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Interlocutory Judicial Review of Challenge Decisions of Arbitrators Under the Model Law: A Flawed Procedure in Need of Reform

Kluwer Arbitration Blog - Sat, 2021-06-19 01:08

Under Article 13(3) of the UNCITRAL Model Law, a party challenging an arbitrator may ‘appeal’ a decision of the tribunal or other body hearing that challenge to a court or other authority (the “Challenge Appeal Mechanism”). The purpose of the Challenge Appeal Mechanism is to make the arbitral process more efficient by permitting judicial review immediately after denial of a challenge in order to avoid any delay and/or controversy that may arise as result of having a challenged arbitrator conduct an arbitration. However, as this post discusses, that is not how the appellate mechanism functions in practice. This post, therefore, examines why the Challenge Appeal Mechanism is flawed and how it should be reformed.

 

An Imperfect Understanding of the Arbitral Process

The process of drafting the Model Law commenced in the late 1970s. The final text was adopted in 1985 by the General Assembly of the United Nations. At the time, most States were unfamiliar with the concept of international commercial arbitration. Indeed, it was only four years earlier, in 1981, that France became the first State to enact a law specifically addressing international commercial arbitration.1)C. A. Fleischhauer, Foreword of the Guide to the 1985 UNCITRAL Model Law, in H. M. Holtzmann and J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (1989), p. v. jQuery('#footnote_plugin_tooltip_37713_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_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 perhaps little wonder, then, that the Model Law reflects an imperfect understanding of how an appellate procedure ought to function. There are, in particular, three key deficiencies in the appellate procedure as set out in the Model Law.

First, the Challenge Appeal Mechanism is inefficient. While the applicable time limit under Article 13(3) stipulates that the challenging party must submit any appeal within 30 days of having received notice of the decision rejecting the challenge, the judicial review process of challenge decisions is unregulated and takes considerable time in many jurisdictions due to court backlogs and tactical delays by parties.2)See M. A. Gomez, Article 13: Challenge Procedure, in I. Bantekas et al (eds.), UNCITRAL Model Law on International Commercial Arbitration: A Commentary (2020), pp. 250-251. jQuery('#footnote_plugin_tooltip_37713_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The Challenge Appeal Mechanism, therefore, fails to achieve its principal purpose of settling challenges quickly.

Second, the Challenge Appeal Mechanism unwisely restricts the ability to appeal challenge decisions to the challenging party only. Unlike a rejected challenge, a sustained challenge will severely disrupt the arbitral process as the proceedings are unable to continue until the challenged arbitrator has been removed and replaced, absent special circumstances permitting a truncated tribunal to proceed with the arbitration (in the case the tribunal consists of three or more members).3)See G. Born, International Commercial Arbitration (3rd ed. 2020), ¶ 12.07. jQuery('#footnote_plugin_tooltip_37713_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The present wording of Article 13(3) prevents courts from correcting erroneously sustained challenges even though the impact on the proceedings and the need for the courts to act as a safety valve is greater in such circumstances rather than in situations in which a challenge has been rejected.

Third, the Challenge Appeal Mechanism prima facie breaches the principle of equality of arms by providing the parties with unequal rights to seek judicial review of challenge decisions.

In addition to the above, as courts can be expected to accord challenge decisions by arbitration institutions considerable deference, and rarely remove arbitrators in cases where the institution has rejected the challenge, the appellate mechanism is, by and large, redundant in administered arbitration.4)G. Born, International Commercial Arbitration (3rd ed. 2020), ¶ 12.06[B][1]. jQuery('#footnote_plugin_tooltip_37713_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Indeed, the Challenge Appeal Mechanism may be considered superfluous in both ad hoc and administered proceedings as parties are able to have challenge decisions reviewed by courts under the Model Law in the context of either an application to set aside an award or by request to resist enforcement of an award.5)See Model Law, Arts. 34(2) and 36(1). jQuery('#footnote_plugin_tooltip_37713_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The foregoing notwithstanding, interlocutory judicial review of challenge decisions serves a purpose. It is highly unsatisfactory for parties to be forced to participate and incur costs in proceedings with manifestly biased arbitrators. The Challenge Appeal Mechanism provides parties with another opportunity to have such arbitrators removed. Accordingly, any reform of the Challenge Appeal Mechanism should retain judicial review of challenge decisions in certain circumstances.

 

A French-inspired Solution

National courts support arbitration in one of two ways, by ’helping’ or ‘protecting’ the proceedings.6)E. Gaillard, The influence of French legal thinking on the development of arbitration law, Paris Arbitration Week 2019, 4 April 2019, https://www.youtube.com/watch?v=O3nYCp_FgK4 (last accessed 11 May 2021). jQuery('#footnote_plugin_tooltip_37713_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The former is the ‘English way’, in which courts take a more active role in the arbitral process and seek to ‘help’ arbitration, e.g., English courts may, on the application of a party to arbitral proceedings determine any question of substantive jurisdiction of an arbitral tribunal7)English Arbitration Act 1996, Art. 32. jQuery('#footnote_plugin_tooltip_37713_30_7').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });, while the latter is the ‘French way’, in which courts will seek to ‘protect’ the arbitral process from any interreference, e.g., if a dispute arising under an arbitration agreement was brought before the French courts, the court would declare itself incompetent unless the arbitral tribunal had not yet been seized of the matter and if the arbitration agreement was manifestly void or inapplicable.8)French Civil Procedure Code, Art. 1448. jQuery('#footnote_plugin_tooltip_37713_30_8').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The two countries’ divergent policies for assisting the arbitral process are also reflected in their approaches to interlocutory judicial review of challenge decisions. Under English law, courts have the power to review challenge decisions in, but not limited to, international ad hoc and administered proceedings.9)English Arbitration Act 1996, Art. 24. jQuery('#footnote_plugin_tooltip_37713_30_9').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_9', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The French approach, by comparison, provides that a court may only decide a challenge in international ad hoc proceedings in the absence of an agreement by the parties.10)French Civil Procedure Code, Arts. 1456 and 1506(2). jQuery('#footnote_plugin_tooltip_37713_30_10').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_10', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The Challenge Appeal Mechanism is closer to the English than the French approach; however, in order to improve the appellate procedure it may be sensible to learn from the French in this regard. The Challenge Appeal Mechanism should be restricted to ad hoc proceedings only, but be available to both sides of a challenge (the “Reform Proposal”). This would increase the efficiency of administered arbitration by curtailing unnecessary court involvement while retaining judicial review in ad hoc proceedings to safeguard the arbitral process in the absence of an arbitration institution. By providing access to the Challenge Appeal Mechanism to both the challenging and the non-challenging party this approach would also remove the inherent unfairness in the current legal framework. Admittedly, this would remove interlocutory judicial review of challenge decisions in administered arbitration; but, bearing in mind that situations where such a review has a substantive impact on the proceedings is rare, it is, on the whole, more sensible to deal with any such situations through review of the final award at the end of the proceedings.11)See G. Born, International Commercial Arbitration (3rd ed. 2020), ¶ 12.06[B][4]. jQuery('#footnote_plugin_tooltip_37713_30_11').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_11', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Towards a Common Framework for International Commercial Arbitration Law

There is an old Brussels joke. How do you tell the difference between a British official and a French one? The Briton says ‘This idea works fine in theory but will it work in practice?’ while the Frenchman says ‘This idea works fine in practice but will it work in theory?’. Fortunately, although the Reform Proposal advocated above may be considered to be French-inspired, it nonetheless represents a solution which works both in theory and practice by incorporating features of both the English and French approach.

The proposal narrows the application of the Challenge Appeal Mechanism to ad hoc proceedings only in line with the ‘French-way’ of seeking to ‘protect’ arbitration from court interference; however, it also expands the parties’ ability to invoke the coercive, supportive and corrective powers of the courts at the appropriate juncture, if needed, during the proceedings by providing both sides of a challenge with the right to seek redress through the courts, in line with the ‘English way’ of seeking to ‘help’ arbitration.

Finally, by borrowing from both the leading common law jurisdiction and the civil law jurisdiction in the field of international commercial arbitration12)In the 2021 International Arbitration Survey: Adapting arbitration to a changing world by Queen Mary and White & Case, London, being a common law jurisdiction, is identified, together with Singapore, as the most preferred seats for international arbitration worldwide, while Paris is identified as the fourth most preferred seat for international arbitration worldwide and the highest ranked civil law jurisdiction. jQuery('#footnote_plugin_tooltip_37713_30_12').tooltip({ tip: '#footnote_plugin_tooltip_text_37713_30_12', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); the proposal may gain acceptance among a wide variety of States with different legal, social and economic systems in accordance with UNCITRAL’s mission of harmonising and unifying international trade law.

References[+]

↑1 C. A. Fleischhauer, Foreword of the Guide to the 1985 UNCITRAL Model Law, in H. M. Holtzmann and J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (1989), p. v. ↑2 See M. A. Gomez, Article 13: Challenge Procedure, in I. Bantekas et al (eds.), UNCITRAL Model Law on International Commercial Arbitration: A Commentary (2020), pp. 250-251. ↑3 See G. Born, International Commercial Arbitration (3rd ed. 2020), ¶ 12.07. ↑4 G. Born, International Commercial Arbitration (3rd ed. 2020), ¶ 12.06[B][1]. ↑5 See Model Law, Arts. 34(2) and 36(1). ↑6 E. Gaillard, The influence of French legal thinking on the development of arbitration law, Paris Arbitration Week 2019, 4 April 2019, https://www.youtube.com/watch?v=O3nYCp_FgK4 (last accessed 11 May 2021). ↑7 English Arbitration Act 1996, Art. 32. ↑8 French Civil Procedure Code, Art. 1448. ↑9 English Arbitration Act 1996, Art. 24. ↑10 French Civil Procedure Code, Arts. 1456 and 1506(2). ↑11 See G. Born, International Commercial Arbitration (3rd ed. 2020), ¶ 12.06[B][4]. ↑12 In the 2021 International Arbitration Survey: Adapting arbitration to a changing world by Queen Mary and White & Case, London, being a common law jurisdiction, is identified, together with Singapore, as the most preferred seats for international arbitration worldwide, while Paris is identified as the fourth most preferred seat for international arbitration worldwide and the highest ranked civil law jurisdiction. function footnote_expand_reference_container_37713_30() { jQuery('#footnote_references_container_37713_30').show(); jQuery('#footnote_reference_container_collapse_button_37713_30').text('−'); } function footnote_collapse_reference_container_37713_30() { jQuery('#footnote_references_container_37713_30').hide(); jQuery('#footnote_reference_container_collapse_button_37713_30').text('+'); } function footnote_expand_collapse_reference_container_37713_30() { if (jQuery('#footnote_references_container_37713_30').is(':hidden')) { footnote_expand_reference_container_37713_30(); } else { footnote_collapse_reference_container_37713_30(); } } function footnote_moveToAnchor_37713_30(p_str_TargetID) { footnote_expand_reference_container_37713_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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Why States Should Not Ratify, and Should Instead Denounce, the Hague Choice-Of-Court Agreements Convention, Part III

Kluwer Arbitration Blog - Fri, 2021-06-18 01:35

The 2005 Choice-of-Court Agreements Convention (“Convention”) has been widely promoted by the Hague Conference on Private International Law (“Hague Conference”) and others.  This post continues the discussion in two prior posts (Part I and Part II) in this series which argued that it was inappropriate to transpose the New York Convention’s basis structure and terms to the very different setting of national courts.  This post argues that the Convention also significantly dilutes essential protections that the New York Convention provides for both party autonomy and procedural fairness. In doing so, the Convention significantly exacerbates the risks that arise from the prevalence of judicial corruption and the lack of judicial independence and commercial expertise that exist in many legal systems. The Convention also departs radically from all previous proposals of global judgment recognition conventions, including the 1971 Hague Convention on the Recognition and Enforcement of Foreign Judgments and the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments. These and other instruments included mechanisms for dealing with the realities of judicial corruption and the lack of judicial independence (permitting states to provide for the mutual recognition of judgments on a bilateral, rather than global, basis). Strikingly, the Convention abandoned these mechanisms.

