisdiction to rule on such measures (e.g., investigative measures, judicial securities, etc.). For the sake of comparison, as per the ICC Rules, interim measures ordered by state courts (when available) coexist with interim measures ordered by the emergency arbitrator (Article 29 of the ICC Rules). The adoption of this unusual mechanism could act as a double-edged sword. On the one hand, the application of the Emergency Decision Rules provides the parties with an additional possibility to obtain emergency relief. On the other, because of the automatic applicability of these rules through mere adherence to the CMAP Arbitration Rules, the parties may inadvertently waive the possibility to petition state courts for interim measures, with these measures being immediately enforceable. From 1 January 2022, it would still be possible for the parties to expressly amend the Rules through their arbitration agreement so that they may petition state courts for interim relief, in addition to the application of the Emergency Decision Rules.

b) Default on a Payment of Expenses Shall Not Necessarily Prevent the Constitution of the Arbitral Tribunal

The provisions in the CMAP Rules that allowed the institution to request the payment of an advance on expenses have been slightly modified. Before, if one party defaulted, the other party could compensate the default and, once the arbitral tribunal was constituted, request a refund (Article 11.4). Once the 2021 version of the Rules enters into force, if the Arbitral Committee1)The Arbitral Committee of the CMAP is a three-member committee, presided by Daniel Mainguy, that is responsible for examining applications and selecting third parties who wish to contribute to the CMAP’s activities (notably arbitrators), designating the said third parties within the framework of the proceedings referred to the CMAP, and dealing with procedural issues that may occur in the context of arbitrations referred to the institution (challenges etc.). jQuery('#footnote_plugin_tooltip_39246_60_1').tooltip({ tip: '#footnote_plugin_tooltip_text_39246_60_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); considers that the funds provided by one of the parties are sufficient to move forward until the establishment of the Terms of Reference or any other act organizing the procedure, the arbitral tribunal may be constituted, despite the other party’s default (Article 11.5). Then, the Arbitral Committee shall decide whether the proceedings should be suspended or continued. However, in the latter case, the defaulting party may only submit counterclaims once the requested advance has been paid in full.

This welcome innovation, which shows how flexible the CMAP is willing to be for proceedings to move forward, prevents dilatory and unnecessary blockages of arbitral proceedings. The measure also prevents the defaulting party from unfairly benefiting from their own malicious behaviour and opens the way for the continuation of the proceedings with the compliant party. This mechanism provides the parties with a useful incentive to uphold the good faith standard in their procedural behaviour.

c) Prevention of Conflict of Interests During the Arbitral Proceedings

Last but not least, the arbitral tribunal may take “all appropriate measures” to prevent conflict of interests during the course of the arbitral proceedings, specifically through the addition or replacement of the parties’ counsel (Article 9). The CMAP Rules go as far as allowing that the arbitral tribunal may reject any such changes in relation to counsel, if deemed necessary (this reminds us of Article 17 (2) of the new ICC Rules). After the constitution of the arbitral tribunal, the parties considering a change in counsel shall immediately inform the tribunal, so that the latter may evaluate whether such a change may give rise to a conflict of interests (Article 9.2).

Even if this provision is unusual and limits to some extent the parties’ freedom to choose their counsel, it reflects the provisions 4-6 of the IBA Guidelines on Party Representation in International Arbitration and allows for the continued independence and impartiality of the arbitral tribunal, which, in turn, favours the enforceability of the award rendered.

 

Concluding Remarks

To sum up, the 2021 CMAP Arbitration Rules include several new provisions that introduce innovative and flexible mechanisms that promote the efficiency of arbitration, as well as cost-mitigation. Still, the parties have a significant amount of agency over which of these features may best serve their needs, considering the configuration of their dispute. In that sense, CMAP’s effort to match the offers of other prominent and more international arbitral institutions must be commanded.

References[+]

References ↑1 The Arbitral Committee of the CMAP is a three-member committee, presided by Daniel Mainguy, that is responsible for examining applications and selecting third parties who wish to contribute to the CMAP’s activities (notably arbitrators), designating the said third parties within the framework of the proceedings referred to the CMAP, and dealing with procedural issues that may occur in the context of arbitrations referred to the institution (challenges etc.). function footnote_expand_reference_container_39246_60() { jQuery('#footnote_references_container_39246_60').show(); jQuery('#footnote_reference_container_collapse_button_39246_60').text('−'); } function footnote_collapse_reference_container_39246_60() { jQuery('#footnote_references_container_39246_60').hide(); jQuery('#footnote_reference_container_collapse_button_39246_60').text('+'); } function footnote_expand_collapse_reference_container_39246_60() { if (jQuery('#footnote_references_container_39246_60').is(':hidden')) { footnote_expand_reference_container_39246_60(); } else { footnote_collapse_reference_container_39246_60(); } } function footnote_moveToReference_39246_60(p_str_TargetID) { footnote_expand_reference_container_39246_60(); 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_39246_60(p_str_TargetID) { footnote_expand_reference_container_39246_60(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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A Tale of Two Maritime Hubs: The Rise of Regional Maritime Arbitration Centers in Asia

Kluwer Arbitration Blog - Tue, 2021-11-09 00:42

This post examines the distinctive features and positive aspects of the maritime arbitration infrastructure of Singapore and South Korea while also exploring areas in which there is room for improvement in order to make these regional centers attractive to a wider international audience.1)Inni In Young Choi of Shin & Kim also contributed to this post.  The authors thank James Michael Turner QC of Quadrant Chambers for his helpful comments on this post. jQuery('#footnote_plugin_tooltip_39239_60_1').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Singapore

Singapore has been an active player in the maritime arbitration sphere for at least a decade. A key node in the maritime arbitration infrastructure in Singapore is the Singapore Chamber of Maritime Arbitration (“SCMA”). The SCMA was originally established in November 2004 under the management of the Singapore International Arbitration Centre (“SIAC”) but was reconstituted in May 2009 as an independent body following industry feedback.2)SCMA website “About Us”: About Us jQuery('#footnote_plugin_tooltip_39239_60_2').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Generally, maritime and maritime-related disputes can and are referred to both the SCMA and the SIAC, although the SCMA is designed to specifically cater to the maritime community, and its rules and approaches generally reflect the prevailing practices in the maritime community.

The SCMA adopts a self-administered model of institutional arbitration, similar to that of the London Maritime Arbitrators Association (“LMAA”). Parties only pay costs to the SCMA when they require the SCMA to play an active role, e.g. appointment of an arbitrator, and no filing fees are payable for the commencement of an arbitration under the SCMA Rules (see Rule 6 of the SCMA Rules). An appointment fee is payable only to the arbitrator, whether appointed by parties or by the Chairman of the SCMA.3)SCMA website “Fees”: Resources jQuery('#footnote_plugin_tooltip_39239_60_3').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); As such, providing for arbitration under the SCMA Rules can be commercially attractive to the maritime community, especially as maritime contracts often have very short periods within which to bring claims or proceedings and parties often commence proceedings to protect time. These disputes may later be settled, so there is an incentive to keep the costs incurred in commencing protective proceedings low.

A small claims procedure is also provided for under the SCMA Rules (see Rule 46 of the SCMA Rules). The small claims procedure involves an expedited and simplified arbitration procedure. The small claims procedure is a typical feature of maritime arbitration practice and is routinely used by the maritime community to resolve simpler disputes (e.g. disputes involving very modest claim amounts or simple points of law). Presently, the small claims procedure under the SCMA Rules would apply if the aggregate amount of the claim and counterclaim in dispute is less than US$150,000 excluding interest and costs.4)Rule 46.1 of the SCMA Rules 2015 jQuery('#footnote_plugin_tooltip_39239_60_4').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); That said, the SCMA Rules allow parties the flexibility to agree for the small claims procedure to apply to claims exceeding US$150,0005)Rule 46.2 of the SCMA Rules 2015 jQuery('#footnote_plugin_tooltip_39239_60_5').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); or even to exclude the application of the small claims procedure completely.6)Rule 46.3 of the SCMA Rules 2015 jQuery('#footnote_plugin_tooltip_39239_60_6').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Further, the SCMA Rules contain terms which are specifically tailored to particular segments of the maritime community, notably the Singapore Bunker Claims Procedure (“SBC Terms”) under Rule 48 of the SCMA Rules and the SCMA Expedited Arbitral Determination of Collision Claims (“SEADOCC”) under Rule 47 of the SCMA Rules.

In addition, the SCMA panel of arbitrators consists of specialists in one or more maritime disciplines with at least 10 years’ experience in the arbitrator’s field of specialty.7)SCMA website Arbitrator Application jQuery('#footnote_plugin_tooltip_39239_60_7').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This is particularly useful as users can be assured that the arbitrator appointed by the Chairman of SCMA upon a party’s request from the SCMA’s panel of arbitrators has the requisite experience to determine the disputes.

The SCMA’s commitment to being an industry-friendly arbitration institution is underscored by the public consultation it undertook on possible amendments to the SCMA Rules 2015 (3rd Ed). The proposed amendments appear to be aimed at making the SCMA Rules more user-friendly to the maritime community by clarifying the ambit or application of certain rules, as well as certain structure changes to better cater to the needs of the maritime community.8)Consultation Paper: Possible amendments to the SCMA Rules 2015 (3rd Ed) by SCMA jQuery('#footnote_plugin_tooltip_39239_60_8').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Korea

In South Korea, a peninsular country with a world-famous shipping industry that has been thriving as of late, the maritime arbitration infrastructure has shown promising signs of growth.  The Korean Commercial Arbitration Board (“KCAB”), founded in 1966, is the only institution in Korea that is statutorily empowered to deal with cross-border disputes.  To meet Korea’s growing demand for international commercial dispute services, KCAB INTERNATIONAL was established on 20 April 2018 as an independent division of the KCAB.  Maritime disputes make up approximately 5% of KCAB INTERNATIONAL’s overall caseload.9)KCAB INTERNATIONAL 2019 Annual Report. jQuery('#footnote_plugin_tooltip_39239_60_9').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_9', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The year 2018 was also an important year in the promotion of maritime arbitration in Korea as the Asia-Pacific Maritime Arbitration Center (“APMAC”) was established under the umbrella of the KCAB, not as a new institution but as a maritime-focused arbitration center.  It is based in Korea’s biggest port and second-largest city, Busan.10)The KCAB is headquartered in Seoul, while the APMAC is headquartered in Busan. jQuery('#footnote_plugin_tooltip_39239_60_10').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_10', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  Notably, the Seoul Maritime Arbitrators’ Association (“SMAA”) was also established in 2018, to administer ad hoc arbitration proceedings with an exclusive focus on maritime disputes.

The APMAC has its own set of rules, the Maritime Arbitration Rules of the Asia-Pacific Maritime Arbitration Center (“APMAC Rules”).11)The Maritime Arbitration Rules of the Asia-Pacific Maritime Arbitration Center. jQuery('#footnote_plugin_tooltip_39239_60_11').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_11', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  Although APMAC’s focus is on maritime disputes, the APMAC Rules lack any maritime-specific provisions and largely mirror the provisions of the KCAB International Arbitration Rules, which can be used for any type of commercial arbitration.  Indeed, the APMAC Rules are primarily a simplified version of the KCAB International Arbitration Rules, with the main difference being that they impose tighter timelines on the submissions of briefs (30-day periods, unless the Tribunal decides otherwise)12)The Maritime Arbitration Rules of the Asia-Pacific Maritime Arbitration Center, Art. 20. jQuery('#footnote_plugin_tooltip_39239_60_12').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_12', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and on the rendering of awards (30 days after a hearing, unless there are special circumstances).13)The Maritime Arbitration Rules of the Asia-Pacific Maritime Arbitration Center, Art. 28(5). jQuery('#footnote_plugin_tooltip_39239_60_13').tooltip({ tip: '#footnote_plugin_tooltip_text_39239_60_13', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  To enhance the specialty nature of the APMAC Rules (and perhaps make them more likely to be adopted for use in relation to maritime disputes), APMAC (and KCAB) could consider adding provisions similar to Rule 47 of the SCMA Rules (“SCMA Expedited Arbitral Determination of Collision Claims (SEADOCC)”) and Rule 48 (“Singapore Bunker Claims Procedure (SBC Terms)”) for the sale or supply of bunkers, or other provisions that relate to common types of disputes that arise between international and Korean companies in Korea’s bustling shipyards.

At least one provision of the APMAC Rules highlights the drafters’ intention to make them more internationally oriented: Article 25 expressly provides that, even if the official language of arbitration is Korean, the parties are not required to submit Korean language translations of documents in English.  While this is a move in the right direction, the APMAC Rules could go even further by stating (like the SCMA Rules) that, unless otherwise agreed by the parties and the Tribunal, the language of an arbitration involving an international (non-Korean) party shall be English.

Up to this point, there are relatively few resources in English on the SMAA, and it is hoped that this “new kid on the block” will find ways to gradually increase its international stature.  The organization would reap benefits by adding more substantive content to its English website and by adopting “Terms and Procedures” in English, perhaps modeled after the LMAA Terms and Procedures 2021 but taking into account any unique features of the Korean Arbitration Act, Korean law and other relevant factors.  It is also hoped that opportunities for knowledge-sharing between the Korean maritime arbitration entities and other countries’ maritime arbitration entities will proliferate in the future.  Given its connection with APMAC, KCAB INTERNATIONAL has an important role to play in guiding such efforts.

 

Conclusion

In the two Asian maritime hubs that have been featured in this article, progress has certainly been made to attract an international base of users.  That said, for the institutional and ad hoc maritime arbitration infrastructure in these hubs to reach their full potential, certain improvements will need to be made.

In Singapore, the SCMA’s adherence to best international practices and its efforts to introduce innovative rules demonstrate the institution’s commitment to users’ needs.  It is hoped that further improvements will be made to the SCMA Rules through the recent consultation process.

Whilst the SCMA, as a relatively early entrant to the international maritime arbitration scene in Asia, may have some lead over other later entrants, the SCMA could consider whether and how to distinguish itself from other regional maritime arbitration centers. This could include promulgating specific rules that cater to more specific segments of the maritime industry or types of maritime disputes (similar to the SBC Terms and SEADOCC), which may increase the efficiency of SCMA-administered arbitrations and make them more user-friendly to the commercial users.

Meanwhile, South Korea has taken steps toward becoming an accessible and internationally friendly regional maritime arbitration hub, but more thorough and diligent efforts – looking outward at other model jurisdictions for maritime arbitration – are needed for it achieve global prominence in the maritime arbitration arena.  In addition, APMAC (and its parent organization, KCAB) would benefit by making efforts to attract users from civil law countries – whether in Europe, East Asia, Southeast Asia or elsewhere – through the incorporation of elements of the civil procedure and practice of civil law jurisdictions.  Whilst SCMA and other market-leading maritime arbitration bodies such as the Hong Kong Maritime Arbitration Group are firmly rooted in the common law tradition, Korea’s maritime arbitration center could distinguish itself as the civil law maritime arbitration hub of Asia. 

References[+]

References ↑1 Inni In Young Choi of Shin & Kim also contributed to this post.  The authors thank James Michael Turner QC of Quadrant Chambers for his helpful comments on this post. ↑2 SCMA website “About Us”: About Us ↑3 SCMA website “Fees”: Resources ↑4 Rule 46.1 of the SCMA Rules 2015 ↑5 Rule 46.2 of the SCMA Rules 2015 ↑6 Rule 46.3 of the SCMA Rules 2015 ↑7 SCMA website Arbitrator Application ↑8 Consultation Paper: Possible amendments to the SCMA Rules 2015 (3rd Ed) by SCMA ↑9 KCAB INTERNATIONAL 2019 Annual Report. ↑10 The KCAB is headquartered in Seoul, while the APMAC is headquartered in Busan. ↑11 The Maritime Arbitration Rules of the Asia-Pacific Maritime Arbitration Center. ↑12 The Maritime Arbitration Rules of the Asia-Pacific Maritime Arbitration Center, Art. 20. ↑13 The Maritime Arbitration Rules of the Asia-Pacific Maritime Arbitration Center, Art. 28(5). function footnote_expand_reference_container_39239_60() { jQuery('#footnote_references_container_39239_60').show(); jQuery('#footnote_reference_container_collapse_button_39239_60').text('−'); } function footnote_collapse_reference_container_39239_60() { jQuery('#footnote_references_container_39239_60').hide(); jQuery('#footnote_reference_container_collapse_button_39239_60').text('+'); } function footnote_expand_collapse_reference_container_39239_60() { if (jQuery('#footnote_references_container_39239_60').is(':hidden')) { footnote_expand_reference_container_39239_60(); } else { footnote_collapse_reference_container_39239_60(); } } function footnote_moveToReference_39239_60(p_str_TargetID) { footnote_expand_reference_container_39239_60(); 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_39239_60(p_str_TargetID) { footnote_expand_reference_container_39239_60(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Emergency Award or Approaching Court for Interim Relief? – Has the Amazon Decision Made this a Question of Either One or the Other but Not Both?

Kluwer Arbitration Blog - Mon, 2021-11-08 00:35

 In August 2021, the Indian Supreme Court (‘Court’) in Amazon v. Future found an emergency award rendered in an arbitration seated in India (New Delhi) to be enforceable as if it were an interim order of an arbitral tribunal under Section 17(1) of the Arbitration and Conciliation Act (“Act”). The Court also found that such an award when enforced under Section 17(2) would not be open to any challenge under Section 37 (which is the appeal provision in the Act).

The Court’s decision was influenced by a four-pronged approach of (a) efficacy of the arbitral process and the availability of a quick remedy through the emergency arbitration process, (b) the aim to de-clog courts, (c) no interdict in the Act, and (d) parties having agreed to SIAC rules and emergency arbitration process could not renege from the award and treat it as invalid after the fact. As such, no order or award rendered pursuant to that agreement was inherently illegal and the relevant procedures had to be followed until or if the award was vacated.

While the decision has been discussed on the Blog earlier, this post highlights one important and far-reaching implication of this judgment, inferred from paragraphs 31 to 36 which does not seem to have been previously discussed elsewhere.

 

The regime for seeking interim relief in India after 2015

India amended its Act in 2015 where it introduced a new Section 9(3). Section 9 deals with the granting of interim reliefs by Indian courts in arbitration. Section 9(3) states as follows:

“Once the arbitral tribunal has been constituted, the court shall not entertain an application under sub-section (1), unless the court finds that circumstances exist which may not render the remedy provided under Section 17 efficacious.”

The 2015 amendment to the Act also introduced Section 9(2) which states that if any interim relief is granted by the court before any arbitral proceedings have started, such proceedings are to be commenced within 90 days thereof. The whole purpose of these amendments was to ensure that parties sought remedies and relief from the arbitral tribunal itself instead of “clogging” courts.

 

The  consequence of the Amazon decision to seek interim reliefs before courts

The Court in Amazon recognized India-seated emergency awards akin to interim orders under Section 17(1) of the Act passed by arbitral tribunals. These orders have the same force of law as orders made by courts.

However, the consequence of Section 9(3), read with the exposition in the Amazon decision, is that once emergency arbitration is invoked, it may well be argued that the remedy under Section 9 (approaching courts for interim relief) would no longer remain available. This means that now parties would, at the outset, be required to choose between filing for emergency arbitration or applying to a court for interim relief. Indeed, if it can be shown that the emergency arbitration may not render an “efficacious” remedy, courts could be approached. But this threshold would have to be crossed.

While the Court does not explicitly state this in the decision, its reasoning indicates this approach – the reasoning being that once constituted, let arbitral tribunals do their job, whether emergency or otherwise and do not come to court, unless absolutely necessary. When reading emergency arbitrations as a category of arbitral proceedings in Section 17 (1), the Court states at paragraph 35,

“An Emergency Arbitrator’s “award”, i.e., order, would undoubtedly be an order which furthers these very objectives, i.e., to decongest the court system and to give the parties urgent interim relief in cases which deserve such relief. Given the fact that party autonomy is respected by the Act and that there is otherwise no interdict against an Emergency Arbitrator being appointed, as has been held by us hereinabove, it is clear that an Emergency Arbitrator’s order, which is exactly like an order of an arbitral tribunal once properly constituted, in that parties have to be heard and reasons are to be given, would fall within the institutional rules to which the parties have agreed, and would consequently be covered by Section 17(1), when read with the other provisions of the Act, as delineated above.”

