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The Emancipation of Arbitration: Recent Developments from the Supreme Court of Canada

Kluwer Arbitration Blog - Wed, 2021-06-30 01:00

The approach historically taken by Canadian courts to playing the role of guardian with respect to domestic commercial arbitration has sometimes been both confused and confusing, a situation only cofounded by recent Supreme Court of Canada (“Supreme Court”) jurisprudence.

With the release of Sattva in 2014 and Teal Cedar in 2017 , the Supreme Court declared that the right to appeal domestic commercial arbitration awards is to be construed narrowly. The Supreme Court reiterated that courts are to review awards according to a deferential standard – reasonableness – in order to advance the central aims of commercial arbitration: efficiency and finality. This state of affairs has seemingly come undone with the Supreme Court’s recent decisions, including the 2020 decision in Uber and the very recent February 2021 concurring reasons in Wastech, which remind us that the recognition of domestic arbitration’s independence still does not sit well with all Canadian judges.

Domestic commercial arbitration exists as a private, contractually-based dispute mechanism that necessarily requires a healthy distance from over-bearing court minders. I propose here, as I have argued before, that the key to maintaining a functional relationship between Canadian courts and domestic arbitration is to take a cue from dysfunctional parent-child relationships: allow arbitration to emancipate itself (at least in part) from the domestic judicial system. Only by removing the option to appeal arbitral awards altogether can we achieve some sort of co-existence that recognizes the true purpose of domestic commercial arbitration as an independent and fully realized dispute resolution mechanism, rather than an unruly child that requires constant supervision.

 

Vavilov, Wastech, and the appeal conundrum

In its landmark 2019 decision in Vavilov  (a decision previously discussed on the Blog), the Supreme Court ruled that, if a statute explicitly provides for the right to appeal an administrative decision, the appellate standard of review applies. This means that questions of law are reviewed on a correctness standard, while questions of fact or mixed fact and law are reviewed on a standard of reasonableness. Since Vavilov, lower courts have split on whether the new rule for appellate review of administrative decisions also applies to the review of domestic commercial arbitration awards under the various provincial statutory rights of appeal.

In the more recent decision in Wastech, the Supreme Court addressed this issue for the first time. The parties raised arguments about the applicable standard of review to the commercial award at issue, but relied on the arbitration-specific decisions of Sattva and Teal Cedar. However, the Supreme Court had other ideas.

The majority left unanswered the issue of whether Vavilov affects the standard of review applicable to arbitral awards set out in Sattva and Teal Cedar. Instead, the Supreme Court dropped two contradictory hints to keep us on our toes. First, the majority was “mindful” that Vavilov, which was released after the appeal was heard in Wastech, “set out a revised framework for determining the standard of review a court should apply when reviewing the merits of an administrative decision” (at para. 45). This implies that Vavilov may be applicable to the review of domestic arbitral awards. Second, the majority noted that Vavilov “does not advert either to Teal Cedar or Sattva, decisions which emphasize that deference serves the particular objectives of commercial arbitration” (ibid.), suggesting that these decisions have not been overturned.

The concurring judges (Côté, Brown and Rowe JJ.), however, firmly believed that in light of the contradictory lower court decisions, the issue of Vavilov’s effect on domestic arbitration appeals should be addressed. In just five paragraphs, the concurring judges washed away principles confirmed in Sattva and Teal Cedar, disregarded the fundamental differences between statutorily-created administrative tribunals and private commercial arbitration tribunals, and decreed that a word must be given the exact same meaning in each and every statute in which it appears, regardless of context or the legislator’s intent (at paras. 117-121).

The concurring judges provide their four reasons for doing so in two paragraphs: (i) the “important” differences between arbitration and administrative decision-making do not affect the applicable standard of review, which is purely a matter of statutory interpretation; (ii) the word “appeal” should have the same meaning across all statutes; (iii) the fact that domestic arbitration statutes use the word “appeal” overrides any factors justifying deference to arbitrators, including respect for the parties’ selection of a private method of dispute and of an appropriate adjudicator; and (iv) Vavilov must be read as overturning both Sattva and Teal Cedar for the principles of statutory interpretation set out in Vavilov to have any meaning (at paras. 119-120).

 

Wastech, Northland Utilities and the fear of helicopter parenting

The Wastech concurring judgment would not be as alarming if it did not align with several lower court decisions finding that Vavilov changed the standard of review applicable to appeals of commercial arbitration awards. This includes the judgment of the Northwest Territories Court of Appeal in Northland Utilities , which was decided by a panel of judges from Alberta’s Court of Appeal. In a recent article, my colleagues and I expressed the concern that lower court judges who are uncomfortable with domestic commercial arbitration may rely on the Wastech concurring reasons to bolster the precedential value of the Northland Utilities judgment and exercise tighter judicial control over domestic arbitration awards.

This concern appears confirmed. In late March, an Alberta judge commented in obiter that, because the concurring Wastech reasons are consistent with Northland Utilities – which was decided by a panel of judges from the Alberta Court of Appeal – they agreed that Vavilov had displaced the Sattva/Teal Cedar standard of review. Courts in other provinces, including in the recent Johnston decision, have also hinted that they may be bound by the concurring reasons in Wastech.

The British Columbia Court of Appeal’s upcoming judgment in the lululemon case, which will likely have to deal with the issue head-on, is one to watch. In the meantime, parties resolving disputes via domestic commercial arbitration in Canada are left wondering exactly just how “efficient” and “final” domestic arbitration really is in the face of potentially overbearing judicial oversight.

 

The case for the emancipation of arbitration

Domestic commercial arbitration and domestic courts in Canada have had a turbulent relationship over the years. While at times it appears that Canadian courts are willing to recognize domestic arbitration’s value as an independent, parallel method of dispute resolution, every step forward seems to be followed by two big steps back. At this point, it is difficult to believe that Canadian courts will ever stop acting as helicopter parents rushing to involve themselves in domestic commercial arbitration at the first sign of trouble, real or perceived. Arbitral tribunals are not administrative tribunals, nor are they lower courts. Domestic commercial arbitration is a valid, proven, alternative dispute resolution mechanism. It is not part of the court system nor its  competitor: it runs in parallel, freeing up precious judicial resources for pressing and substantial matters, including ever-increasing case backlogs. To ensure the efficiency and effectiveness of two systems working and existing alongside one another, courts have to resist the urge for constant oversight. While cutting the cord is difficult, the time has more than come for courts to let go.

To that end, provincial legislators need to step in and (partially) emancipate Canadian domestic arbitration: the right to appeal domestic commercial awards needs to be abolished. Although the “opt-in” appeal regime presented by the Uniform Law Conference of Canada in 2016 is enticing, it still leaves the option to appeal – and the accompanying uncertainty – on the table. In fact, the draft Act proposed by the Toronto Commercial Arbitration Society in February 2021 still contains a provision allowing parties to opt-in to the right to appeal a domestic award on a question of law. It is important to recall that domestic commercial arbitration is based in contract. Parties willingly choose arbitration and are well aware of its pros and cons. If they do not want to give up the right to appeal, they can choose to rely on the courts.

Where courts are given oversight powers, there is always the risk that they will try to broaden them, often with the misguided rationale that parties should be saved from an “incorrect” award. Common law jurisdictions seem to forget that Quebec does not allow appeals from domestic commercial arbitration awards and the sky has yet to fall.1) Article 2638 of the Civil Code of Quebec states that “An arbitration agreement is a contract by which the parties undertake to submit a present or future dispute to the decision of one or more arbitrators, to the exclusion of the courts”. jQuery('#footnote_plugin_tooltip_37818_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37818_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); It is also important to recall that parties are not left in the cold if their right to appeal domestic awards is taken away. Egregious situations involving partial arbitrators or serious breaches of procedural fairness can be remedied by the set aside mechanism, consistent with the Model Law. This allows commercial parties to enjoy the advantages of arbitration, efficiency and finality, without being exposed to gross unfairness. And yes, the arbitration tribunal might get it wrong. But so do courts, even at the highest level. Indeed, what basis does a judge have to conclude that he or she is better placed or more experienced to identify the “correct” solution to a commercial dispute than an expert arbitrator who was chosen by the parties? More kicks at the can does not make something a better process; rather, it creates costs, takes time, and perpetuates uncertainty. It is time to let domestic arbitration make its own way in the world, knowing that this independent system works just fine without constant judicial oversight.

 

The author is grateful to Charles Feldman for his insightful comments, as always.

References[+]

References ↑1 Article 2638 of the Civil Code of Quebec states that “An arbitration agreement is a contract by which the parties undertake to submit a present or future dispute to the decision of one or more arbitrators, to the exclusion of the courts”. function footnote_expand_reference_container_37818_30() { jQuery('#footnote_references_container_37818_30').show(); jQuery('#footnote_reference_container_collapse_button_37818_30').text('−'); } function footnote_collapse_reference_container_37818_30() { jQuery('#footnote_references_container_37818_30').hide(); jQuery('#footnote_reference_container_collapse_button_37818_30').text('+'); } function footnote_expand_collapse_reference_container_37818_30() { if (jQuery('#footnote_references_container_37818_30').is(':hidden')) { footnote_expand_reference_container_37818_30(); } else { footnote_collapse_reference_container_37818_30(); } } function footnote_moveToReference_37818_30(p_str_TargetID) { footnote_expand_reference_container_37818_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_37818_30(p_str_TargetID) { footnote_expand_reference_container_37818_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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2021 Works in Progress Conference Dates Announced!

ADR Prof Blog - Tue, 2021-06-29 09:38
Dear Colleagues, We hope you are enjoying your summer. The Straus Institute at Pepperdine Caruso School of Law is delighted to host the 14th Annual AALS Section on Dispute Resolution Works-in-Progress Scholarship Conference in Malibu, CA on October 8-9, 2021. As many of you know, the Works-in-Progress Conference convenes scholars and researchers at all levels … Continue reading 2021 Works in Progress Conference Dates Announced! →

Naturgy v. Colombia: Considerations on Police Powers and a Setback from Urbaser?

Kluwer Arbitration Blog - Tue, 2021-06-29 01:56

On 12 March 2021, a tribunal issued an award in the case of Naturgy v. Colombia (ICSID Case No. UNCT/18/1) under the Colombia-Spain BIT (2005) (the “BIT”). The decision is the first in a wave of four decisions decided in the first half of 2021 in favor of Colombia. Naturgy is noteworthy for its engagement with debates on the police powers doctrine and the jurisdiction of arbitral tribunals over counterclaims by States against investors.

 

The Facts

The tribunal, composed by Stephen Drymer, Alexis Mourre and Eric Schwartz, analyzed a dispute concerning the takeover of Electricaribe (an electricity company operating in the Caribbean region of Colombia) by the national authority regulating public utility services. The intervention occurred in 2016 after a series of government measures attempting to balance the financial situation of the company. Pursuant to Law 142 of 1994, that regulates public utilities, the State can take temporary control of public utilities as a “preventive” measure in certain cases. Some of the situations include when the company can no longer provide services with the quality and continuity required if such service is indispensable to preserve public or economic order, to avoid serious damage to users or third parties, and if the company has suspended or might suspend payment of its obligations.

Naturgy claimed that through these measures its property in Electricaribe was expropriated and that Colombia violated the fair and equitable treatment clause of the BIT.

Colombia argued that intervention in the company was a valid exercise of its police powers, that the requirements for takeover under domestic law were met, and that the intervention was justified.

 

The Decision on the Merits: Colombia Used its Police Powers

The tribunal started from the premise that States are not obliged to pay compensation to investors for damages arising out of regulatory actions taken in good faith, and Article 11(2) of the BIT does not prevent a Contracting Party from “adopting or maintaining measures destined to preserve public order.”

The award concluded that Colombia legitimately exercised its police powers because the requirements for takeover under Law 142 of 1994 were met. The takeover was justified by Electricaribe’s financial distress, the danger of the disruption of service, and a ‘systemic risk’ that the company could no longer comply with its financial duties to purchase energy in the national market (¶ 468). Hence, the Tribunal decided that Colombia’s takeover was not an expropriation and Colombia accordingly did not owe compensatory damages to the claimant.

The tribunal also dismissed the FET claim, finding that that the takeover was not a disproportionate decision. The government’s actions included hiring external advisors to prepare financial indicators to establish Electricaribe’s economic condition. Additionally, the company had the opportunity to request the revision of the decision as an administrative recourse. The request for reconsideration was rejected and Electricaribe did not file an appeal to the decision which confirmed the company’s intervention (¶ 504).