Most states have been reluctant to ratify the Convention. As discussed in this post, that reluctance is well-considered. Given the Convention’s serious defects, states should not ratify the Convention and, if they have done so, they should exercise their right to withdraw from it promptly.

 

The Convention’s Dilution of Safeguards for Party Autonomy

There is no dispute that the principles of party autonomy and consent are fundamental to contemporary private international law regimes and, in particular, to matters of international dispute resolution. Indeed, proponents of the Convention emphasize that it is intended to “protect party autonomy”1)Andrea Schulz, The Hague Convention of 30 June 2005 on Choice of Court Agreements, 2 J. Priv. Int’l L. 267 (2006). jQuery('#footnote_plugin_tooltip_37705_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37705_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and “remov[e] obstacles to productive commercial relations, which are best served by party autonomy.”2)Hans van Loon, The 2005 Hague Convention on Choice of Court Agreements – An Introduction, 18 Annals Fac. L.U. Zenica 12 (2016). jQuery('#footnote_plugin_tooltip_37705_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37705_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Party autonomy does not, however, mean giving effect to every alleged international arbitration clause or forum selection agreement.  Rather, respect for party autonomy means giving effect to those dispute resolution agreements that commercial parties have in fact validly concluded. As a consequence, the provisions of both the Convention and the New York Convention that govern the treatment of challenges to the existence, validity or scope of dispute resolution agreements – and hence the parties’ consent to a particular forum for adjudication – are of central importance. The Convention does not parallel the New York Convention’s treatment of party autonomy in this respect. Under the New York Convention, the existence, validity or scope of an arbitration agreement can generally be challenged at three stages: (a) in challenges to the validity of the arbitration agreement, in both the arbitral proceeding and litigation in the arbitral seat (and often elsewhere); (b) in challenges to an arbitral award in annulment proceedings in national courts which supervise the arbitral process in the seat of the arbitration; and (c) in challenges to the recognition of the award in proceedings in foreign courts outside the arbitral seat.  The results of any one of these challenges in a particular national court system (or the arbitral proceedings) will ordinarily not have preclusive effect in other jurisdictions.3)Gary Born, International Commercial Arbitration 3797-3808, 3995-4000 (3d ed. 2021). jQuery('#footnote_plugin_tooltip_37705_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37705_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  As a consequence, parties will not be required to arbitrate, nor be bound by an award, unless several independent inquiries into the existence and scope of valid consent to arbitrate have been satisfied, including inquiries by both the arbitrators themselves and by national courts in the recognition forum.

Significantly, the Convention dispenses with inquiries into the existence of valid consent to a choice-of-court agreement that would parallel those of the New York Convention. The existence and validity of a choice-of-court agreement may be challenged under Articles 5 and 6 of the Convention – generally paralleling Article II of the New York Convention. However, if such a challenge is made, and rejected by the putatively chosen legal system, then no further avenues for inquiry into the existence or validity of the agreement are possible in other forums. If the court putatively chosen by a choice-of-court agreement has decided that the agreement exists and is valid under the chosen court’s law, then Article 9(a) provides that the requested court must accept this decision: a judgment may be denied recognition if “the [choice-of-court] agreement was null and void under the law of the State of the chosen court, unless the chosen court has determined that the agreement is valid.”

Relatedly, Article 8(2) of the Convention also provides that “The court addressed [in recognition proceedings] shall be bound by the findings of fact on which the court of origin based its jurisdiction, unless the judgment was given by default.”  Thus, even if the chosen court has not decided on the existence and validity of the choice-of-court agreement, Article 8(2) makes its factual determinations binding in subsequent recognition proceedings.

The consequences of these provisions of the Convention are very significant.  Their effect is to give the national legal system putatively chosen in a choice-of-court agreement the sole authority to decide on the existence and validity of that agreement, without the possibility of review in recognition proceedings. That is a striking contrast to the New York Convention, where recognition courts are granted the authority by Article V(1)(a) to deny recognition based upon the absence of a valid arbitration agreement – notwithstanding an arbitral tribunal’s ruling that such an agreement existed and notwithstanding an annulment court’s decision to the same effect. Given the central importance of consent and party autonomy to both arbitration agreements and choice-of-court agreements, the Convention’s elimination of Article V(1)(a)’s safeguard is highly problematic: it creates a very real risk of parties being forced to litigate in, and bound to judgments by, courts to whose authority they never consented.

The Convention’s treatment of consent is also subject to additional serious criticisms. Under Article 9, there is no provision for denying recognition based upon the chosen court’s excess of authority, including by deciding disputes that are not within the scope of the parties’ choice-of-court agreement. In particular, there is no analog to Article V(1)(c) of the New York Convention, and parallel annulment provisions of national arbitration legislation, which permits a recognition court to deny recognition where the arbitral tribunal made an award that deals with issues not contemplated under the terms of the submission or decisions on matters beyond the scope of the submission to arbitration (ultra petita). However, the Convention eliminates Article V(1)(c)’s protections – leaving the chosen court, of any Contracting State, as the sole judge of the scope of its own jurisdiction. Again, this does not protect, but undermines, party autonomy.

Contrary to the assurances of its proponents, the Convention does not protect party autonomy; instead, it eliminates essential mechanisms for ensuring that the parties’ autonomy is validly exercised and genuinely respected. This is a particularly serious issue in jurisdictions with legal systems of doubtful integrity, independence and competence (in contrast to arbitral tribunals, where the opposite is true, and, in any event, where proceedings are supervised by the courts of the arbitral seat and recognition forums).

 

The Convention’s Dilution of Safeguards for Procedural Fairness

No less important than respect for party autonomy in international adjudication are requirements of procedural fairness, the basic elements of which include that the failure of a court or arbitral tribunal to respect these principles constitutes a denial of justice and deprives its rulings of both validity and legitimacy.

Again, contrary to its proponents’ commentary, the Convention does not parallel the New York Convention’s treatment of procedural fairness.  Under the New York Convention, an award may be denied recognition if “the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.”  Moreover, many aspects of the procedures in international arbitration are a product of the parties’ consensual arrangements, with the New York Convention again providing for non-recognition of awards if these procedural agreements are not complied with. These protections complement the parties’ rights to “equality of treatment” and a “full opportunity to be heard” under virtually all national arbitration legislation and the availability of annulment of awards for violations of these guarantees of procedural unfairness.4)Born, at 3822-3, 3829. jQuery('#footnote_plugin_tooltip_37705_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37705_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  These protections also parallel the protections that are available in most jurisdictions against foreign judgments rendered in procedurally unfair proceedings.

Together with the parties’ role in the selection of the arbitral tribunal, Articles V(1)(b) and V(1)(d) of the New York Convention and analogous provisions in annulment proceedings provide effective protections for the parties’ due process rights in international arbitration. At both the annulment and recognition phases, the procedural decisions of the arbitrators are subject to scrutiny by national courts – in order to ensure that the proceedings were conducted fairly.

Importantly, the Convention does not replicate these safeguards for procedural fairness. Article 9(d) of the Convention permits non-recognition of a judgment where it was “obtained by fraud in connection with a matter of procedure,” defined as “deliberate dishonesty or deliberate wrongdoing,”5)Trevor Hartley & Masato Dogauchi, Hague Conference on Private International Law Convention of 30 June 2005 on Choice of Court Agreements Explanatory Report 831 (2005). jQuery('#footnote_plugin_tooltip_37705_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_37705_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  Although important, this provision is directed only to deliberately fraudulent conduct – not to other denials of procedural fairness, including through incompetent, negligent, inadvertent or biased decision-making by a national court: the provision does not replicate the New York Convention’s protections for due process rights.

In addition, Article 9(e) of the Choice-of-Court allows a court to deny recognition of a judgment if “recognition and enforcement would be manifestly incompatible with the public policy of the requested State, including situations where the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness of that State.”  Article 9(e) provides more extensive protections than Article 9(d), but it too does not provide the safeguards that exist under the New York Convention.

First, Article 9(e) treats procedural unfairness as a subcategory of the public policy of the requested state, prescribing an elevated and two-pronged standard of proof – that recognition of a judgment be “manifestly incompatible” with a state’s public policy – and requiring that the “specific proceedings leading to the judgment” have been “incompatible with fundamental principles of procedural fairness.” By treating procedural unfairness solely as a sub-set of public policy, Article 9(e) dilutes the specific procedural protections that are provided under Articles V(1)(b) and V(1)(d) of the New York Convention.

Second, Article 9(e) of the Convention also limits non-recognition to cases where “the specific proceedings leading to the judgment” were procedurally unfair. By so doing, the Convention forbids inquiry into the fairness and independence of the legal system of the Contracting State whose courts rendered the judgment in question.  In the words of one commentator:

“[Article 9(e)’s] words were chosen with care.  Review may be had in the court addressed of something which may have occurred in the particular case leading to the particular judgment for which recognition and enforcement is sought.  Article 9(e) is not an invitation to a broad scale attack on the nature, character, or alleged conduct of the foreign judicial or legal system as a whole.”6)Ronald A. Brand & Paul M. Herrup, The 2005 Hague Convention on Choice of Court Agreements: Commentary and Documents 118 (3d ed. 2008) (emphasis added). jQuery('#footnote_plugin_tooltip_37705_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_37705_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

This approach is seriously flawed in an instrument aspiring to be a global convention: Article 9(e) mandatorily requires recognition of judgments rendered by judicial systems that lack basic guarantees of independence, integrity and competence – which is a characterization that, as discussed above, describes a substantial number of states. Efforts to detect, and prove, judicial corruption are notoriously challenging and seldom successful. Demonstrating corruption in an individual foreign judicial proceeding is even more challenging, because of the difficulties in obtaining evidence, language and other obstacles (i.e., cost, risks of official interference and the like). Likewise, proving governmental interference in individual proceedings is extremely difficult. As a consequence, the Convention’s provisions regarding procedural fairness are virtually certain to prove inadequate as safeguards against the types of misconduct that are endemic in far too many jurisdictions.