It is not unlikely for parties to file, simultaneously both for emergency relief and apply for interim protection in courts. Often the relief is applied for before the two fora one after the other. Another question that arises, if the decision is given the reading as suggested above, is that what happens after the completion of the emergency proceedings and the rendering of the emergency award but before the regular tribunal is constituted. In the interim period, it could be argued that no arbitral proceedings exist, no arbitral tribunal has been constituted although a notice of arbitration may have been issued. This interim period may be a good fit to argue that since there would be no “efficacious” remedy available in the arbitration, courts could be approached in Section 9 proceedings. Rules of institutions provide that no appeals should be sought from state courts of the decisions of emergency awards. To the extent that such interim relief applications are in the nature of seeking the same remedy again (having, let’s assume, failed before the emergency arbitrator), they would amount to a quasi-appeal (a practice that is not unknown to emergency arbitration jurisprudence in India). So, another way to look at this argument is that during the window between the time that an emergency arbitrator has been appointed and she is yet to render an award, Section 9 remedies may not be available (unless the former is inefficacious). However, right after the emergency award has been made but before a regular tribunal is constituted, one may approach a court. This may well be the unintended consequence of the decision, but it makes sense. At all times, parties must have some form of remedy available. If the tribunal is available, that should be the first port of call, Indian courts are already overburdened. However, in the absence of a tribunal, one may go back to court.

This decision raises another important question, what happens to foreign-seated emergency arbitrations? Since this decision has not ruled on the validity of foreign seated emergency awards, that question still remains open. Traditionally in India, the approach has been to file a Section 9 petition on the back of an emergency award in order to “indirectly” enforce the foreign emergency award by receiving similar orders through the Indian proceedings. Given that Section 17 is applicable only to Part I of the Act, the reading of emergency arbitrations into this provision would only apply to domestic arbitrations as of now. However, if orders of arbitral tribunals (generally whether seated in India or outside) are to include emergency awards then this would mean that such a choice would have to be made even for foreign seated arbitrations.

The Court has not ruled on this presently and as of now a dichotomous situation exists where one can argue that after Amazon, in domestically-seated arbitrations, parties would have to make a choice between proceeding with emergency arbitrations or interim relief proceedings before courts under Section 9, and once the former choice is made, the latter would be unavailable given the interdict in Section 9(3) unless of course it can be shown that the emergency arbitration remedy is not efficacious. On the other hand, for foreign-seated arbitrations, both remedies would be available.

 

Conclusion

Whether courts will read the Amazon judgment for such a result remains to be seen, but it is a far-reaching outcome of the decision. Indeed, for policy reasons, such an outcome makes sense since it lets tribunals take over and reduces the burden on courts. There is also no benefit of approaching courts once the same reliefs can be given by emergency tribunals (or subsequent tribunals) given that the power now between the two has been made co-extensive. It will also compel parties to be disciplined and make early choices so that they do not try their luck at different fora. However, closing a remedy as far-reaching as interim relief from courts may be a substantial one and courts may be hesitant to give the case such a specific reading. Either way, the field remains open for further interpretation and development – in the direction of more power to emergency arbitral tribunals in India.

 

Views expressed in this post are personal.

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Arbitrators Don’t Speak Esperanto: The Difficulties and Dominance of English as a Procedural Language in Arbitration

Kluwer Arbitration Blog - Sun, 2021-11-07 00:20

The claim that arbitrators do not speak Esperanto may seem so obvious that it should not be stated at all. The artificial language was conceived in the late nineteenth century by Ludwik Lejzer Samenhof as a simple, neutral language that was not tied to any one culture. People of different national and ethnic groups would be able to adopt it in international or intercultural relations without any of them having the linguistic, cultural and political advantage of speaking their own language and imposing it on others. A common language held out the hope of a common understanding. These days the study of Esperanto, with perhaps only a few hundred thousand speakers globally, is a largely esoteric pursuit, mainly the preserve of obscure idealistic societies. The Vatican may have approved it for use in masses, but it certainly does not figure in the statistics of leading arbitral institutions.

Yet arbitration might be thought the paradigm case for the adoption of Esperanto. Arbitral apologists tirelessly highlight its unique strengths as a neutral forum of dispute resolution, welcoming to users of all nationalities and legal cultures. Supporters of the admittedly controversial lex mercatoria, such as the late Emmanuel Gaillard, would even argue that it should develop not only transnational procedural practices but also distinct standards of public policy and principles of substantive law that do not originate in any single national legal system. To break the fetters of domestic legal practice, a common language that transcended national boundaries, might seem the necessary next step. Only then could users participate on a level playing-field.

To users from the same or closely related cultures – legal, political or economic – there will often be an obvious choice of procedural language. Even beyond domestic arbitration, for example, where a German party brings claims against an Austrian party in a Zurich-seated arbitration, everyone involved may be happy to adopt German as the language of arbitration. Given similarities in their civil law cultures, the parties will also likely be less concerned to give up peculiarly national legal rules and practices in the proceedings. However, arbitration also aspires to be the preferred forum for users from very different legal cultures and parts of the world. The institutional statistics suggest that, as the notionally global language, English stands in for Esperanto as the procedural language of choice. For example, SCC statistics for 2020 record that well over 40% of proceedings were conducted in English, while the ICC statistics for 2019 record that 79% of awards were rendered in English, indicating that English was the language of the proceedings.

This is an effect of the dominance of English as the lingua franca of the global economy as well as the preponderance of common law in international contracts and the success of London and U.S. law firms in commercializing arbitration. More broadly, it may also reflect the geopolitical and cultural dominance of some anglophone countries. These factors are not immutable. In particular, there is no strictly legal advantage in civil lawyers’ adopting English because it is almost never the original language of their laws and jurisprudence. In 20 years’ time, a piece such as this may focus more on Spanish and Mandarin than English, just as 40 years ago it would have attached greater weight to francophone arbitration.

English is no neutral Esperanto. It is the product of a rich history or histories in different parts of the world and is spoken differently, to widely differing standards, and with varying levels of success across the globe. Legal English is the product of a long tradition of common law jurisprudence and legislation. English cannot divest itself of a millennium of legal usage to meet the needs of disparate arbitration users. The occasionally grumpy civil lawyers who bemoan common law rites of document production and cross-examination in arbitration, might consider that the predominance of English facilitates those very practices: there are well-established names for them. They may be referred to without the inconvenience of prior translation and the awkwardness that often afflicts translated legal terms. The German word “Prozessstandschaft” – where a person pursues the claim of another person, for example, as an assignee – is off-putting to any German speaker without legal training. It is hard to translate and must be propped up with a barrage of footnotes and examples if it is to be used in anglophone international arbitration. In contrast, to talk, in a similar context, of the assignment of claims among assignors and assignees has a more familiar, if deceptively simple, ring to it, and so the discussion drifts towards English law principles.

Wider economic and cultural trends explain the dominant role of English in arbitration, but the choice of a common language does not of itself ensure effective communication. How can English operate as the language of international proceedings? The subject would provide rich pickings for linguists, but a few tentative thoughts are sketched here. To a degree, arbitration English has emerged as a distinctive largely non-technical, mid-Atlantic form of legal English. By the standards of legal usage, it is quite informal. It is encountered in the memorials of leading international law firms, in the usage of arbitrators and counsel who routinely deal with them professionally, and the reports of the major arbitral institutions. English and U.S. terms appear side-by-side: briefs are filed, “direct examination” replaces “examination-in-chief”, but equally case management conferences are held and “applications” has the edge on “motions”. It is sufficiently friendly and accessible not to frighten off non-native speakers, but also so idiomatic as to be hard to imitate.

Nonetheless, it is imposed on those who have not mastered the idiom. Witness statements, especially by non-native speakers, are often more heavily edited by counsel than the witnesses, with just one or other unidiomatic phrase left to give a flavour of the witness’s true locution. Expert reports are similarly edited, unless by major consultancies or accounting firms whose style resembles that of international law firms. The role of hearing interpreters is rather overlooked. Arbitrators and counsel usually stop at forming a vague impression that the interpreters were “good” or “bad”. Yet, it concerns access to justice that some language groups might be better able to participate in proceedings because of the better pool of available interpreters, while others are disadvantaged. However, the issue is rarely raised.

Where harmonization is impossible, subsets of English or Englishes, as linguists would have it, emerge. This goes beyond the petty banality of law firm style guides requiring London associates to leave out the U from “colour” because a dispute is governed by New York law. For example, the English of the Zurich arbitration scene with its slightly academic Germanic ring  is generally of a good standard but also distinctive in having evolved with only limited involvement of native speakers. Nor have the anglophone international firms made their mark in Switzerland, where they are barely present, as they have in Paris and Frankfurt. Swiss lawyers draft at one remove from the jargon of their anglophone counterparts. Such separation engenders fragmentation. Just as a barrister would struggle with the linguistic transition from the High Court in London to an Ur-Swiss M&A dispute in Basel, his Swiss colleague might shy away from an old-fashioned English shipping arbitration – and not just because Switzerland is landlocked.

Where linguistic challenges prove insurmountable, users fall back on what they can say rather than what needs to be said. This often happens when arbitrators are required to apply the law of a jurisdiction with which they are not familiar and whose language they do not speak. For example, in an English language arbitration, the main contract may be governed by Ukrainian law. The arbitrators, who may be Swiss, French and Czech, will then have to resolve questions under local law, not only of contract law but perhaps also of corporate or tax law tangential to the contractual dispute. Rarely are the translated authorities and expert opinions sufficient for this, especially if the lead law firms representing the parties do not have Ukrainian lawyers in their team. The common practice is to fall back on the contract, which is usually in English, and decide the case as narrowly as possible.

Less significantly, counsel and arbitrators may be constrained in deploying their full range of reference. It is proverbial that baseball and cricketing allusions do not travel. Finding a common denominator can prove difficult. The painfully limited jokes in James Bond films provide a topical illustration. Aside from the obvious difficulty that a series based around a two-dimensional vigilante loner is unlikely to inspire any great wit, only the most basic and sometimes crudest jokes will be comprehensible to a global audience.

The difficulties of language in arbitration cannot be reduced to a poor knowledge of foreign languages among users. The number of practitioners who can conduct proceedings in two languages is considerable and the number who can do so in three small but not negligible. Even so, the challenge remains that most practitioners are inescapably confronted with foreign languages much of the time. Practitioners must be sensitive to the difficulties of a polyglot world. It is no solution merely to plough on in some form of English. Regrettably, many arbitrations are conducted as if English were indeed Esperanto. Perhaps the proposition that arbitrators do not speak the language is so obvious as to have been overlooked.

 

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Of Rats and Lions….or, The Importance of Agreements to Arbitrate

Kluwer Arbitration Blog - Sat, 2021-11-06 00:12

John Steinbeck’s classic novella, “Of Mice and Men,” took a modern day form in the U.S. Supreme Court earlier this week – appropriately enough, for purposes of this blog, in an arbitration matter.  As others have commented on social media, during oral argument in Badgerow v. Walters, Case No. 20-1143 (U.S. S. Ct.), the Supreme Court considered the fairly technical question “[w]hether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act when the only basis for jurisdiction is that the underlying dispute involved a federal question.”  A transcript of the oral argument can be accessed here.

During oral argument before the Supreme Court, however, things moved from technical issues of federal subject matter jurisdiction to a more universal theme, with Justice Breyer asking:

“JUSTICE BREYER: All right. But, if that’s the main argument, what we’re doing here normally is we are having, let’s call him an arbitration rat.  There is the guy who loves arbitration and then there is the rat who hates it, although he agreed to it, okay?

Now he will express his ratitude in many different ways.  First, he will not want to go in in the first place.  Then, if you make him go in in the first place, he’s not going to want the other guy to get any witnesses.  And then, if you go and get that, he’s not going to want anybody to enforce this thing which he lost in the third place.

So, of course, these don’t all just always follow.  It depends on which of these provisions the guy can use and invoke in order to stop what he agreed to, which is the arbitration. …

CHIEF JUSTICE ROBERTS: So you coul\d call them an arbitration rat or a judicial lion, I suppose.”

Now, “rats” do not enjoy a high reputation in U.S. (or many other) legal settings.  One dictionary defines a rat as “a despicable, contemptible, and untrustworthy person,” while another characterizes a rat as a “wretched-acting person.”  In many cultures, and contexts, rats are symbols of betrayal and bad faith, as in “ratting out” your colleagues, being one of the “rats deserting the sinking ship” or “smelling a rat.”

Although partly tongue in cheek, Justice Breyer’s characterization of “arbitration rats” with “ratitude” is in fact both perceptive and important.  Provisions to arbitrate future disputes arising from commercial contracts are sui generis agreements: parties exchange mutual commitments to resolve any future disputes in an expeditious, efficient, expert and enforceable manner, with each committing itself to arbitrate in good faith and not to seek unilateral advantage in other, putatively more favorable fora.  Arbitration agreements play a vital role in commercial contracts, by enabling trade and commerce to proceed in a reliable and predictable manner, with the parties comfortable that the rule of law is respected if or when a dispute arises in the future.  This is particularly the case in international matters, where numerous possibilities exist for parties to shop for home court advantages, corrupt or unpredictable national courts, or similar fora. While there may be a variety of options available to parties aside from arbitration, in many ways arbitration is the superior fora, as discussed in some of my prior posts.

When parties resile from their agreements to arbitrate – whether by initiating litigation, by seeking to obstruct the arbitral process once it has begun or by refusing to comply with a tribunal’s award – they often do take on rodent-like characteristics.  In many cases, non-compliance with agreements to arbitrate bespeaks both untrustworthiness and an absence of good faith.  “Guerilla tactics” are one description of such conduct, but Justice Breyer’s rat metaphor is also instructive.

Chief Justice Roberts offered a counter-analogy, still in the Animal Farm, suggesting that those who violate arbitration agreements may instead only be “judicial lions.”  That comparison is seldom accurate, particularly in international matters: parties who resile from their promises to arbitrate seldom aim for genuine resolution of their dispute, in fact their conduct demonstrates an intent to take through self-help what an arbitral or other adjudicative process would not allow them to keep.  That is particularly true in investor-state disputes, but also applies in many international commercial contexts.

More fundamentally, judicial lions have an obvious path to the courthouse.  It’s called a forum selection agreement, rather than an arbitration clause.  Lions, tigers and others, who don’t want to arbitrate, shouldn’t agree to do so.  The reason that Justice Breyer’s rodent metaphor is accurate is not because only rats refuse to arbitrate; there is nothing wrong with declining to conclude an arbitration agreement.  Rather, Justice Breyer’s metaphor is instructive because agreeing to arbitrate, and then breaking that promise, inherently demonstrates the untrustworthiness and bad faith with which rats are commonly associated.

Nor should the rat’s place in Chinese and other zodiacs lend any comfort to those who breach their arbitration agreements.  The rat, of course, deserves its place far less than other animals in the Zodiac, especially the cat, and only obtained its position through betrayal and bad faith: in the race for places in the Zodiac. Indeed, “the hardworking Ox departed early and should [have been] the first one to reach. However, the Rat hid in the Ox’s ear and jumped down when arriving, occupying the first place.”  That betrayal might have worked in ancient China, but it doesn’t and shouldn’t in today’s arbitration landscape.

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CBS v CBP: Appeal Mechanism For Procedural Rulings Infringing Natural Justice?

Kluwer Arbitration Blog - Sat, 2021-11-06 00:00

It is trite that an award may be set aside if there has been a breach of the rules of natural justice. This may arise from, among others, a tribunal’s procedural ruling. However, during the arbitration, there is no recourse for parties to challenge such procedural rulings.

This was the situation in CBS v CBP [2021] SGCA 4 (“CBS v CBP”) where the arbitrator (mis)interpreted the Singapore Chamber of Maritime Arbitration (“SCMA”) Rules, and did not allow the respondent to call its witnesses. The respondent disagreed with the arbitrator’s decision and boycotted the arbitration, but subsequently applied to set aside the award pursuant to s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”). The Singapore Court of Appeal set aside the award (a detailed summary is accessible here).

 

Existing Avenues for Parties

Generally, procedural rulings by tribunals are not appealable or cannot be set aside. In K v S [2019] EWHC 2386 (Comm), the English High Court held that the tribunal’s decision to disallow the expert’s report did not lead to a final determination on a substantive point in issue and was consequently not appealable (as compared to an award). The Singapore courts have reiterated the same in Republic of India v Vendanta Resources pls [2021] SGCA 50.

That said, there are existing provisions in Singapore arbitration legislation which may aid parties in addressing certain procedural rulings. For example, where appropriate, parties could consider the use of s 13 of the IAA or s 30 of the Arbitration Act (Cap 10, 2002 Rev Ed) (“AA”). In BVU v BVX [2019] SGHC 69, parties faced a situation where one party’s wishes to call certain witnesses were denied by the tribunal. There, the Supplier applied to the tribunal to procure the attendance of 3 other witnesses under the Purchaser’s employment. The Supplier’s application to the tribunal was unsuccessful (twice). Upon issuance of the award, the Supplier applied to set aside the award on the basis that the Purchaser “deliberately put forward a false case in the [a]rbitration by concealing the true facts and withholding and suppressing crucial evidence” including the testimony of a particular witness. In conjunction with the above, the Supplier applied for a subpoena for the said witness to give evidence during the setting aside hearing.

In setting aside the Supplier’s subpoena, the Court noted that there was “no explanation as to why the Supplier had not sought curial assistance for the production of documents under s 13 of the IAA from [the witness]” while the arbitration was ongoing, as “[i]f that had happened, the issue of relevance of the documents might well have been thrashed out and determined at that stage, either in court or before the Tribunal, instead of after an unsuccessful outcome in the arbitration by way of a setting aside application.

Any such application should first be made to the tribunal. In ALC v ALF [2010] SGHC 231, when considering whether a party may elect between applying to court or the tribunal under s 30 of the AA, the Court noted that “the proper course of action would be to apply to the Arbitrator in the first instance, before knocking on the doors of the court.

 

Possible Reform: An Appeal Mechanism for Procedural Rulings Infringing Natural Justice

The issue of completing an arbitration only to have the award set aside and then having to recommence proceedings could be avoided if parties had recourse to the courts where a tribunal makes a procedural ruling which infringes the rules of natural justice.

Where the tribunal’s procedural ruling infringes the rules of natural justice, the court would not hesitate to set aside the award (and the tribunal’s procedural ruling). This is because while the tribunal is the master of its own procedure, it is still subject to the rules of natural justice (CBS v CBP at paragraphs 62 and 67). The only remaining issue is whether the wastage of resources may be avoided.

While s 24(b) of the IAA serves to safeguard natural justice, it can be amended to provide for recourse even before the award is rendered. The proposed change to s 24(b) of the IAA can take the form of an appellate mechanism for only procedural rulings which infringe the rules of natural justice.

Implementing an appellate mechanism for this limited scope of procedural rulings brings forward recourse before the substantive hearing (where substantial costs are incurred) and the rendering of the award. This is elaborated as below:

First, this saves time and costs as courts can prospectively decide on whether certain conduct is in breach of the rules of natural justice, rather than do so retrospectively. It must be noted that the court’s prospective decision under s 24(b) of the IAA should not differ significantly from a retrospective decision. Under the retrospective analysis, the court considers: (i) whether there is a breach of natural justice and (ii) whether that breach resulted in any prejudice. The second stage of the analysis is not engaged in the prospective analysis, simply because no prejudice has crystallised. This does not render the proposal unprincipled, as the main purpose of the second stage is to justify the setting aside of the award and the safeguards of the second stage can be incorporated into the prospective approach, by requiring the applicant to show that the breach of natural justice is not merely technical and inconsequential.