 

No Jurisdiction over Counterclaims

Colombia filed counterclaims requesting compensation for the claimant’s mismanagement of Electricaribe. It alleged that this mismanagement meant that “Colombia was forced to channel [funds] into the Company” to maintain its operations during the intervention, and produced a negative impact in regional development, lower tax revenues from Electricaribe and the reduction in the value of Colombia’s shareholding in the company. (¶ 582).

The tribunal analyzed its jurisdiction over such counterclaims under the applicable BIT and the scope of consent given by the parties. The Treaty’s dispute settlement clause, article 10(2) covers: “[a]ll disputes regarding investments that may arise between one of the Contracting Parties and an investor of the other Contracting Party regarding issues governed by this Agreement…”. The tribunal recalled the absence of admissibility rules for counterclaims under the UNCITRAL Rules and followed the two-step approach in Saluka, to confirm that counterclaims (i) could fall within the tribunal’s jurisdiction; and (ii) were within the dispute resolution provisions of the applicable treaty (¶ 600).

Colombia argued that the tribunal had jurisdiction over the counterclaims since the BIT covers “all disputes”, and that there was a “reasonable” connection between the investor’s claims and the State’s counterclaims as required by article 19(3) of the UNCITRAL Rules of 1976 (¶ 590). As the Treaty requires disputes to be “regarding issues governed by [the BIT]”, Colombia argued that because article 10(9) includes domestic law as one of the applicable laws, the investor’s duties under domestic law were implicitly “regulated by the treaty,” and thus under the tribunal’s jurisdiction (¶ 620).

The tribunal concluded that article 10(2) of the BIT, read together with the other sections of the same article, indicated a specific scope of consent and did not provide grounds for counterclaims.

First, the Tribunal differentiated the BIT from other treaties, pointing out that the former did not contain language entitling Contracting Parties to bring counterclaims. It emphasized that the Saluka tribunal did not suggest that the expression “all disputes” provides a general basis for jurisdiction over State’s counterclaims, but that, in principle, it did not preclude the possibility in that case (¶ 604). The Saluka tribunal declined jurisdiction over the counterclaims as it considered that they were not “sufficiently closely connected with the subject matter of the [investor’s] original claim” (Saluka, ¶ 81). Moreover, other treaties, e.g., the Organisation of Islamic Cooperation Investment Agreement expressly include references to awards containing orders against investors for counterclaims (Hesham, ¶ 660).

Second, other sections of article 10 of the BIT, beyond section 2, were drafted specifically to refer to claims “from an investor,” without references to a State’s counterclaims (¶ 615). The Tribunal also concluded that, given the detailed treaty clause addressing dispute-settlement, it was at least doubtful that the contracting parties omitted references to counterclaims if they intended to extend an arbitral tribunal’s jurisdiction to such claims (¶ 616). For example, article 10(4) referred to the grounds for a claim concerning treaty violations by a Contracting Party and the losses or damages suffered by the investor (¶ 617). Likewise, article 10 (10) referred to the impossibility of States to formulate as a defense that the investor received or will receive compensation from an insurance contract or guarantee for the losses suffered from BIT violations.

Finally, as article 10(2) of the Treaty covered investor-State disputes regarding issues regulated by [the] Agreement, the tribunal considered that the treaty did not regulate the management of the investment by the investor in a sector regulated by domestic law. Thus, it rejected Respondent’s argument that the reference to domestic law in the applicable law would amount to a matter “regulated by the treaty” (¶ 620). The arbitrators considered that the dispute settlement clause in the treaty was precise enough to qualify the covered disputes, and the broad interpretation proposed by Respondent would “deprive the provision of any meaning” (¶ 619).

 

A Setback from Urbaser on the close connection test?

In 2016, the tribunal in Urbaser v. Argentina ruled that it had jurisdiction over counterclaims brought in relation to violations of the right to water for the lack of investments by the Claimants. However, the treaties in Urbaser and Naturgy had different language regarding the covered claims. In Urbaser, the Argentina-Spain BIT (1991) covered disputes “in the sense of the present Agreement”, while the Colombia-Spain BIT referred to disputes “regarding issues regulated by the present Agreement.”

Thus, the Urbaser tribunal interpreted the close connection test broadly by concluding that there was a manifest factual link between the investor’s claims and the State’s counterclaim as the claims were “based on the same investment, or the alleged lack of sufficient investment, in relation to the same concession” (¶1151).

The Naturgy tribunal considered that the necessary close connection test developed in Saluka, and Paushok was not proven. The tribunal concluded that the counterclaims concerned Electricaribe’s operation being inconsistent with Colombian law, and the compensation sought by Colombia was “different in nature and based on different factual and legal grounds than the compensation sought by Claimants in the main claims” (¶ 623). Thus, unlike Urbaser, the same factual context would not suffice to determine that there was a connection between the investor’s claims and the State’s counterclaims.

 

Conclusion

The decision in Naturgy v. Colombia further developed the police powers doctrine and emphasized the possibility for States to take measures in highly regulated industries. It also engaged in the debate as to the jurisdiction of investment tribunals over counterclaims. There was a return to Saluka through a more restrictive interpretation of the close connection test, narrower than in Urbaser where a factual connection to the investment was deemed enough. The tribunal interpreted the requirement of a connection between claims and counterclaims to focus on the factual and legal basis of the claims to compensation, requiring counterclaims to be based on the treaty. However, while the tribunal held that it lacked jurisdiction over the counterclaim as raised, it signaled a way forward for States interested in bringing counterclaims, in terms of the drafting of treaties to establish consent and a comprehensive framework to allow claims ruled under such instruments.

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A View from Malaysia: Confidentiality in Arbitration-Related Court Proceedings

Kluwer Arbitration Blog - Mon, 2021-06-28 01:00

Confidentiality is one of the distinctive features of arbitration and is often promoted as an advantage of arbitration. Most arbitral institutions require arbitral tribunals and parties to preserve confidentiality of arbitral proceedings. Having said that, commercial disputes which are subject to arbitration agreements most often do not simply disappear from the limelight. Quite the opposite, such commercial disputes are regularly reported in the media despite the existence of an agreement to arbitrate the matter. A recent development on confidentiality in arbitration is reflected in La Kaffa International Co Ltd v Loob Holding Sdn Bhd & Another appeal (2018) 9 CLJ 593 where both parties sought the Malaysian court’s aid in obtaining injunctive relief orders. Despite the fact that the dispute was to be heard by way of arbitration in Singapore, the Malaysian High Court and the Court of Appeal scrutinised the facts and evidence presented by the parties in ruling on the parties’ applications. Whilst the parties were subsequently reported to have reached an amicable settlement, the judgments of the High Court and Court of Appeal were published and the disputes were widely reported.

 

The amendments in 2018: Requirement to preserve confidentiality

 Prior to 2018, the Malaysian Arbitration Act 2005 (“Act”) did not have provisions addressing confidentiality in arbitration proceedings. With the amendments introduced in 2018, the Act now regulates disclosure of information relating to arbitral proceedings and awards. Section 41A prohibits parties from publishing, disclosing or communicating information relating to the arbitral proceedings under the arbitration agreement and the award made in those arbitral proceedings (Section 41A of the Act).

 

Exceptions

 There are 5 exceptions to the restriction imposed i.e. (a) if the parties consented on the disclosure; or (b) where the publication, disclosure or communication is made:

(i) to protect or pursue a legal right or interest of the party;

(ii) to enforce or challenge the award;

(iii) to any government body, regulatory body, court or tribunal where the party is obliged by law to make the publication, disclosure or communication; or

(iv) to a professional or any other adviser of any of the parties.

The confidentiality obligation under Section 41A applies to parties to the arbitral  proceedings only. In Dato’ Seri Timor Shah Rafiq v Nautilus Tug & Towage Sdn Bhd (2019) 1 LNS 1452,  Section 41A was invoked by the defendant to expunge reports  produced by the plaintiff on the basis that the documents were prepared for the purposes of an arbitration where the defendant was one of the parties. The defendant argued that it did not consent to the publication, disclosure or communication of the impugned documents. The Malaysian High Court did not allow the expungement request as the obligation to preserve confidentiality in Section 41A applies only to parties to the arbitral proceedings, to which the plaintiff was not a party.

The parties’ duty to maintain confidentiality under Section 41A does not apply in a situation where one party is seeking to register and enforce an arbitral award in Malaysia pursuant to Section 38 of the Act. Section 38 requires the applicant to make an application to the High Court for the award to be recognised as binding and enforced by its entry as a judgment. A party seeking to register and enforce an arbitral award is required to produce two documents with the High Court (Order 69 rule 8, Rules of Court 2012)]:

(a) the duly authenticated original award or a duly certified copy of the award; and

(b) the original arbitration agreement or a duly certified copy of the agreement.

In another decision in the case of Siemens Industry Software GMBH & Co KG (Germany) v Jacob and Toralf Consulting Sdn Bhd  (2020) 3 MLJ 1, the respondents sought to register the entire award. The appellant opposed the application on the ground that only the dispositive portion of the award which sets out the orders or the exact relief granted by the arbitral tribunal in Singapore was capable of being registered as a judgment of the High Court. The Federal Court ruled in favour of the appellant and held that the High Court would enforce the dispositive portion of the award which sets out the orders or the exact relief obtained in the arbitral award and not the reasoning or findings of the judgment of the foreign courts. As analysed in this blog post, on the issue of confidentiality, the Federal Court agreed with the appellant’s argument that to register the entire award would undermine the confidentiality of the arbitration proceedings. Although the decision did not deal with Section 41A, the jurisprudence behind that decision is consistent with the objective of Section 41A.

 

Hearings are to be heard otherwise than in open court

 With the exceptions in Section 41A, in real terms, the confidentiality enjoyed by parties in arbitration proceedings is not without limitation. This leads to another interesting provision in the Act which provides that all hearings are to be heard otherwise than in open court (Section 41B). Section 41B does not distinguish between matters where disclosure is prohibited and those where disclosure is permitted under the exceptions in Section 41A.

Section 41B only prohibits matters to be heard in open court but does not preclude judgments on arbitration-related court proceedings from being published. The rationale is simple: there is a need for open justice to ensure the development of arbitration jurisprudence in Malaysia and that such need is not stifled by upholding confidentiality in arbitration.

The question that arises is whether judgment for proceedings heard in camera should be published in its entirety or whether certain information such as identity of the parties or confidential information should be redacted to preserve confidentiality.

There may be lessons to be drawn from jurisprudence in Singapore courts. In Singapore, a party may apply to the court for directions that certain information, relating to the proceedings including the identity of the party, be kept confidential and not publishable. One such example is the case of AZT and others v AZV (2012) 3 SLR 794, where the Singapore court granted a sealing order and published the judgment with the parties’ identity kept anonymous for the purposes of preserving confidentiality of the arbitration proceedings on the ground that the dispute between the parties was purely commercial, with nothing to suggest that there was any countervailing and legitimate public interest weighing in favour of disclosure.

In CES v International Air Transport Association (2020) 4 SLR 44, the Singapore court allowed CES’s request to redact its name in the judgment and the references to its chairman and managing director were also anonymised by use of the letter ‘M’ in an arbitration-related court proceedings. The court however, refused IATA’s belated request for its name to be redacted. The refusal was on the ground that  IATA did not provide a basis for such application; the belated request merely objected to its name being published for the purpose of obtaining consistency subsequent to CES’s aposition in redacting its name. That was not sufficient.

 

Conclusion

 In arbitral-related court proceedings, the court is often required to consider matters related to arbitration proceedings. On the one hand, there is a need to preserve confidentiality of arbitration; on the other hand, if judgments are not published by reason of confidentiality, the law will not develop.

In such circumstances, a compromised position can be achieved by having cause papers sealed and relevant information redacted from judgments in matters where this is warranted by the circumstances. The Act does not have an express provision to that effect and the Malaysian courts have not embarked on that journey. It will be interesting to observe the legal developments in this area.

 

 

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Procedural versus Substantive Reforms: Is the Work of UNCITRAL WGIII Worth the Wait?

Kluwer Arbitration Blog - Sun, 2021-06-27 01:58

Calls for investor-State dispute settlement (“ISDS”) reform have persisted for some time (see blog coverage here). Competing calls for retaining the status quo, modifying the system, or abandoning the system altogether have each gained traction. With a drastic increase in the number of investment cases being brought, accompanied by the “mega” awards, the international community has had to respond.

One of the most prominent global initiatives to address these reforms has been the UNCITRAL Working Group III (“WGIII”) process (see blog coverage here). WGIII’s discussions began in 2017 and, as recently announced, WGIII plans to conclude its reform process by 2025. The question that arises is whether this 8-year reform process will meaningfully address the calls for reform. This is a significant question because if, after undertaking such a long and detailed reform process, criticisms on the basic ideas of ISDS persist, the international community has to consider whether the transaction cost was worth it at all.