The Convention’s treatment of procedural fairness also significantly dilutes the protections that are available under national law in many jurisdictions. Under both common law and civil law standards in most states, courts may deny recognition of awards rendered by legal systems that lack independence or impartiality. The vital importance of these procedural protections is underscored by the U.S. Supreme Court’s classic treatment of common law standards in Hilton v. Guyot:

“Where there has been opportunity for a full and fair trial abroad before a court of competent jurisdiction, conducting the trial upon regular proceedings, after due citation or voluntary appearance of the defendant, and under a system of jurisprudence likely to secure an impartial administration of justice between the citizens of its own country and those of other countries, and there is nothing to show either prejudice in the court, or in the system of laws under which it was sitting, or fraud in procuring the judgment, or any other special reason why the comity of this nation should not allow it full effect, the merits of the case should not, in an action brought in this country upon the judgment, be tried afresh.”7)Hilton v. Guyot, 159 U.S. 113, 202-03 (1895) (emphasis added). jQuery('#footnote_plugin_tooltip_37705_30_7').tooltip({ tip: '#footnote_plugin_tooltip_text_37705_30_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Guarantees of procedural fairness in other jurisdictions are worded differently but are very similar in substance.

These safeguards, paralleling those of Article V(1)(b) of the New York Convention, are not incidental or merely “nice to have”: they are essential attributes of any ruling that is to be given binding effect in a developed legal system. Despite that, the Convention very significantly dilutes the procedural protections of both existing private international law rules in most jurisdictions and the New York Convention. Even if the New York Convention model were considered appropriate for litigation, however, it is extremely difficult to accept the proposition that its procedural protections should be materially diluted for foreign judicial proceedings.

 

Conclusion

The Convention aspires to be a worldwide charter governing international forum selection agreements and national court judgments and is promoted as a significant milestone in the development of international civil procedure.  Despite these ambitions, there are fundamental defects in the Convention’s structure and terms, making it unsuitable for ratification by jurisdictions committed to the rule of law.

The Convention purports to transplant principles from the New York Convention to cross-border choice-of-court agreements, notwithstanding decisive differences between the international arbitral process and proceedings in national courts.  Moreover, the Convention dilutes critical safeguards that the New York Convention guarantees for both the parties’ autonomy and the procedural integrity of the adjudicative process.  In doing so, the Convention again suffers from serious flaws which makes it unsuitable for adoption on a global scale.

On other occasions, the Hague Conference has acknowledged that judiciaries in many countries lack the integrity, independence, and competence to justify recognition of their judgments, even where those judgments were made pursuant to a legitimate jurisdictional base.  The 1971 Hague Convention on the Recognition and Enforcement of Foreign Judgments included, in Article 21, a provision that the Convention would apply only where two Contracting States had agreed to its application on a bilateral basis.  Similarly, the 2019 Hague Convention on the Recognition and Enforcement of Foreign Judgments included, in Article 29, a provision allowing states to opt-out of the Convention’s application as to any other Contracting State.

In both cases, these provisions applied even where jurisdiction over the judgment-debtor was undisputed, including where it was established by consent.  The reason for these provisions was pervasive doubts about the integrity, independence, and competence of courts in many countries – which led to insistence on provisions allowing Contracting States to opt out of application of the Convention as to such states.  The same conclusions apply equally under the Convention: notwithstanding a valid choice-of-court agreement, there is no justification for recognizing judgments from courts whose integrity and independence are suspect.

Given the grave defects in the Convention, states that have not already adopted the Convention – like the United States, India, Brazil and China – should not ratify it.  States that have already done so, like Singapore and Mexico, should reconsider and, utilizing Article 33, should withdraw from it.  Doing so is necessary to preserve the rule of law and the security of international trade and investment.  Failure to do so will inevitably result in gross procedural and other unfairness to innocent parties and will deter, rather than promote, cross-border trade and investment.

References[+]

↑1 Andrea Schulz, The Hague Convention of 30 June 2005 on Choice of Court Agreements, 2 J. Priv. Int’l L. 267 (2006). ↑2 Hans van Loon, The 2005 Hague Convention on Choice of Court Agreements – An Introduction, 18 Annals Fac. L.U. Zenica 12 (2016). ↑3 Gary Born, International Commercial Arbitration 3797-3808, 3995-4000 (3d ed. 2021). ↑4 Born, at 3822-3, 3829. ↑5 Trevor Hartley & Masato Dogauchi, Hague Conference on Private International Law Convention of 30 June 2005 on Choice of Court Agreements Explanatory Report 831 (2005). ↑6 Ronald A. Brand & Paul M. Herrup, The 2005 Hague Convention on Choice of Court Agreements: Commentary and Documents 118 (3d ed. 2008) (emphasis added). ↑7 Hilton v. Guyot, 159 U.S. 113, 202-03 (1895) (emphasis added). function footnote_expand_reference_container_37705_30() { jQuery('#footnote_references_container_37705_30').show(); jQuery('#footnote_reference_container_collapse_button_37705_30').text('−'); } function footnote_collapse_reference_container_37705_30() { jQuery('#footnote_references_container_37705_30').hide(); jQuery('#footnote_reference_container_collapse_button_37705_30').text('+'); } function footnote_expand_collapse_reference_container_37705_30() { if (jQuery('#footnote_references_container_37705_30').is(':hidden')) { footnote_expand_reference_container_37705_30(); } else { footnote_collapse_reference_container_37705_30(); } } function footnote_moveToAnchor_37705_30(p_str_TargetID) { footnote_expand_reference_container_37705_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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Why States Should Not Ratify, and Should Instead Denounce, the Hague Choice-Of-Court Agreements Convention, Part II

Kluwer Arbitration Blog - Thu, 2021-06-17 01:35

The 2005 Convention on Choice-of-Court Agreements (“Convention”) has been vigorously endorsed by the Hague Conference on Private International Law (“Hague Conference”) and others as an alternative to the New York Convention, appropriate for ratification by all states. The first post in this series discusses the Convention’s drafting history and proponents’ claim that the Convention ensures respect for party autonomy by giving effect to forum selection agreements and maximizes efficiency by permitting the recognition and enforcement of foreign judgments relatively easily.

As discussed in this second and the forthcoming third post, the Convention is gravely flawed and is not suitable for ratification, either generally or for the vast majority of states around the world. First, the Convention seeks to transpose the New York Convention’s basic structure and terms, which were designed for the international arbitral process, into the very different context of forum selection clauses and national court judgments; in doing so, the Convention would expose commercial parties, in their litigation, to very substantial risks of procedural unfairness and arbitrary or corrupt adjudicative proceedings. Second, the Convention also significantly dilutes essential protections that the New York Convention provides for both party autonomy and procedural fairness.

 

The New York Convention is an Unsuitable Model for A Choice-of-Court Agreement Convention

It is unwise to attempt to transpose the New York Convention from international arbitration to cross-border litigation. International arbitration is a consensual process. It is based on party consent and the entire arbitral process is dominated by the parties and arbitral institutions, not by national courts; it is the parties and the arbitral institutions who have the authority to select the arbitrators who will decide individual disputes; in practice, parties and institutions use this freedom to select arbitral tribunals that are both independent and expert in the subject matter of the parties’ dispute. Equally important, it is the parties and arbitrators who have the authority to design the procedures for resolving those disputes, exercising that autonomy to adopt procedures that are efficient and tailored to individual disputes. At the same time, the arbitral process is regulated by relatively strict guarantees of independence, impartiality and fairness, applied by national courts in annulment, recognition and other proceedings at the conclusion of the arbitral process. These aspects of the arbitral process serve to safeguard both the parties’ autonomy, ensuring that parties actually did agree to arbitrate with one another, and the fairness and integrity of the adjudicative process, guaranteeing that the arbitral proceedings are untainted by corruption or gross procedural unfairness.

In contrast, even in cases involving forum selection agreements, national court litigation is predominantly a non-consensual process, taking place within a single legal system, with very limited external scrutiny. Parties have virtually no role in the selection of the judges that decide their cases, with both the decision-makers and the adjudicative procedures applied in litigation contexts imposed by governmental authorities in the dispute resolution forum. As a consequence, the parties have little opportunity to ensure either that the judge(s) that resolve their dispute are independent or expert in the subject matter of the dispute, or that the litigation procedures which the judge(s) apply are fair and appropriate. Rather, the identities of the decision-maker(s) and the content of the litigation procedures are determined almost entirely by local government decisions.

It is critical to consider these differences between the arbitral and the litigation process in the context of contemporary realities of cross-border litigation. It is an unfortunate, but undeniable, fact that a substantial number of national judicial systems are highly unsuitable forums for the resolution of international commercial disputes. There is a wealth of evidence demonstrating that, in many jurisdictions – amounting to well more than half of the countries that are potential candidates for ratification of the Convention – basic standards of integrity, independence and competence are seriously compromised.

These conclusions are uncomfortable, but they are demonstrated by a wealth of empirical evidence from neutral, non-partisan sources (summarized below). They are also confirmed by consistent reports by experienced international counsel: the stark reality is that, in many litigation contexts, you get what you pay for. It is essential not to ignore this reality in evaluating the Convention.

 

Judicial Integrity

First, litigants in a very large number of jurisdictions report direct experiences with judicial corruption in between 25% and 75% of all cases. Transparency International reports that, 30% of respondents from all jurisdictions in 2017 regarded “most” or “all” judges as corrupt, with higher percentages in Africa, Latin America and Russia; the United Nations Development Programme reports that 24% of respondents worldwide reported having paid bribes to the judiciary in the preceding year; and the International Bar Association reports that more than one third  of respondents (in a global study) had direct or indirect, recent experience with judicial corruption.

 

Judicial Independence

Second, and relatedly, reports by non-governmental organizations conclude that, in an alarming number of countries, judicial independence is entirely or largely lacking.  Indicia of judicial independence have been falling, rather than increasing, in recent years.1)World Justice Project, Rule of Law Index 2017-2018 (2018) (annual report on rule of law); Heritage Foundation, Index of Economic Freedom, (2021) (annual report on economic freedom, including judicial integrity and independence); Freedom House, Freedom in the World 2018 (2018) (annual report on good governance, including rule of law). jQuery('#footnote_plugin_tooltip_37703_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37703_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  The increasing role of state-owned or state-related enterprises in international trade and investment, as well as the re-politicization of international trade relations, exacerbates the risks resulting from the increasing lack of judicial independence.