Second, this reduces the possibility of the award being set aside, enhancing the finality of the award.

Third, possible breaches of the rules of natural justice would be ventilated in the course of the proceedings, avoiding any duplicitous work at the setting aside stage. This is because parties may raise res judicata arguments during the setting aside application and the resisting party may be justified in applying for indemnity costs, which have been explored by the courts in the setting aside context (CDM v CDP [2021] SGCA 45).

This proposal is also accompanied by mechanisms to prevent abuse of process. The availability of an appeal mechanism for procedural rulings may lead to unmeritorious objections to every procedural ruling and dressing up such objections as plausible breaches of natural justice to delay proceedings. Three safeguards could be implemented to minimise this, as set out below:

First, leave of court must be obtained before an appeal is heard and leave will only be granted on a stringent criterion (for example, requirement to prove a prima facie breach of the rules of natural justice).

Second, indemnity costs shall generally be awarded to the successful respondent to ensure that the appellant carefully considers any appeal. Where the appellant is unsuccessful, indemnity costs will serve to compensate the respondent. This proposed safeguard should be read together with the current position at Singapore law that indemnity costs are not awarded as a general rule for unsuccessful challenges against an award.

Third, to minimise court interference, the tribunal shall have the discretion to continue with or stay the proceedings.

The proposal (which allows the court to make a prospective decision) may be more appropriate than the option of remitting the decision to the tribunal. This is because, if remitted, as noted in CBS v CBP,there is a real likelihood that [the arbitrator] will not be able to fairly determine the issues given the conduct and development of the case thus far”.

Overall, the proposal seeks to ensure that resources are not wasted whilst preserving the principle of “minimal curial intervention” by restricting such applications only to procedural rulings that infringe the rules of natural justice, especially since these same objections would have arisen if a party seeks to set aside the award under the existing regime.

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Counterclaims in Investment Arbitration: Reflections on UNCITRAL WG III Reform

Kluwer Arbitration Blog - Fri, 2021-11-05 00:53

The discussion within UNCITRAL Working Group III (WG III) on counterclaims has still remained, to a certain extent, deadlocked, as opposed to discussions on other topics under the table. As a result, the UNCITRAL Secretariat has been put (at least) until now in the unfortunate position of being unable to bring a coherent package of draft provisions on the matter to the attention of WG III delegates.

During the intersessional meeting of WG III, organized by the Republic of Korea at the beginning of September 2021, the debate has not progressed further than the reiteration once again that “the current work on ISDS reform should not address the obligation of investors or the legal basis for counterclaims” and “drafting such obligation [i.e. substantive obligations on the part of investors in investment treaties] was not within the mandate of the Working Group focusing on procedural reforms.”

The Janus-faced nature (i.e., both procedural and substantive) of counterclaims has surely made States’ counterclaims in ISDS not an easy matter for consideration by the WG. The view of counterclaims as possibly a general means of correcting the asymmetry of the current investment regime, or of enforcing investors’ “…obligations in relation to human rights, the environment as well as to corporate social responsibility”, which, as such, is not among those concerns the procedural reform efforts are meant to address, has made the discussion even more complicated.

That having been said, the debate within the WG seems to have also remained quite unfocused and untechnical against the backdrop of the legal concept of counterclaims, as generally understood at both the international and domestic level.

Consideration for the general features of counterclaims, as generally acknowledged under both international and domestic laws, would, however, help the WG to properly grasp the boundaries, rationale and purpose of such juridical institution, and, thus, exactly delimit the scope of discussion. Such consideration would shed light on the essential prerequisites for a respondent’s counterclaims, including the circumstances under which a State might file counterclaims against foreign investors, bringing the UNCITRAL discussion back to more constructive terms, and refocusing it on procedural aspects of ISDS.

 

Counterclaim

A counterclaim, as generally understood at both international and domestic levels, is an autonomous claim of a respondent party against a claimant, which albeit reactive and therefore incidental to the principal claim of the latter, aims at obtaining something more than the mere dismissal of the principal claim. This description also evidences rationale and purpose of counterclaims as operating on both the international and domestic plane.

On the one hand, the right to counterclaim is a fundamental element of respondent’s right to present its case on an equal footing with the original claimant, as a general principle of law, and rests on reasons of fairness. As also pointed out in international jurisprudence, even when the right of filing counterclaims is not expressly provided for or regulated, international arbitral tribunals “have the inherent power to hear counterclaims”, thus giving each party a full opportunity to be heard.1) The ‘Erica Lexie’ incident (Italy v. India), PCA Case No. 2015-28, Award of 21 May 2002, paras 254-255 jQuery('#footnote_plugin_tooltip_39173_60_1').tooltip({ tip: '#footnote_plugin_tooltip_text_39173_60_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); On the other, counterclaims, besides guaranteeing the equality of parties in pursuing their own case before the tribunal, promote procedural economy and consistency in decision-making, contributing to a better administration of justice, but “must necessarily relate to the aims thus pursued and be subject to conditions designed to prevent abuse”.2) ICJ, Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Yugoslavia), Counter- Claims, Order of 17 December 1997, I.C.J. Reports 1997, p. 256, para. 30 jQuery('#footnote_plugin_tooltip_39173_60_2').tooltip({ tip: '#footnote_plugin_tooltip_text_39173_60_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Since a counterclaim can serve the aforementioned procedural economy and finality purposes only when it is sufficiently connected with a claimant’s primary claim, a counterclaim is admissible, and thus legitimate, only when it meets the direct connection requirement. The direct connection requirement is, in fact, a counterclaims’ condition for admissibility common to both international litigation and domestic litigation, as opposed to the jurisdictional requirement, which is peculiar to the former. Several corollaries follow from such general concept. First of all, considerations based on the asymmetry of IIAs and ISDS in themselves do not a priori exclude a respondent state’s possibility to counterclaim against investors under investment treaties. Contrary to what has been said by a few investment tribunals, neither the silence of an investment treaty on such possibility, nor its explicit reference just to investors’ right to claim under the treaty thus supports in itself restrictive approaches on the matter. Secondly, the framework for counterclaims cannot be by definition expanded to include claims by third parties against the claimant. Such claims by third parties, which usually can be advanced against either a claimant or a respondent in domestic legal systems, do not and cannot qualify as counterclaims, but fall into other universally acknowledged concepts of procedural law, such as those of cross-claims and intervention des tiers. Thirdly, a counterclaim is not a mere defence aimed at obtaining the dismissal of claimant’s legal action, but rather an action which is an autonomous, albeit reactive, legal act by a respondent against a claimant for the latter being responsible for the breach of the obligations it owes to the former, as pointed out above. Thus, any counterclaim has to properly be legally substantiated for avoiding early dismissal for lack of a legal basis or a tangible one since an adequate and sufficiently developed cause of action is a necessary minimum requirement of any pleaded claim, therefore of not only investors’ primary claims but, also counterclaims of respondent States.

 

Counterclaims Case-law

In this respect current investment case-law offers a quite significantly high number of examples of counterclaims grossly defective in terms of cause of action especially in comparison with the overall small number of investment arbitration cases where states’ counterclaims were at stake. According to our overview,3) This brief overview is part of a broader study by the present authors on counterclaims in ISDS. jQuery('#footnote_plugin_tooltip_39173_60_3').tooltip({ tip: '#footnote_plugin_tooltip_text_39173_60_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); in more than half over just 25 investment proceedings where respondent states advanced counterclaims against investors, such counterclaims were either found, among others, completely legally or factually unsubstantiated, or, when admitted, they were dismissed for lack of a legal basis or lack of substantiation. In some arbitral cases such non-compliance of respondents’ counterclaims with the aforementioned necessary minimum pleading requirements was so serious as to make their counterclaims possibly dismissed in limine litis for being unmeritorious, when not abusive.

In the Urbaser and Aven cases, the tribunals, after having admitted the counterclaims of respondents in general and abstract terms, dismissed them since the nature of human rights obligations as State obligations, rather than international obligations upon investors as (counter)claimed by respondent states, makes it impossible for them to merely shift from States to corporations. As a consequence, the counterclaims in these two cases ultimately resulted as completely unsubstantiated. In Al Warraq v. Indonesia, the counterclaim was admitted in the abstract, but subsequently dismissed since the respondent did not have jus standi to claim the damages it asked for under its own law (i.e. damages suffered by third parties). Also, in Tethyan v. Pakistan, the respondent did not have ius standi for advancing the domestic law-based counterclaim under its own law. In Paushok v. Mongolia the taxation obligations under municipal law at the basis of respondent’s counterclaim, found by the tribunal as inadmissible for lack of a reasonable connection with the investors’ claims under the BIT and public international law, were also incumbent upon a third party to the procedure, and, in any case, had been already enforced by national authorities before domestic judges. Also, in Inmaris v. Ukraine claimants were found not responsible for the specific claim advanced by respondent by way of counterclaim, and such claim could not be brought against them. In the Hamester, Respondent’s counterclaim was so completely unsubstantiated, including any indication of a possible legal basis, as to put the tribunal in the unfortunate position of being unable to determine, even prima facie, whether or not it had jurisdiction to entertain it. The same holds true in respect to the counterclaim filed by Argentina in the Teinver case: because the respondent did not identify any legal right or obligation, neither in international law nor in domestic law, on which it could rely in order to bring its counterclaim, the tribunal found that it could not assert jurisdiction over the respondent’s counterclaim. Similarly, the Amto tribunal could not but conclude for the dismissal of respondent’s counterclaim for lack of any legal basis for having been the Respondent unable to present any legal basis in the applicable law for it. Also, in the Rusoro case the counterclaim by Venezuela against the claimant was not only outside the jurisdiction of the Tribunal limited just to “a claim by the investor that a measure taken or not taken by [the host State] is in breach of [Art. XII (1) Canada-Venezuela BIT], but it was also completely unsubstantiated. Finally, in other cases the counterclaim before the arbitral tribunals, besides presenting some other flaws, was also already submitted, as either principal claim or counterclaim, before other fora. For instance, this was the case in Saluka v. the Czech Republic, where the claims advanced by the Respondent as counterclaims in the treaty-based arbitration were already before a contract-based arbitration tribunal as principal claims, and in the Gavazzi v. Romania, where Respondent’s pleads by way of counterclaim in the investment treaty arbitration were not only advanced before but also finally decided in favour of the investors by both domestic judges and contract-based arbitration tribunal.

The above overview clearly points to the poor performance of respondent states’ counterclaims in ISDS, which were ultimately upheld in just two cases out of 25 investment arbitration cases. The asymmetry of the investment regime does not seem to bear specific responsibility for such outcome.

As some investment cases, such as Aven and Al Warraq, illustrate, there is, to a certain extent, an inclination by respondent states to conflate mere defences either on jurisdiction and admissibility, or on merits and which are based on investor’s breach of, or non-compliance with, relevant domestic laws and regulations, and proper legal actions against investors. However, this alone does not explain the statistics on counterclaims. Indeed, a further explanation might come from the ‘public law’ nature of the domestic regulations in which States generally ground their counterclaims. Breaches of ‘public law’ regulations by investors require host state’s public authorities to take appropriate actions against wrongdoers within the framework of their domestic legal system. A State cannot be held liable at public international law for actions and measures which are triggered by and constitute a reasonable response to inadequate, wrongful, or deficient behaviour of the claimant investor; as a result, investors’ breach of, or non-compliance with, relevant domestic laws and regulations can exclude State liability, or, operating by way of set-off plea, reduce it. However, such reactive actions, which are taken by host states’ authorities in the exercise of their public powers, are manifestation of sovereign power, have a unilateral, rather than a consensual, nature, and, thus, are generally not framed as damages actions pursuant to the relevant domestic legal system. As a result, such states’ actions do not fit in with the liability model followed by investment law, and cannot be directly enforced via ISDS, including by way of counterclaims. Indeed, such issue has been touched upon by the Paushok tribunal when it observed that upholding jurisdiction over the counterclaim based on taxation obligations would have run contrary to the international principle of non-extraterritorial enforceability of national public law. It follows, as a matter of practice, that the possible ambit of operation of counterclaims in ISDS is not so different from that of counterclaims within the framework of investment contracts and other similar domestic law instruments creating reciprocal obligations for parties. In such instances counterclaims by respondent states are, in fact, a normal occurrence, as ICSID contract arbitration practice, Iran-US Claims Tribunal case-law, and Burlington v. Ecuador, and Perenco v. Ecuador (the only two recent investment cases where respondent’s counterclaims were upheld) clearly illustrate.

 

Conclusions

A few conclusions can be drawn from the general concept of counterclaims and its corollaries above.

First of all, the direct connection requirement cannot be disregarded since it is an inherent element of counterclaims, as a general law concept which serves its institutional purposes of procedural economy, finality, and ultimately a better administration of justice. It is for the court or tribunal, in its sole discretion, to assess whether a given counterclaim is sufficiently connected to the principal claim, considering the particular circumstances of each specific case.

Secondly, respondent states’ counterclaims do not (and cannot) have any potential at all as a means of enforcing legal obligations – whatever origin (international or domestic) they might have – foreign investors owe to third parties, and not directly to the respondent state, contrary to what the discussion within the WG seems, sometimes, to assume. The possible ambit of counterclaims in ISDS is much more limited than the discussion at UNCITRAL appears to indicate.

Thirdly, the asymmetry of investment law and arbitration in itself does not limit state’s right to counterclaim. Limitations on states’ possibility to advance counterclaims against foreign investors mirror those on the scope of application of ISDS just to Parties’ breaches of their international treaty obligations. Many IIAs of old and new generation limit the scope of application of ISDS to investment disputes just on alleged breaches by contracting Parties of their international treaty obligations; and they indicate as governing law just treaty provisions and applicable rules of international law, thus excluding states’ possibility to counterclaim. This is, for instance, the case with NAFTA and CETA, as opposed to the CPTPP which provides for respondent states’ counterclaims, and indicates, as governing law, applicable domestic rules (Article 9.25.2 CPTPP). These limitations on international jurisdiction over investment matters reveal deliberate treaty policy choices of the Contracting Parties towards restricting international jurisdiction of investment tribunals, rather than expanding it.

The above highlights the uneasiness with drafting treaty clause options on counterclaims by taking as model clauses specific provisions on the matter included in existing treaties. Among these are (not only Article 9.19.2 CPTPP but also) Article 17 of Slovakia-UAE BIT, Article 14, in combination with Article 17, of Iran-Slovakia BIT, and Article 28(4) of Argentina-UAE BIT. Such an exercise risks being sterile since it would put each relevant provision out of its specific treaty context. In order to be fully appreciated (even just in terms of best practice) all afore-mentioned provisions on counterclaims cannot be taken in isolation from their ‘background’ provisions: first in line, the clauses delimiting the ‘primary’ scope of jurisdiction of the international investment tribunal under any given backing treaty; and then the other relevant treaty clauses, such as, for instance, the clauses on governing law, and those including covered investment’s definitions.

Moreover, these issues, starting from the scope, and limits of international investment jurisdiction are (not merely outside the scope of the discussion at UNCITRAL, but) core matters of treaty policy for each state to decide within the context of the negotiation and conclusion of any given investment treaty, balancing, among others, its offensive and defensive interests on a case-by case basis, as existing treaty practises’ divergences on the matter demonstrate.

In conclusion, all the above considered, the question arises as to whether the discussion on counterclaims within the WG has been, to a certain extent, “much ado about nothing”. Moreover, it is also questionable whether counterclaims in ISDS is really a cross-cutting issue, thus relevant to all reform proposals on table.

References[+]

References ↑1 The ‘Erica Lexie’ incident (Italy v. India), PCA Case No. 2015-28, Award of 21 May 2002, paras 254-255 ↑2 ICJ, Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Yugoslavia), Counter- Claims, Order of 17 December 1997, I.C.J. Reports 1997, p. 256, para. 30 ↑3 This brief overview is part of a broader study by the present authors on counterclaims in ISDS. function footnote_expand_reference_container_39173_60() { jQuery('#footnote_references_container_39173_60').show(); jQuery('#footnote_reference_container_collapse_button_39173_60').text('−'); } function footnote_collapse_reference_container_39173_60() { jQuery('#footnote_references_container_39173_60').hide(); jQuery('#footnote_reference_container_collapse_button_39173_60').text('+'); } function footnote_expand_collapse_reference_container_39173_60() { if (jQuery('#footnote_references_container_39173_60').is(':hidden')) { footnote_expand_reference_container_39173_60(); } else { footnote_collapse_reference_container_39173_60(); } } function footnote_moveToReference_39173_60(p_str_TargetID) { footnote_expand_reference_container_39173_60(); 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_39173_60(p_str_TargetID) { footnote_expand_reference_container_39173_60(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Anti-Doping Lessons from Tokyo 2020: Liability of Athletes for Signatory Actions

Kluwer Arbitration Blog - Thu, 2021-11-04 00:58

Hidden behind the glamour and grandeur of major sporting events such as the Olympics is the way the sport comes to terms with various aspects of the law. The Court of Arbitration for Sport (CAS), or the Tribunal Arbitral Du Sport (TAS), based in Lausanne, is at the apex of a now complex pyramid of national and international arbitral bodies that enforce swift and efficient decisions to the disputes that arise in sports. Amongst others, doping in sports, now harmonised by the World Anti-Doping Agency (WADA) through the World Anti-Doping Code (WADC), is the most common dispute that arises out of sporting events today. Until 2019, the Appeal Arbitration Division of CAS adjudicated upon appeals from WADA with respect to the anti-doping cases. However, in 2019, deriving power from the signatories of the WADC such as the International Olympic Committee and International Sports Federations (Ifs) with Olympic Recognition, CAS set up the Anti-Doping Division of the Court of Arbitration for Sports (CAS ADD) to hear and decide anti-doping cases as a first-instance authority. While the CAS ADD Arbitration Rules apply to the procedural aspect of the arbitration, the WADC Anti-Doping Rules continue to be the substantive law governing the dispute.

Against this backdrop, the recently concluded Tokyo Olympics 2020 offer a lot to write in the history books. Alongside the record-shattering performances and unprecedented obstacles presented by COVID-19, was the participation of Russian athletes under the acronym ‘ROC’, short for Russian Olympic Committee, despite their ban from participation in major sporting events by WADA and CAS as a result of an infamous doping scandal by the Russian Anti-Doping Agency (RUSADA). This raised a plethora of questions regarding the integrity of sports and the authority of arbitral bodies such as WADA and CAS over sporting events.

Thus, the following post sets to dive deep into the decision of CAS in 2020/0/6689 World Anti-Doping Agency v Russian Anti-Doping Agency (WADA v RUSADA), and the sanction mechanism in anti-doping cases apropos the WADC. It is caveated that this case was before the establishment of CAS ADD. Thus, the altered independent regime of CAS ADD is taken into consideration while suggesting steps that CAS may take to course-correct anti-doping infractions going forward.

 

I. World Anti-Doping Agency v. Russian Anti-Doping Agency

The factual background behind the arbitral award delivered by CAS in WADA v RUSADA, which led to Russia’s ban from all sporting events, including the Olympics commences with the closing of the Sochi Olympics in 2014.

After the conclusion of the 2014 Olympics, a German television channel broadcast a documentary that exposed sophisticated systemic doping practices within the All-Russia Athletics Federation, the governing body for athletics in Russia. Subsequently, an independent commission set up by WADA confirmed the involvement of RUSADA and the Moscow Anti-Doping Laboratory, the only WADA accredited laboratory in Russia, in the doping practices. WADA, thus, declared RUSADA non-compliant and suspended the accreditation of the Moscow Anti-Doping Laboratory under the WADC. In 2017, attempts were made to reinstate RUSADA as a code-compliant signatory of WADA, in response to which RUSADA repeatedly failed to fulfil the data/samples requirement. It was also later revealed that these samples were altered by the Moscow Laboratory. All this prompted WADA, in 2019, to finally deem RUSADA as non-compliant and banned Russia for a period of four years in all forms of engagements or affiliations to sporting events across the globe. RUSADA appealed the decision of WADA before CAS, which limited its adjudication to the disputed issue of RUSADA’s non-compliance of the delivery of authentic data from the Moscow Laboratory to WADA, a requirement under the International Standard for Code Compliance by Signatories (ISCSS) of WADA.