 

What Issues or Reforms Have States Raised?

With the resumed 40th session of WGIII on ISDS reforms in May, we surveyed prior submissions from States during UNCITRAL’s ISDS reform process. Our objective was to take stock of the arguments put forward by States and assess whether WGIII will meaningfully address them. Below is a detailed table that captures selected examples of issues or reforms suggested by States. Importantly, WGIII received the mandate to address only procedural, and not substantive, matters. Indeed, recently prominent groups like the Columbia Center for Sustainable Investment have called into question the work undertaken by WGIII, arguing that the limited reforms have the effect of locking in a “broken system.” As the table demonstrates, the focus on procedural, rather than substantive, matters results in critical gaps in the reform process.

 

Selected Examples of Issues or Reforms Suggested by Governments during UNCITRAL’s ISDS Reform Process

Reforms Suggested by Governments Description Within the scope of the WGIII mandate? Claimants should be required to exhaust local remedies Requiring exhaustion of local remedies may reduce the need for arbitration. (e.g., Indonesia, Morocco) Maybe Fees and costs should be transparent Establishing transparent fee structures and budgets for the proceedings may encourage efficient case management and reduce costs.  (e.g., South Africa, Thailand) Yes Frivolous claims dismissed Developing a standardized framework and guidelines for identifying and dismissing frivolous claims may prevent investors from filing excessive or abusive arbitration requests.  (e.g., Indonesia, Morocco) No Timelines should be streamlined Establishing predetermined timeframes for the proceedings may avoid unnecessary delays and costs, due to existing ad hoc nature of current arbitral timetables. (e.g., Thailand) Maybe Third-party funding should be disclosure of banned altogether Requiring disclosure of, or banning altogether, third-party funding arrangements may obviate otherwise unknown potential conflicts of interest. (e.g., South Africa, Thailand) Yes A code of conduct for arbitrators should be standardized Developing a standardized and widely accepted code of conduct, with clear and enforceable guidelines, may avoid potential conflicts of interest, especially in “multiple-hatting” scenarios. (e.g., Chile, Israel, Japan, Bahrain) Maybe (parallel work undertaken by ICSID/UNCITRAL) An Advisory Centre on International Investment Law should be created Creating an advisory center may help States that struggle to respond effectively to investment disputes because of the lack of resources and institutional capacity. (e.g., Thailand) Yes An Appellate Mechanism or Multilateral Investment Court should be created Establishing an appellate mechanism, with defined procedures and enforcement mechanisms, may enhance access to justice and procedural fairness. (e.g., Russian Federation, South Africa) No Counterclaims should be permitted Permitting counterclaims may counter the perceived imbalance in favor of investors in IIAs. (e.g., South Africa) No Third-party intervention should be permitted Increasing participation from third parties that have legitimate interests in a dispute may foster transparency and equity.  (e.g., Ecuador, South Africa) Yes Investor obligations should be established Establishing direct and binding investor obligations in IIAs may counter the perceived imbalance in favor of investors in IIAs. (e.g., South Africa) No Regulatory chill should be prevented Preserving regulatory autonomy may reduce State reluctance to regulate in key domestic areas due to fear of litigation.  (e.g., Indonesia, Burkina Faso) No

 

Identifying Gaps

Putting aside the merits of the argument that the distinction between procedural and substantive reforms is difficult to make, the reality is that criticisms of ISDS extend to both the procedure and substance. Indeed, as is demonstrated in the table above, States continued to raise substantive concerns, even before WGIII began. A reform process that only considers procedural reform addresses merely half of the problem, despite the significant transaction costs associated with the process. Moreover, because certain procedural reforms have a substantive component, it may be shortsighted to only address the procedural component. For example, procedural reforms relating to counterclaims should also be paired with substantive reforms focused on establishing direct and binding investor obligations in IIAs.

While certain reforms put forward by States, such as an appellate mechanism and a code of conduct for arbitrators, are currently under consideration by WGIII, many are not. For example, regulatory chill has been raised often by government throughout the ISDS reform process as a significant barrier, yet WGIII has acknowledged that this is not a procedurally related issue and has chosen not to engage.

As further examples, several reforms suggested by governments specifically relate to drafting IIAs, including establishing direct and binding investor obligations (which remain rare in IIAs). Perhaps because these are issues are substantive in nature, WGIII has not engaged. It appears unlikely that any such issues will be addressed by WGIII before the proposed end-date of 2025. This misses a critical opportunity to collaborate with governments to fully address their stated concerns with the ISDS system. Indeed, it may also have the unintended effect of exacerbating what is often viewed as an investor-focused system, which would have further downstream negative effects on, for example, regulatory chill.

Further, several critical issues arising out of the investment treaty jurisprudence focus on substantive issues and will remain unanswered. For example, can an investor restructure an investment to take advantage of BITs? Does the most-favored-nation clause extend to dispute resolution matters? Are legitimate expectations protected under the minimum standard of treatment? Can an investor select the valuation date in the case of an unlawful expropriation? Such issues are endemic to investment treaty arbitration and subject to a wide-range of highly contested views. But, as these are “substantive” issues, they will not be addressed by WGIII.

 

The Road Ahead

We are reminded of South Africa’s comment during WGIII that “we cannot divorce the procedural from substantive concerns as they are intricately related.” In the absence of a holistic reform process that looks at both substance and procedure, problems will persist. Indeed, these remaining gaps, which are primarily substantive, rather than procedural, can provide a helpful roadmap for furthering ISDS reform efforts outside of UNCITRAL and in parallel to it.

Substantive reforms will require concerted engagement by States via their role in negotiating new IIAs. For example, two of us have highlighted trends in recent IIAs (here) and model agreements (here) that could help to address these gaps. These trends underline a concurrent process by many governments to address both procedural and substantive concerns within their ability to both develop model agreements and enter into investment treaties. Indeed, the recently released Canadian FIPA Model addresses many of these concerns (see blog coverage here).

WGIII could take note of such trends and seek to link procedural reforms by engaging with governments on how best to align procedural and substantive dimensions. For example, a consultation process after the conclusion of WGIII could provide governments with an opportunity to reflect back on WGIII and its outputs, so as to identify any unresolved matters and options for further engagement.

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Conflict Coaching via Skype or FaceTime - UK based service

Communication and Conflict Blog - Sat, 2021-06-26 03:30
Conflict Coaching - 1-to-1 support for people who are experiencing a difficult relationship or unresolved conflict to create more effective ways of responding. Conflict resolution, mediation, effective communication, creativity

Expansion of the Meaning of ‘Public Policy’: The Belarusian Approach

Kluwer Arbitration Blog - Sat, 2021-06-26 01:41

This blog post examines the approaches of Belarusian law and judicial practice to the application of public policy rules. Considering specific cases, the author makes suggestions for mitigating the risks to challenge of arbitral awards on the grounds of non-compliance with Belarusian public policy.

 

Supreme Court Resolution on Public Policy

Under Belarusian law, Belarusian economic courts must refuse to recognize and enforce foreign arbitral awards in whole or in part if the recognition and enforcement of the arbitral award would be contrary to the public policy of Belarus (Article 248(1)(8) of the Economic Procedure Code of Belarus). In this regard, Belarusian law, in contrast to the approach in the New York Convention, requires refusal of recognition and enforcement.

The practice of Belarusian economic courts on analysing questions of public policy was summarized in the Methodological Recommendations approved by the Resolution of the Presidium of the Supreme Economic Court of Belarus (the Resolution).1)Note that from 1 January 2014, the Supreme Economic Court of Belarus was attached to the Supreme Court of Belarus. jQuery('#footnote_plugin_tooltip_37769_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37769_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); In the Resolution, public policy is defined as the fundamental principles of international law, the norms of the Constitution of Belarus, international treaties to which Belarus is party, and basic principles of the fundamental branches of law (e.g. constitutional law, civil law, etc.). If an arbitral award violates these principles and norms, it could violate public policy.

The Resolution also states that courts must justify applying public policy as a reason to refuse the recognition or enforcement of foreign arbitral awards. Courts must provide detailed reasoning concerning their findings on public policy in their decisions refusing enforcement. A detailed statement of reasons and grounds for refusing recognition or enforcement contributes to the development of a more consistent practice and consensus on the principles and rules that are part of Belarusian public policy.

However, the court practice on applying public policy in 2019-2020 indicates that Belarus’s economic courts do not always set out in detail the grounds for invoking public policy and tend to interpret the concept broadly.

 

Examples from the Economic Court Practice

In case No. 1-5их/2019, a Latvian joint-stock company (JSC) applied to the Economic Court of the Gomel Region for recognition and enforcement of an arbitral award made under the Arbitration Rules of the Court of Arbitration of the Latvian Chamber of Commerce and Industry.

The court refused to recognize and enforce the award establishing several violations of Belarusian public policy:

  1. The debtor was not properly notified of the arbitration proceedings since the notice of arbitration was sent in violation of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Cases 1965 (Hague Service Convention). The court recognized that the debtor participated in the proceedings and did not raise any arguments on this point. To my mind, the parties’ participation, notwithstanding the lack of notice, demonstrates that the court should not have applied public policy.
  2. The arbitral tribunal denied the debtor’s request for an interpreter from Latvian into Russian. The court found that the principle of equality of citizens, organizations, and individual entrepreneurs before the law and the court was not ensured by the arbitral tribunal. The debtor’s representatives who spoke Latvian were, however, present at the arbitral hearing. A translator was needed only to translate one of the debtor’s representatives.
  3. The ruling indicated that “the debtor’s representative produced correspondence with a representative of the Estonian police on the initiation of a criminal case under the disputed agreement”. According to the court, combating corruption is part of both domestic and international public policy. Thus, corruption, which could have occurred during the conclusion and execution of the contract, based on which the arbitral award was made, is a ground for applying public policy.

The conclusion that initiating a criminal case indicates a violation of Belarusian public policy does not correspond to the fundamental presumption of innocence enshrined in Article 26 of the Constitution of Belarus and cannot be evidence of a public policy violation. None of the above-mentioned circumstances should have been considered grounds for applying public policy.

In another case No. 13-1их/2020/507К, the Economic Court of Minsk considered an application of JSC K for recognition and enforcement of an arbitral award made under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce to recover debts from JSC B. When considering the application, the court pointed out that the dispute arose from a construction contract concluded between JSC B (customer), JSC T (contractor) and JSC K (contractor), in which JSC T was an independent party to the contract. In the court’s opinion, JSC T had rights and obligations towards other parties to the contract and had a material and legal interest that would be affected by the arbitral award.

The legislation of Belarus (for example, Article 13 of the Constitution of Belarus) enshrines the principle of equality before the law and the court and also guarantees the right to judicial protection of one’s rights and legitimate interests.

The court found that JSC T did not participate in the arbitration. The court stated that JSC T had a substantive interest that could be affected by the enforcement of the arbitral award since the subject of the dispute was the assessment by the arbitral tribunal of the legal consequences of termination of the contract as a result of which JSC T was deprived of the right guaranteed by the legislation of Belarus to protect its interests. The court concluded that enforcement of the arbitral award would be contrary to Belarusian public policy.

The court’s decision is rather controversial. Based on the content of the decision, JSC T, whose rights could be affected by the arbitral award, did not file complaints against this award. JSC T did not participate in the court proceedings, where violation of public policy was argued. Thus, the court applied public policy without actually clarifying the particular circumstances that may arise as a result of the recognition and enforcement of the arbitral award. A violation of public policy could be established only if there was evidence of violation of the party’s rights as a result of the enforcement of the arbitral award in Belarus.

 

Conclusions

Based on the above examples from Belarusian judicial practice, the following conclusions can be drawn:

  1. Belarusian economic courts should be following the Resolution which is applicable and binding on them. However, in practice, the courts do not always consider the Resolution and:
    • interpret the concept of public order too broadly, for example, ignoring the constitutional principle of the presumption of innocence, decide based on the mere fact of notifying the police about a possible crime, without waiting for a final decision, or
    • ignore the requirements of the Resolution on the need for a detailed statement of grounds for applying public policy, for example, in the case with an alleged infringement of the rights of a third party by an arbitral award.
  2. When considering relevant cases, the parties, in support of their position, need to refer more to the specific norms of the Resolution, which have to be assessed by the court when making a decision.
  3. When drafting arbitration clauses in contracts with Belarusian parties, if enforcement is expected to take place in Belarus, the parties should more actively entrust the resolution of disputes to Belarusian arbitral institutions and / or appoint Belarusian specialists as arbitrators.