 

Judicial Competence

Third, and again relatedly, basic levels of competence are demonstrably lacking in numerous court systems. In many jurisdictions, judges are poorly trained, badly compensated and under-resourced, while confronted with intolerable caseloads. The lack of judicial competence is frequently associated with increased corruption: as an EU study reported, “another substantial cause of corruption practices in courts is the low level of the judges’ professional education, prior corruption experience or lack of real practical experience.”

Although not addressed by either the Hague Conference or the Convention’s proponents, these considerations are vitally important in assessing the wisdom and suitability of the Convention. The lack of judicial integrity, independence and competence in many legal systems provide powerful arguments against permitting choice-of-court clauses and foreign judgments to be readily recognized and enforced.  Those factors mean that, in a substantial number of cases, enforcing a forum selection clause or recognizing a foreign judgment means giving effect to serious denials of justice and procedural unfairness or, at a minimum, recognizing judgments lacking in elementary attributes of diligence and quality.

In this respect, it is fundamentally wrong to claim that the New York Convention and the international arbitral process provide a suitable paradigm for the recognition of judgments and choice-of-court clauses. That is because the international arbitral process contains a number of highly important safeguards against the risks of denials of justice and procedural unfairness. These protections are not present in either national court proceedings or the regime established by the Convention.

Thus, in contrast to national court proceedings, where judges are selected by local officials or randomly, international arbitral proceedings are conducted by arbitrators chosen by or for the parties in individual cases. The parties’ role in selecting the decision-makers in individual cases makes the risk of foreign government interference highly unlikely; the parties themselves are able to police the selection of decision-makers. The parties’ involvement in the selection of the arbitrators also significantly reduces the risks of corruption or lack of substantive competence: parties are able to select arbitrators who have both integrity and competence (particularly given that arbitrators are virtually always selected after a dispute arises, when the expertise relevant to resolving the parties’ dispute is known). As a consequence, despite the substantial numbers of international commercial and investment arbitrations that have been conducted over the past 70 years, there are virtually no recorded instances of corruption by arbitrators.

Moreover, all leading international arbitration regimes provide robust and effective mechanisms for ensuring the independence and impartiality of individual arbitrators. Both commonly used institutional arbitration rules and virtually all national arbitration legislation uniformly require that arbitrators be “independent and impartial,” while providing effective procedural mechanisms requiring disclosure of potential conflicts by arbitrators and permitting challenges of arbitrators by parties. The New York Convention and virtually all national arbitration statutes also provide for the possibilities of both annulment and non-recognition of awards rendered by arbitral tribunals lacking independence and impartiality.2)Gary Born, International Commercial Arbitration 1857-61 (3d ed. 2021). jQuery('#footnote_plugin_tooltip_37703_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37703_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Relatedly, the conduct of international arbitral proceedings is subject to the parties’ procedural autonomy, with the arbitral tribunal exercising procedural authority only in the absence of agreement by the parties. That again empowers the parties and arbitrators, insulating the arbitral process from either governmental corruption or interference. Moreover, the New York Convention as well as most, if not all, national arbitration legislations require that arbitral procedures satisfy basic due process standards and to comply with the parties’ procedural agreements – with annulment and non-recognition of awards again available as sanctions for violation of these requirements.3)Id. at 1769-75, 1787, 2296-2300 and 2318-2330. jQuery('#footnote_plugin_tooltip_37703_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37703_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The above characteristics of the arbitral process are essential to the New York Convention’s facilitation of the recognition of arbitral awards. The guarantees inherent in the arbitration process provide reliable assurances as to the independence of the arbitral tribunal and the underlying procedural fairness of the arbitral process; they also provide effective external protections, administered by decision-makers outside the arbitral process, in the (rare) event that these assurances are not realized.  This contrasts significantly with a very substantial number of national court systems and proceedings, which are characterized by the lack of such assurances, the presence of endemic corruption and incompetence.

Put simply, in recognizing an arbitral award under the New York Convention, a court gives effect largely to the parties’ own agreements and actions, taken at critical stages throughout the arbitral process, not to the rulings of a foreign state or government official.  In contrast, in recognizing a judgment under the Convention, a court gives effect almost entirely to the rulings of a foreign governmental organ – which, as discussed above, is subject to grave doubts as to independence, impartiality and competence in a very substantial number of cases.

The desire of the Convention’s drafters to “level the playing field” between international arbitration and litigation has a surface rhetorical appeal.  But that objective, of levelling the playing field, in fact counsels away from accepting the logic of the Convention. International arbitration is a consensual process, dominated by the parties and regulated by enforceable guarantees of independence, impartiality and fairness, applied as external checks on the arbitral process by both annulment and recognition courts; national court litigation is predominantly a non-consensual process, taking place within a single legal system, with uncertain and frequently unreliable assurances of independence, integrity or fairness, as well as endemic levels of corruption in many jurisdictions. Levelling the playing field does not mean treating these two processes the same; it should instead mean treating them differently.

Put concretely, why should American, Canadian, Australian, Singaporean, Swiss, Ghanaian, Uruguayan or other courts commit to recognize all foreign judgments – including judgments of courts in Russia, China, Venezuela, Iran, the Congo, and Nicaragua – in the same basic way that they recognize international arbitral awards? In the latter case, courts give effect to largely independent, expert and fair decisions concerning commercial disputes, made by arbitral tribunals whose members are selected by the parties themselves, applying procedures also chosen by the parties themselves; a robust, pro-enforcement legal framework makes eminent sense in that context, as nearly 70 years of experience under the New York Convention has demonstrated. In the former case, courts would be required to give effect to judgments that are frequently rendered by courts that are neither independent, competent nor fair, and that, at the same time, are subject to no external scrutiny; the historic safeguards of private international law rules in most states, which only permit recognition of foreign judgments after reasonable careful scrutiny of their fairness, make eminent sense in these circumstances.

Exporting the New York Convention to national court litigation is not levelling the playing field; it is subjecting the players to arbitrary, incompetent and corrupt decisions by foreign referees. This conclusion alone should be sufficient to dissuade states from ratifying the Convention. But, as discussed in the third and final post in this series, there are further reasons arguing for the same result: in fact, in transposing the New York Convention to the context of foreign court proceedings, the Convention significantly dilutes the protections that are provided for the arbitral process, further exacerbating the risks of procedural irregularities and further undermining safeguards for party autonomy.

References[+]

↑1 World Justice Project, Rule of Law Index 2017-2018 (2018) (annual report on rule of law); Heritage Foundation, Index of Economic Freedom, (2021) (annual report on economic freedom, including judicial integrity and independence); Freedom House, Freedom in the World 2018 (2018) (annual report on good governance, including rule of law). ↑2 Gary Born, International Commercial Arbitration 1857-61 (3d ed. 2021). ↑3 Id. at 1769-75, 1787, 2296-2300 and 2318-2330. function footnote_expand_reference_container_37703_30() { jQuery('#footnote_references_container_37703_30').show(); jQuery('#footnote_reference_container_collapse_button_37703_30').text('−'); } function footnote_collapse_reference_container_37703_30() { jQuery('#footnote_references_container_37703_30').hide(); jQuery('#footnote_reference_container_collapse_button_37703_30').text('+'); } function footnote_expand_collapse_reference_container_37703_30() { if (jQuery('#footnote_references_container_37703_30').is(':hidden')) { footnote_expand_reference_container_37703_30(); } else { footnote_collapse_reference_container_37703_30(); } } function footnote_moveToAnchor_37703_30(p_str_TargetID) { footnote_expand_reference_container_37703_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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Reconciling Allegedly Alternative Mediation Models by Using DIY Models

ADR Prof Blog - Wed, 2021-06-16 07:32
Like it or not, facilitative and evaluative mediation are part of the social reality of our field.  Despite the fact that these models are misleading and provide counterproductive concepts to guide mediators’ behaviors and set parties’ expectations, they are inescapable.  They are standard elements in texts, courses, trainings, and general discourse in our field.  They … Continue reading Reconciling Allegedly Alternative Mediation Models by Using DIY Models →

Why States Should Not Ratify, and Should Instead Denounce, the Hague Choice-Of-Court Agreements Convention, Part I

Kluwer Arbitration Blog - Wed, 2021-06-16 01:34

Over the past decade, the 2005 Convention on Choice-of-Court Agreements (“Convention”) has been vigorously promoted by the Hague Conference on Private International Law’s Permanent Bureau, the European Union and others.  The Convention has been endorsed as a global instrument, appropriate for ratification by all states, that establishes an alternative to international arbitration for the resolution of international business disputes in national courts.  Among other things, the Convention is said to ensure respect for party autonomy (by giving effect to forum selection agreements) and to maximize efficiency (by permitting relatively easy recognition and enforcement of foreign court judgments).

Despite these promotional efforts, there has been virtually no critical assessment of the Convention. This post is the first in a three-part series that seeks objectively to assess the costs and benefits of the Convention. This post summarizes the drafting history and basic terms of the Convention. The following two posts discuss the principal defects of the Convention (Part II and Part III), focussing on its failure either to protect the parties’ autonomy in commercial matters or the procedural integrity of international dispute resolution. In sum, this series of posts argues that the Convention is gravely flawed and is not suitable for ratification, either generally or by the vast majority of states around the world.

As a preliminary matter, the Convention seeks to transpose the New York Convention’s legal regime, which was designed specifically for international arbitration, to the very different context of forum selection clauses and national court judgments. By seeking to do so, the Convention first ignores the realities of endemic corruption among various judiciaries and inexperience and lack of independence in many judicial systems, thereby exposing litigants to very substantial risks of procedural unfairness and arbitrary or corrupt adjudicative proceedings. Second, the Convention also significantly dilutes important protections that the New York Convention provides: party autonomy and procedural fairness. Those dilutions materially exacerbate the risks that arise from the Convention’s basic structure and terms.

Apart from a few outliers, most states have been reluctant to ratify the Convention. A previous post on the Convention’s reception touches upon some of the issues that will be discussed in this post. As discussed in this and the following two posts, that reluctance is wise.  Given the Convention’s grave defects, states should not ratify the Convention and, if they have done so, they should exercise their right to withdraw from it promptly.

 

A Summary of the Convention

The Convention’s Background

The Convention was drafted under the auspices of the Hague Conference on Private International Law (“Hague Conference”).  The Convention was the product of a hasty two-year process (between 2003 and 2005), which sought to produce at least a limited measure of success for the Hague Conference following the failure of negotiations on a global jurisdiction and judgments convention. Broadly speaking, and as detailed below, the Convention’s drafters sought to replicate the basic terms of the New York Convention, but in the context of forum selection clauses, providing for the presumptive validity and enforceability of choice-of-court agreements and the presumptive enforceability of national court judgments where jurisdiction was based on such a forum selection provision.