CAS found RUSADA to be non-compliant with the WADC. It reduced the ban period from four years to two years and allowed Russian athletes to participate in sporting events if the name ‘Russia’, its anthem, and the flag are not used by the athlete. However, the scope of scrutiny by CAS in this case, as was the scope of inquiry of WADA previously, albeit voluminous – spanning over 48,000 pages of submissions by all parties and interveners – was restricted to the determination of whether RUSADA complied with its obligations under ISCCS. While an alternative affirmation of actual doping of Russian athletes via an elaborate state-sponsored scheme backed by data as per the ISCSS norms would have, with certainty, meant that Russian athletes have used prohibited substances, such a conclusion would have yielded a different outcome for the athletes. The Russian State’s recalcitrance to reveal data, in a way, protected the athletes who perhaps failed to abide by the WADC. The next section thus explores the strict liability of an athlete under the WADC, and ponders upon whether the same must be revised, synchronous with the relationship of signatories and athletes under the ISCSS, to course-correct and protect the integrity of sports.

 

II. Revisiting the Rule of Strict Liability Under WADC Vis-À-Vis ISCSS – Consequences of State Action

The WADC adopts the rule of strict liability when it comes to anti-doping violations, the most common of which is the presence of prohibited substances found in the testing of an athlete’s bodily specimen. The doctrine holds that an athlete is strictly liable for the presence of a prohibited substance irrespective of whether the athlete intentionally or unintentionally used a prohibited substance or was negligent or otherwise at fault. This onerous burden on an athlete is justified by the school of thought that the winner of a gold medal who has a prohibited substance in his body has put the other clean athletes at a disadvantage regardless of the intention of the athlete and that genuine cases of mistake or no-fault would be anyway exempted from a sanction under Article 10 of the WADC. The seminal CAS award of 94/129 USA shooting & Quigley v UIT (Quigley), was a landmark on strict liability which came at a time when there was widespread upheaval against this pure strict liability regime. In this case, CAS modified the strict liability with a rebuttable presumption of fault on behalf of the athlete which was interpreted to be concomitant with the sanction provisions of the WADC under Article 9 (automatic disqualification of individual results); Article 7.5 (provisional suspension based on A-sample adverse analytical finding), and Article 10.2 (two-year period of ineligibility on the confirmation, A and B sample, of adverse analytical finding).

Turning to the findings of CAS in WADA v RUSADA which was entirely based on the signatory non-compliance under Article 7 of ISCSS, the sanction, particularly concerning the relaxation given to the Russian athletes as ‘neutral athletes’, is disconcerting. The WADA ecosystem is an advanced and harmonised system, with its signatories, along with the athletes, coming under the same umbrella. As evidenced by ISCSS Articles 9 and 10, there prima facie exists a close connection between the athletes and the signatory. Article 1 sets out the scope of ISCSS:

…if a Signatory fails to correct the Non-Conformities, the process to be followed to get CAS to hear and determine an allegation of non-compliance and to determine the Signatory Consequences of such non-compliance. This process mirrors, insofar as is appropriate and practicable, the process followed in determining Code non-compliance and the Consequences of such non-compliance for Athletes and other Persons…

Further, Article 10.2.6 of ISCSS envisages the possibility of athletes’ participation in sporting events as ‘neutral athletes’ through the application for special eligibility, and that there must be evidence that the suspended signatory’s failure to enforce ISCSS did not affect the athlete in any way. In this context, CAS 2016/O/4684 ROC et al v IAAF held:

the Athlete had to show that he or she had been subject to fully compliant Testing both in and out of competition that was equivalent in quality to the Testing to which his or her competitors in the international competition(s) in question were subject in the relevant period

A closer look at Article 10.2.6 reveals that the standard is similar to the rebuttable presumption of fault standard of modified strict liability held by Quigley. The argument that the athletes bore the burden to prove bona fide in cases of a direct anti-doping violation under Article 2 of the WADC or, in case of signatory non-compliance under Article 10.2.6, uncovers an unexplored aspect of strict liability of athlete under ISCSS owing to a fault of the signatory. This proposed renewed position of strict liability under ISCSS, exasperated by the close relationship of athletes with the signatories of WADA, is justified for two reasons. First is the possibility of recalcitrant signatories taking the fall for the athletes under ISCSS, allowing the athletes to participate as ‘neutral athletes’. Second and more importantly, CAS’s lack of scrutiny into the standard for allowing an athlete as neutral under Article 11.2.6 of ISCCS, in WADA v RUSADA, would change with the establishment of CAS ADD. With a permanent division to specifically deal with anti-doping at first instance, due attention can be paid to an athlete’s defence under the renewed strict liability. In this new regime, parallel application of the WADC and ISCSS in a CAS ADD arbitration as substantive law would certainly arrest the consequences of signatory backed doping violations.

 

III. Conclusion

WADA envisions a world that values and fosters doping-free sports so as to protect the integrity of sports. The introduction of CAS ADD in 2019, distracted unfortunately by COVID in 2020, is a positive step in the right direction. If Russia’s indirect participation in Tokyo 2020 is any lesson, the emphasis must be on signatory-athlete relations and compliance with WADA standards. The renewed strict liability protects the genuine innocence of athletes akin to the protection offered by the Quigley modified principle of strict liability under the WADC. What could otherwise have been a precedent for CAS in WADA v RUSADA, must now be realised either through an amendment to the WADC/ISCSS, or CAS must wait with bated breath for another opportunity to reconsider this principle. As much as CAS lost the opportunity to revisit the principle of strict liability of athlete in WADA v RUSADA, it is hoped that the establishment of CAS ADD, with a receding COVID pandemic, rise in online hearings and a shift of focus back on prevention of anti-doping violations, together with a watertight renewed strict liability principle will streamline the analysis of future anti-doping infractions, ultimately protecting the integrity of sports.

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The Contents of the ASA Bulletin, Volume 39, Issue 3 (September 2021)

Kluwer Arbitration Blog - Thu, 2021-11-04 00:00

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

 

ARTICLES

Felix DASSER, Arbitration Toolbox by ASA – Self-Empowerment with Safety Belts

ASA President Felix DASSER presents the Arbitration Toolbox by ASA, an interactive online tool that assists users in navigating the various stages of arbitral proceedings.

 

Louis CHRISTE, The Use of 28 U.S.C. § 1782 in Swiss Seated Arbitrations

Louis CHRISTE discusses discovery under Section 1782 of Title 28 of the United States Code and provides a practical overview of the issues that parties to an international arbitration seated in Switzerland may encounter when seeking evidence located in the U.S. on that basis.

 

Flavio PETER, Urs WEBER-STECHER, The Myth of Partial Awards on Advances on Costs in International Commercial Arbitration in Switzerland under the Swiss Rules

Flavio PETER and Urs WEBER-STECHER examine the nature of advances of costs under article 41 of the Swiss Rules, describe the circumstances in which there may be valid grounds for a party to refuse to pay the advances as well as the consequences of non-payment in the light of recent cases.

 

Nadia SMAHI, Applying “Foreign” Mandatory Laws in International Arbitration Despite the Parties’ Choice of Law: A Necessary Evil?

Nadia SMAHI addresses the scenario where arbitrators must decide whether to apply a foreign mandatory law invoked by one party but rejected by the other and the potential risks involved.

 

Alfred LEWIS, Conditional Arbitrability – A Questionable Innovation in Russian Arbitration

Alfred LEWIS presents and compares two doctrines dealing with arbitrability and public policy concerns: the second look doctrine, first espoused by the U.S. Supreme Court in Mitsubishi v Soler in 1985, and the doctrine of conditional arbitrability introduced in the 2015 reform of Russian arbitration law.

 

Anna MASSER, Eileen LÖBIG, May Arbitral Tribunals Seated in Switzerland and Applying German Law or the CISG Estimate Quantum?

Anna MASSER and Eileen LÖBIG compare the approaches to the right for arbitral tribunals to estimate damages under Swiss and German law and analyse how arbitral tribunals seated in Switzerland and applying German law or the Convention on the International Sale of Goods may estimate the final amount to be awarded.

 

Carlos A. MATHEUS LÓPEZ, A Comparative Analysis of the Setting Aside of Arbitral Awards from a Peruvian Perspective

Carlos A. MATHEUS LÓPEZ looks at the setting aside of arbitral awards, with an emphasis on the practice in Peru.

 

Ilias BANTEKAS, The Requirement of Signed and Dated Awards: Are Arbitrators Ever Entitled Not to Sign?

Ilias BANTEKAS examines whether arbitrators are entitled not to sign their awards, by analysing the arbitrators’ duty to sign their awards, the circumstances in which an arbitrator’s refusal to sign may be permissible as well as the legal consequences of such a refusal.

 

Guido CARDUCCI, Remote or Virtual Arbitration Hearings as “New Normal”: Governing Law and Rules, Seat, Annulment, Recognition and Enforcement

Guido CARDUCCI analyses the legal and technical issues raised by virtual or remote hearings.

 

DECISIONS OF THE SWISS FEDERAL SUPREME COURT

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The Mexican Energy Counter-Reform – Impact and the Illegality Threshold (Tenth Investment Arbitration Forum: Part I)

Kluwer Arbitration Blog - Wed, 2021-11-03 00:48

On 30 June and 1 July 2021, the Tenth Investment Arbitration Forum took place in form of a webinar jointly organized by Dr. Herfried Wöss of Wöss & Partners and Prof. Dr. Guillermo Estrada Adán of the Instituto de Investigaciones Jurídicas, UNAM.

The topic of this year’s forum was “The Second Mexican Energy Reform” or energy counter-reform and the impact of the multiple regulatory and legal changes by the Mexican government on energy investments and different investment arbitration scenarios.

 

The Impact of the New Energy Reform: Clean Energy Certificates, Renewable Energy, Electric Industry, Oil & Gas

The panel discussed the impact of Mexico’s second energy reform and the future of energy in Mexico.

Carlos Francisco Rodriguez Sámano of Wöss & Partners and Ángel Lárraga, a former CEO of a large energy company in Mexico and senior consultant, explained the measures implemented by the Mexican government since 2018 to reverse the energy reform of 2013, aiming at converting the electricity state owned company CFE and the national oil company PEMEX again in monopolies, at the expense of private businesses, mainly related to renewable energies and private energy generation.

This has led to massive constitutional injunctions or amparos and the suspension of state measures while constitutional procedures are pending, as well as the declaration by the Supreme Court of the unconstitutionality of the measures regulating the energy sector by CENACE (electricity regulatory agency) and the Ministry of Energy.

The overview was followed by a debate in which Veronica Irastorza, a former Deputy Secretary of the Ministry of Energy and senior consultant of Nera Economic Consulting, pointed out that the reform does not change the foundations upon which the energy policy in Mexico is based.

Furthermore, as the world is moving towards renewable energy, this goal will be better achieved through public and private partnerships, with investments coming from both CFE and private investors. Moreover, there are viable models involving higher and lower levels of public ownership, and tariff regulation should be clear, with a transition period so that investors can make informed decisions.

Casiopea Ramírez of Fresh Energy, underlined that those sanitary restrictions imposed on power plants due to Covid-19 and their impact on supply have proven the importance of the energy generation to the country, and the difficulties in meeting consumer demand. Furthermore, tariff regulation is to ensure uninterrupted access to electricity at reasonable cost, which is currently achieved through subsidies designed to keep tariffs below inflation. She concluded that there is an imminent risk of a tariff deficit which could compromise supply, and that penalizing renewable energy instead of fomenting such energy is counterproductive to the goal of moving towards sustainable energy.

 

The Paris Convention and Climate Change Arbitration

This panel discussed disputes between states concerning climate change.

Judge Tullio Treves, former judge of the International Tribunal of the Law of the Sea, addressed the three main international treaties on climate change: The Vienna Convention for the Protection of the Ozone Layer, the Kyoto Protocol and the Paris Convention; and asserted that the dispute resolution mechanisms in these treaties are relatively inefficient.

He pointed out that only 2 out of 177 signatories to the Vienna Convention have made a declaration allowing other signatory states to initiate proceedings before the ICJ or an arbitral tribunal in case a dispute emerges. He also observed conciliation proceedings are similar to an arbitration proceeding, in that witnesses are heard, and documents analyzed, citing Australia v. Timor Leste, as an example of a successful proceeding.

Professor Guillermo Estrada Adán, of the Instituto de Investigaciones Jurídicas and faculty of law at UNAM (Universidad Nacional Autónoma de México), presented an overview of existing and potential international disputes regarding energy regulation and policy.

Disputes may arise from actions by companies and affected persons, state regulatory measures regarding climate change, insufficient state actions under international obligations, revoked permissions which lead to disputes concerning renewable energy investments, performance of contracts, and, finally, specific CO2 emissions levels under the Paris Convention. The fori include national courts, regional human rights protection systems, the Court of Justice of the European Union (CJEU), the International Court of Justice (ICJ), investment arbitration and inter-state arbitration. He pointed out that, despite the existence of specialized treaties and regulatory systems, a specialized jurisdictional forum for the settlement of climate disputes still has not been created.

Nonetheless, global solidarity is necessary to align technology to ethics in preserving the right of future generations.

 

Investment Arbitration and the Energy Sector

Professor Loukas Mistelis, Professor of Transnational Commercial Law and Arbitration of Queen Mary, University of London, addressed the role of international investment arbitration in dispute resolution within the energy sector.

The current political debate takes into consideration the need to make sustainable and renewable energy available, and that international investment arbitration allows foreign investors with the capital and expertise to have legal security to invest in areas where natural resources are abundant.

Considering the differences between commercial and investment energy disputes and the differences between clean energy and renewable energy – in that clean energy sources mean none or significantly limited carbon emissions and renewable energy means it stems from permanently renewable sources – Prof. Mistelis pointed out the role of investment tribunals in determining whether regulatory measures taken by states contradict commitments made by the state in the international sphere.

Regarding international investment disputes, 20% of the cases administered by the International Chamber of Commerce (ICC) are energy disputes and 30% of the

International Centre for Settlement of Investment Disputes (ICSID) Cases as well. He observed that energy reforms, such as the second energy reform in Mexico, are seen as a likely trigger of disputes.

 

Regulatory Freedom and the Illegality Threshold

This panel discussed the regulatory power of the state and the threshold between legitimate exercise of this power and violation of the rights of investors.

Gaela Gehring Flores, of Arnold & Porter, provided a complete overview of the United States–Mexico–Canada Agreement (USMCA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the remedies available to investors and the new generation of treaties based on the 2012 US Model BIT, going through all the standards of investment protection available. She also analyzed the most crucial jurisdictional issues, such as fork-in-the-road provisions, waivers, limitations periods, dual nationality of investors, environment and public welfare.

Professor Carlos Humberto Reyes Díaz, of the Instituto de Investigaciones Jurídicas at UNAM, asserted that investors are not in a position to expect that regulation will not be altered throughout the duration of their investment. He cited various passages of the initiative of the reform of the Federal Electricity Industry Law, referring to corrupt politicians and lucrative business of private enterprises, which mark the tone of the second energy reform and underline a rejection to private investment in the energy sector. The relevant questions emerge such as whether legitimate expectations have been generated by written commitments from the state.

Francisco Rivero, of ReedSmith, mentioned that distinguishing between a sovereign’s legitimate exercise of its regulatory freedom and regulation that crosses the illegality threshold is neither theoretically simple nor practically predictable. The meteoric rise of the renewable energy sector – accompanied by subsidies, credits, and governmental support aimed at encouraging investment –has raised key questions regarding the need for investment protection versus a host nation’s right to govern.

One way to assess whether an investor has received fair and equitable treatment involves the analysis of legitimate expectations existing at the time of its investment. Whereas some tribunals have found that legitimate expectations could arise from the very contents of general laws and regulations, others have applied more restrictive tests, requiring specific representations and commitments from a host government to the investor.

While it is reasonable for investors to expect that the constitutional and legal framework pursuant to which they invested will remain stable, that is not to say that the legal framework at the time of investment is immutable.  Although not without its detractors, a recent line of cases has developed an effects analysis that considers an investors’ expectations of a “reasonable return on investment” to assess whether regulatory measures cross the illegality threshold.

Herfried Wöss, founding partner of Wöss & Partners, provided an overview of the formulation of the fair and equitable treatment standard under the main investment agreements signed by Mexico and recent legislation efforts of the standard, as well as leading cases. The key issue for an arbitral tribunal is to define the so-called illegality threshold which separates legitimate regulatory measures from illegal state acts, as shown in Eiser v. Spain, Novaenergía II v. Spain, Antin v. Spain and AES v. Hungary. The illegality threshold is a key element for the quantification of damages under the but-for premise or differential hypothesis established in the Factory at Chorzów, as damages are a mirror-image of the liability case.

The threshold has two axes, one refers to the time-aspects of the measure, and the other, to the intensity of the measure. Economic effects of the measure outside the timeframe established by the arbitral tribunal and below the intensity threshold, are not to be taken into consideration. Legitimate expectations duly recognized play a role in this respect. This is shown, amongst others, in Murphy v. Ecuador, in which a 99% tax on hydrocarbons applied by the State, was considered above the threshold of legal regulatory discretion and in violation of the investor’s legitimate expectations, but the 50% percent tax was considered within the regulatory limits of the state. Damages were awarded based on the difference between the legal 50% tax and the illegal 99% tax.

 

Amparos and Fork-In-The-Road

Lauren Mandell, of WilmerHale, examined the “fork-in-the-road” mechanisms in the USMCA/NAFTA and CPTPP investment chapters, which are not classic fork-in-the-road mechanisms that require choosing either domestic litigation or investor-state dispute settlement (ISDS), with one choice foreclosing another. Rather, Mr. Mandell explained that investors may litigate in domestic courts without relinquishing access to ISDS, provided that if they initiate ISDS, they generally may not maintain or initiate domestic litigation regarding the same measure (i.e. “no U-turn”). Nonetheless, Mr. Mandell warned investors not to discuss in domestic courts matters that could be argued before an arbitral tribunal, since Mexico has specific reservations that preclude such action.

Investors can continue to bring claims under NAFTA, until July 1, 2023, for state measures taken until 30 June 2020, while NAFTA was still in force.

Dr. Nikos Lavranos, of Wöss & Partners and Secretary-General of the European Federation for Investment Law and Arbitration (EFILA), compared the BITs that Mexico has ratified with the Netherlands and Spain, as well as the recent EU-Mexico Global Agreement, demonstrating differences in procedural and substantive law. Taking into consideration that the first significant measures in Mexico date back to 2019, he mentioned that investors must be aware of the time limitations for bringing international arbitration claims of 3 to 4 years. Investment arbitrations might be triggered through a rather short submission followed by a six-month cool-off period, which should be used for finding amicable solutions. This period might be dedicated to mediation using, for example, the services of the Energy Community, an international organization based in Vienna.

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The Mexican Energy Counter-Reform: State Defense and Damages (Tenth Investment Arbitration Forum: Part II)

Kluwer Arbitration Blog - Wed, 2021-11-03 00:30

On 30 June and 1 July 2021, the Tenth Investment Arbitration Forum took place in form of a webinar jointly organized by Dr. Herfried Wöss of Wöss & Partners and Prof. Dr. Guillermo Estrada Adán of the Instituto de Investigaciones Jurídicas, UNAM.

The topic of this year’s forum was “The Second Mexican Energy Reform” and the impact of the multiple regulatory and legal changes by the Mexican government on energy investments and different investment arbitration scenarios.

 

State Defense

Ricardo Ampuero, former President of the Special Commission for Investment Disputes of Peru, mentioned that investors are not interested in international investment arbitration, but rather in the good development of the investment.