The procedural aspects of the arbitration rules of Belarusian arbitral institutions are in line with the approaches of the state courts and, therefore, minimize the possibility of violation of public order due to non-compliance with procedural aspects of public policy. The secretariat of the arbitral institutions also, as a rule, informs an arbitral tribunal consisting of foreign arbitrators about the practice of application of public policy rules by national courts.

Belarusian arbitrators know better than foreign arbitrators the approaches of Belarusian courts to issues of proper notification, translation, etc. Consequently, Belarusian arbitrators can anticipate and prevent possible violations of Belarusian public policy during the proceedings. For example, by taking additional measures to comply with the notice requirements in the national procedural legislation, although not provided for by the arbitration rules, but ensuring compliance with the public policy of the place of recognition and enforcement of the arbitral award.

Belarussian courts typically carry out an in-depth review of arbitral awards for compliance with legal grounds for refusal of recognition and enforcement. Incomplete indication of the circumstances of the case in the arbitral award may lead to a misunderstanding during its subsequent assessment by a court and to a refusal to recognize and enforce the arbitral award on public policy grounds. It is important to ensure that arbitral awards contain a detailed description of circumstances that could be considered grounds for applying public policy rules in Belarussian courts. Belarusian arbitrators will be able to, considering the peculiarities of Belarusian legislation, practice, and courts’ decision-making logic, draw up a more motivated arbitral award, considering possible future objections about violation of Belarusian public policy.

References[+]

References ↑1 Note that from 1 January 2014, the Supreme Economic Court of Belarus was attached to the Supreme Court of Belarus. function footnote_expand_reference_container_37769_30() { jQuery('#footnote_references_container_37769_30').show(); jQuery('#footnote_reference_container_collapse_button_37769_30').text('−'); } function footnote_collapse_reference_container_37769_30() { jQuery('#footnote_references_container_37769_30').hide(); jQuery('#footnote_reference_container_collapse_button_37769_30').text('+'); } function footnote_expand_collapse_reference_container_37769_30() { if (jQuery('#footnote_references_container_37769_30').is(':hidden')) { footnote_expand_reference_container_37769_30(); } else { footnote_collapse_reference_container_37769_30(); } } function footnote_moveToReference_37769_30(p_str_TargetID) { footnote_expand_reference_container_37769_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_37769_30(p_str_TargetID) { footnote_expand_reference_container_37769_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Is International Arbitration Going Green? Findings from the 2021 Queen Mary University|W&C International Arbitration Survey

Kluwer Arbitration Blog - Fri, 2021-06-25 01:59

More than a year after the World Health Organization declared COVID-19 a pandemic, we hope we are getting closer to the end of this and will soon be able to enjoy our freedom again in full. However, before going back to “normal” and resuming business as usual, we should think if there are any positive takeaways for international arbitration practice. The twelfth empirical survey of the School of International Arbitration, Queen Mary University of London, the 2021 Queen Mary University/W&C International Arbitration Survey (“the Survey”), aimed among others to identify any “silver lining”. The travel restrictions and the move to a new virtual reality have had at least one positive consequence on arbitration practice: they shone a spotlight on the merits of sustainable practices. This post discusses some of the relevant findings.

 

I. A List of Measures to Reduce the Environmental Impact of International Arbitration

Few, if any, would disagree that reducing the environmental impact of international arbitration is a noble objective. The important questions are how “green” arbitration practice actually is, how COVID-19-related developments have changed attitudes and practices, and whether these short-term revised practices will have a positive lasting impact on sustainability.

The Survey Questionnaire included a list of measures that might be used to reduce the environmental impact of international arbitration. For each option, respondents were asked to indicate whether they had experience of using that measure. They were also asked whether they thought the measure should be used going forward. It was not required that respondents have experience of using any given option in order to express their view of whether it should be used. In the qualitative interviews that followed with more than 190 individuals who expressed an interest, many interviewees on the topic explained that they had mistakenly understood when completing the Questionnaire that if they had used a given measure, they did not then need to specify whether they also thought it should be used. While this was not the case for all respondents, the findings from this question (see Chart below) must be assessed in light of this clarification.

 

 

II. Embracing paperless practices

As the data shows, the most commonly used measures among the Survey respondents concerned paperless practices. “Production of documents in electronic rather than hard-copy form in document production exercises”, “submissions, evidence and correspondence in electronic format rather than in hard copy” and “use of electronic rather than hard-copy hearing bundles” were chosen by around half of the respondents (55%, 51% and 48% respectively). All three options also ranked highly as measures that respondents felt should be used (between 38% and 40% in each case).

This preference towards more paperless practices was also confirmed in the qualitative interviews (see also Survey Report, p. 35). Several users emphasised the importance of electronic exchanges. Relatedly, in response to another question, respondents indicated that they would be most willing to do without “unlimited length of written submissions” if this would make their arbitration cheaper or faster. Such page-limits were also viewed as a means to print less. Although all interviewees embraced the positive environmental impact, they often focused more on the cost and efficiency of the arbitration rather than on the environmental benefit of such approaches.

These findings suggest that the time is ripe for a shift to adopting paperless practices by default. Going paperless should be an opt-out rule as electronic communications, filings, and bundling could reduce the material waste in arbitral proceedings. Parties in a given arbitration can choose whether or not to print documents, rather than having to print multiple copies of hearing bundles.

It seems that several arbitral institutions have moved in this direction. For example, the most recent 2020 LCIA Rules, provide for electronic communications as a default (Article 4 in relation to requests of arbitration and the response thereto, as well as to any written communication). In the same vein, the new 2021 ICC Rules have shifted to electronic filing, in addition to the express provision for the possibility of remote hearings (Article 26). Since 2019, SCC arbitrations have been administered on the SCC platform. During the pandemic the SCC also offered an ad hoc platform, which was provided free of charge. ICSID has also been a pioneer in remote administration of arbitrations. In March 2020, it announced that electronic filings would be the default procedure. It expressly linked this decision to its ‘ongoing commitment to leverage information technology to make its proceedings more efficient and environmentally friendly’.

 

III. Guidance from Tribunals and Soft Law Instruments

‘Specific directions from arbitral tribunals in relation to reducing environmental impact’ is a measure with which only 13% of respondents declared to have experienced. Nevertheless, 40% of respondents said that such directions should be used. This indicates users expect tribunals to promote greener arbitration practices.

The Survey results indicate a widespread need for more guidance. The ‘adoption of soft law instruments’ (such as the Green Pledge) was chosen as a measure that should be used by 40% of respondents. The merits and demerits of soft law instruments is an often-debated issue (see also on the Blog’s coverage here). Interviews also reflected the divergence of views and the difficulty in striking a balance between the need for guidance, on the one hand, and the avoidance of over-regulation through soft law on the other.

Be that as it may, the message seems clear: more concrete guidance is welcome. Such guidance may come from arbitral tribunals, arbitral institutions and their rules, counsel but also other actors, such as service providers and hearing centers. For instance, hearing centers could link environmentally-friendly practices (e.g., use less plastic in disposable items) to a cost reduction (see e.g., the suggestions in the Framework and Green Protocols, Campaign for Greener Arbitrations which was signed by the HKIAC). Going green cannot be an abstract wish, but must be translated to specific choices throughout the arbitral process.

 

IV. Remote Interactions: Think Before You Travel?

The choice of a virtual rather than an in-person interaction has an impact on sustainability. ‘Procedural conferences held via telephone conference, videoconference or virtual hearing rooms’, ‘meetings with clients and witnesses via telephone conference’, ‘video-conference or virtual hearing rooms rather than in person’, ‘substantive hearings held via video conference or virtual hearing rooms’ and ‘witness evidence being given via video conference or virtual hearing rooms’ were all measures that significant numbers of respondents both reported having experienced and thought should be used. In addition, 34% of respondents identified ‘less environmental impact’ as a main advantage of virtual hearings. Only 24% of respondents, however, indicated that ‘environmental sustainability’ is a factor that would make them more likely to choose a virtual rather than in-person format for hearings post-COVID-19.

This last finding is another indication that environmental considerations are a welcome side-effect but not the determinant factor behind the choice between an in-person or a remote interaction (a hearing or another remote interaction). Interviews also confirmed that, although the environmental benefits of remote participation were recognised, this was not the primary motivation behind the decision on whether interactions should be remote or in person. Making the arbitration proceeding cheaper and faster emerged as a perennially important consideration.

If travel in a particular case is unavoidable, one should at least think about the ways in which the environmental impacts can be minimized. As suggested elsewhere, there are ways to reduce the environmental impact by, for example, traveling by train or choosing airlines on the basis of their carbon-efficiency. This is an achievable goal. Nevertheless, the Survey findings show that we are not there yet: only 15% of respondents had experience with ‘carbon offsetting of flights,’ but 40% think that this is a measure that should be used.

 

V. Concluding Remarks

Although it has been a long time since ‘greener’ international arbitration has emerged as a trend, the pandemic may prove to be the opportunity to embrace more ambitious sustainable practices. We hope that these positive changes will remain after the pandemic recedes. After all, going paperless and sustainable travel are not only efficient and cost-effective but also the right thing to do for the sake of the environment. In light of urgent action on climate change being taken across all sectors, the arbitration community must also adapt.

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Guerin Receives Top ADR Award from the Maryland State Bar Association

ADR Prof Blog - Thu, 2021-06-24 17:30
Toby Guerin (Maryland) recently won the Chief Judge Robert M. Bell Award for Outstanding Contribution to Alternative Dispute Resolution in Maryland, the Maryland State Bar ADR Section’s the highest honor.  As many of you know, Judge Bell was a leader in the use of ADR in the Maryland judiciary, schools, government, and communities during his … Continue reading Guerin Receives Top ADR Award from the Maryland State Bar Association →

New Book on Family Conflict During a Pandemic

ADR Prof Blog - Thu, 2021-06-24 13:26
Michael Lang and Peter Nicholson edited a book, Family Conflict During a Pandemic:  Stories of Struggles and Hope.  It is a collection of short contributions, including stories, essays, poetry and art work by 93 people from 17 countries including pieces in 9 languages.  The pieces are organized in four sections: Authors explain how they and … Continue reading New Book on Family Conflict During a Pandemic →

Two’s Company, Three’s A Crowd: Revisiting the Group of Companies Doctrine

Kluwer Arbitration Blog - Thu, 2021-06-24 01:57

The use of the group of companies doctrine in India to join non-signatories to an arbitration is an interesting but underexplored topic. First, since its adoption in 2012, Indian courts have either: (i) applied the doctrine in conjunction with other doctrines including alter ego and piercing of the corporate veil, or (ii) focussed on specific elements of the doctrine, ignoring others. Second, the factual assessment done by Indian courts to apply the doctrine presents another set of problems on account of the tenuous connections often used to determine mutual intent. Thus, the application of the doctrine has resulted in a muddled jurisprudence.

 

A. The Necessity for Group of Companies Doctrine?

The Indian Supreme Court first adopted the group of companies doctrine in Chloro Controls (I) P. Ltd. v. Severn Trent Water Purification Inc. & Ors. in the context of a reference to arbitration under Section 45 of the (Indian) Arbitration and Conciliation Act, 1996 (“Act”). Chloro Controls came in the background of an earlier Supreme Court decision, Sukanya Holdings Pvt. Ltd v. Jayesh H. Pandya & Anr. which was in the context of Section 8 of the Act. Sukanya Holdings held that: (i) a composite reference to arbitration would not be permissible where some parties were not bound by the arbitration agreement; and (ii) since the bifurcation of causes of action or parties was not permissible, this necessarily meant that the arbitration agreement could not be enforced even between signatories. The adoption of the group of companies doctrine in Chloro Controls solved this problem by permitting arbitration of disputes involving multiple interrelated agreements, some of which contained arbitration agreements while others did not. This was not only pro-arbitration but also served as an efficiency rationale as parties would avoid multiplicity of proceedings and conflicting findings.

Chloro Controls held that a non-signatory forming part of the same corporate group as a signatory could be made a party to the arbitration where it is clear from circumstances surrounding the transaction that the “mutually held intent” was to bind the signatory as well as the non-signatory to the arbitration agreement. The doctrine could be applied to join non-signatories based on: (i) direct relationship between the signatories and the non-signatories; (ii) direct commonality of the subject matter; (iii) the composite nature of the transaction between the parties; and (iv) whether the ends of justice would be served by referring the disputes to arbitration.

The doctrine laid down in Chloro Controls was borrowed from certain international arbitration precedents, although even today the doctrine’s applicability is not universally accepted (see here and here). In adopting the doctrine, the Supreme Court diverged from the position taken by most common law countries (including England, which does not recognise the group of companies doctrine) and civil law countries. The reluctance to adopt the doctrine by other jurisdictions had to do with the fact that fundamentally it is at odds with ideas of separate legal personality, privity of contract, and party consent to arbitrate (for example, see here). Subsequent expositions of the doctrine by the Supreme Court have only added to the fundamental challenge of applying this doctrine as part of Indian law.