The Convention was opened for signature in June 2005. To date, the Convention has been acceded to only by Mexico (in 2007), the European Union (in 2015), Singapore (in 2016), Denmark (in 2018), Montenegro (in 2018), and the United Kingdom (in 2020). Like its failed predecessor (the 2001 jurisdiction and judgment convention), the Convention is almost entirely an European undertaking. Apart from Mexico and Singapore, other states have either ignored or distanced themselves from the Convention.

 

Subject Matter of The Convention  

The Convention applies only to “exclusive choice of court agreements,” or put differently, exclusive forum selection clauses, thereby excluding both arbitration agreements and non-exclusive choice-of-court clauses.1)Art. 1(1). jQuery('#footnote_plugin_tooltip_37701_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37701_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The Convention also applies only to “civil” or “commercial” matters that arise in “international cases.”2)Id. jQuery('#footnote_plugin_tooltip_37701_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37701_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  Although the details are complex, these terms are generally defined broadly, aimed at giving the Convention an expansive scope.

The Convention includes a number of subject matter exclusions from its scope.  Among other things, Article 2 of the Convention provides that it does not apply to choice-of-court agreements in consumer and employment contexts, as well as to issues of personal status, legal capacity of natural persons, maintenance obligations and other family law matters, wills and succession, insolvency, in rem rights in immovable property, internal corporate matters, validity and infringement of intellectual property rights, various maritime matters, “antitrust (competition) matters,” and various tort claims.

 

Three Basic Rules

Article 3 of the Convention prescribes three basic rules regarding choice-of-court agreements. First, Article 3(b) provides that a choice-of-court agreement is deemed to exclude the jurisdiction of all courts other than the chosen court unless the parties agree otherwise. Second, Article 3(c) imposes a rule of formal validity, requiring that a choice-of-law agreement be “concluded or documented” either “in writing” or “by any other means of communication which renders information accessible to be usable for subsequent reference.”  Third, Article 3(d) codifies the separability doctrine, providing that a choice-of-court agreement shall be “treated as an agreement independent of the other terms of the contract.”

 

Jurisdiction

Chapter 2 of the Convention sets out jurisdictional rules, addressing the validity and enforceability of choice-of-court agreements that are subject to the Convention. Chapter 2 contains two sets of rules providing for: (1) the exclusive and mandatory jurisdiction of a court chosen by a valid exclusive choice-of-court agreement; and (2) the lack of jurisdiction of other courts, not chosen by such a choice-of-court agreement.

Thus, Article 5(1) states that the court of a Contracting State that is designated by a valid exclusive choice-of-court agreement possesses exclusive jurisdiction, which it is mandatorily required to exercise (subject to minor exceptions). “The court or courts of a Contracting State designated in an exclusive choice of court agreement shall have jurisdiction to decide a dispute to which the agreement applies, unless the agreement is null and void under the law of that State.”

Article 5(1) includes a positive grant of jurisdiction, coterminous with a valid choice-of-court agreement, providing for jurisdiction of the parties’ chosen court, as well as a choice-of-law provision, selecting the law of the chosen State to govern the validity of the choice-of-court agreement. Relatedly, Article 5(2) prohibits the chosen court under a valid choice-of-court agreement from declining jurisdiction.

Article 6 provides that a court in a Contracting State other than the court chosen in a valid choice-of-court agreement shall suspend or dismiss cases to which the agreement applies. Article 6 provides: “A court of a Contracting State other than that of the chosen court shall suspend or dismiss proceedings to which an exclusive Choice-of-Court agreement applies,” subject to specified exceptions. Article 6’s most important exception provides that a court is not obligated to dismiss or suspend a case if the agreement is null or void under the law of the State of the chosen court (paralleling Article 5(1) of the Convention and prescribing the same choice-of-law rule).  Additionally, Article 6(b) provides that a court need not give effect to a choice-of-court provision where a party lacked capacity under the law of the court seised, including its choice-of-law rules, while Article 6(c) provides that a seised court may exercise jurisdiction after determining that giving effect to the agreement will lead to a manifest injustice or would be manifestly contrary to the public policy of the State of the court seised.

In turn, Chapter 3 of the Convention, provides some parallels to Articles III and V of the New York Convention, by addressing the recognition of judgments rendered by a chosen court in another Contracting State.  In Article 8, the general rule is that judgments rendered by courts designated in exclusive choice-of-court agreements shall be recognized in all other Contracting States, without any review of the merits of such judgments, subject only to limited and defined exceptions that are set out under Article 9.

 

Exceptions to Recognition

Article 9 prescribes an exclusive list of seven exceptions to the obligation to recognize judgments by a chosen court.  Article 9(a) provides that recognition may be denied where a choice-of-court agreement is null and void, paralleling Article V(1)(a) of the New York Convention. Importantly, however, Article 9(a) provides that, if the chosen court has determined that a choice-of-court agreement is valid under its law, the requested court must accept this decision: a judgment may be denied recognition if “the [choice-of-court] agreement was null and void under the law of the State of the chosen court, unless the chosen court has determined that the agreement is valid.”

Article 9 also permits non-recognition of a judgment where the judgment-debtor was not properly notified of proceedings in the chosen court. First, Article 9(c) permits non-recognition if the document that instituted proceedings was not notified to the judgment-debtor in sufficient time and in a manner to permit a defence. Second, Article 9(d) permits non-recognition of a judgment where “the judgment was obtained by fraud in connection with a matter of procedure.” Finally, Article 9(e) also allows a requested court to deny recognition of a judgment if “recognition and enforcement would be manifestly incompatible with the public policy of the requested State, including situations where the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness of that State.”

 

The Convention Has Serious Defects

The Convention’s advocates have high aspirations for it. The Convention is said to be one of the most significant private international law treaties of the century, destined to “supplant the New York Convention as the norm for resolving international commercial disputes.”3)Jeffrey Talpis & Nick Krnjevic, The Hague Convention on Choice of Court Agreements of June 30, 2005: The Elephant That Gave Birth to A Mouse, 13 Sw. J. L. & Trade Am. 1, 35 (2006). jQuery('#footnote_plugin_tooltip_37701_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37701_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });  Despite its drafters’ high aspirations, and the European Union’s promotional efforts, there are substantial grounds for doubting the wisdom of the Convention.

First, the Convention would replace existing private international law rules, in virtually all countries, governing the recognition of forum selection provisions and foreign judgments, with new rules assertedly modelled on the New York Convention. This objective is pursued by the Convention’s drafters notwithstanding substantial differences between the international arbitral process, on the one hand, and proceedings in (many) national courts, on the other hand. These differences raise serious doubts as to the benefits of the Convention’s basic structure: put simply, the legal framework and rules that are appropriate for international arbitration are not suitable for national court litigation.

Second, and relatedly, the Convention also omits significant safeguards for the parties’ autonomy and important guarantees of procedural fairness. This is in contrast to the New York Convention, as well as national arbitration legislation, which incorporate such safeguards for the recognition of international arbitration agreements and arbitral awards. By omitting these safeguards, the Convention threatens, rather than protects, the autonomy of commercial parties and mandates recognition of judgments notwithstanding significant unfairness in the national court proceedings that produced them.

These related defects in the Convention are detailed in the remaining two posts in this series (Part II and Part III).

References[+]

↑1 Art. 1(1). ↑2 Id. ↑3 Jeffrey Talpis & Nick Krnjevic, The Hague Convention on Choice of Court Agreements of June 30, 2005: The Elephant That Gave Birth to A Mouse, 13 Sw. J. L. & Trade Am. 1, 35 (2006). function footnote_expand_reference_container_37701_30() { jQuery('#footnote_references_container_37701_30').show(); jQuery('#footnote_reference_container_collapse_button_37701_30').text('−'); } function footnote_collapse_reference_container_37701_30() { jQuery('#footnote_references_container_37701_30').hide(); jQuery('#footnote_reference_container_collapse_button_37701_30').text('+'); } function footnote_expand_collapse_reference_container_37701_30() { if (jQuery('#footnote_references_container_37701_30').is(':hidden')) { footnote_expand_reference_container_37701_30(); } else { footnote_collapse_reference_container_37701_30(); } } function footnote_moveToAnchor_37701_30(p_str_TargetID) { footnote_expand_reference_container_37701_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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A Swiss “(R)Evolution”: SCAI Becomes the Swiss Arbitration Centre and Enacts New Arbitration Rules

Kluwer Arbitration Blog - Tue, 2021-06-15 01:23

Undoubtedly, the date of 1 June 2021 will remain a milestone for the Swiss (and international) arbitration community. This is the date when (i) the Swiss Chambers’ Arbitration Institution (SCAI) became the Swiss Arbitration Centre (the Centre), and (ii) the revised Swiss Arbitration Rules entered into force (the 2021 Swiss Rules).

The 2021 Swiss Rules, on which this post will mainly focus, constitute a welcome refinement of the existing provisions, with limited substantial amendments. Key changes include more detailed provisions on multi-party and multi-contract proceedings and several other light-touch amendments to streamline and modernise the proceedings, while reinforcing the role of the institution. A number of changes were also made to improve the Swiss Rules’ terminology and structure with a view to facilitating their use in practice.

 

Institutional Change: Exit SCAI, Welcome Swiss Arbitration Centre

In 2012, the Chambers of Commerce and Industry of Basel, Bern, Geneva, Lausanne, Lucerne, Lugano, Neuchâtel and Zurich established SCAI as a not-for-profit organisation to administer arbitrations under the Swiss Rules. As of 1 June 2021 however, SCAI has become the Swiss Arbitration Centre. The Centre is a Swiss company whose shareholders are the Swiss Arbitration Association (ASA) and the Swiss Chambers of Commerce participating in SCAI. The Board of Directors of the Centre is composed of four members nominated by ASA as well as three members nominated by the Chambers of Commerce. SCAI’s website (now: https://www.swissarbitration.org/) has been updated accordingly with a new visual and integration of the ASA website.

Despite this institutional change, arbitration clauses referring to SCAI remain valid and binding and will be recognised by the Swiss Arbitration Centre. That being said, all users are now advised to refer in any contract concluded from 1 June 2021 to the “Swiss Rules of International Arbitration of the Swiss Arbitration Centre“.

 

The 2021 Swiss Rules

After their adoption in 2004, the Swiss Rules were revised a first time in 2012 to introduce an emergency arbitrator procedure and, more generally, to reinforce the efficiency of arbitration proceedings.

In 2021, the creation of the Centre prompted a detailed review of the Swiss Rules in light of past practical experience and recent developments in international arbitration. This process, led by a drafting committee composed of eminent arbitration specialists, included a broad consultation of both practitioners and users. This process led to the 2021 Swiss Rules, which entered into force on 1 June 2021.

As is immediately apparent, the approach adopted by the drafting committee was to give the Swiss Rules a welcome refresh. As the adage goes, “if it is not broken, don’t fix it“. With that in mind, the underlying idea of the revision was not to revolutionise but to upgrade the Swiss Rules and streamline arbitration proceedings under these new rules.