The main issues states face in arbitrations are: (i) the auto-compositive methods of dispute resolution are more complicated to be accounted for when considering the agreement on compensation; (ii) the sector to which the company belongs could use the case discussed as a precedent and develop a chain reaction of subsequent arbitrations against the state; and finally, (iii) there is no regulatory framework that provides a secure method of negotiation without exposing the state to possible claims.

He pointed out that states should have a mechanism of prior alerts, in which any agency of the state could warn the beginning of a claim; the centralization of information would ease defense, as well as the suppression of confidentiality for an open discussion of defense strategies.

Ignacio Suárez-Anzorena, of Suárez-Anzorena Arbitration, presented three scenarios of defense of states in Investor-state dispute settlement (ISDS). Firstly, the system of external firms hired by the state, and the political independence, time effectiveness and dedication that these firms would have with the cases, since they’re not overwhelmed in the same manner as an in-house state counsel would be.

The second model comprised in-house attorneys to defend the state in arbitral proceedings, since it would allow the scrutiny of the case and the better managing of various claims arising from the same measures. Nonetheless, the politically bound discourse could be a downside of this structure.

The third model would be one that combined the abovementioned.

Rodrigo Loustaunau, main legal counsel for arbitration of PEMEX, pointed out that the State should be concerned with developing virtuous cycle mechanisms, where the individual responsible for the termination of a contract with an investor make this situation known to the parties responsible for the initiation of the defense of the state in a possible investment arbitration. Additionally, he explained the private character of PEMEX contracts in relation to the Mexican Law and that, because of this, they might not have a clear path to investment arbitration.

Christian Carbajal, partner of Wöss & Partners, made a conceptual distinction between the late-1900’s bilateral investment treaties (BITs), with a more liberal approach to investor protection, and the early-2000’s free trade agreements (FTAs), with more lenient clauses to the state’s regulatory powers.

However, he explained that this evolution does not mean that the state has an open mandate to regulate irrespectively of international law, since, even under the new FTAs, the measures shall consider the economic impact, the proportionality and reasonableness, the possible discrimination by the state and the interference with the investor’s legitimate expectations.

He analyzed the restrictive measures taken by Mexico to recede from the 2013 energy reform, and the effect that these measures may have with respect to likely investment arbitrations soon. More specifically, a change from the classic scenarios of the public interest defense, such as in Philip Morris v. Uruguay, could arise, as investors could demonstrate to tribunals that not only they are complying with the legal requirements, but also that the measures taken by the Mexican State, when changing the regulations, were against public interests, which investors seek to preserve, as those related to renewable energy and environmental protection.

 

Challenges When Quantifying Damages in Energy Arbitration

Adriana San Román, founding partner of Wöss & Partners, discussed the valuation of newly established businesses and early-stage investments.

The conceptualization of an investment may have a value, provided that an idea may generate future profits with reasonable certainty. However, arbitral tribunals are often reluctant to award lost profits in case of early-stage investments as in PSEG Global v. Turky, Metalclad v. Mexico, and others; whereas, more favorable cases are found in Ionnis Krdassopoulos v. Georgia and Abengoa v. Mexico.

Furthermore, the main challenge to this kind of investments is the risk, which can be considered in the discounted cash flow (DCF) method, through a discount rate and the adjustment of expected cash flows, or through the comparable public company approach and the comparable transaction approach. She recommended three techniques for a precise valuation of an early-stage investment: (a) scenario analysis, (b) the Monte Carlo simulation, explained in her Oxford University Press monograph on damages in international arbitration, and (c) real options, which may be used together with the DCF and market methods.

Non-operating natural resources investments are often different, since their mere existence may have a value, as it is the case with gold, minerals, oil and gas, provided all value-drivers are met (Tethian v. Pakistan, Quiborax v. Bolivia, Gold Reserve v. Venezuela, Occidental v. Ecuador (II), Rompetrol v. Romania  and Crystallex v. Venezuela).

Finally, the notion of loss of a chance does not serve to avoid the reasonable certainty requirement regarding the future income stream that was lost, since it is limited to luck, where lost profits are being awarded in proportion to the chance, but do not relieve from the burden of proof or lower the standard of proof.

Carla Chavich, of Compass Lexecon, initiated her presentation demonstrating that damages are the result of the actual scenario subtracted from the but-for scenario. When considering the energy sector, the key issues are the resources or the production capabilities, the output price forecast and volatility, the contractual and regulatory development and country risks.

Additionally, the investor´s expectations at the time of the investment must be determined and if the measure taken by the state generated uncertainty by changing the regulatory regime or the contractual framework; the main analysis is whether these measures had an impact on the value of the investment, the measure being the only relevant cause for the difference between the actual scenario and the but-for scenario.

Jennifer Vanderhart, from Intensity LLC, explained that the 2021 reform undid much of the benefit that investors would have seen if the 2013-2014 Constitutional Amends were to be maintained.

The 2021 reform changed the order of (electricity) dispatch so that the state-owned entities would be dispatched first; allowed existing contracts to be altered or cancelled; allowed issuing clean energy certificates to companies that had previously not qualified (Comisión Federal de Electricidad – CFE). Such measures will change the profits that investors can expect to earn from any recent investments.

In this scenario, damages can be calculated using a lost profits approach (especially if the asset has continued to operate), a valuation analysis, or a combination of both.  A benchmark analysis may be possible, an analysis of planning documents may help determine what reasonable expectations were, and/or a simulation analysis may be performed to estimate “but-for” profits from an investment and compare to what has occurred.  Any loss of value of clean energy certificates can also be examined, if the original timeline for adoption of low carbon emission power sources had remained the same, and the restrictions on the issuance of those certificates had remained the same.

 

Third-Party Funding

The panel on third-party funding (TPF) was conducted by the international arbitrator Francisco Victoria-Andreu, Marcel Wegmueller and Kirstin Dodge, the last two co-CEO and Director for the Americas of Nivalion AG in Switzerland, respectively.  The panel discussed how TPF works in practice and the role of third-party funding in providing access to justice and making dispute settlement available through arbitration and litigation. Originally, only available to claimants who could not afford to pursue claims, TPF is increasingly being used to convert claims into assets.

Francisco Victoria-Andreu mentioned that we face and will continue to face economic distress which affects not only private investors but states and state-owned enterprises (SOEs), and that TPF, while often unknown to parties, plays a key role in providing access to justice in this scenario.

Marcel Wegmueller asserted that the funder is not a party to the dispute, nor has it control over parties’ strategies. Parties could decide to use a funder even if they have the necessary resources available to finance the case, for risk transfer and liquidity reasons. He listed some characteristics parties expect their funder to have, such as the means to sustain a dispute for several years, a track record of stability, experience, understanding of litigation and arbitration proceedings and good communication between the funder with the legal team. Marcel asserted that Nivalion is open to funding both, claimants and defendants, at all stages of the proceeding, and that it focuses on corporate claims, being 40% arbitration and 60% litigation.

Kirstin Dodge provided an overview of the funder’s working method, which includes an initial assessment of the claim and the parties, how it will be pursued, and estimated timing and budget. The commercial terms are proposed, which results in a term sheet being signed, which includes agreed pricing and an exclusivity period, during which Nivalion performs a detailed due diligence.  At the end of the exclusivity period, if all goes well, the investment is approved and Nivalion begins to fund the proceedings.

 

The Honorable Charles N. Brower

The conference concluded with an interview of the Honourable Charles N. Brower, a world-renowned international jurist and arbitrator, by Dr. Devin Bray, of Wöss & Partners  and his former private law clerk.

The topic of conversation focused on matters relevant to energy reform measures in investor-state cases. He calculated, amongst other things, that the degree of difference in legislative change are often more significant than the abruptness of change in legislation in any given case; that pursuit of prior or parallel proceedings to an international arbitration is a matter of case strategy; that experienced arbitrators may edge out inexperienced arbitrators in larger cases; that persuasive counsel must be able to explain their case in simple terms to the tribunal; that evidence, particularly media articles, must be carefully weighed to ensure their credibility and reliability, and; that inconsistent awards and decisions may be regarded as a strength of a system of law, including investor-state dispute settlement, which Judge Brower highlighted when he quoted an essay written by Ralph Waldo Emerson: “A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.”

 

Conclusions and Call for Articles

To conclude the Tenth Investment Arbitration Forum, Herfried Wöss thanked Judge Charles N. Brower for his presence as well as the panelists and the ample audience. Professor Guillermo Estrada Adán thanked the Instituto de Investigaciones Jurídicas of UNAM for all the support and announced that the recordings will be made available to the public at its conference webpage . He also made a call for articles in Spanish or English on the Second Mexican Energy Reform and Related Topics which will be compiled in a book, with the deadline on December 31, 2021.

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Trends in Questions of Jurisdiction and Admissibility in International Arbitration

Kluwer Arbitration Blog - Tue, 2021-11-02 00:55

A common issue in commercial contracts across a range of industries is whether a claimant’s failure to comply with the provisions of a dispute resolution clause gives rise to an issue of admissibility or jurisdiction. There have been a range of recent decisions from across the globe ruling on this very question, with all of them ruling that questions of compliance with pre-arbitral procedures go to the admissibility of an issue in dispute rather than the arbitral tribunal’s jurisdiction.

The distinction between issues of jurisdiction and issues of admissibility can be an important one. If an arbitral tribunal does not have jurisdiction over an issue, then it cannot proceed to issue an award on the merits of that issue. In contrast, admissibility goes to whether the arbitral tribunal may exercise its power to judge the merits in relation to the claims submitted to it.

The distinction also has a number of practical consequences. For example, decisions on admissibility cannot generally be reviewed by national courts unless there is some fundamental breach of fair procedure. This means that recalcitrant parties will not have the opportunity to re-open admissibility issues in the national courts as a tactic to delay or prevent enforcement. It also means that arbitral tribunals have a wide discretion to rule on issues of admissibility without fear of those decisions being reviewed by the courts. That includes the ability to issue directions to allow compliance with the relevant conditions to make the claim or issue admissible.

 

BG Group v Republic of Argentina

Back in 2014, the US Supreme Court in BG Group v Republic of Argentina 134 S.Ct. 1198 rejected a challenge to an arbitral award on the basis that a mandatory pre-condition to arbitration had not been complied with. This case concerned an arbitration brought by BG Group under the Argentina-UK BIT following actions taken by Argentina in light of its economic collapse in late 2001. BG Group prevailed in the arbitration, which was seated in Washington DC. The Argentina-UK BIT required claimants to litigate their claims for 18 months in Argentina prior to commencing a claim in arbitration. The arbitral tribunal had held that BG Group’s claim was admissible even though it had not first sought relief in the Argentinian courts.

The US Supreme Court held, by a majority, that in the absence of a contrary provision in the arbitration agreement, questions as to whether the parties are bound by an arbitration clause are for the courts to decide. Conversely, it is for the arbitral tribunal to decide the meaning and application of particular procedural preconditions to the use of arbitration. The US Supreme Court viewed the litigation requirement in the Argentina-UK BIT as a procedural requirement and the arbitral tribunal’s decision on this question could not be reviewed de novo by the courts.

 

BBA v BAZ and BTN v BTP

BBA v BAZ [2020] SGCA 53 and BTN v BTP [2020] SGCA 105 are two 2020 decisions from the Singapore Court of Appeal in which it recognised the distinction between jurisdiction and admissibility.

The first case related to a dispute arising under a sale and purchase agreement which contained an arbitration clause providing for arbitration in Singapore. The contract provided that the arbitral tribunal could not award punitive, exemplary or consequential damages. BAZ was successful in the arbitration and sought to enforce the award in Singapore. BBA resisted enforcement on the grounds that (i) the arbitral tribunal had exceeded its jurisdiction by awarding damages, as well as pre-award interest, that, they said, amounted to compensation for loss of opportunity contrary to the prohibition on awarding consequential damages and (ii) that the claim for fraud was time-barred. The Singapore Court of Appeal declined to set aside the award, holding that the first question related to the merits of the award rather than to jurisdiction, and that the time-bar issue was one of admissibility rather than jurisdiction, as it was targeted at the claim rather than at the tribunal.

The second case concerned payments under earn-out provisions in a sale and purchase agreement in circumstances where two individuals were terminated under a promoter employment agreement. The agreements provided for different outcomes depending on whether the individuals were terminated with or without cause. Unusually, the contracts contained arbitration agreements but also vested exclusive jurisdiction in the courts of, in the case of the sale and purchase agreement, Mauritius, and, in the case of the promoter employment agreement, Malaysia. In each case, the jurisdiction clause in favour of the courts was expressed to be subject to the arbitration agreement.

A dispute arose as to whether BTP was entitled to the earn-out payments. He had invoked his rights under Malaysian law and brought an action in the Malaysian Industrial Court, which found in BTP’s favour and declared that he had been terminated without cause. BTP then commenced an arbitration under the sale and purchase agreement seeking payment under the earn-out provision in accordance with the more generous provisions where employment was terminated without cause. BTN argued that BTP had been terminated for cause and the arbitral tribunal held that this issue was res judicata. BTN sought a declaration from the Singaporean courts that the issue of whether BTP had been dismissed could be reviewed by the courts. BTP argued before the Singapore Court of Appeal that the arbitral tribunal had abdicated its duty to decide on whether BTP had been terminated for cause despite this question falling within the arbitral tribunal’s jurisdiction. The Singaporean courts rejected this, holding that the res judicata determination was a question of admissibility and not jurisdiction, and therefore the courts could not review it on its merits.

 

Republic of Sierra Leone v SL Mining Ltd and NWA v NVF

The English High Court decision in Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm.) saw the English courts decline to set aside an arbitral award on the basis that the defendant had failed to comply with certain pre-conditions to arbitration.

The underlying dispute concerned the cancellation of a mining licence. The licence contained a multi-tiered dispute resolution clause under which the parties agreed to attempt an amicable resolution of disputes prior to commencing arbitration proceedings for three months after sending a notice of dispute. The defendant had served a notice of dispute followed by a Request for Arbitration just six weeks later.

The claimant sought to set aside the award under section 67 of the English Arbitration Act 1996 on the basis that the arbitral tribunal did not have substantive jurisdiction to determine the dispute. The English court held that the leading commentary and authorities all leant “one way” in that pre-conditions to arbitration are questions of admissibility and not jurisdiction.

The second English decision, NWA v NVF [2021] EWHC 2666 (Comm.) is a recent High Court judgment relating to a dispute where the parties agreed in their arbitration agreement to seek to mediate a settlement of any dispute before referring it to arbitration. The High Court noted the Sierra Leone case with approval and held that this was a matter going to admissibility rather than jurisdiction. NWA attempted to distinguish the Sierra Leone case by arguing that no matters had been submitted to arbitration in accordance with the arbitration agreements. This was rejected as a “distinction without substance“, with the High Court going on to hold that the claim had been properly brought to arbitration and the issue was whether the claim had been brought too early, which is a matter for the arbitral tribunal, rather than supervisory courts, to decide.

 

C v D

C v D [2021] HKCFI 1474 is a Hong Kong case arising from a contract that required parties to attempt in good faith to resolve disputes by negotiation for 60 days prior to commencing arbitration. A dispute arose between the parties and the defendant commenced arbitration proceedings. The plaintiff challenged the arbitral tribunal’s jurisdiction on the basis that the dispute escalation provisions in the contract had not been complied with. The arbitral tribunal rejected this challenge and the plaintiff subsequently sought to set aside the arbitral tribunal’s award on the basis the award dealt with a dispute not falling within the terms of the submission to arbitration.

The Hong Kong court noted, having reviewed the above authorities, that the “generally held view of international tribunals and national courts” was that failure to comply with a pre-condition to arbitration is a question of admissibility and not jurisdiction. The Hong Kong court accepted that the generally held view could be displaced if the parties explicitly provide that failure to comply with pre-arbitration requirements exclude the arbitral tribunal’s jurisdiction but found that no such express provision existed on the facts.

This position was recently affirmed in Hong Kong in the case of Kinli Civil Engineering v Geotech Engineering [2021] HKCFI 2503 in the context of a dispute brought under a contract containing an arbitration agreement providing that a party “may” submit a dispute to arbitration. The court granted a stay of litigation proceedings in favour of arbitration noting that the court has no role in determining whether conditions as to the exercise of the right to arbitrate had been satisfied.

 

Key takeaways

The courts’ decisions show a clear trend in favour of treating compliance with dispute resolution and escalation clauses as questions of admissibility, and not of jurisdiction. As well as being of great practical significance by preventing unnecessary jurisdictional challenges to arbitral awards, it also engages fundamental policy considerations towards arbitration, including a respect for upholding arbitration agreements and promoting the efficient resolution of disputes. These types of policy considerations are likely to be relevant in other jurisdictions other than those considered in this blog post, and could mark a global trend towards treating compliance with these types of clauses as a matter of admissibility rather than jurisdiction.

Nonetheless, parties to contracts are likely to want to continue to comply with their dispute escalation provisions to the extent possible, as it would still be open to an arbitral tribunal to determine that – as a question of admissibility – a claim is not ripe for determination. The trend for national courts to treat compliance with dispute resolution clauses as going to questions of admissibility does not mean that such clauses are unimportant. Rather, it means that the arbitral tribunal is empowered to deal with the issue as it sees fit. This could entail parties incurring additional costs and delay and even potentially having to re-commence the dispute, likely with a new arbitral tribunal, after they have complied with the relevant provisions in the dispute resolution clause. Even if such extreme measures are not required, non-compliance with the relevant dispute resolution provisions in the contract could still entail adverse costs consequences or even a stay of proceedings to allow for the party in default to comply with its obligations.

 

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Paris Arbitration Week: International Organizations as Users and Providers of International Arbitration

Kluwer Arbitration Blog - Tue, 2021-11-02 00:45

During the Paris Arbitration Week, Savoie Laporte hosted a virtual panel discussion entitled “International Organizations as Users and Providers of International Arbitration”. The webinar was moderated by Pierre-Olivier Laporte (Co-founder of the international law boutique Savoie Laporte) and featured four speakers from intergovernmental organizations (IOs).

 

OECD and WADA as Users of International Arbitration

Lucie Buxtorf, senior legal advisor at the Organisation for Economic Co-operation and Development (OECD), was the first representative of users of international arbitration. She noted that under OECD’s policies, the organization does not accept submission to the jurisdiction of domestic courts in its contracts or Memoranda of Understanding (MOUs). Accordingly, OECD typically includes an arbitration clause in its contracts to protect its immunity from court jurisdiction. This serves the crucial goal of protecting its full independence. Depending on the outcome of a risk analysis, another possibility (which remains the exception) is for the contract to be silent on dispute resolution. OECD does, however, have more flexibility for MOUs which may include an amicable resolution clause.

Similarly, on the law applicable to the contract, Ms Buxtorf explained that a contract should be governed by its own terms, and not by any national law. When, in some limited cases, the contract refers to a national law, this is on a voluntary and subsidiary basis. Ms Buxtorf also reported that OECD has not arbitrated any claim in the past two decades.

Finally, OECD representatives usually explain the importance of the arbitration clause at the outset of contractual negotiations given the status of OECD as an independent IO and this is widely accepted by the counterparts. In the rare cases where negotiations are difficult, other options include the contract being silent on dispute resolution or signing a side letter recognizing the IO’s privileges and immunities.

Julien Sieveking, director of legal affairs at the World Anti-Doping Agency (WADA), shared his experience at an organization that is not an IO, but a private foundation based on the Swiss Civil Code. The World Anti-Doping Code is a document akin to a contract and relies on acceptance and implementation by signatories, among which are the international sports federations and major event organizers such as the International Olympic Committee.

Mr Sieveking discussed WADA’s experience as a user of international arbitration in anti-doping disputes. He explained the reasons for and the mechanism underpinning the referral of doping cases to the Court of Arbitration for Sport (CAS), which hears appeals filed against decisions rendered by signatories to the World Anti-Doping Code. Mr Sieveking noted that CAS hears international cases free of charge. Anti-doping rules are also complex, technical and evolving. CAS is therefore an example of specialized arbitration. The benefits of such a system include expertise, but also consistency, in contrast to decisions coming out of national courts.