For instance, in Cheran Properties Ltd. v. Kasturi and Sons Ltd. and Ors., the Supreme Court applied the doctrine to enforce an award against a non-signatory even though there was no composite transaction, and the non-signatory was never sought to be joined as a party to the arbitration. Then, in Ameet Lalchand Shah and Ors. v. Rishabh Enterprises and Anr., the Supreme Court applied the doctrine to join non-signatories as parties in a composite transaction even though the participants in the transaction were not part of the same corporate group. The emphasis was on the interlinked agreements for a single commercial project. Finally, in Mahanagar Telephone Nigam Limited v. Canara Bank, the Supreme Court extended the application of the doctrine in cases of a tight group structure with strong organizational and financial links, so as to constitute a single economic unit or a single economic reality. The Supreme Court has gone a step ahead and adverted to fund flow between group companies as an adequate circumstance for applying the doctrine. Thus, piercing of the corporate veil, which could only be done in extremely limited circumstances, could be circumvented through the group of companies doctrine.

These expansions by the Supreme Court have left the High Courts in India with a difficult task when applying this doctrine. High Courts have often applied the doctrine, with very little focus on determining the mutual intent, provided other elements such as composite interlinked transaction or tight group structure are satisfied. One example is the Madras High Court’s judgment in SEI Adhavan Power Private Limited & Ors. v. Jinneng Clean Energy Technology Limited, where non-signatories to an undertaking were made parties to an arbitration pertaining to breach of the undertaking. This was done on the basis that they were part of the same economic group as the signatory to the undertaking, having common central control, common email ids, and common premises, and the transactions were undertaken in relation to a common project. Similarly, the Delhi High Court in Magic Eye Developers Pvt. Ltd. v. Green Edge Infra Private Limited, only cursorily referred to intent while joining two non-signatories on the basis of them being group companies of the signatory. Another example is RV Solutions Pvt. Ltd. v. Ajay Kumar Dixit & Ors. where the Delhi High Court referred non-signatories to arbitration simply on the basis of commonality of subject matter, interests, and parties although none of the other requirements for application of the doctrine were met. Notably, the respondents were ex-employees of the plaintiff company and their new employer (the non-signatory) who were alleged to have conspired together to solicit the plaintiff’s clients and employees.

There have also been instances where High Courts have applied the doctrine with a mix of other principles to join non-signatories to arbitration. Recently, the Delhi High Court in Shapoorji Pallonji and Co. Pvt. Ltd. v. Rattan India Power Ltd. has applied group of companies doctrine along with principles of alter ego and lifting of the corporate veil.

The above discussion makes clear that while it promotes efficiency in arbitration proceedings, the doctrine and its application have certain pitfalls.

First, the application of the doctrine carries a high risk of undermining party consent (which is a fundamental principle of arbitration) as non-signatories may be compelled to join an arbitration proceeding that they did not intend to join. The determination of mutual intent entails extensive factual assessment in judicial proceedings under Sections 8, 9, 11, or 45 of the Act which contemplate only prima facie scrutiny.

Second, it is seen that the doctrine is poorly understood and/or applied. Along with the doctrine, the courts resort to multiple corporate law principles, such as alter ego and lifting of corporate veil, since these are additional justifications in support of the result indicated by the doctrine. As a result, in some cases, substantive liability under the contracts could arise rather than just a joinder of non-signatories, even if it is a prima facie assessment.

The reality is that transactions are often structured to take advantage of separate legal personalities by limiting risk and liabilities. The same is fairly common, legally well recognised, and in certain cases even statutorily approved. While several agreements put together may form a single composite transaction, very often the idea is to limit parts of the transaction to specific entities. By collapsing them, non-signatories may be compelled to assume risks that they might not have envisaged at the time of contracting. For example, for a project, a special purpose vehicle may be set up to execute and perform the agreement, so as to insulate other companies in the group from the risks of that particular project.

Third, courts have often determined parties’ mutual intent based on tenuous connections such as the use of a common letterhead, addresses or email id, negotiations by representatives having authority in multiple capacities, or financial support given by entities in the same corporate group to one another. The use of such tenuous connections often undermines the commercial realities of business transactions and complex corporate structures used to implement them.

 

B. An Alternate Approach

It is evident from the above discussion that the application of the group of companies doctrine has ventured into diverse directions, even moving away from the initial principles laid down in Chloro Controls. Therefore, there is certainly a need to reconsider the use of the group of companies doctrine, or at the very least clarify its contours.

 

One way of doing this is by amending the definition of “party” under Section 2(1)(h) of the Act. The 246th Law Commission Report had initially suggested amending Sections 2(1)(h) and Section 8 of the Act to include persons claiming through or under a party to an arbitration agreement within their fold. However, such an amendment was only brought about to Section 8 of the Act. The Law Commission’s suggestion was given with the intent of making the definition of party wider to include non-signatories so as to be consistent with Chloro Controls. But given the manner in which the doctrine is being applied, this amendment may not be appropriate. Instead, the definition of a party under Section 2(1)(h) of the Act should be amended to include third parties/non-signatories subject to a definite rule that the contract confers a direct benefit on the third party rather than an incidental benefit on the performance of the contract. This would ensure that third parties who are only involved in a limited or ancillary manner in the transaction are not dragged into arbitrations without their consent. It would also avoid situations like Ameet Lalchand Shah or RV Solutions where third parties who were not even members of the same corporate group were compelled to arbitrate on the basis that they were participants in a composite interlinked transaction. Where members of corporate groups are involved in composite interconnected transactions, the tests of alter ego, agency, piercing the corporate veil and acquiescence continue to be available to join them as parties.

In the meanwhile, the parties to contracts governed by Indian law can exclude the application of the doctrine by specifically providing in their contracts (including arbitration agreements) that (i) the benefits derived from the contract will be limited to only the parties to the contract; and (ii) only the signatories and defined individuals/entities will be treated as parties.

 

Anjali Anchayil and Tamoghna Goswami are Senior Associates at J. Sagar Associates.

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The Center for Alternative Dispute Resolution Virtual Conference

ADR Prof Blog - Wed, 2021-06-23 12:04
Dear Readers, After organizing a culturally diverse dispute resolution conference for 30 years, the CADR is organizing 2021 Virtual Conference on June 23, 24, 25, 28 and 29, 2021 on “Managing Conflict and Understanding the Implicit Barriers and Underlying Sources”. The Conference Agenda is available here: https://natlctr4adr.org/docs/2021/ADR_2021_Virtual_Conference.pdf The Registration Information is available here: https://www.natlctr4adr.org/index.html. About … Continue reading The Center for Alternative Dispute Resolution Virtual Conference →

Nonsignatories Unmasked – The Sequel

Some people just won’t admit that they read this Blog. The judges of the Ninth Circuit, for example. When last read by many of you, in February 2021 (sorry for the long silence; I’ve had to work), your Commentator reported on a decision in the US Ninth Circuit Court of Appeals in which the panel majority, despite a persuasive dissent, held that the law governing the arbitrability of US federal trademark claims, when contested in a US court whose jurisdiction is based on those federal claims, and contested between a non-signatory and signatory, each of Indian nationality, of an arbitration...
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The post Nonsignatories Unmasked – The Sequel appeared first on Marc J. Goldstein - Arbitration & Mediation.

Virtual Hearing Guidelines: A Comparative Analysis and Direction for the Future

Kluwer Arbitration Blog - Wed, 2021-06-23 01:55

The COVID-19 pandemic continues to test nearly every industry and break the idea of “normal” in both our personal and professional lives. Even as large segments of the population receive vaccines and look forward to once again meeting friends, hugging grandparents and traveling to foreign countries, the international arbitration service industry has entered a new era of increased reliance on technology. Before the first reported case of COVID-19, major international arbitration institutions already began accepting the necessity of virtual hearings in certain situations. Guidelines for virtual hearings were officially announced with the escalation of the COVID-19 pandemic.

Here, we explore three widely cited “guidelines” and discuss ongoing developments focusing on addressing potential shortcomings of virtual hearings.

 

A Comparative Analysis of Virtual Hearing Guidelines

There is no shortage of information analyzing the benefits and concerns of virtual hearings in the COVID-19 era. Parties can undoubtedly save considerable time and expense by avoiding international travel. However, concerns have also been raised in terms of confidentiality, technological shortcomings and overall fairness.

The ICC Guidance Note on Possible Measures Aimed at Mitigating the Effects of the COVID-19 Pandemic (19 April 2020) (“ICC Guidance Note”), HKIAC Guidelines for Virtual Hearings (14 May 2020) (“HKIAC Guidelines”) and Seoul Protocol on Video Conference in International Arbitration (18 March 2020) (“Seoul Protocol”) were drafted to assist tribunals and parties when holding virtual hearings. While the guidelines share the same objective, parties should be mindful of the major differences between these guidelines.

We focus on three key considerations, including: (1) technology and cyber security; (2) examination of witnesses and experts; and (3) venue.

 

A Difference in Approach

Each of the three guidelines shares the same objective of assisting parties during virtual hearings. The actual approach, however, differs significantly.

The ICC Guidance Note focuses on issues that may arise as a result of holding hearings virtually and encourages parties to consider certain measures that promote efficiency during arbitral proceedings. Rather than submitting hard copies, for instance, the ICC Guidance Note recommends that tribunals encourage parties to communicate electronically to the fullest extent possible.

The HKIAC Guidelines also have the objective of promoting efficiency during arbitral proceedings, but encourages parties to use available resources of the institution. Particular services (i.e., video conferencing, interpretation, electronic bundling and presentation of evidence, etc.) are considered essential when organizing a virtual hearing. With these services, the HKIAC Guidelines reference resources that the HKIAC offers, including IP-based encrypted and cloud-based video conferencing.

The Seoul Protocol offers guidance concerning the logistical challenges presented by remote arbitration hearings. Its guidelines focus on default standards applicable to streamline video-conference proceedings. To avoid disruption, for instance, the Seoul Protocol mandates testing of all video conferencing equipment and that adequate backup equipment (i.e., cable back-ups, teleconferencing, etc.) is available for use.

 

Technology and Cyber Security

ICC Guidance Note

Parties are encouraged to come to an agreement regarding the minimum system specifications and technical requirements for virtual hearings. The ICC Guidance Note provides examples, including hardware equipment (not limited to display screens), high-resolution webcams and other software applications.

It is recommended that parties first determine whether they reached a consensus on issues, including minimum requirements of encryption, log-in location and the recording of proceedings. Suggested clauses for virtual hearings include “no recording […] unless authorized in advance by the tribunal.” A stipulation like this would clarify any confusion when a recording occurs without the parties’ consent.

HKIAC Guidelines

The HKIAC Guidelines recommend the use of HKIAC resources, including video conferencing software, back-up systems for hearings and a hearing manager. Recommendations are made to ensure confidentiality and security of virtual hearings. One notable example is the circulation of the attendees’ personal details and locations where the attendees are attending from. In practice, these recommendations can be useful by preventing a situation where attendees log-in from a designated place and move to another location with poor security. When recording, any audio recording is subject to the parties’ agreement or tribunal’s direction.

Seoul Protocol

Seoul Protocol Art. 5 provides technical requirements to ensure sufficient quality of hearings. Detailed examples are given, including the minimum transmission speed and resolution. This is explained fully at Annex 1, where the common industry standards for video conferencing equipment recommended by the International Telecommunications Union are adopted. The specifications are classified into video, audio, picture, channels, bandwidth and more. With recordings, Art. 8 states that no recording shall be taken without leave of the tribunal.

 

Examination of Witnesses and Experts

ICC Guidance Note

The ICC Guidance Note provides a wide range of considerations for parties and tribunals concerning the examination of witnesses and experts. These considerations include the use of multi-screens and whether synchronous communications between witnesses and parties are permissible in chat rooms or through concealed channels of communication. Distinction of connection time and duration of availability are also considered. These considerations consist of many of the issues that have arisen during virtual hearings. This is significant as no other guidelines have had such specificity. If parties do come to an agreement concerning these issues before the hearing, parties’ equal treatment and right to be heard would likely be met regardless of the newly adopted virtual setting.

HKIAC Guidelines

The HKIAC Guidelines briefly provide for remote witness and expert hearings. However, the guidelines still consider valuable points, including arranging a hearing invigilator to attend at the same place as the witness. Arrangement of a 360-degree viewing of the room by video at the beginning of each session of the virtual hearing is also required and an update on how such security can be maintained throughout the entire hearing is needed.