 

Modernisation, Digitalisation and Cyber-Security

The 2021 Swiss Rules contain new provisions facilitating the online management of arbitration proceedings. For instance:

  • Articles 3(1) and 4(1) 2021 Swiss Rules provide that paperless filings are the new standard, while hard copies are only required under specific circumstances;
  • Article 27(2) 2021 Swiss Rules also clarifies that any hearing may be held “remotely by videoconference or other appropriate means“. On this point, it should be noted that unlike other arbitration rules, Article 25(4) of the 2012 Swiss Rules already referred to videoconference in the context of witness examination. As such, according to commentators, the language of that provision already granted tribunals with sufficient flexibility to order remote hearings;
  • Article 19(2) 2021 Swiss Rules now provides that the parties and the tribunal shall discuss issues related to cybersecurity at an early stage of the proceedings. Since the start of the pandemic and the rise of remote hearings, this provision was a much-needed clarification.

Amongst the other amendments to modernise the arbitration proceedings, one can also think of the enhanced requirements for independence and impartiality of arbitrators and related disclosures (Article 12 2021 Swiss Rules), the appointment of a tribunal’s secretary (Article 16(3) 2021 Swiss Rules), the possibility for a tribunal to “oppose the appointment of a new representative where this would risk jeopardising the impartiality or independence of the arbitral tribunal” (Article 16(4) 2021 Swiss Rules), and the newly-introduced obligation for the tribunal to hold a case management conference “as soon as practicable after receiving the file from the Secretariat” (Article 19(2) 2021 Swiss Rules).

 

The Reinforcement of the Role of the Institution

Under the 2021 Swiss Rules, the Centre will play a more prominent role. For instance, it is now for the Secretariat (and not the tribunal as was the case under the 2012 Swiss Rules) to hold the deposit to be paid by the parties (Appendix B, Section 4.1). Also, the Secretariat shall now receive electronic copies of all communications (Article 16(2) 2021 Swiss Rules), and it is the Secretariat (and not the tribunal as this was the case under the 2012 Swiss Rules) who will notify the originals of the arbitral award to the parties (Article 34(5) 2021 Swiss Rules).

The gate-keeping function of the institution when deciding whether a case may proceed is also now clarified. Under Article 3 of the 2012 Swiss Rules, if the Respondent did not submit an Answer to the Notice of Arbitration, or if the Respondent raised an objection to the arbitration being administered under the rules, the Arbitration Court of the Centre (the Court) had to administer the case, unless there was manifestly no agreement to arbitrate referring to the rules. Under Article 5 of the 2021 Swiss Rules, in addition to the standard prima facie review whether there is manifestly no arbitration agreement referring to the Swiss Rules, this new article provides that the Court shall also determine whether the arbitration agreements are “manifestly incompatible” if more than one contract is invoked. However, and this is a crucial point, when the Court decides to administer the case, the tribunal retains the full power to rule on any jurisdictional issue, including an objection that claims brought under different arbitration agreements should not be determined together (Article 23(1) 2021 Swiss Rules).

 

Multi-party and Multi-contract Arbitrations

Provisions on multi-party and multi-contract arbitrations were amongst the most discussed issues by the drafting committee.

Regarding the issue of joinder, Article 4(2) of the 2012 Swiss Rules, which was already a very innovative feature at the time it was adopted, focused almost exclusively on the tribunal and its power to decide on a request of joinder made by one or more third persons. This provision has now been replaced by Article 6 of the 2021 Swiss Rules, which addresses the situations where, for example, a respondent raises claims against another co-respondent (cross-claim) or an additional party (joinder), or where an additional party seeks to participate in the proceedings by bringing claims against an existing party (intervention).

Article 6(1) 2021 Swiss Rules further requires the submission of a separate notice of claim against the targeted party. Before the constitution of the tribunal such notice of claim shall be submitted to the Secretariat (Article 6(2) 2021 Swiss Rules), which will then proceed to a prima facie review if the party sought to be joined raises an objection (within 15 days). The tribunal remains however in charge of deciding on the admissibility of a request submitted after its constitution (Article 6(3) 2021 Swiss Rules). For its part, Article 6(4) 2021 Swiss Rules contemplates the possibility for a third person to participate in the proceedings “in a capacity other than an additional party“, allowing tribunals to “decide on whether to permit such participation and on its modalities“.

This new regime is intended to ease the organisation of the proceedings and the constitution of the tribunal at the outset of the case, but it does not entail any consequences for jurisdiction, which remains a matter for the tribunal to decide.

Regarding the issue of consolidation, Article 7 of the 2021 Swiss Rules replaces Article 4(1) of the 2012 Swiss Rules, without any substantive changes. Decisions on the consolidation of proceedings are still exclusively taken by the Court.

 

Settlement Facilitation / Mediation

While, like the 2012 Swiss Rules, the 2021 Swiss Rules provide for the tribunal’s potential role as settlement facilitator (Article 19(5) 2021 Swiss Rules), the revised Swiss Rules now expressly provide that, at any time during the arbitration proceedings, the parties may agree to resolve their dispute, or any portion of it, by mediation, including under the Swiss Rules of Mediation, or any other forms of alternative dispute resolution. To facilitate this process, and unless the parties agree otherwise, the arbitration proceedings will be stayed during that period (Article 19(6) 2021 Swiss Rules).

 

Costs of Arbitration

In order to reflect the increased workload of the Secretariat under the 2021 Swiss Rules, the revised Schedule of Costs in Appendix B provides for slightly higher administrative costs only charged for amounts in dispute above CHF 300,000 and capped at CHF 75,000 for disputes above CHF 250 million. This increase in administrative costs is however counterbalanced by a scale providing for slightly reduced fees for arbitrators.

 

What You Will NOT Find in the 2021 Swiss Rules

Rightly or wrongly, and this is a matter for the arbitration community to discuss, several other ideas were considered by the drafting committee but were eventually not introduced into the 2021 Swiss Rules. For instance, the 2021 Swiss rules:

  • do not dispense with the requirement of notifying original copies of the award.
  • do not provide for an early dismissal / early determination of claims’ mechanism.
  • have not increased the CHF 1 million threshold for expedited proceedings.

 

Conclusion

The creation of the Swiss Arbitration Centre is a welcome improvement. Although SCAI and ASA have long been complementary forces, the division between SCAI, on the one hand, and ASA, on the other, was not always very well understood by the arbitration community. The future cooperation between these two institutions under the umbrella of the Centre offers very promising perspectives for the development of Switzerland as a global arbitration hub. It is therefore unsurprising that the creation of the Centre made it to the GAR Awards 2021 nomination list for “Best innovation”.

While they have not undergone any major revolution, the 2021 Swiss Rules have been refreshed and modernised but have also retained their essential character. The 2021 Swiss Rules will undoubtedly enhance the efficiency of any arbitration proceedings while maintaining party autonomy, flexibility and cost-effectiveness. In that regard, the 2021 Swiss Rules convey a message of continuity of an alternative dispute resolution system that has proven very satisfactory in many years of practice.

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How Sacred is the Right to be Heard in Arbitration?

Kluwer Arbitration Blog - Mon, 2021-06-14 01:12

In CBS v CBP [2021] SGCA 4 the Singapore Court of Appeal upheld the High Court’s ruling in CBP v CBS [2020] SGHC 23, being a rare example of the Singapore Courts setting aside an award. The arbitrator’s decision not to allow a hearing for oral witness evidence was found to be a breach of natural justice in the absence of clear powers to do so (sometimes known as “witness gating” powers) despite the challenging party refusing to submit any written witness statements. Although swinging largely on an interpretation of the applicable Singapore Chamber of Maritime Arbitration (SCMA) Rules, the impact of the decision is potentially much further reaching. At first glance it is at odds with common procedural practices in international arbitration generally, and the Singapore Courts’ well-established reputation for deferring to tribunals’ discretionary procedural powers. But is this the case on closer scrutiny?

 

Key Facts

The underlying claim concerned non-payment by an Indian company (the buyer) for coal which it had agreed to purchase from a seller who had assigned the debt to a Singapore bank (the bank).

Critically, Rule 28.1 of the SCMA Rules provided that:

Unless the parties have agreed on a documents-only arbitration or that no hearing should be held, the Tribunal shall hold a hearing for the presentation of evidence by witnesses, including expert witnesses, or for oral submissions. (emphasis added)

With an eye on Rule 28.1 the bank confirmed that it did not wish to call any witnesses and submitted that the arbitration should proceed on a documents only basis, while the seller confirmed that it wished to call 7 witnesses to give “oral testimony” at a hearing. In response – and which would ultimately prove fatal – the arbitrator directed:

Before I rule on whether the arbitration will be on documents only [sic] or an oral hearing is necessary I require the following: a. Detailed written statements from each of the witnesses [the buyer] plans to call…

The buyer refused to provide any written witness statements. The arbitrator then directed that a hearing would take place pursuant to SCMA Rule 28.1 for oral submissions only, and no witnesses would be presented at the hearing given the buyer had “failed to provide [written] witness statements or any evidence of the substantive value of presenting witnesses [at a hearing]”.

The buyer did not attend the hearing and the bank’s claim was allowed in full, including on the basis that the arbitrator rejected the buyer’s case regarding an alleged oral agreement.

The buyer then applied successfully to the High Court for the award to be set aside on the ground that the arbitrator’s decision “to deny the Buyer its right to call” witnesses represented a breach of natural justice. The bank appealed.

 

Court of Appeal

The Court of Appeal identified the applicable rule of natural justice as the “full opportunity to be heard” (including Article 18 of the Model Law) and the key test as being whether the arbitrator’s conduct fell within the range of what a reasonable and fair-minded tribunal in the circumstances might have done.

The first key bone of contention concerned the interpretation of SCMA Rule 28.1. In essence, whether – as argued by the bank – the final  “or” means the rule should be interpreted “disjunctively”, such that in the absence of an agreement between the parties as to a documents-only procedure or there being no hearing, the arbitrator is only obligated to hold a hearing for oral evidence or for oral submissions.

The Court of Appeal agreed with the High Court’s “holistic” interpretation, however – in favour of the buyer – that “..r 28.1 has to be read as a whole and it does not give the tribunal the power to choose what type of hearing to hold in the absence of an agreement” (emphasis added). Thus, in the absence of an agreement for “a documents-only arbitration or that no hearing should be held”, the arbitrator did not have the ‘witness gating’ power to disallow the buyer’s request for a hearing for oral witness evidence.

On the second key issue, the Court of Appeal accepted that tribunals do have the power to limit oral witness evidence as part of their broad, discretionary case management powers (and that the arbitrator in this case had this power under SCMA Rule 25) in certain circumstances; for example, where “evidence from multiple witnesses are repetitive or of little or no relevance to the issues”. However, this power is not absolute and is subject to the fundamental rules of natural justice.