The experience of CAS also reflects the use of international arbitration in crafting a compliance system in sports and showcases its flexibility. For example, Mr Sieveking reported that CAS had an ad hoc division at the recent Tokyo Olympic Games where decisions could be made within 24 hours.

 

WIPO and PCA as Providers of International Arbitration

Heike Wollgast, head of the IP disputes section at the World Intellectual Property Organization (WIPO) Arbitration and Mediation Center (the WIPO Center), presented the work of the WIPO Center as a provider of arbitration services focused on the needs of the IP/IT community. The WIPO Center was established over 25 years ago as an additional service providing international neutrality and specialized knowledge. Moreover, the WIPO Center’s services are provided on a not-for-profit basis, which is important having in mind how high the costs can be in IP litigation. Finally, the confidentiality framework it provides is a key distinguishing feature for its users given the nature of IP and technology disputes. Mr Laporte, as moderator, commented that the conversation revealed the importance of independence and neutrality, echoing Ms Buxtorf, as well as specialized expertise, echoing Mr Sieveking, for both users and providers of international arbitration.

Martin Doe Rodriguez, senior legal counsel at the Permanent Court of Arbitration (PCA), discussed PCA’s experience with administering disputes involving IOs. He explained that PCA provides a forum for a variety of commercial and other disputes involving IOs, whether under the PCA rules or the UNCITRAL rules. Mr Doe shared his views on the following distinguishing features of IOs as users of international arbitration.

First, IOs tend to enter into contracts and settle disputes in a standardized manner. Arbitration clauses and terms and conditions are usually standard, and IOs aim to refer as much as possible to accepted international standards as a risk mitigation effort. IOs are generally even more cautions than governments.

IOs tend to be on the Respondent side, since they are more often the party with leverage to withhold payment or other performance under a contract. Mr Doe observed that not all IOs are large – the United Nations being a clear exception – and the scope or impact of their activities is often disproportionate to their actual size. This tends to reinforce a conservative approach to dispute resolution. Echoing the presentation by Ms Buxtorf, he noted that IOs are reluctant to submit to national laws, standards, and courts, given their status, privileges and immunities. Accordingly, the default is to resort to arbitration, and where justified, as shown by the presentations of Mr Sieveking and Ms Wollgast, even establish a specialized institution for such arbitrations. Where specialized institutions are not warranted, the general aversion to national fora and standards has played well for the PCA, itself an independent inter-governmental organization, in attracting a large proportion of IO arbitrations.

Mr Doe observed that on the procedural side, the limited or non-existent role of the seat is likely to surprise the average arbitration practitioner. IOs often prefer to designate no seat at all, and even after a tribunal is constituted, IOs may request the tribunal not to designate a seat. By way of example, certain IOs hold themselves out as willing to pay adverse arbitral awards without any need for enforcement, bolstering their view that a seat is not necessary. They will likewise forego the protection of a seat where an unconscionable award might otherwise be subject to being set aside. Mr Doe noted the IOs’ aversion to national courts runs so deep that they would rather forego the recovery of costs awarded by a tribunal than pursue enforcement in a national court.

IOs can have many small claims to resolve, leading to a desire for expedited proceedings. Mr Doe shared his experience that, given the interesting nature of the matters involved and the prestige of IOs, finding suitable arbitrators for these small claims has fortunately not been an issue.

Finally, IOs tend to be repeat players and generally have a certain level of sophistication, even where, as noted by Ms Buxtorf, they may not have significant experience with actual arbitration proceedings. Mr Doe concluded his presentation by suggesting that, in his view, there is untapped potential for expedited procedure in this sector, whether through designing specialized rules, model clauses, or simply continuing to refine best practices.

Mr Laporte asked whether the existing arbitration mechanisms are fit for purpose for IOs as users of international arbitration. The speakers observed that, to the extent that international arbitration allows IOs to protect their immunities, privileges, and independence, the existing mechanisms are broadly fit for purpose. The panelists also identified potential vulnerability arising from the lack of seat and the place of small claims in international arbitration as the areas of interest. The cost of a large dispute could also be a concern as IOs often have a tight budget.

Mr Laporte also raised the question of the impact of technology and its interaction with the existing mechanisms in international arbitration. The panel agreed that in the last two years, technology had enabled hearings to take place virtually and provided a great deal of convenience to users and providers alike. Ms Wollgast explained the online case administration tools provided to parties by the WIPO Center, including WIPO eADR. While the potential of technology was recognized, some panelists also observed that the conservative nature of some IOs is a reality and that they would likely take a cautious approach towards disruptive technology in the field of dispute resolution.

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Tribunal Rejects América Móvil’s Claims Against Colombia

Kluwer Arbitration Blog - Mon, 2021-11-01 00:51

On May 7, 2021 the arbitral tribunal in the arbitration between América Móvil S.A.B de C.V and the Republic of Colombia (the “Tribunal”) under the Colombia-Mexico Free Trade Agreement (the “FTA”) (ICSID Case No. ARB(AF)/16/5) issued the award.

América Móvil initiated the arbitration on its own name and in representation of its subsidiary in Colombia, Comunicación Celular S.A (“Comcel”), arguing that Colombia breached the FTA by expropriating its “Right to Non-Reversion” and certain assets affected to concession contracts granted in 1994 (the “Assets”). The majority of the Tribunal concluded that the alleged “Right to Non-Reversion” did not exist under Colombian domestic law or international law and therefore there was no right subject to expropriation. The Tribunal therefore found no breach of the FTA and denied Claimant’s request of compensation of US$ 1,286,517,675. Finally, it ordered América Móvil to pay 50% of Colombia’s costs in the arbitration.

 

Background

In 1993, Colombia’s Ministry of Communications (the “Ministry”), opened two public bids for the adjudication of mobile phone services concessions under Law 80 of 1993. Both the bid and the concession contract model incorporated a reversion clause providing that at the end of the concession term, all the elements and assets affected to the concession shall become property of the Nation, without any compensation from the latter (the “Reversion Clause”).1)This clause was incorporated in the light of Article 19 of Law 80 of 1993 providing that “in operating contracts or concession of State assets it will be agreed that, at the end of the exploitation or concession term, the elements and assets directly affected to it become the property of the contracting entity, without this having to make any compensation.” jQuery('#footnote_plugin_tooltip_39070_60_1').tooltip({ tip: '#footnote_plugin_tooltip_text_39070_60_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

In March 1994, concessions were granted to Comcel, Occel, and Celcaribe by a 10-year term, renewable for the same term. The concession contracts incorporated the Reversion Clause (the “Concession Contracts”). The Reversion Clause was never amended or removed from the Concession Contracts.

In 2002, América Móvil acquired indirect control of Comcel. In 2004, Comcel acquired Occel and Celcaribe S.A.

On July 30, 2009, the Congress enacted Law 1341. Article 68.4 of such law provided that in telecommunication concessions in effect at the time of its entry into force, operators would only be obliged to revert the radio frequencies assigned to the Concessions. The law further provided for a transition regime pursuant to which an operator could decide whether to join the new regime set out in Law 1341 or to continue in the previous regime until the termination of its concession. Joining the new regime entailed the anticipated termination of the concession, thus the operator had to request a new title for operating (the “Transition Regime”).

On May 27, 2010, Colombia’s Constitutional Court (the “Court”) issued Judgment C-403, rejecting a petition to declare the Transition Regime unconstitutional.

On November 28, 2013, Comcel requested to join the Transition Regime. Comcel and the Ministry began negotiations to agree on the conditions for the renewal of permits for the use of the radioelectric spectrum. At the time, the Ministry did not request the reversion of the Assets to the State.

In February 2014, the Court published Judgment C-555 (issued on August 22, 2013) resolving a petition to declare that Article 68.4 of Law 1341 was unconstitutional. The Court analyzed whether Article 68.4 should be understood as to derogate the reversion clauses incorporated in public contracts executed before the entry into force of Law 1341 or whether those clauses should remain in force. The Court concluded that the law did not derogate the Reversion Clauses and therefore these continued to be binding for the parties. To that extent, the Court declared that Article 68.4 was constitutional insofar as it was interpreted in the sense that the reversion clauses incorporated in concession contracts signed before the entry into force of Law 1341 continued to be binding for the parties.

Following the Court’s ruling, on March 27, 2014, the Ministry issued Resolution 598, authorizing Comcel to join the new regime under Law 1341 and renewed the company’s permits to use the radio spectrum until 2024. The Concession Contracts governed by the previous regime were therefore terminated and the six-month period to liquidate them began in accordance with Clause 44 thereof. The Parties, however, could not reach an agreement. On the one hand, the Ministry argued that pursuant to the Reversion Clauses and Judgment C-555, Comcel had the obligation to revert the Assets. On the other hand, Comcel argued that pursuant to Law 1341 it did not have the obligation to revert the Assets but merely the radio frequencies.

On February 16, 2016, the Ministry initiated a domestic arbitration against Comcel and Colombia Telecomunicaciones S.A. E.S.P (“Telefónica”) (the operator of another concession) before the Center of Arbitration of the Chamber of Commerce of Bogota. The Ministry requested the arbitral tribunal to declare that the reversion clause incorporated in the concession contracts was in force and therefore Comcel and Telefónica had to revert all the assets affected to their concessions, or, in the alternative, pay a compensation equivalent to their value. In turn, Comcel and Telefónica requested the tribunal to declare that the reversion clause was not in force and that the contracts had to be liquidated pursuant to the regime provided in Law 1341.

On August 18, 2016, the Claimant filed with ICSID a Request for Arbitration against Colombia under the FTA. The arbitration was conducted under the ICSID Additional Facility Rules. The Claimant argued that by issuing Judgment C-555, Colombia expropriated Claimant’s Right to Non-Reversion of the Assets and consequently the Assets. The Claimant requested a sum of US$ 1,286,517,675 as compensation for the alleged expropriation of the Assets.

On July 25, 2017, the domestic tribunal concluded that the Reversion Clause was in force and continued to be binding.  Given that restitution was impossible, Comcel had to pay approximately US$1,034 billion plus default interest as of the date of payment of the award. On August 29, 2017, Comcel paid said compensation under protest.

 

The Award

Jurisdiction

The Tribunal rejected Colombia’s jurisdictional objections and concluded that it had jurisdiction over América Movil’s claims. Colombia raised four objections.

First, Colombia stated that the FTA does not provide for an fair and equitable treatment (FET) clause and therefore Claimant’s claim is outside the Tribunal’s jurisdiction. The Tribunal rejected Colombia’s position by finding that Claimant’s claim is one of expropriation given that it was focused on the expropriation of its “Right to Non-Reversion”.

Second, Colombia contended that the Tribunal had no jurisdiction to act as a court of appeal over decisions of Colombian domestic courts The Tribunal concluded that it had prima facie jurisdiction to examine if domestic decisions breached international law.

Third, Respondent argued that Claimant’s claim is a contractual one and therefore the Tribunal had no jurisdiction. The Tribunal, however, found that Claimant’s claim was that Judgment C-555 breached the FTA, which is not a matter of contract interpretation.

Fourth, Colombia stressed that América Móvil did not present its Notice of Intent in accordance with the requirements set out in Rule 1 of the Annex to Article 17-16 (d) (the “Annex”) of the FTA, given that it did not demonstrate any quantifiable damage. The Tribunal concluded that Annex’s requirements are procedural and not of consent.

Merits

The Tribunal analyzed whether Colombia expropriated the alleged “Right to Non-Reversion”. The Tribunal concluded (i) that the applicable law to establish the existence of the Right to Non-Reversion is Colombian law, (ii) that the Colombian courts had decided that the alleged Right to Non-Reversion did not exist under Colombian law, and (iii) that Colombian judges are the only authorized interpreters of the law.

The Tribunal noted that it could not act as a judge of appeal of the decisions issued by domestic judges unless such decisions breached a rule of international law, i.e., violations of fundamental procedural rules, overly long proceedings, or have incurred in denial of justice, among others. For the Tribunal, neither the Colombian courts nor the domestic arbitral tribunal breached international law, and therefore had no reason to deviate from such decisions. In this sense, the majority of the Tribunal concluded that the “Right to Non-Reversion” did not exist in the Colombian legal system and, therefore, it could not be expropriated.

On a different strand of analysis, the Tribunal examined whether the “Right to Non-Reversion” existed pursuant to the representations of some Colombian state organs, as claimed by América Móvil. Albeit the majority of the Tribunal found that some State organs had the conviction that the “Right to Non-Reversion” existed, not even a hypothetical expectation regarding the existence of the Right to Non-Reversion is enough to give life to a right of property.

 

Comments

Given that the Tribunal’s analysis was focused on the expropriation claim, the conclusions of the Tribunal’s majority were largely supported on the finding that no source under Colombian domestic law had created a “Right to Non-Reversion” as a property right that could be subject to expropriation. Given that Colombian courts and the domestic tribunal had already ruled on the existence or non-existence of the “Right to Non-Reversion”, the Tribunal placed a high level of deference on such decisions.

The award in America Movil v. Colombia is the first of two claims presented by telecommunications operators in Colombia regarding the reversion of assets affected to certain concession contracts executed in 1994. The other claim, presented by Telefónica under the Colombia-Spain BIT, is still pending. Albeit the facts and the disputed measures in both cases are similar, the wording of the treaties is different, particularly, because the Colombia-Spain BIT includes an FET clause while the Colombia-Mexico FTA does not. If it finds jurisdiction, the tribunal in Telefónica v. Colombia will probably address the question on the breach to the FET, the investor’s legitimate expectations, and the State’s alleged representations prior to Judgment C-555 on the non-existence of the obligation to revert all the assets affected to the concessions, which was not addressed by the tribunal in América Móvil v. Colombia.

 

(Before joining Zuleta Abogados, Maria Camila, one of the authors of this post, participated in Colombia’s representation in this arbitration.)

References[+]

References ↑1 This clause was incorporated in the light of Article 19 of Law 80 of 1993 providing that “in operating contracts or concession of State assets it will be agreed that, at the end of the exploitation or concession term, the elements and assets directly affected to it become the property of the contracting entity, without this having to make any compensation.” function footnote_expand_reference_container_39070_60() { jQuery('#footnote_references_container_39070_60').show(); jQuery('#footnote_reference_container_collapse_button_39070_60').text('−'); } function footnote_collapse_reference_container_39070_60() { jQuery('#footnote_references_container_39070_60').hide(); jQuery('#footnote_reference_container_collapse_button_39070_60').text('+'); } function footnote_expand_collapse_reference_container_39070_60() { if (jQuery('#footnote_references_container_39070_60').is(':hidden')) { footnote_expand_reference_container_39070_60(); } else { footnote_collapse_reference_container_39070_60(); } } function footnote_moveToReference_39070_60(p_str_TargetID) { footnote_expand_reference_container_39070_60(); 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_39070_60(p_str_TargetID) { footnote_expand_reference_container_39070_60(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Australian Arbitration Week Recap: Functus Officio in Arbitration

Kluwer Arbitration Blog - Sun, 2021-10-31 00:40

On the final day of ACICA’s Australian Arbitration Week 2021, Level Twenty Seven Chambers presented a seminar on “Functus Officio in Arbitration”. The theme of the seminar was judicial intervention and functus officio, discussed by Shane Doyle QC (Barrister, Level Twenty Seven Chambers), Sarah Spottiswood (Barrister, Level Twenty Seven Chambers), and Chiann Bao (Arbitrator, Arbitration Chambers).

This article will address the discussion on whether a domestic court can intervene where a tribunal issues an award after becoming functus officio, in light of the recent decision of Chevron Australia Pty Ltd v CBI Constructors Pty Ltd [2021] WASC 323 (“Chevron v CBI”).

Judicial Interference

Mr Doyle began the discussion by outlining the theme of judicial intervention in commercial arbitration. As Mr Doyle noted, the extent to which a domestic court may intervene in an arbitration is provided for by the relevant institutional rules. For arbitrations brought under the UNCITRAL Model Law, Art 5 restricts the extent to which a court can intervene to “where so provided in this Law”. When the UNCITRAL Working Group considered Art 5 in 1983 (which was, at that point in drafting, Art 3), one view as to its appropriateness was that it “created the impression that court intervention was something negative and to be limited to the utmost”. Today, while the relevance of the former epithet might remain open for debate, the latter has been all but embraced, in practice, if not in principle.

As Mr Doyle stated, the modern trend in arbitration is one of limited judicial intervention. This, as Singapore Chief Justice Sundaresh Menon stated in AKN v ALC [2015] SGCA 18 at [37], is “a mainstay of the Model Law”. However, his Honour went on to observe (at [38]): “That is not to say that the courts can never intervene. However, the grounds for curial intervention are narrowly circumscribed”.

Chevron v CBI

These limited grounds of judicial intervention were the subject of dispute in Chevron v CBI. By way of a cursory summary, in 2011 Chevron contracted CBI and Kentz Pty Ltd (“CKJV”) for the construction of an oil and gas project off the coast of Western Australia. A contractual dispute arose concerning the interpretation of provisions requiring Chevron to reimburse CKJV for their employment of labour.

The dispute was referred to arbitration and, on application, the tribunal bifurcated the hearing into two stages: a hearing on liability followed then by a hearing on quantum and quantification. Following the delivery of the first interim award on liability, CKJV was ordered to amend its pleadings on quantum. Upon receipt of CKJV’s further pleadings, Chevron objected, submitting that the pleadings raised a new case and that the tribunal was functus officio having already decided all issues as to liability. The tribunal delivered its second interim award, in which a majority of the tribunal rejected Chevron’s submissions as to jurisdiction. Chevron subsequently applied to the Supreme Court of Western Australia to set aside the award.

Functus Officio

The first issue raised in Chevron v CBI was whether the Court could set aside an interim award made by a tribunal after becoming functus officio.

As Mr Doyle outlined, given an arbitral tribunal draws its jurisdiction from the agreement of the parties, such agreement is “the source of the tribunal’s authority, but also limits the authority”. Put simply, once the tribunal decides a final award on a matter submitted to it by agreement of the parties, then the tribunal has performed its function, that matter is res judicata, and the tribunal is functus officio. Accordingly, the tribunal will not have the authority to alter an award, subject to certain exceptions: see, for example, Arts 33, 34 of the Model Law.

The natural question that arises is whether a court has jurisdiction to set aside an award that is made outside of jurisdiction because it is functus officio. The relevant power is contained in Art 34, of which Art 34(2)(a)(iii) relevantly provides that a court can set aside an arbitral award where “the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration”. Relevantly, Gary Born observed in International Commercial Arbitration (3rd ed, 2021) at [3582]:

An arbitral tribunal may also exceed its authority if it makes an award after becoming functus officio. Thus, a few courts have held that the arbitral tribunal exceeded its mandate where, after issuing a final award, it reopened the case and issued another award (recalling or revising its earlier award).

In Chevron v CBI, Martin J held that such an award did engage the Western Australian statutory equivalent of Art 34(2)(a)(iii) of the Model Law. In so concluding, his Honour relied on the above observations of Gary Born, as well as the decision of CRW Joint Operations v PT Perusahaan Gas [2011] SGCA 33, in which the Singapore Court of Appeal held (at [31]) that Art 34(2)(a)(iii) “addresses the situation where the arbitral tribunal exceeded (or failed to exercise) the authority that the parties granted to it.”

Justice Martin concluded (at [97]) that a “multiple bites at the cherry” approach cannot be accepted as it “would violate a cardinal policy of finality, recognised as essential to a coherent process of arbitral and, indeed, to curial decision making.”

Arbitrator’s Jurisdiction

The second issue the Court had to decide in Chevron v CBI was the extent to which the Court should defer to the tribunal’s views as to what it intended by its own procedures.