Seoul Protocol

The Seoul Protocol focuses on witness examination hearings throughout Art. 1. One noticeable measure is that the tribunal holds considerable discretion if it decides to terminate the witness examination via video conferencing. This can occur when the tribunal deems the video conference unsatisfactory because it is unfair for either party to continue.

Requirements of witness statements are given, including “a reasonable part of the interior of the room in which the Witness is located be shown on screen, while retaining sufficient proximity to clearly depict the Witness.” Such a depiction is used to provide updates, clarify the vague standard and determine whether it is possible for both conditions to be met.

 

Venue

Venue is a critical consideration in the process of virtual hearings. It is the place that can reflect technical issues and cyber security methods. It also demonstrates the improvement points mentioned regarding the examination of witnesses.

The Seoul Protocol offers minimum standards for venues where the video conference must occur. The requirement for an appropriate venue covers factors not limited to on-call IT technicians, safeguarded cross-border connections to prevent unlawful interception by third parties and security of video conference participants. This is particularly the case in Art. 5.1 through 5.6, discussing various points from audio output device to communication lines and screen width. Meanwhile, the ICC Guidance Note and HKIAC Guidelines provide no guidance regarding venue.

 

Direction for the Future                        

Virtual hearings were examined before the COVID-19 pandemic and adjusted when the “new normal” arrived. Continuous updates on virtual hearing guidelines, therefore, are warranted. At the same time, venues reflecting these virtual hearing requirements can be developed alongside these guidelines.

One of the noteworthy developments soon to be presented is the “Seoul IDRC Guidelines” (tentative title), a joint-project by the Korea Commercial Arbitration Board (“KCAB”) and the Seoul International Dispute Resolution Center (“Seoul IDRC”). Seoul IDRC, a neutral sophisticated hearing center located in Seoul, aims to provide case-by-case tailored virtual hearing services. Tailored services are said to include the classification of types of hearings: jurisdictional hearings, witness examination hearings, methods of hearings (partial or fully virtual hearings) and users of the hearings (foreign tribunals and foreign parties).

 

Concluding Remarks  

While people eagerly await the end of the COVID-19 pandemic, we can reasonably expect some aspects of pandemic life to remain. This does not mean (hopefully) that we will have to wear masks in public and keep a “safe distance” from friends and family for the rest of our lives. Rather, some of the conveniences of the COVID-19 pandemic are here to stay.

As a result of the COVID-19 pandemic, parties and tribunals now know that virtual hearings are not simply possible, but effective as well. ICC Guidance Note, HKIAC Guidelines and Seoul Protocol are pioneer approaches to the changing world of international arbitration. These guidelines recognize the widely cited shortcomings of virtual hearings and address them by encouraging parties to work towards efficient proceedings.

When considering how a virtual hearing will proceed, parties should be mindful of what approach will best suit their needs. Technology and cyber security, examination of witnesses and experts and venue are just three important considerations worth noting when comparing these guidelines.

Changes will continuously be needed as a number of virtual hearings takes place. Next steps are already being discussed, as can be seen with the “Seoul IDRC Guidelines.” International arbitration is still just at the beginning stage of virtual hearings, and for now we can only say “stay tuned” as we learn more.

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ADR Scholarship Projects (Summer 2021)

ADR Prof Blog - Tue, 2021-06-22 14:50
With much thanks to WFOI Peter Reilly (Texas A&M) for gathering this wonderful list of publications and/or works-in-progress from the ADR scholarly community, here is the Summer 2021 edition of ADR Scholarship Projects: Erin Archerd (University of Detroit Mercy School of Law)  Building on my recent article, Two Hearts and Brewer/Distributor Conflicts (forthcoming in the University of … Continue reading ADR Scholarship Projects (Summer 2021) →

When is an arbitration hearing considered a “hearing” under Ontario arbitration legislation?

International Arbitration Blog - Tue, 2021-06-22 14:49

Arbitration proceedings are typically intended to provide the parties with a quicker, more cost-effective means of resolving disputes. But what happens when that process is streamlined further? Can an arbitral award be set aside if one of the parties was not given an opportunity to fully present its case?

In Optiva Inc. v. Tbaytel[1] (Optiva), the Ontario Superior Court of Justice (the “Court”) recently had the opportunity to consider whether a motion for summary judgment within an arbitration constitutes a “hearing” in the context of s. 26(1) of the Ontario Arbitration Act[2](the Act).

The Court found that summary judgment in this context can satisfy the requirements for a hearing under the Act. Given the similarity in the procedural requirements under the Act and the Ontario International Commercial Arbitration Act[3] (the ICAA”), this decision can likely shed light on what constitutes a hearing under both the Act and the ICAA.

Invitation to Host ABA Arbitration Regional Competition

ADR Prof Blog - Tue, 2021-06-22 13:31
Thanks to GFOI Maureen Weston (Pepperdine) for sending along this note about the ABA’s Arbitration Competition The ABA Law Student Division is looking for schools to host an Arbitration Regional Competition this fall! The ABA has decided that the 2021-2022 Arbitration Competition will be remote. This includes nationals. The ABA will waive the entry fee … Continue reading Invitation to Host ABA Arbitration Regional Competition →

Milan Court Torpedoes International Arbitration and Substitutes Own Decision on Merits

Kluwer Arbitration Blog - Tue, 2021-06-22 01:42

Despite the prominence of Italian industry in international trade – Italy is one of the G7 countries – the country has long struggled to build a reputation in international arbitration as a reliable and arbitration-friendly seat. Italy’s court system is notoriously among the slowest in Europe, and the slowest to reach a conclusion through its Supreme Court. But just as damaging to Italy as the speed of justice is an open question of whether the judiciary is capable of adopting a modern approach to arbitration.

A recent decision by the Milan Court of Appeals, the court in Italy’s leading industrial city, demonstrates the risk parties face that judges will simply substitute their view of the merits over those of the arbitrators chosen by the parties. Judgment no. 1790/2021 of 8 June 2021 is a virtual roadmap of the pitfalls a party may encounter when choosing Italy as a seat of arbitration:

(a) merits-based annulment;

(b) re-determination of the merits by the court, ordering a foreign respondent to pay the damages sought by an Italian claimant without any re-hearing of the evidence;

(c) “de-internationalization” of an arbitration despite the presence of a foreign party where the court, in its discretion, deems Italy to be the “centre of interests” for the performance of obligations;

(d) deference to a partial award issued by a tribunal whose chair was successfully recused and replaced before the final award;

(e) lengthy delay (i.e., over three years for a decision on an award rendered on 30 March 2018).

The background reported in the judgment was a relatively straightforward contract to deliver turbines for a wind farm that was to include project financing, which the buyer ultimately failed to obtain after the seller had begun deliveries. After initial work was delivered and advance payments of circa Euro 10 million made, the buyer failed to obtain the required project financing and initiated arbitration under the rules of arbitration of the Milan Chamber of Arbitration (CAM) for restitution of sums paid. The seller counterclaimed for damages, or in alternative for costs and expenses incurred prior to termination.

The final award rejected the claimant’s request. The Milan Court of Appeals came out with a very different result that will leave non-Italian parties questioning whether to opt for Italy as a seat of arbitration.

 

Background

In 2009, Wind Energy Racalmuto Srl (WER) entered into a contract for the supply and the installation of wind turbines for the realisation of an electric production plant with GE Wind Energy Gmbh and GE International inc. Italian Branch (GE). The contract provided for two advance payments amounting in aggregate to 50% of the contract price. The remaining consideration was to be guaranteed through a payment security (PS) granting an irrevocable mandate to a project financing entity that would pay directly GE.

WER paid the first instalment, and GE provided an advance payment bank guarantee (AP bond) for the same amount. The contract was then amended twice in 2010 due to WER’s inability to obtain project financing, and the deadline for the provision of the PS was eventually postponed indefinitely.

By June 2010, GE had delivered some of the work, including parts of the foundations of the wind turbines, issued a parent company guarantee and provided the AP bond, and WER had paid 20% of the total price. Throughout 2011 and 2012 WER attempted in vain to secure the financing to finalise the project.

In August 2013, WER claimed that GE had breached the contract by not renewing the expired AP bond, and demanded restitution of the entire amount paid up to that moment. GE responded that renewal of the AP bond was not required until WER delivered the PS.

In February 2015, WER initiated arbitral proceedings claiming termination of the contract due to GE’s contractual breach.

With a partial award issued in June 2016, the Tribunal held that:

  • the parties had put the contract on hold, subjecting its future performance to a “condition precedent” of a project financing;
  • neither party’s breach was preponderant and of such gravity to justify termination of the contract; hence, no party was entitled to contractual damages;
  • the contract was nonetheless terminated due to the non-occurrence of the condition precedent, which had become impossible;
  • GE was still to be compensated for the delivery of contractual goods initially accepted and later challenged by WER; lacking a precise determination in the contract, a further evidentiary phase was needed.

The partial award, albeit challenged by GE, became final.

The court’s judgment reports, however, that GE subsequently sought the recusal of the President of the Tribunal, who was duly substituted. The judgment does not state the grounds for the recusal, but the 2010 CAM rules contain a code of ethics that imposes upon arbitrators strict obligations of competence, availability, independence, and impartiality.

The re-constituted arbitral tribunal issued a final award in March 2018. The award held that GE was entitled to retain the amounts paid by WER.

 

Annulment and “Reformulation” of the Annulled award

WER challenged the award on four grounds, the contrariety of the final award to the partial award being the only one actually analysed by the Court.

Relying heavily on the dissenting opinion by the only Italian arbitrator of an international tribunal, the court held that the case met the remarkably high-standard test set by the Supreme Court for successfully challenging an award for incoherent or lacking reasoning of the decision.1) When dealing with an alleged inconsistency between the partial and the final award, Italian Courts seem to be relying on Art. 829(1) no. 8, and – to a lesser extent, possibly not relevant when the partial award has already become res judicata – on Art. 829(1) no. 4 or no. 11. The Milan Court of Appeals seem to have also applied Art. 829(1) no. 5. On the distinction between Art. 829(1) no. 5 and no. 11, and the possible reasons behind their joint application, see M. V. Benedettelli, International Arbitration in Italy, Kluwer Law International, 2020, § 10.72, jointly written with Z. Crespi Reghizzi. jQuery('#footnote_plugin_tooltip_37880_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37880_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This requires the reasoning to be entirely absent or so scant that the rationale of the decision is impossible to understand. In particular, the Court held that the Tribunal went too far with the analysis of the nature (retroactive or not) of the termination as the partial award had simply remitted to later determination the costs incurred by GE in delivering the initial phase of the contract. In the court’s interpretation, this entailed an irremediable incoherence between the awards, sufficient to vacate the final award.

In evaluating the nature of the termination, however, the Court observed that the arbitration had included the report of a quantum expert who had assessed GE’s costs of delivering equipment but took no note of it. Further, the Court’s decision simply mentioned in passing the recusal of the president of the arbitral tribunal that had issued the partial award.

In adopting a preference of the partial award over the final in its reasoning, the Milan appeals court also failed to mention the discretionary power granted under the 2010 CAM Rules to a newly-constituted Tribunal to repeat all or some of the acts of the proceedings prior to a successful recusal, nor even the potential ineffectiveness of the activities of a recused arbitrator under the applicable Italian law (Art. 815 of the Civil Procedure Code). Considering that in some circumstances such a recusal might even render the partial award invalid,2) U. Draetta – R. Luzzatto (Editors), The Chamber of Arbitration of Milan Rules: A Commentary, JurisNet, Huntington, 2012, 292. jQuery('#footnote_plugin_tooltip_37880_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37880_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); it is odd that the Court failed to address this while deferring to the partial award in its decision. In sum, not only did the Court completely overlook the CAM’s finding that an arbitrator was unfit for chairing the Tribunal, but also went so far as giving preference to the recused arbitrator’s decision over that of the re-constituted Tribunal.

Incredibly, after having declared the final award void, the court asserted its own power to decide the actual merits of the case.

In doing so, the court held that the arbitration was not to be treated as international under Italian law, which requires either party to be domiciled abroad at the time of entering into the arbitration agreement (Art. 830 of the Civil Procedure Code). Although one of the parties was, in fact, domiciled in Germany, the Court found there to be a “centre of interests” with its Italian branch, such that it should be treated as domiciled in Italy. This is in open contrast with the nature of the dispute, the domicile of the parties, and the CAM’s (correct) interpretation of the dispute resulting in its choice of an international Chair (pursuant to Art. 14.5 CAM Rules). The court’s interpretation is further at odds with the intentions of international parties contracting to do work in Italy, who adopt arbitration in order to avoid the vagaries of the Italian legal system. And it does not compare at all well with the clear rules of a nearby civil law jurisdiction, France, where arbitration is deemed international when international commercial interests are at stake (Art. 1504 Code de Procédure Civile), regardless of the domicile of the parties. The uncertainty of the Italian approach – apparently granting the courts discretion to determine that an arbitration is not international despite the existence of a foreign party – appears strikingly not arbitration friendly.