The Court of Appeal found that on the facts, the arbitrator’s rejection of the buyer’s proposed oral witness evidence and the imposing of a condition to show that this had “substantive value” before deciding whether to allow it at a hearing fell outside the range of what a reasonable and fair-minded tribunal might have done, and so represented a breach of natural justice.

 

Analysis & Impact

The arbitrator’s conduct was not the most obvious breach of natural justice, and this was not a straightforward decision.

This is highlighted by the very fine distinction the Court of Appeal drew between two, similar scenarios. First, the Court suggested that if the arbitrator had requested written witness statements with a view to further oral witness evidence being presented at a hearing, but had then not allowed oral witness evidence as a result of the buyer’s failure to comply and to provide witness statements, this “might be warranted” under its broad procedural powers. Yet, in this case, “Where the arbitrator fell into error was by suggesting that whether a hearing for witness testimony would be convened would be determined based on the Buyer’s witness statements, which had to be submitted beforehand. As we have noted above, this was not an option open to the Arbitrator…”

This distinction is significant because it is common in practice for arbitrators to direct that written witness statements are required and will represent evidence in chief, and that only witnesses who have provided written statements may appear to be examined and to provide oral evidence at a hearing. This approach has significant upsides in terms of procedural efficiency and avoiding any perception that a party is being blindsided by new evidence adduced orally for the first time at a hearing.

Rather than cutting across this practice, the decision emphasises that great care needs to be taken when considering the applicable arbitral rules and factual circumstances, and it is dangerous to make any assumptions based on practices or experiences under different rules or facts. SCMA Rule 28.1 is ostensibly very similar to many other institutional rules – including Article 24.1 of the 2016 SIAC Rules and 17.3 of the UNCITRAL Rules, for example – such that the decision could have some impact on arbitrations under those rules. However, the challenges in this case arose largely from SCMA Rule 28.1’s particular idiosyncrasies and the absence of a clear, express “witness gating” power to limit oral witness evidence (unlike under Article 25.2 of the SIAC Rules, for example).

The Singapore Courts might also have been expected to place more emphasis on the buyer’s refusal to comply with procedural directions, including the direction to submit written witness statements.

The Court of Appeal held that if the buyer had complied with procedural directions, “it might be taken to have agreed with the arbitrator that he had the power to decide whether or not to deny their request for a hearing…”. However, regarding the key question of whether any prejudice was actually caused, the Court found that “…the alleged oral agreement at the December 15 meeting was a critical component of the Buyer’s defence…When the witness evidence of the Buyer in relation to that meeting was shut out altogether, it is plain that the Buyer was prejudiced”. This is difficult to follow in circumstances where the buyer was directed and given many opportunities to submit written witness evidence which could have covered the alleged oral agreement, but it refused to do so.

It would be a stretch, however, to suggest that the approach represents a departure for the Singapore Courts. The Court’s reasoning flowed from an interpretation of the – problematically drafted, at best – SCMA Rule 28.1, and a robust approach to respecting the fundamental right to be heard when navigating the difficult balancing act between this and arbitrators’ broad procedural powers. Ultimately, the decision makes clear that arbitrators who do not allow hearings for oral witness evidence in the absence of very clear powers to do so – even where a party has refused to submit written witness statements – do so at their own peril.

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The Contents of Journal of International Arbitration, Volume 38, Issue 3 (June 2021)

Kluwer Arbitration Blog - Sun, 2021-06-13 01:40

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

 

Gary Born, Anneliese Day & Hafez Virjee, Remote Hearings (2020 Survey): A Spectrum of Preferences

A detailed survey of users’ experience of remote hearings shows that, as of July 2020, in-house and external counsel, and arbitrators and tribunal secretaries, were generally enthusiastic about fully remote hearings, but more nuanced when it came to breaking down their preferences according to the amount in dispute and the number of witnesses and experts to be examined: for short hearings and meetings, users will very likely prefer a videoconference over meeting in person or conducting the proceeding by telephone, whereas for merits hearings and hearings dealing with major procedural issues, preferences hinge primarily on the value of the case and secondly on the number of witnesses and experts to be examined. Where parties are in disagreement as to how to hold the hearing, tribunals are likely to factor into their decision any flexibility around the hearing dates, cost considerations and the number of time-zones that need to be accommodated.

The article also discusses the survey results relating to the benefits and challenges of fully remote hearings, the rate of objections to fully remote hearings and how tribunals dealt with them, and provides additional insight into the profile of fully remote hearings resulting from the pandemic.

 

Lucy Greenwood, The Canary Is Dead: Arbitration and Climate Change

As international lawyers, arbitration practitioners are at the forefront of global issues, yet in relation to climate change and its impact on our practices, we have been slow to act. This article considers the role that arbitration should play in determining climate change disputes and the role that arbitration practitioners could play in shaping and adapting international law to respond to the climate crisis. The pandemic has driven significant behavioural change in the arbitration community. Now is the time to reflect on our practices to ensure that arbitration remains relevant and fit for purpose in a world where climate change will impact every area of our lives.

 

Jacob Grierson, Thomas Granier & Sacha Karsenti, Is Arbitration Helping or Hindering the Protection of the Environment and Public Health?

On the occasion of the sixth edition of the Casablanca Arbitration Days, some leading arbitration practitioners from the Middle East and North Africa (MENA) region and further afield convened to discuss an important and topical issue: ‘is arbitration helping or hindering the protection of the environment and public health?’. This conference examined the various areas where arbitration and the protection of the environment and public health interface. First, from a substantive view point, it is clear that environmental issues have become prevalent in commercial arbitration and that the latter has proven to be well suited to resolve such issues. Secondly, while some steps have already been taken in this respect, the climate change crisis requires the international arbitration community to change its ways and arbitrate in a much more environmentally friendly way. Thirdly, amidst the progressive emergence of environmental issues in investment arbitration and the responses that have already been provided by investment treaty arbitral tribunals, numerous uncertainties remain in respect of the way in which environmental issues should be treated. There is no doubt that environmental issues will give rise to intense debates before investment tribunals (and courts) and in legal literature in the near future. Finally, in addition to the protection of the environment, the arbitration community has already begun addressing (and, we would submit, successfully so) the substantive and procedural issues related to the protection of public health, in particular as a result of the COVID-19 global pandemic. This article provides an account of what was said about these various topics during this edition of the Casablanca Arbitration Days.

 

Thomas Williams, Ahmed Durrani & Umang Singh, The Advance on Costs in Arbitration: Reimbursement of Substituted Payment

This article explores the issues arising from the refusal of a respondent to pay its share of the advance on costs in an arbitration, the claimant’s substituted payment in respect of it, and the claimant’s entitlement to immediate reimbursement by the respondent before the final award is rendered and costs are allocated. The article will discuss the position under various institutional rules and draw a comparative analysis between them. It will also explore the legal basis of a claim for reimbursement, consider the approach that arbitral tribunals should adopt when granting relief, and examine a recent partial award in a Doha-seated International Chamber of Commerce (ICC) arbitration which ordered the immediate reimbursement of a substituted payment of the advance on costs.

 

Charles Kimmins, Nigel Rawding, Luke Pearce & Olivia Valner, The Test for Apparent Bias and Arbitrators’ Duties of Disclosure Following Halliburton v. Chubb: Welcome Clarification, but Questions Remain

The UK Supreme Court handed down its judgment in Halliburton v. Chubb in November 2020. The case addressed the test for apparent bias and the issue of arbitrators’ duties of disclosure in English-seated arbitrations. The authors of this article represented the London Court of International Arbitration (LCIA) as interveners in the Supreme Court appeal.

This article explores the key points arising out of the judgment and takes stock of the current position under English law. The authors discuss certain issues that remain open following the judgment, including the relationship between the duties of disclosure and confidentiality. They explore the extent to which parties’ adoption of institutional rules can modify the English law position, and comment on the extent to which English law is now in line with that of other jurisdictions.

The article notes that Halliburton v. Chubb is one of a number of recent cases globally concerning the scope of arbitrators’ duties. It concludes that while the decision of the Supreme Court provides a welcome degree of clarity as to the English law position, and a necessary confirmation that the English courts take a robust approach to such issues, the judgment itself was necessarily confined to relatively narrow facts. As such, questions relating to arbitrators’ duties are likely to return to the spotlight in future cases, and English law is likely to continue to develop as the relevant principles are applied to different fact patterns and as new norms emerge amongst arbitrators.

 

Johannes Koepp & David Turner, A Massive Fire and a Mass of Confusion: Enka v. Chubb and the Need for a Fresh Approach to the Choice of Law Governing the Arbitration Agreement

The recent judgment of the Supreme Court of the United Kingdom in Enka v. Chubb has provided an answer, at least provisionally, to the thorny question of how the proper law of an arbitration agreement is to be determined under English law. The majority of the Supreme Court (in a 3–2 split) held that in the absence of an express or implied choice of law by the parties, the ‘default rule’ should be that the arbitration agreement is presumed to be governed by the law of the arbitral seat, as the law ‘most closely connected’ to the arbitration agreement. Yet the Supreme Court’s reasoning is not wholly satisfying, and the two dissenting judgments present powerful arguments for taking a contrary approach. This article proposes a means to sever this enduring Gordian knot: drawing from the in favorem validitatis principle applied by the Swiss, Dutch and Spanish legal systems in determining the substantive validity of an arbitration agreement, we suggest extending this principle to encompass questions of the scope of an arbitration agreement and arbitrability. Under this approach, instead of focusing on determining the proper law of the arbitration agreement, the courts need only ask themselves two questions: (i) does the claim in question fall within the scope of the arbitration agreement, as interpreted under any of the potentially applicable laws, and (ii) is it arbitrable under any of those laws?

 

Laura Yvonne Zielinski, Property Rights in Treaty Cases: Lessons for Investor-State Arbitration from Case A15 (II:A) of the Iran-United States Claims Tribunal

On 10 March 2020, the Iran-United States Claims Tribunal (IUSCT) rendered its partial award No. 604-A15 (II:A)/A26 (IV)/B43-FT in Case No. A15 (II:A), ordering the United States to pay Iran over USD 29 million in damages, including decades of interest, and to return several properties that had been frozen during the 1979 hostage crisis.

In deciding which properties had to be transferred by the United States to Iran, the Tribunal – having concluded that there are no public international law rules on property – struggled to identify the law applicable to property rights in the context of an inter-state arbitration based on a treaty.

While the majority applied international private law principles to determine the domestic law applicable to questions of ownership, several of the dissenting arbitrators expressed the view that the nature of the dispute, as a treaty case, required the exclusive application of public international law.

These two diverging approaches offer an interesting perspective on recent investor-state  decisions, which also present conflicting views on the role that should be attributed to domestic law in determining the contours of those property rights, which are the subject of treaty violations and the corresponding compensation of investors.