Ms Spottiswood outlined the process of an arbitrator’s assessment of its own jurisdiction, the starting point of which is the principle of ‘Kompetenz-Kompetenz’: Art 16. The principle allows a tribunal to determine its jurisdiction without having to apply to a court for a ruling. Ms Spottiswood noted that the principle’s rationale is that it “prevents an uncooperative party from halting the arbitral process by challenging an arbitrator’s jurisdiction.” Accordingly, where a party challenges a tribunal’s jurisdiction on the basis of functus officio, it is for the tribunal to decide first whether it has jurisdiction, as was the case in Chevron v CBI.

Yet, to what extent will a court defer to such an assessment? In Australian courts, the tribunal’s assessment of its own jurisdiction is taken to be of no moment: the court is to make its own objective assessment as to the tribunal’s jurisdiction. Ms Spottiswood noted that the authority for this position in Australia can be traced to the decision of the UK Supreme Court in Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46; [2011] 1 AC 763, in which Lord Mance JSC stated (at 813 [30]):

The tribunal’s own view of its jurisdiction has no legal or evidential value, when the issue is whether the tribunal had any legitimate authority … This is so however full was the evidence before it and however carefully deliberated was its conclusion.

This passage was, most notably, cited with approval by the High Court of Australia in TCL Air Conditioner (Zhongshan) Co Ltd v The Judges of the Federal Court of Australia [2013] HCA 5 (at 547–548 [12]).

Returning to Chevron v CBI, CKJV submitted that the Court ought to defer to the tribunal’s stance on the issue of functus officio. Martin J held that it was open for Chevron to seek to have the Court examine afresh its arguments as to functus officio concerning the tribunal. In so reasoning, his Honour relied on the authority of Maersk Crewing Australia Pty Ltd v Construction, Forestry, Maritime, Mining and Energy Union [2020] FCA 595, in which Colvin J stated (at [28]) that the view of the tribunal as to its jurisdiction “is not final and binding because arbitrators cannot by their own decisions create and extend their own authority”.

Concluding Remarks

Mr Doyle concluded that the principle of functus officio engaging a court’s power to set aside an award under Art 34(2)(a)(iii) needs to be borne in mind whenever one drafts procedural orders to bifurcate a hearing. As the decision of Chevron v CBI illustrates, there is a need “for precision about what is and what is not to be the subject of the first hearing”.

More coverage from Australian Arbitration Week is available here.

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Australian Arbitration Week Recap: When Does Privacy Become Secrecy in Commercial Arbitrations?

Kluwer Arbitration Blog - Sun, 2021-10-31 00:00

On 19 October 2021, Mr Bret Walker AO SC delivered the 2021 CIArb Australian Annual Lecture as part of ACICA’s Australian Arbitration Week 2021. Mr Walker’s lecture, titled ‘Privacy or Secrecy? Open Justice Values as a Challenge to Arbitral Procedure’, offered a thought-provoking examination of what he termed the ‘problematic nature’ of secrecy in commercial arbitrations from an open justice perspective. This blog post provides an overview of some of the lecture’s main themes.

 

The origins of privacy and confidentiality in commercial arbitrations

The lecture began by highlighting that privacy and confidentiality have long been touted as self-evident and key advantages of commercial arbitrations.

In 2018, the Queen Mary University of London/White & Case International Arbitration Survey reported 36% of respondents rated ‘confidentiality and privacy’ as one of the three most ‘valuable characteristics’ of international arbitration – a finding on par with the previous 2015 report. An overwhelming 87% of respondents also attached some degree of importance to confidentiality (ranging from ‘somewhat’ to ‘very’ important).

The broad acceptance of privacy and confidentiality as a valuable or important characteristic of commercial arbitration is usually justified by the conceptually distinct foundation of arbitration to litigation. Arbitration is founded on a private bargain between autonomous and consenting parties, rather than on the compulsion of a State. That conceptual distinction is seen to justify parties to arbitration agreements being freely able to conduct and resolve their disputes in ‘secret’, despite those arbitrations being seated in jurisdictions founded on long-standing principles of open justice.

Mr Walker’s lecture revisited the supposed rationale for this different approach to litigation and, in doing so, queried whether privacy and confidentiality should still be viewed as essential ingredients in all commercial arbitrations.

 

Approaches to privacy and confidentiality in Australia and elsewhere

Unsurprisingly, the approaches to privacy and confidentiality in commercial arbitrations around the world lack uniformity.

Mr Walker provided an analysis of several Australian High Court decisions over the past 40 years that discussed the concepts of privacy and confidentiality in arbitration. The survey of cases included the seminal decision of Esso Australia Resources Limited v Plowman (1995) 183 CLR 10, which distinguished privacy from confidentiality, and held that absolute confidentiality of documents produced and information disclosed in an arbitration was not an essential characteristic of private arbitrations in Australia. Of course, since then, Australia’s approach has moved towards greater confidentiality in international commercial arbitrations through a series of legislative amendments to the International Commercial Arbitration Act 1974 (Cth) to provide a default ‘opt-out’ confidentiality regime.

Given the absence of privacy or confidentiality provisions in the UNCITRAL Model Law, other jurisdictions have also sought to regulate these issues through national legislation, such as in Malaysia, Brazil, the Philippines and New Zealand. Many arbitral institutions have also sought to include explicit provisions around privacy and confidentiality in their rules (e.g. Article 26 ACICA Rules; Article 30 LCIA Rules).

In contrast, for some years, the ICC International Court of Arbitration has taken bold steps in favour of transparency through the publication of certain information about arbitral tribunals, industry sectors and law firms involved in arbitrations administered by it (unless the parties otherwise agree). Importantly, since 2019, the ICC has published various awards, procedural orders, and opinions as a means of ‘facilitating the development of trade worldwide’. Moves, such as these, towards greater transparency in commercial arbitrations, reinforce a key point made in the lecture about the educative force of declared and enforced legal rights and obligations. They are an essential element of the rule of law and of open justice principles, which should be ‘seen and heard’.

 

Practical issues relating to the application of open justice principles in commercial arbitrations

The lecture (and following Q&A) touched on a range of issues relating to the practical application of open justice principles to commercial arbitrations. Some of the issues are highlighted below:

Identifying the ‘right’ kind of commercial arbitration disputes

One issue is the potential complexities in defining the features of commercial arbitrations that warrant greater transparency.

The lecture did not advocate for open justice principles to be applied to ‘all’ commercial arbitrations. In fact, Mr Walker saw no difficulty with most arbitrations retaining the parties’ intended position on privacy and confidentiality. However, Mr Walker acknowledged the expanding realm of disputes that have been found by national courts to be capable of arbitration, that leave fewer categories of disputes within the exclusive jurisdiction of those national courts to resolve.

Possible examples of commercial arbitrations included those involving public or government procurement contracts or related disputes, and other endeavours funded by public monies (e.g. large-scale infrastructure projects). The exact line in the sand however would likely be up for considerable debate, both as to the general rule of which proceedings should be caught, and as to the application of any necessary exceptions to that general rule. For now, as to the latter, Mr Walker identified at least one possibility, being cases concerning a genuine public interest immunity claim (e.g. where national security issues were involved).

Impact on the attractiveness of commercial arbitration

As we saw in the 2018 International Arbitration Survey results above, privacy and confidentiality remain to be seen as valuable or important factors in the use of commercial arbitration. Perhaps unsurprisingly, in-house counsel were singled out as placing more importance on confidentiality than other categories of respondents.

However, while these findings may seem dramatic, they tell us little about what specific aspects of privacy and confidentiality parties find important. They also provide little insight on how any departure from those aspects in commercial arbitrations might impact on the attractiveness of arbitration over litigation. In fact, both the 2015 and 2018 surveys found that the enforceability of awards, avoiding specific legal systems/national courts, flexibility, and the ability of parties to select arbitrators, are more frequently cited by respondents as within the three most valuable characteristics of arbitration, compared to privacy and confidentiality.

Mr Walker recognised a cultural change would be necessary among parties to commercial arbitrations. He also stressed that he did not underestimate the difficulty of such a change. One could argue that commercial parties may be more persuaded by factors such as greater efficiency and reduced legal costs, in addition to those characteristics listed in the survey, and rated more valuable than privacy and confidentiality. Public parties, on the other hand, may be less inclined to invite closer scrutiny, particularly where disputes could involve the examination of public maladministration. However, even then, Mr Walker noted that public officials could still benefit from greater transparency (e.g. in gaining greater access to details of previous disputes involving a business that seeks to contract with a public body).

 

Conclusion

Mr Walker’s insightful analysis in the 2021 CIArb Australian Annual Lecture brought home the concerns associated with well-established concepts of privacy and confidentiality in commercial arbitrations from an open justice perspective. Although these issues have long been the subject of debate, the lecture reiterated a useful perspective of viewing arbitration as part of an integrated justice system with litigation, and not separate from what many courts do on a daily basis.

 

More coverage from Australian Arbitration Week is available here.

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Denial of Justice by Mexican Courts to Canadian Investment Fund under NAFTA: the First of its Kind

Kluwer Arbitration Blog - Sat, 2021-10-30 00:54

Lion Mexico Consolidated v. Mexico1)Lion Mexico Consolidated L.P. v. United Mexican States (ICSID Case No. ARB(AF)/15/2). jQuery('#footnote_plugin_tooltip_39055_60_1').tooltip({ tip: '#footnote_plugin_tooltip_text_39055_60_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); represents the first positive finding of denial of justice in the history of NAFTA2)In 1999, a NAFTA tribunal analysed and rejected for the first time a claim for denial of justice in Robert Azinian v. Mexico. jQuery('#footnote_plugin_tooltip_39055_60_2').tooltip({ tip: '#footnote_plugin_tooltip_text_39055_60_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and one of the rearrest recent examples in investor-state arbitration.

On 20 September 2021, a NAFTA tribunal seated in Washington, D.C., held Mexico liable for denial of justice by the Mexican judiciary, ordering the State to pay US$ 47 million for “full reparation” (plus legal fees and arbitration costs) to Lion Mexico Consolidated L.P. (“LMC”), a Canadian entity incorporated in Quebec and domiciled in Texas, USA.

 

Background

LMC granted three loans totalling US$ 32.8 million to a Mexican businessman (the “Debtor”) to acquire land and develop two skyscrapers and a luxury ocean-front resort in Jalisco and Nayarit, respectively, secured by three mortgages over the properties in question.

After LMC attempted to foreclose a mortgage to recover the unpaid loans, it discovered that all mortgages had been cancelled by a judge in Jalisco (at the Debtor’s request) without its participation. This “Cancellation Judgment” was based on a Settlement Agreement allegedly signed by LMC, in which it accepted payment of the loans (and cancellation of the mortgages) in exchange of shares in the Debtor’s companies (the “Forged Document“). LMC tried to revert the illegal cancellation of the mortgages for almost three years before the Mexican courts, and falling to do so, it lodged an investment arbitration against Mexico.

 

Jurisdictional phase

Back in 2018, the Tribunal was confronted with a novel issue: whether or not mortgages qualify as an investment under NAFTA. The Tribunal found that mortgages meet the two-fold requirement of Article 1139(g): being “intangible” real estate, “used for economic benefit”. The Tribunal found that mortgages are in rem rights (derechos reales) under Mexican law, while treaty practice confirms the same understanding, as Mexico had concluded other 22 BITs where “mortgages” were expressly recognised as an investment (e.g., the Spain-Mexico BIT).3)Decision on Jurisdiction, 30 July 2018, paras. 229, 233, 240. jQuery('#footnote_plugin_tooltip_39055_60_3').tooltip({ tip: '#footnote_plugin_tooltip_text_39055_60_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  In line with the Tribunal’s finding, the new NAFTA (known as “USMCA”) signed by the US, Mexico and Canada – in force as of 1 July 2020 – expressly includes “mortgages” as a covered investment under Article 14.1(h).

 

The Parties’ positions on the merits

LMC alleged it was not properly summoned in the proceedings that cancelled its mortgages in absentia (“Cancellation Proceeding”) and then, it was deprived of its right of defense to revert said cancellation before higher courts, which repeatedly denied any opportunity to prove the forgery of the Settlement Agreement upon which its investment was cancelled.

Mexico alleged that Mexican courts acted in accordance with the law, while LMC was negligent in its legal defence. Mexico alleged that it was also the victim of a sophisticated fraud by the Debtor, while LMC had not exhausted all the available remedies, as condition precedent to denial of justice. In its view, LMC could obtain compensation from criminal proceedings against the Debtor.

 

The Tribunal’s findings

 

  1. Standard of proof

The Tribunal followed the Mondev standard as a “guide”, albeit with some precisions. In its view, denial of justice involves an “objective test”, which: “requires a finding of an improper and egregious procedural conduct by the local courts (whether intentional or not), which does not meet the basic internationally accepted standards of administration of justice and due process, and which shocks or surprises the sense of judicial propriety.4)Award, 20 September 2021, para. 299. jQuery('#footnote_plugin_tooltip_39055_60_4').tooltip({ tip: '#footnote_plugin_tooltip_text_39055_60_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); In other words, the Tribunal clarified that a breach must be procedural and not substantive; rejected the need to prove an intentional conduct (e.g., bad faith); while required a level of gravity to shock or surprise, contrary to basic yet internationally accepted standards of justice.

 

  1. Denial of Justice

The Tribunal recognised three types of denial of justice claims related to: i) the right to access justice (e.g., lodge an appeal); ii) the right to be heard (e.g., to present evidence); and iii) undue court delay.

The Tribunal found unanimously that Mexico denied “procedural justice” (and FET) to LMC, in breach of Article 1105 of NAFTA, for the first two types of claims (referred to above), while considering it needless to address the claim for undue delay.

The Tribunal first gave deference to and presumed that the municipal courts had acted properly, while it did not pass judgment on the propriety of the entire Mexican judicial system. It then accepted Mexican courts acted in good faith (i.e., without colluding with the fraudsters or colluding in corruption, as this was not raised by LMC). However, the Tribunal held that the existence of a “sophisticated fraud” by the Debtor to cancel the mortgages, regardless how sophisticated this might be, did not excuse the State from its duty to have a properly functioning judicial system.

In particular, the Tribunal found that the courts of Jalisco failed to function properly during the first instance, appeal and amparo proceedings. First, the commercial judge cancelled the mortgages by default as a result of a “deeply flawed” service of process to LMC, and later foreclosed the possibility to appeal said judgment in disregard of municipal law. Second, the higher courts during amparo, queja and remand proceedings, denied LMC every opportunity to allege and submit relevant and material evidence to prove the forgery that resulted in the loss of its investment.

The Tribunal concluded that LMC was denied procedural justice in three respects:

a) LMC was denied access to justice: LMC was never given the opportunity to defend itself in the Cancellation Proceeding, due to a “deeply flawed” service of process that resulted in the cancelation of its mortgages in absentia. While this was the basis of the denial of justice claim, it was not the only defective act. The Judge also failed to examine ex officio and exhaustibly, whether the service was properly performed, before declaring respondent en rebeldía. This omission was “shocking” in view of the implications at stake: the cancellation of multi-million dollar mortgages of a US-based company over well-known and highly valuable real estate, when the Judge had before him evidence that LMC was US-domiciled and incorporated in Canada. Moreover, this was exacerbated by the unusual swiftness of the Cancellation Proceeding (which lasted only 170 days). As the Tribunal put it, the Mexican judiciary never corrected this situation, despite LMC’s multiple requests.

 

b) LMC was denied the right to appeal: A few weeks later, the same Judge arbitrarily precluded any opportunity of appeal, by giving a res judicata effect to its Cancellation Judgement (at the Debtor’s request), which constituted a second denial of justice. By doing so, the Judge barred any possibility of LMC, once it became aware of the Cancellation Judgement, to lodge an appeal. The Judge based its declaration of res judicata on an inapplicable procedural rule under which low-amount disputes are not subject to appeal (i.e., lower than 500,000 MXP (USD 25,000). This decision was unjustified as the evidence before the Judge showed the mortgages (cancelled by him) secured US$ 32.8 million loans.

 

c) LMC was denied the right to allege in amparo proceedings the “forgery” of the document upon which the mortgages were cancelled: LMC tried in multiple occasions and under different motions – for 3 years – to bring the relevant evidence that could easily prove the illegality of the service and justify the annulment of the Cancellation Judgement. However, the Mexican courts consistently refused LMC’s right to be heard and to present evidence, as follows:

 

i) Ampliación de demanda: A request to extend its amparo claim to include the highly relevant forgery was dismissed by the amparo court under the “wrong” argument that “these acts have already been specified” and failed to admit the key evidence.

 

ii) Queja: An incidental motion against the decision above, also rejected LMC’s ampliación de demanda as inadmissible, alleging that it was not properly signed on LMC’s behalf (as it should have been signed by LMC’s legal representative and not by the attorney empowered to act on its behalf in the amparo proceedings). LMC was not even allowed to cure the alleged procedural defect (when it submitted a new power of attorney), despite the ampliación de demanda aimed at proving that LMC, an alien company operating in Mexico, had been the victim of an elaborate fraud.

 

iii)     Incidente de falsedad de documento: A separate motion to prove the forgery, was dismissed on the grounds that the allegedly false document was not related to the subject-matter of the amparo proceeding. As a result, the amparo court assumed the Settlement Agreement was valid and binding, thereby reducing the scope of the amparo to the question of whether the service of process had or not been properly executed in accordance with Mexican law. And – congruently with this reduced scope of investigation – all evidence in the file seeking to prove the forgery was eliminated.

 

iv) Amparo: Notwithstanding a previous finding by the amparo court that at least on one occasion LMC’s signature had been forged (and that the Debtor was in prison for alleged forgeries of documents) the amparo judgement did not even discuss LMC’s argument that the Settlement Agreement was also forged, since the ampliación de demanda had been dismissed. The amparo judgement consequently assumed that the Settlement Agreement was validly executed by LMC.

 

v) Recurso de Revisión (Remand amparo): finally, LMC sough the revocation of the amparo judgment for the same reason that the amparo court erroneously disregarded its claim that the Settlement Agreement had been forged as it considered “unrelated to the dispute”. However, LMC was once again barred from claiming the forgery as expressly ordered by the Queja tribunal, which forbade the remand court to examine the issue.

 

Conclusion

As stated by the Tribunal, Mexican courts had four opportunities to address the question of the forgery of the Settlement Agreement but failed to do so. This constituted a denial of justice, by restricting its access to justice and its right to defend itself and present evidence. The Tribunal found that LMC had exhausted the reasonable available remedies that could have reversed the cancellation of the mortgages.

The implications of the LMC case may open new debates and may lead to the adoption of new approaches and decisions to contour the notion of denial of justice in the coming years.

Notably, in December 2020, Mexico received a notice of a new NAFTA legacy dispute alleging denial of justice by the State courts’ failure to recognise “mortgages” as collateral held by US creditors (AMERRA and JPMorgan) under insolvency proceedings. Another case initiated by US investors (B-Mex) in 2016, is calling a NAFTA tribunal to assess due process by Mexican amparo courts, as the investors claim they were “effectively and practically denied an appeal”.

References[+]

References ↑1 Lion Mexico Consolidated L.P. v. United Mexican States (ICSID Case No. ARB(AF)/15/2). ↑2 In 1999, a NAFTA tribunal analysed and rejected for the first time a claim for denial of justice in Robert Azinian v. Mexico. ↑3 Decision on Jurisdiction, 30 July 2018, paras. 229, 233, 240. ↑4 Award, 20 September 2021, para. 299. function footnote_expand_reference_container_39055_60() { jQuery('#footnote_references_container_39055_60').show(); jQuery('#footnote_reference_container_collapse_button_39055_60').text('−'); } function footnote_collapse_reference_container_39055_60() { jQuery('#footnote_references_container_39055_60').hide(); jQuery('#footnote_reference_container_collapse_button_39055_60').text('+'); } function footnote_expand_collapse_reference_container_39055_60() { if (jQuery('#footnote_references_container_39055_60').is(':hidden')) { footnote_expand_reference_container_39055_60(); } else { footnote_collapse_reference_container_39055_60(); } } function footnote_moveToReference_39055_60(p_str_TargetID) { footnote_expand_reference_container_39055_60(); 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_39055_60(p_str_TargetID) { footnote_expand_reference_container_39055_60(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Hong Kong Arbitration Week Recap: Fraud in Arbitration – Overcoming Limitations on Tribunal Powers

Kluwer Arbitration Blog - Fri, 2021-10-29 00:00

On the second day of Hong Kong Arbitration Week 2021, Debevoise & Plimpton (“Debevoise”) hosted a virtual panel on “Fraud in Arbitration – Overcoming Limitations on Tribunal Powers”, exploring the strategies that may be employed to uncover and overcome fraud in an arbitration, including by invoking judicial power in support of arbitral proceedings.