Finally, the court held that, despite the findings of the final award on the work performed by GE, WER was entitled to full restitution of the entire amount it had paid because reimbursement of expenses was incoherent with the determination of the partial award that the parties were entitled to no damages.

The decision is, candidly, so at odds with modern practice of arbitration – domestic and international – that comment on its conclusions hardly seems necessary. It may be worth noting, however, that the court’s decision appears to fall outside of the set-aside grounds under Art. IX of the European Convention on International Commercial Arbitration 1961 (ECICA), with the consequence that the award should be still enforceable in any of the contracting States of the ECICA.

All considerations above should be further put into context giving the right weight to the judgement having been rendered by a Court of second instance, with a three-senior-judge deciding panel, in the most industrialised and business-oriented city in Italy.

 

A look at the future

Even in the best of circumstances, the development of a reputation as an arbitration-friendly jurisdiction requires the active support of the courts. Nearby France, for example, took steps in March 2018 to further burnish its pro-arbitration reputation by introducing a specialised section of the Court of Appeals to hear all annulment proceedings of Paris-seated international arbitral awards.

By contrast, a national judiciary already lacking a reputation of expertise in international arbitration, combined with an inclination to impose its own view of the merits over those of the adjudicators agreed by the parties, would normally be enough to send international parties to more favourable seats.

The WER judgment, however, goes a step even further towards disincentivizing arbitration over the courts in Italy. Had the dispute been decided in the first instance courts, the respondent would have been presented an opportunity for its costs to be considered in the calculation of losses, instead of undergoing an entire arbitration, reaching an award on the merits, only to be followed by an annulment decision that granted to the claimant the entirety of its demand without the opportunity for the defendant to present its case.

In an effort to overcome the severe impact of the inefficiencies of its courts on the overall economy (some studies here and here), Italy has embraced the use of both arbitration and mediation as a means to lighten the burdens on the justice system. The latest commissions created with this purpose, namely the Alpa Commission and the more recent Luiso Commission which submitted its conclusions at the end of May 2021, have proposed some amendments which would certainly improve the overall system. Whether Parliament will follow the suggestions of the Luiso Commission, and whether this will be enough for a significant improvement,3) For a critical analysis see R. Oliva, Il (nuovo?) progetto di riforma, available in Italian here. jQuery('#footnote_plugin_tooltip_37880_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37880_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); is yet to be seen.

At the same time, CAM has adopted forward-looking Rules over the course of 2019 to support this.

However, as the WER judgment of the Milan Court of Appeals makes clear, all such noble efforts will be in vain if the courts remain hostile to the decisions of arbitrators chosen by the parties.

References[+]

↑1 When dealing with an alleged inconsistency between the partial and the final award, Italian Courts seem to be relying on Art. 829(1) no. 8, and – to a lesser extent, possibly not relevant when the partial award has already become res judicata – on Art. 829(1) no. 4 or no. 11. The Milan Court of Appeals seem to have also applied Art. 829(1) no. 5. On the distinction between Art. 829(1) no. 5 and no. 11, and the possible reasons behind their joint application, see M. V. Benedettelli, International Arbitration in Italy, Kluwer Law International, 2020, § 10.72, jointly written with Z. Crespi Reghizzi. ↑2 U. Draetta – R. Luzzatto (Editors), The Chamber of Arbitration of Milan Rules: A Commentary, JurisNet, Huntington, 2012, 292. ↑3 For a critical analysis see R. Oliva, Il (nuovo?) progetto di riforma, available in Italian here. function footnote_expand_reference_container_37880_30() { jQuery('#footnote_references_container_37880_30').show(); jQuery('#footnote_reference_container_collapse_button_37880_30').text('−'); } function footnote_collapse_reference_container_37880_30() { jQuery('#footnote_references_container_37880_30').hide(); jQuery('#footnote_reference_container_collapse_button_37880_30').text('+'); } function footnote_expand_collapse_reference_container_37880_30() { if (jQuery('#footnote_references_container_37880_30').is(':hidden')) { footnote_expand_reference_container_37880_30(); } else { footnote_collapse_reference_container_37880_30(); } } function footnote_moveToAnchor_37880_30(p_str_TargetID) { footnote_expand_reference_container_37880_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Judicial Review of Arbitration Agreements in PR China

Kluwer Arbitration Blog - Mon, 2021-06-21 01:27

The Chinese Arbitration Act (1995) recognizes the principle of competence-competence in Article 20, under which a party challenging the validity of the arbitration agreement may request the relevant arbitration commission to make a decision or apply to the court for a ruling. Ultimately, though, it is the reviewing courts in PR China that shall have the final say on the validity of an arbitration agreement including its scope. Under the Chinese legal system, such reviewing courts are spread amongst different geographical locations.

Taking arbitration agreements choosing Shanghai International Economic and Trade Arbitration Commission (also known as Shanghai International Arbitration Center; the “SHIAC”) as example, the court responsible for reviewing such arbitration agreements is the Shanghai No.2 Intermediate People’s Court in accordance with Article 12 of the Judicial Interpretation on Arbitration Act (2006) (the “2006 Judicial Interpretation”) made by the Supreme People’s Court of the People’s Republic of China (the “SPC”).1)The SHIAC is a permanent arbitration institution established in Shanghai since 1988. jQuery('#footnote_plugin_tooltip_37640_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37640_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

However, where an arbitration agreement does not designate an institution, the question of validity (including the scope) of an arbitration agreement will be determined in accordance with Chinese Civil Procedural Laws (2017), i.e., pursuant to the principle of actor sequitur forum rei, whereby a party must seek relief from competent jurisdiction.

 

Standardized Practices and Increased Transparency

Reviewing court judgments in PR China are without precedential effect. Without standardized practices, this could lead to judgments that lack uniformity and thus yield uncertainty about the law.2)Article 20 of the Chinese Arbitration Act (1995) provides that: “[i]f the parties object to the validity of the arbitration agreement, they may apply to the arbitration commission for a decision or to a people’s court for a ruling. If one of the parties submits to the arbitration commission for a decision, but the other party applies to a people’s court for a ruling, the people’s court shall give the ruling. If the parties contest the validity of the arbitration agreement, the objection shall be made before the start of the first hearing of the arbitration tribunal.” jQuery('#footnote_plugin_tooltip_37640_27_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37640_27_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); In order to unify the courts’ practices on judicial review of arbitration agreements, the SPC issued several judicial interpretations, one of which was issued in 1987 for foreign-related arbitration agreements and another in 2017 for purely domestic arbitration agreements. Together, the two judicial interpretations from SPC form the Internal Reporting Mechanism under which lower courts are required to seek approval from higher courts, and up to the SPC if necessary, before striking down an arbitration agreement.

Further, in view of the development of legal technology and increasing awareness of judicial transparency, the SPC ordered in July 2013 publication of court judgments and verdicts on the internet after they become effective. As of August 2020, the website has published more than one hundred million judgments and verdicts, a significant number of which relate to arbitration agreements.

SHIAC has observed that an increasing number of judgments and verdicts relating to arbitration agreements that choose SHIAC are being published. These judgments and verdicts reflect the pro-arbitration attitude of the courts in PR China when assessing arbitration agreements choosing SHIAC. In this regard, two selected cases relating to the issue of arbitrability are summarized below.

 

Case No. 1:3)(2020) E 0802 Min Chu 2196 Hao jQuery('#footnote_plugin_tooltip_37640_27_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37640_27_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Are Tort Claims Arbitrable?

Facts

In December 2016, the petitioner and the respondent concluded a leasing agreement, under which the petitioner leased the roof area of certain industrial premises to the respondent for use in a power-generating project. Since 2018, the premises began to experience problems allegedly due to improper use of the roof area by the respondent which caused damage to, inter alia, the petitioner’s leased premises. The petitioner accordingly sought compensation from the respondent.

In reliance on Chinese Tort Law (replaced by Chapter 7 of the PRC Civil Law Code) and Chinese Civil Procedural Laws, the petitioner filed court proceedings in the court of the place where the respondent was domiciled. The respondent objected to the court’s jurisdiction and argued that the dispute should be submitted to arbitration in accordance with the arbitration agreement contained in the leasing agreement between the parties, which specified that “any dispute arising out of the performance of the agreement……shall be submitted to Shanghai International Arbitration Center for arbitration”.4)This is the author’s courtesy translation of the original provision in Chinese. jQuery('#footnote_plugin_tooltip_37640_27_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37640_27_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Court’s Ruling

The competent court, located in Hubei Province in the middle part of Mainland China, identified the core issue as whether the court had jurisdiction over the dispute brought by the petitioner against the respondent.

Firstly, the court examined whether such tort claim fell under the scope of arbitrable disputes under Article 2 of the Chinese Arbitration Act (1995), and found after reading the text of Article 2 that such tort claims were arbitrable.

Secondly, the court examined whether the tort claim submitted by the petitioner fell under the scope of the arbitration agreement. The court found that the arbitration agreement gave a broad discretion to the SHIAC arbitral tribunal to determine “any dispute arising out of the performance of the agreement”. The court was of the view that such tort claims were included under this broad scope.

Thirdly, the court considered whether such tort claims were detachable from the parties’ contractual rights and obligations, and therefore would fall outside the broader scope of performance of the underlying lease agreement. The court took note that Article 6 of the leasing agreement specified that “Party B [(i.e., the respondent)] shall be responsible for the maintenance of the power-generating project on the roof, and for the water-proof work resulted by the power-generating project…”.5)This is the author’s courtesy translation of the original provision in Chinese. jQuery('#footnote_plugin_tooltip_37640_27_5').tooltip({ tip: '#footnote_plugin_tooltip_text_37640_27_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The court further noted Article 2 of the Judicial Interpretation on Arbitration Act (2006), providing that “[w]here the parties concerned synoptically agree that the matters to be arbitrated are contractual disputes, the disputes arising out of formation, effectiveness, modification, assignment, performance, liabilities for breach, interpretation, rescission, etc. of the contract may all be ascertained as matters to be arbitrated”,6)This is the author’s courtesy translation of the original provision in Chinese. jQuery('#footnote_plugin_tooltip_37640_27_6').tooltip({ tip: '#footnote_plugin_tooltip_text_37640_27_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and found with reference to Article 6 of the leasing agreement that the respondent’s alleged tortuous acts were closely connected with and could not be detached from the respondent’s performance of the leasing agreement.

Based on the above analysis, the court determined that there was a valid arbitration agreement between both parties and that their disputes, including claims on torts, should be referred to arbitration. The petition was accordingly dismissed.

 

Case No. 2:7)(2020) Su 10 Min Chu 144 Hao jQuery('#footnote_plugin_tooltip_37640_27_7').tooltip({ tip: '#footnote_plugin_tooltip_text_37640_27_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Are Disputes over Public-Private-Partnership Arbitrable?

Facts

In November 2015, the respondent signed a Building-Owning-Operation (“BOO”) Contract for the development of a cultural tourism resort (the “Project”) with a third party. Due to funding issue, the respondent invited the petitioner to join the development and construction of the Project adopting the Public-Private-Partnership (“PPP”) model. The petitioner and the respondent subsequently signed the BOO Contract in dispute, which contained clauses on the investment, construction and operation of the Project.

On March 14, 2018, the respondent unilaterally issued a notice for an early termination of the Project to the petitioner, after which the petitioner notified the respondent of its agreement to the early termination, and of its request for compensation to which the respondent objected. The petitioner then filed court proceedings to seek compensation from the respondent. The respondent relied on the arbitration agreement contained in the BOO Contract and objected to the jurisdiction of the court, claiming that the dispute should instead be submitted to arbitration.

 

Court’s Ruling

The competent court to hear the case, which is located in Jiangsu Province in the eastern part of Mainland China, considered that the disputed BOO Contract was concluded for a Project using the PPP model, which in general contains both commercial and administrative elements. In this regard, under Article 3 of the Chinese Arbitration Act (1995), administrative disputes are not arbitrable and shall be handled by the administrative organs as prescribed by law, instead of via commercial arbitration.

However, the court determined that the disputed BOO contract was of a civil rather than administrative nature, based on the following considerations:

  1. From the perspective of contract formation, a standard BOO contract contains the rights and obligations negotiated by the parties on the basis of the principle of equality thus having the basic characteristics of a civil contract, e., parties negotiate at arms’ length;
  2. The contents of a standard BOO contract typically involve matters of a civil nature which can be contracted and negotiated, g., project capital, construction scope, construction standards, acquisition of benefits and risk allocation; and
  3. The Project involved in the dispute was essentially a framework of cooperation between parties, neither of whom was a public authority nor was subordinate to the other.

The court found that since the disputed BOO Contract was of a civil nature and that it contained a valid arbitration agreement, the petitioner’s claims did not fall under the jurisdiction of the court and should be referred to through arbitration. The petition was accordingly dismissed.

 

Concluding Remarks

As demonstrated in the two cases discussed, the courts in PR China adopt an arbitration-friendly attitude in their acknowledgement of the validity of arbitration agreements and in their recognition a broad scope of discretion of arbitral tribunals to determine their own jurisdiction. In doing so, arbitration as a dispute resolution mechanism may become even more widely available to users, and in turn help alleviate the overwhelming caseload faced by the courts in PR China. Such an achievement should be attributed to the SPC for its efforts in standardizing the practice of the reviewing courts.

In terms of continuing efforts of the judiciary, one example is the revision of the Chinese Arbitration Act (1995) which is currently under progress. Although the current draft revision has yet to undergo public consultation, legal experts involved have indicated that one key development pertains to having the law of the seat as the law applicable to the arbitration agreement, which is a concept so far only introduced in the SPC’s judicial interpretations, e.g. the 2006 Judicial Interpretation and the Provisions of the Supreme People’s Court on Several Issues concerning Trying Cases of Arbitration-Related Judicial Review (2018) (the “2018 Provisions”).8)Article 13 of the 2018 Provisions explicitly provides that, “if the parties intend to agree on the choice of applicable law for the arbitration agreement, the parties should do so through explicit expression. The parties’ choice of the law applicable for the contract should not be used as the law for determining the validity of the arbitration clause in the same contract”. (This is the author’s courtesy translation of the original provision in Chinese.) jQuery('#footnote_plugin_tooltip_37640_27_8').tooltip({ tip: '#footnote_plugin_tooltip_text_37640_27_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

On this point, it could reasonably be expected that the said concept of law of the seat will exclusively apply to determination of validity of arbitration agreements which, together with the persistent efforts of the courts in PR China towards unifying practices on judicial review of arbitration agreements, may help resolve the fundamental question of determination of the proper law governing the arbitration agreement.

References[+]

↑1 The SHIAC is a permanent arbitration institution established in Shanghai since 1988. ↑2 Article 20 of the Chinese Arbitration Act (1995) provides that: “[i]f the parties object to the validity of the arbitration agreement, they may apply to the arbitration commission for a decision or to a people’s court for a ruling. If one of the parties submits to the arbitration commission for a decision, but the other party applies to a people’s court for a ruling, the people’s court shall give the ruling. If the parties contest the validity of the arbitration agreement, the objection shall be made before the start of the first hearing of the arbitration tribunal.↑3 (2020) E 0802 Min Chu 2196 Hao ↑4, ↑5, ↑6 This is the author’s courtesy translation of the original provision in Chinese. ↑7 (2020) Su 10 Min Chu 144 Hao ↑8 Article 13 of the 2018 Provisions explicitly provides that, “if the parties intend to agree on the choice of applicable law for the arbitration agreement, the parties should do so through explicit expression. The parties’ choice of the law applicable for the contract should not be used as the law for determining the validity of the arbitration clause in the same contract”. (This is the author’s courtesy translation of the original provision in Chinese.) function footnote_expand_reference_container_37640_27() { jQuery('#footnote_references_container_37640_27').show(); jQuery('#footnote_reference_container_collapse_button_37640_27').text('−'); } function footnote_collapse_reference_container_37640_27() { jQuery('#footnote_references_container_37640_27').hide(); jQuery('#footnote_reference_container_collapse_button_37640_27').text('+'); } function footnote_expand_collapse_reference_container_37640_27() { if (jQuery('#footnote_references_container_37640_27').is(':hidden')) { footnote_expand_reference_container_37640_27(); } else { footnote_collapse_reference_container_37640_27(); } } function footnote_moveToAnchor_37640_27(p_str_TargetID) { footnote_expand_reference_container_37640_27(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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ADGMAC Protocol for Remote Hearings: An Overview

Kluwer Arbitration Blog - Sun, 2021-06-20 01:10

The Abu Dhabi Global Market Arbitration Centre (“ADGMAC) introduced its Protocol for Remote Hearings (“Protocol”) in June 2021. The Protocol provides parties, their lawyers and the Tribunal with a set of procedural and logistical arrangements for the conduct of hearings that may be conducted remotely (whether fully or in part).

Previously, in September 2019, ADGMAC published its Arbitration Guidelines (“Guidelines”). While the Guidelines did not expressly provide guidance for remote hearings, where applicable they (a) permitted witnesses to attend the hearing by video conference or telephone, and (b) encouraged parties to convene case management conferences by telephone or by video-conference (unless the parties agree otherwise or the tribunal is reasonably satisfied that it is necessary and cost-effective for the parties to meet in person).

Many arbitration rules and guidelines have been amended to expressly allow proceedings to be conducted virtually, including the ADGM Arbitration Regulations 2015 (which were amended on 23 December 2020) (the “ADGM Arbitration Regulations”). The recently-amended Arbitration Regulations clarify, and indeed promote, the use of technology in arbitration in multiple instances.

Following the amendment of the ADGM Arbitration Regulations and publication of the Guidelines, the introduction of the Protocol is timely as it introduces a clear set of guidelines that ensure remote hearings are organised and conducted in a fair, efficient, reliable and cost-effective manner. In this article, we review selected and key aspects of the Protocol.

 

Key aspects of the Protocol

Structure and Use of the Protocol

The Protocol is designed to cover merits hearings in which fact and expert witness evidence are heard and oral submissions are made, but it can also be adapted for case management conferences where procedural and organisational matters are discussed. As with the Guidelines, the Protocol (or any part of it) may be adapted by the Parties and/or the Tribunal to the specific requirements of each case and, if necessary, implemented by the Tribunal in a procedural order.

The Guiding Principles

In Section A, the Protocol provides that the parties shall agree to conduct remote hearing in a manner that (a) is consistent with the principles of fairness, cooperation and good faith; (b) ensures the enforceability of any resultant arbitral award; and (c) ensures confidentiality.

Choice of Platforms and Service Providers for Remote Hearing

In Section B, the Protocol clarifies that the functional requirements for a remote hearing must comprise: (a) a video-conferencing system; (b) an electronic document management system; and (c) real-time transcript.

Speakers and Attendees

In Section C, the Protocol makes a distinction between ‘Speakers’ and ‘Attendees’. It clarifies that Speakers are the participants who can be both seen and heard by all other participants on any given day. Speakers comprise the Tribunal, advocates appearing for the parties, the testifying fact and expect witnesses, and an interpreter, if any.

The Protocol clarifies that Attendees are participants who are only able to see and hear the Speakers, but cannot themselves be seen or heard. Attendees are all the other individuals (other than Speakers), such as members of the legal team who are not appearing as lead counsel, party representatives or personnel, and any other permitted Participant(s) such as a secretary to the Tribunal.

The Protocol also affords the parties the right to object to any of the participants within 24 hours of the exchange of the list of participants.

Semi-Remote Hearing Arrangements

In Section J, the Protocol addresses situations in which several participants attend the remote hearing from the same physical room. The Protocol allows semi-remote hearing arrangements, but encourages the parties to agree on such semi-remote configuration in advance of the remote hearing.

Notwithstanding the foregoing, the Protocol recommends avoiding the following semi-remote arrangements: (a)The Tribunal and the legal team of one of the parties appearing in person, while the legal team of the other Party appears remotely; and/ or (b) The legal team of one of the parties examining an opposing party’s witness or expert in person, without the opposing party and/ or its legal team being also present in person.

Witnesses

Section L of the Protocol provides that fact witnesses must give an affirmation before giving their testimony in accordance with any applicable laws.

The Protocol encourages the parties to arrange for a hearing invigilator to attend at the same premises as the fact or expert witness, to ensure the integrity of the examination (e.g., ensuring there is no person or recording-device present that was not approved or agreed). The invigilator may inspect the room from which the witness is expected to testify to ensure that only authorised materials and equipment are present. The invigilator may also remain inside the room during the witness’s testimony to ensure that no one enters the room, and may observe that sequestration of the witness is maintained.

Alternatively, if the attendance of an invigilator is not possible, the Protocol requires witnesses to testify alone in a room containing a camera which provides a clear and reasonably complete view of the witness and the room he or she is in. The Protocol also provides that each fact witness must confirm the following at the start of his or her evidence:

  1. The witness can see and hear the other Speakers clearly;
  2. No other person other than those persons agreed by the Parties, or approved by the Tribunal, is in, or will enter, the room in which the witness is providing evidence;
  3. The witness does not have access to hard copy documentation other than his or her witness statement(s); and
  4. The witness will not and has no means to communicate with any person in any way while the witness’s examination is in progress, other than through the approved Platforms.

Confidentiality

Section I of the Protocol confirms that parties must take all steps necessary to ensure the confidentiality of the proceedings. It obliges parties to notify the Tribunal of any laws applicable at any participant’s location that may present an obstacle or issue of legal compliance with privacy, confidentiality, data protection and security requirements.

The Protocol encourages the parties to agree on a more detailed “cyber-protocol” prior to the remote hearing to ensure compliance with any applicable regulations and to protect the confidentiality of electronic communications within the arbitration proceedings and any platforms used for the remote hearing.

Recognition and Enforcement

For the purposes of recognition and enforcement of the arbitral award, Section T of the Protocol encourages the parties to agree in writing that remote video-conferencing constitutes a fair and acceptable means of holding hearings and taking of evidence by the Tribunal pursuant to the arbitration agreement and the applicable law and rules.

The Protocol also encourages parties to agree that the conduct of the remote hearing is consistent and compliant with the law of the seat, and that no party will seek to set aside or oppose the recognition or enforcement of any resultant arbitral award on the basis that the arbitral hearing was conducted by remote video-conferencing.

 

Commentary

Prior to the unwelcome arrival of the pandemic in early 2020, the use of technology was not novel in international arbitration. Parties and arbitrators had been accustomed to using modern means of communication to, for example, hold case management conferences, and utilise hearing room technologies such as real-time electronic transcripts. International arbitration had thus already shifted into a more technologically-oriented culture, albeit maintaining for the large part traditional in-person hearings.

The pandemic continues to shift the way hearings in international arbitration are conducted, such that they become routine. As a result, the Protocol is perfectly timed and helps complement ongoing efforts by arbitral tribunals in tailoring arrangements for remote hearings in procedural orders, protocols and/or agreements.

Having said that, and having reflected on the approaches of other institutions, we suggest the addition of the following three elements that would encourage the efficiency and effectiveness in the conduct of remote hearings.

In particular:

  • Guidelines requiring that each participant shall endeavour to (a) identify a lead speaker for each party, (b) speak one at a time and not while another participant is speaking, except if required to interpose an objection to a question asked or to alert of technical difficulties, (c) avoid using equipment that interferes with connectivity, (d) mute microphones when not in use to minimise audio disruptions, (e) eliminate any background noise, (f) avoid wasting time during the remote hearing, and (g) take whatever measures or practices necessary to support the procedural efficiency of the remote hearing. Similar ideas are included in other virtual hearing protocols recently released, for example, section D of the International Chamber of Commerce (ICC) Checklist for a Protocol on Virtual Hearing, and Section 6 of the Bahrain Chamber for Dispute Resolution – American Arbitration Association (BCDR-AAA) Guidelines on the preparation and conduct of online hearings administered by BCDR).
  • Regulating where one of the Speakers (i.e., party or arbitrator) loses connection to the platform or experiences a security incident by providing guidelines for a back-up plan to troubleshoot and deal with such incidents and, if necessary, to reconvene if technical challenges prevent the participants from continuing to participate in the remote hearing.
  • Providing for the pausing or termination of the remote hearing if the arbitrator determines that the platform is not working as anticipated, confidentiality or security are compromised, or the format is otherwise inadequate, prejudicial to any party or to the integrity of the remote hearing.

These suggestions could be adopted independently by parties and/or the tribunal in the procedural order. They may also be taken into account in any future revision of the Protocol.  However, leaving aside these quibbles, the Protocol will complement and bolster existing efforts to provide a framework for the conduct of remote hearings generally and on a case-by-case basis.  It confirms ADGM’s commitment regulating arbitration to an international “best practice” standard.

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