Panelists included Mr David W. Rivkin (Debevoise, New York & London and Co-Chair of the Hong Kong International Arbitration Centre), Mr Mark Johnson and Mr Gareth Hughes (Debevoise, Hong Kong), Ms Natalie Reid (Debevoise, New York), Ms Swee Yen Koh (Wong Partnership, Singapore), and Ms Chiann Bao (Arbitration Chambers, Hong Kong). The panel discussion was moderated by Mr Cameron Sim (Debevoise, Hong Kong).

 

Fraud in Arbitration

Mr Rivkin started the discussion by exploring the significant impact of fraud on the victim’s rights and procedural norms. Generally, fraud has the same impact in arbitration as in litigation, but the key difference is the powers available to arbitral tribunals and courts to deal with the impact of fraud. Mr Rivkin illustrated the importance of taking preemptive steps in arbitral proceedings where fraud is suspected. He provided an overview of the difficulties that may be encountered in cases involving fraud at different stages of the arbitral process, including attempts to delay procedural steps, illegitimate counter-attacks, and parties engaging in further fraud to cover up existing fraud.

 

Fraud and Confidentiality

Mr Johnson discussed the risk of abuse of confidentiality protections in cases concerning fraud. He explained that the confidentiality restrictions may be invoked by the wrongdoer to avoid disclosing certain information, allege that the other party has breached confidentiality restrictions in the arbitration, bury relevant information in data rooms, or even abuse redactions to documents.

 

Arbitral Tribunal’s Powers: Adverse Inferences and Peremptory Orders

Turning to the powers of the tribunal in encouraging compliance with tribunal orders, Ms Reid highlighted the operation and effect of adverse inferences, a presumption made by a tribunal when a party fails to produce evidence it has been ordered to produce. Whether adverse inferences will be made ultimately depends on the party’s advocacy and credibility. If a tribunal accepts that a document has genuinely and innocently been lost or destroyed rather than deliberately withheld, then no adverse inferences are likely to be drawn. Ms Reid further noted the difficulty that often arises in defining the precise inference that should be drawn from an unseen document. She noted that, although adverse inferences may not be sufficient to encourage compliance with tribunal orders, it can be a useful tool to help obtain the result that a party needs from an arbitral tribunal in the form of a favourable award.

Ms Bao also explained from an arbitrator’s perspective the considerations that the tribunal will likely take into account when considering whether to draw adverse inferences, such as whether the non-production was intentional, any valid reason for the non-production, and the suitability and effects of the proposed adverse inferences on the final award. She suggested that the tribunal may, as a preemptive measure once noting any element of fraud in the arbitration, make reference to this power early in the proceedings to encourage evidence production.

Peremptory orders are another power available to tribunals to encourage compliance with their existing orders. Mr Hughes explained that they are orders that require compliance with an earlier order, failing which a specified sanction will apply (i.e., analogous to “unless” orders in common law courts). He stressed that the terms of the orders must be carefully considered and worded to avoid opening up awards to challenges. Mr Hughes further illustrated by a case he handled that peremptory orders, even if ignored by the respondent, may still be helpful in assisting further applications to court for stronger measures (such as appointment of receivers), as it may present the court with a history of non-compliance by the respondent.

Ms Bao echoed this view and noted that the tribunal will likely take into account considerations such as the nature, consequences, and utility of the proposed terms when making peremptory orders.

 

Court Applications Available

Disclosure Orders

Noting the limitation of the tribunals in compelling third party disclosure, Ms Koh summarized Norwich Pharmacal orders and Bankers Trust orders, two types of common law disclosure orders that may be available to obtain information about a wrongdoer. Norwich Pharmacal orders may be used to identify a third party who has information about the wrongdoer. Bankers Trust orders are more specific and concern a court’s jurisdiction to order a bank to disclose documents and correspondence relating to the account of a customer who is prima facie guilty of fraud.

Freezing Injunctions

Ms Reid further compared common law freezing injunctions and arbitral preservation orders. Both remedies are aimed at preventing a party from dealing with assets in dispute. She opined that the court-ordered freezing order is often preferable, because there is less of a tip-off risk—court applications may be made ex parte, and the freezing injunction is immediately and directly enforceable.

Receivership

Mr Johnson explained that the role of court-appointed receivers is to take control of assets in dispute and generally to hold the ring pending the determination of claims. Whilst receivership is considered the last resort by the courts, the appointment of receivers is highly desirable in the context of fraud, because they will ensure that untrue statements are no longer put forward and likely lead to rapid monetization of an award. He further noted that although Hong Kong courts have the power to appoint receivers in support of arbitration, this is not a universal option available in all jurisdictions.

Contempt of Court

In connection with parallel court proceedings, Mr Hughes introduced contempt of court as an avenue of redress if the opposing side has breached a court order or injunction, or otherwise made a false statement to the court. Depending on the severity of the contempt, it can be punishable by imprisonment, the threat of which can be very helpful to bring wrongdoers to the settlement table. However, Mr Hughes remarked that contempt of court applies only to statements made before the court, not before an arbitral tribunal.

Tension Between Tribunal and Court

Finally, Ms Bao provided valuable insights on the tension between the tribunals and courts, from an arbitrator’s perspective. She was of the view that if the application sought involves a third party or is better made ex parte, it may be preferable to make the application to the court, as such applications are not available in arbitration.

 

Conclusion

The panel discussion was very comprehensive in addressing the powers of arbitral tribunals in tackling cases involving fraud. Invoking judicial power in support of arbitral proceedings may be an important strategy in uncovering fraud. The presence of fraud risks derailing the arbitral process, but fraud can be unraveled in arbitration. By strategically utilizing the various tools available to both courts and tribunals, a party may be able not only to secure awards in their favour, but also to achieve the rapid monetization of awards obtained in these circumstances.

 

This concludes our coverage of Hong Kong Arbitration Week 2021. More coverage from Hong Kong Arbitration Week is available here.

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CJEU Extends Achmea to Ad Hoc Arbitration Agreements Identical to Intra-EU BITs’ Arbitration Clause

Kluwer Arbitration Blog - Thu, 2021-10-28 05:15

In the latest episode of the intra-EU investment arbitration saga, the CJEU ruled on 26 October 2021, in Poland v. PL Holdings (Case C-109/20), that EU Member States are precluded from concluding with investors from another EU Member State an ad hoc arbitration agreement identical to an arbitration clause of an international treaty deemed invalid under the CJEU’s Achmea case law (Case C-284/16).

It remains to be seen whether, and if so under which circumstances, this new ruling could be extended to other arbitration agreements contained in a contract between an EU Member State and an (EU) investor with respect to a dispute involving the interpretation or application of EU law.

Meanwhile, the European Commission is working on a legislative initiative aiming at improving the protections offered to intra-EU investment under EU law. A first proposal is expected on 22 December 2021. It is, however, still unclear whether such proposal will be ambitious enough. In any case, whatever its form and content, it would require years before being effective.

 

Background of the case

End of 2014, the Luxembourg company PL Holdings started arbitration proceedings before the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) against Poland under the 1987 bilateral investment treaty (BIT) concluded between Belgium and Luxembourg, on the one hand, and Poland, on the other. The investor claimed to be victim of the decision of the Polish Financial Supervision Authority to suspend the voting rights attached to the shares it held in a Polish bank.

In 2015, Poland initially challenged the jurisdiction of the arbitral tribunal on the basis that PL Holdings was not an “investor” in the meaning of the BIT. In a second stage, in 2016, and a few days after the request for a preliminary ruling was lodged in Achmea, it also raised the fact that the arbitration clause of the BIT would be incompatible with EU law. This jurisdictional challenge was dismissed by the tribunal, which declared itself competent and ruled in two awards, rendered in 2017, that Poland breached PL Holdings’ rights under the BIT.

Poland brought annulment proceedings against the two awards before the Svea Court of Appeal end of 2017. The Swedish court dismissed the action, holding that, if the arbitration clause under the BIT was indeed invalid on the basis of the CJEU’s findings in Achmea, such invalidity would not prevent Poland and PL Holdings from concluding an ad hoc arbitration agreement at a later stage in order to settle their dispute. The court found such an agreement in the case at hand, ruling that Poland tacitly accepted, on the basis of the applicable Swedish law, PL Holdings’ offer of arbitration, by refraining from challenging in good time the jurisdiction of the arbitral tribunal. It, therefore, concluded with PL Holdings an ad hoc arbitration agreement, which was distinct, but had identical content to the arbitration clause of the BIT.

Poland appealed the case before the Swedish Supreme Court, which requested the CJEU’s opinion on the compatibility of such an ad hoc agreement with Articles 267 and 344 TFEU (principle of autonomy of EU law, as interpreted by the CJEU in Achmea and its subsequent case law).

 

CJEU’s ruling

The CJEU (in Grand Chamber) extended its reasoning in Achmea (with respect to intra-EU BITs; see Blog’s coverage here) and Komstroy (Case C-741/19, as regards intra-EU disputes under the ECT; see this previous post) to ad hoc arbitration agreements identical to arbitration clauses of intra-EU BITs.

At the outset (§§38-42), while acknowledging that this factual question was for the referring court to decide, the CJEU casted doubts on its reasoning that Poland implicitly agreed to arbitrate as it directly challenged the jurisdiction of the arbitral tribunal (though initially on other grounds that the invalidity of the arbitration clause of the BIT under EU law).

Turning to the main question at hand, the CJEU relied on its Achmea case law (and the subsequent treaty of 5 May 2020 concluded by 23 Member States, including Poland, to terminate the intra-EU BIT; see this previous post) to consider that “[t]o allow a Member State, which is a party to a dispute which may concern the application and interpretation of EU law, to submit that dispute to an arbitral body with the same characteristics as the body referred to in an invalid arbitration clause contained in an international agreement such as the [BIT], by concluding an ad hoc arbitration agreement with the same content as that clause, would in fact entail a circumvention of the obligations arising for that Member State under the Treaties” (§47). The CJEU also relied on the Achmea precedent to dismiss the investor’s request for a limitation of the temporal effects of the Court’s judgment to arbitration proceedings initiated after the same, considering that its decision in PL Holdings was based on factors already set out in this precedent (§§64-66).

The main remaining question is whether this new ruling could be extended to other types of arbitration agreements contained in contracts between Member States and (EU) investors with respect to disputes involving the application and interpretation EU law, and if so under which circumstances. In Achmea, the Court drew a distinction between investment and commercial arbitration, on the basis that “[w]hile the latter originate in the freely expressed wishes of the parties, the former derive from a treaty by which Member States agree to remove from the jurisdiction of their own courts, and hence from the system of judicial remedies [under EU law], disputes which may concern the application or interpretation of EU law” (§55). In PL Holdings, the CJEU stressed that “as regards, first, the alleged impact that the present judgment might have on the arbitration agreements concluded by the Member States for various types of contract, the interpretation of EU law provided in the present judgment refers only to ad hoc arbitration agreements concluded in circumstances such as those at issue in the main proceedings” (§67). However, it also indicated that, even if the dispute at hand was an isolated case, “the legal approach envisaged by PL Holdings could be adopted in a multitude of disputes which may concern the application and interpretation of EU law, thus allowing the autonomy of that law to be undermined repeatedly” (§49).

 

European Commission’s review of investment protection under EU law

Against the background of the gradual dismantling of intra-EU investment arbitration, the EU institutions, however, have not turned a complete deaf ear to the EU investors’ concerns and the paradox created by the fact that extra-EU investment may be more effectively protected than intra-EU investment (since the CJEU confirmed – in Opinion 1/17, in the context of CETA – the validity of the investment court system provided for under some of the investment and trade agreement concluded by the EU with third states (see more in previous posts, here and here)).

Conscious, among others, of the vast sums of money which will be required for the EU’s strategic priorities (in particular the European Green Deal and the Digital Single Market) and the “momentum created by the termination of the intra-EU BITs”, the Commission is indeed working towards a comprehensive policy on intra-EU investments with the aim of better protecting and facilitating EU cross-border investment (see here). Following a 2020 public consultation, the Commission is considering making a new legislative proposal concerning the intra-EU investment system on 22 December 2021 (see here). The Commission contemplates, among others, setting out specific investors’ substantive rights in a new EU instrument, setting up an intra-EU investment court (similar to the EU’s proposal for a Multilateral Investment Court currently discussed at UNCITRAL), as well as extending and improving the “Solvit” mediation mechanism (on the latter, see Commissioner Mairead McGuinness’ EuroCommerce Policy Talk on “Finance and investment: driving green recovery and investment”).

However, any such proposal would require years to be adopted and implemented and, if ambitious enough, is likely to face political stumbling blocks. It also remains to be seen whether it will have sufficient “teeth” to ensure a proper deterrent effect and effective investment protection. This would be especially the case if the proposal were to focus on substantive protections rather than procedural remedies, at a time where the rule of law, the independence of the judiciary and the supremacy of EU law is under threat in certain EU Member States, including Poland (see e.g. here). Indeed, it is currently primarily up to domestic courts to ensure the enforcement of EU law (see also the CJEU’s comment at §68 of the ruling), as investors do not have direct access to the CJEU. Instead, investors must convince the Commission to start infringement proceedings and/or request domestic courts to make a preliminary reference to the CJEU (see more in this previous post).

 

The views expressed herein are the author’s only.

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Hong Kong Arbitration Week Recap: ADR in Asia Conference – HK-PRC Interim Measures Arrangement – 2 Years on

Kluwer Arbitration Blog - Thu, 2021-10-28 00:00

Hong Kong Arbitration Week 2021 is upon us, with a number of exciting in-person, virtual and hybrid events.  On 27 October 2021, the ADR in Asia Conference was held, focussing on “Tomorrow’s Disputes Today”. After opening remarks by The Honourable Secretary for Justice Teresa Cheng GBM, GBS, SC, JP, and an update on developments at the HKIAC by Ms Sarah Grimmer, Secretary-General of the HKIAC, four panel sessions were held:

  • HK-PRC Interim Measures Arrangement: 2 Years On.
  • Hong Kong Courts and Arbitration: Past, Present, Future, with a key-note speech by The Honourable Chief Justice Andrew K. N. Cheung GBM.
  • Crypto: Tomorrow’s Security, Currency, or Asset?
  • “Tomorrow’s” Arbitrator: Views from The Honourable Charles N. Brower.

Closing remarks were made by Mr David W. Rivkin, Co-chair, HKIAC and Partner, Debevoise & Plimpton.

This post focuses on the first panel session which examined how the HK-PRC Interim Measures Arrangement has worked in practice, two years after its launch (see an earlier blog post on the Arrangement here). This session was moderated by Mr Friven Yeoh of Sidley Austin, who was joined by the following panellists:

  • Dr Yanli Si, Deputy Chief Judge of the Research Office of the Supreme People’s Court of China;
  • Ms Sarah Grimmer of HKIAC;
  • Mr Paul Starr of King & Wood Mallesons;
  • Ms Yanhua Lin of Fangda Partners; and
  • Mr James Rogers of Norton Rose Fulbright.

 

Key features and figures of the Interim Measures Arrangement

Mr Yeoh kicked off the session by outlining the development of how parties to Hong Kong arbitrations have been able to seek interim measures to facilitate arbitration and safeguard enforcement: (1) originally, only from the Hong Kong courts and the arbitral tribunals; (2) more recently, through emergency arbitration procedures; and (3) now, through the new option to apply to the PRC courts directly, under the Arrangement.

Dr Si then delivered a keynote speech on the history of the implementation of the Arrangement from the perspective of a participant, promoter and witness. Dr Si highlighted the Arrangement as an important initiative for legal professionals in Mainland China and Hong Kong which demonstrates one country having benefits from two systems. Dr Si also provided key figures regarding the implementation of the Arrangement up to 22 October 2021:

  • Number of applications made to the PRC courts: 54 (37 progressed, out of which 34 were granted);
  • Types of preservation sought:
    • 51 for property preservation;
    • 2 for evidence preservation; and
    • 1 for conduct preservation;
  • Administering arbitration institutions: HKIAC;
  • Types of disputes: corporate, commercial, financial, maritime, sales and purchases of goods, and professional services;
  • Applicants: 23% from Mainland China, 77% from outside Mainland China;
  • Respondents: 58% from Mainland China, 42% from outside Mainland China;
  • Stage of applications: all ex parte after commencement of the arbitrations;
  • Securities: almost all the parties provided securities, mostly in the format of letter of guarantee; and
  • Length of time for court’s ruling: 19 days on average.

 

Practitioners’ observations of the past two years of experience  

Mr Yeoh opened the discussion by asking Ms Grimmer about the role HKIAC has played in the implementation process and her observation. Ms Grimmer described the HKIAC’s essential role as confirming key details for the Court, such as the seat and administering institution of an arbitration. One observation was that all applications under the Arrangement so far were made after the commencement of arbitrations. Ms Grimmer explained the differences in procedure for a pre-arbitration application, which she noted would be more challenging than a post-commencement arbitration.

Mr Yeoh then turned to Mr Starr and Mr Rogers about practical tips as counsel seeking applications under the Arrangement. Mr Starr outlined several key differences between Hong Kong and PRC practices: (1) asset clues are required by the PRC courts, for which private investigators are normally engaged; (2) translation and notarisation for the PRC require extra time; (3) there is a need for security in the PRC, often by way of insurance; and (4) service of the preservation order is effected through the PRC courts. Mr Starr shared that these differences would affect the time it takes to successfully be granted measures, so parties should bear these in mind and plan accordingly. Mr Rogers noted the importance of engaging good local PRC counsel as the latter played an active role in liaising with the PRC court throughout the process.

Another key observation was that different standards are adopted by the PRC and Hong Kong courts in considering whether to grant interim measures. Ms Lin observed that the PRC courts would normally adopt a board-brush approach. In contrast, Mr Rogers shared the relatively higher standard adopted by Hong Kong courts, i.e. that there is a likelihood of success on the merits, a risk of dissipation, urgency, and a risk that the applicant cannot be compensated by damages.

Mr Yeoh asked whether parties would choose the PRC route over the Hong Kong route for interim measures, in light of the lower standard in considering whether to grant interim measures. Mr Rogers said it was possible, but there were other avenues that Hong Kong courts could provide, for example, emergency arbitration which had become a powerful tool in preserving evidence and assets and in obtaining an early decision on key issues. Mr Starr noted however that: (1) ex parte applications might not be allowed in emergency arbitration proceedings, which might cause risk of dissipation; and (2) emergency relief faced enforcement difficulties.  He said the emphasis should be on where the assets were.

In light of the ex parte nature of applications, Mr Yeoh asked Ms Lin how the PRC courts protected parties’ interest where an application was wrongfully made. Ms Lin answered that this was done by applicants providing security. She noted that in practice, it was quite difficult to challenge a PRC court’s decision on assets preservation, so the risk of a security being called upon is not particularly high.

 

Conclusion

The panellists described that 2 years on, the Arrangement had been “a game changer, no brainer and rainmaker” for parties in Hong Kong arbitrations.  Given Hong Kong’s unique advantages under the Arrangement for resolving PRC-related disputes, the panellists agreed that Hong Kong had become a much more attractive arbitration seat, especially in light of the development prospects of the Belt & Road Initiative and the Greater Bay Area.

 

More coverage from Hong Kong Arbitration Week is available here.

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