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Romanian and Moldovan Perspectives on Construction Disputes during COVID-19

Kluwer Arbitration Blog - Sun, 2021-06-13 01:23

This post is a non-exhaustive summary of an online ICC YAF conference organised on 27 May 2021 primarily for the benefit of the Romanian and Moldovan practitioners, but with the participation of international practitioners having a general interest in construction arbitration in Eastern Europe. The conference comprised two panel discussions, each one debating one of the topics described below.

 

The Impact of COVID on Construction Arbitration Disputes in Romania and Moldova

In 2020, the Romanian construction sector registered the highest growth rate among the 27 EU countries, being one of the only three EU countries to have experienced a positive growth rate. Of course this does not hold true to the entire sector: both Claudiu Țâmpău (Strabag), for Romania, and Serghei Covali (Covali Litigation & Arbitration), for Moldova, pointed out that while COVID impacted negatively civil engineering projects (like office buildings)), infrastructure projects, such as roads and highways actually benefitted from reduced traffic and easier-to-observe social distancing rules and progressed at a faster than usual rate (not yet reaching, however, such a speed as to have contractors benefit from bonuses for early completion!). Moreover, the construction sector in Moldova benefited from a “special treatment” from the authorities, for example, with foreign personnel of employers or contractors being allowed to cross the otherwise closed borders. Despite a rather positive picture of the sector, contractors did file preventively, notices to employers requesting extensions of time; if such requests will be accompanied by requests to additional costs is to be seen in the coming months.

 

Regulatory landscape

Crina Baltag (Stockholm University) introduced the recently passed Government Decision 298/2021 of 30 March 2021 which sets out the guiding principles of the forthcoming Land Planning, Urbanism and Construction Code (‘Civil Construction Code’). This will be Romania’s first Civil Construction Code and it is eagerly awaited by the industry as it aims at improving the coherence of the regulatory framework and reducing bureaucratic processes. Baltag then further explained that the Code aims at gathering all laws, regulations and rules which concern rural and urban planning, required documentation, authorisation requirements, and disputes administration in one document. The forward-looking character of the Civil Construction Code is further reflected in the Decision’s proposal to promote specialised judges who would decide upon disputes arising out of construction projects, in particular on matters concerning authorizations and permits by the relevant public authorities. An equivalent proposal would also benefit the Moldovan market which has a similarly dense legislative framework, but no project is in sight yet.

Elaborating on the Romanian legislative framework and the implementation of the FIDIC standard forms of contract in Romania, Țâmpău indicated that while a few private contracts are regulated by FIDIC, the vast majority of public contracts concerning infrastructure are regulated by standardised general and special conditions adopted by Government Decision 1/2018. Ioana Knoll-Tudor (Jeantet), the moderator of the event, clarified that Government Decision 1/2018 (mandatorily applicable to public contracts whose value is of at least EUR 5 million) brought about 2 main changes in the Romanian construction disputes landscape: first, Dispute Adjudication Boards were removed; second, the Decision introduced a compulsory jurisdiction clause which provides for arbitration before the Court of Arbitration attached to the Romanian Chamber of Commerce (therefore excluding the former ICC jurisdiction or any other arbitral institutions).

The Moldovan landscape has its own particularities: FIDIC Contracts are rarely, if ever, used outside public projects where the employer is always the State Road Administration, and the contractors are almost invariably foreign companies. In such contractual relationships, the FIDIC Pink Book 2006 – an adaptation of the red FIDIC 1999 standard forms, is the norm, with the parties always opting for ad hoc UNCITRAL arbitration.

 

Practical challenges contractors are likely to face due to COVID and contractual solutions

First, the contractor is likely to face difficulties in mobilizing personnel, or in obtaining materials due to lengths in the supply chains. Second, delays may be incurred due to repeated health & safety inspections by governmental agencies; third, laws restricting construction activities and works on the site may be enacted by national authorities. In practice, both Covali and Țămpău underlined that contractors in Romania & Republic of Moldova sent out notices to employers arguing force majeure and change in laws, but emphasized that for contracts signed after the start of the pandemic, the unpredictability character which is inherent in the definition of force majeure, fades and such arguments may be more difficult to sustain.

Baltag also noted, from an arbitrator’s perspective, that there have not been yet many construction disputes directly caused by COVID, and emphasized the importance of the domestic law applicable to the contract in terms of the remedies available: contractors who may not claim force majeure can deploy other concepts, such as frustration, which however under English case-law requires certain conditions to materialise, for example the frustration needs to span for a certain duration before it comes into effect.

 

Arbitrating construction disputes: best practices and tips

The panel’s concluding remarks focused on the actual resolution of disputes in the construction sector, underlining the fact since construction disputes are highly technical and require voluminous documentation, the virtual-hearings are not an ideal platform for advocacy and that the industry awaits a return to in-person hearings. Among the best practices recommended, maintaining detailed and up to date documentation, employing project managers and a thorough understanding of the domestic applicable law ranked high in the speakers’ views.

 

Expert Witnesses in International Arbitration

Construction disputes almost consistently raise technical engineering and programming issues, requiring detailed analysis of large volumes of data, for example progress reports, schedule programme updates and modelling, drawings etc. Consequently, expert witnesses – such as engineers, architects, surveyors, delay analysts, or accountants play a vital role in arbitration proceedings. Indeed, the Damages Awards in International Commercial Arbitration (2020) Study by PwC & Queen Mary University revealed that tribunals awarded on average 69% of the amount claimed where a claimant expert was engaged, but no respondent expert, whereas it awarded only 41% of the amount claimed when respondent defended the quantum claim by also engaging an expert. Therefore, understanding the regulatory framework and the practical considerations affecting the deployment of the experts is essential for counsel and arbitrators alike.

 

The use of expert witnesses in arbitration proceedings vs domestic courts

Drawing a comparison between the use of experts in arbitration versus domestic litigation, Luminița Popa (Suciu Popa, Member of the ICC Court) praised arbitration for its flexibility as compared to litigation. For instance, in Romanian courts (1) the court can only appoint an expert which is on a list held by the central bureau for judicial technical experts, and (2) the objectives and scope of the expert’s report are determined by the court. By contrast, arbitration allows greater flexibility for the parties not only in choosing their experts but also in giving them their instructions. Ana Sebov (PwC România), also noted that unlike in the national court system where experts rarely have the opportunity to present their reports, arbitral hearings allow for the assessment of facts and assumptions which may not be evident from the reports themselves.

More generally, the panel mentioned two documents, in which  both counsel and arbitrators may find guidance in this type of disputes: the ICC Commission Report on Construction Industry Arbitrations (2019), and the ICC Commission Report on Issues for Arbitrators to Consider Regarding Experts (2015).

 

Criteria for selecting an expert witness and guidelines

Alina Leoveanu (Mayer Brown) outlined the following non-exhaustive criteria when appointing an expert: (1) qualification and experience, (2) availability, (3) interpersonal skills, depending on his/her role and the need to participate in a joint expert meeting or to attend a hearing and, ideally, be familiar and comfortable with cross-examination, as well as (4) language requirements. Observing that arbitration rules contain few provisions regulating the conduct of expert witnesses and their testimonies, Leoveanu mentioned an array of guidelines on the use of expert evidence in international arbitration: the IBA Rules on the Taking of Evidence in International Arbitration (2020), the IBA Guidelines on Party Representation in International Arbitration (2013), the CIArb Protocol for the Use of Party-Appointed Expert Witnesses in International Arbitration (2007), the ICC Commission Report on Techniques for  Controlling Time and Costs in Arbitration (2018).

Notably, all of these documents mention the duties of independence and impartiality which expert witnesses have to observe and some also include the requirement that the expert witness report contain a statement of the expert’s independence from the parties, their legal advisers and the tribunal. In practice, however, it is one thing to include a statement of independence in a written report, and quite another to be perceived as such by the arbitral tribunal, especially since party appointed experts provide services for the client that retained them, being often referred to as “hired guns”.

One practical way for counsel to change this perception of partisanship and enhance the credibility of their expert is to have the expert proposed by the ICC International Centre for ADR under the ICC Expert Rules. Sebov corroborated these comments, explaining that one of the first considerations taken into account by experts when nominated by parties is to conduct a conflict check and verify that they are independent in a broad sense, by looking at the tribunal, the lawyers of the other side, as well as the expert retained by the opposing counsel.

 

The role of the arbitral tribunal in managing the process of production of evidence through expert witnesses

Moving further, Popa emphasized that the earlier an arbitral tribunal becomes involved in the process, the more efficient and qualitative this process becomes, since it may use a variety of tools: asking the parties’ experts to confer with each other and submit joint reports or identify the issues on which expert reports should focus. Such early involvement enhances the efficiency of the procedure as by the time of the oral hearings, the arbitral tribunal would have formed a clear view on the issues agreed-upon by the experts and examine only their most fundamental differences. Indeed, Sebov explained that while at first sight there may be little room for interpretation of certain binary and technical issues, in practice expert reports often advance diametrically opposed views. This can be explained by (1) the instructions received by counsel, (2) the valuation methodologies used (for quantum experts), and (3) other variables employed by the experts.

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Two Potential Pitfalls for Arbitration in Turkey Come to Light at the 16th ICC Turkey Arbitration Day

Kluwer Arbitration Blog - Sat, 2021-06-12 01:09

The 16th ICC Turkey Arbitration Day was held virtually on 17-18 March 2021 in four sessions (click here for the event booklet). The first session was reserved for discussion of the judiciary’s approach to arbitration in Turkey. In the second session, Alexander G. Fessas, the Secretary General of the ICC International Court of Arbitration, shared the latest ICC updates. Claudia Salomon, who has recently been recommended for election as President of the ICC International Court of Arbitration, shared her vision for ICC arbitration in the third session, and finally, the panellists discussed M&A disputes. This post engages with two discussions from the first session: (i) whether a Turkish broker may agree upon arbitration in an agreement it concludes on behalf of its non-Turkish principal and (ii) obtaining certificate of execution for international arbitral awards rendered in Turkey.

 

Does Turkish Law Allow Arbitration Agreements Concluded by a Turkish Broker on Behalf of Its Non-Turkish Principal?

As the first speaker, Judge Dr. Adem Aslan (member of 11th Civil Chamber of Turkish Court of Cassation, which deals mostly with commercial disputes and arbitration-related matters), started his speech by presenting some recent decisions. In the second part, he raised a legal discussion on the basis of Article 105/2 of the Turkish Commercial Code numbered 6102 (“TCC” – click here for the TCC).

This article provides that a broker of a principal may sue or may be sued in Turkey on behalf of its principal (as a representative only) and any contractual provision stating otherwise shall be null and void. This article is intended to prevent the misuse of jurisdiction clauses in standard terms and conditions used by international merchants and to grant foreign merchants the right to sue before Turkish courts. Considering this article, Judge Aslan questioned whether a Turkish broker of a non-Turkish principal may conclude a valid arbitration agreement on behalf of its principal.

Before he linked the matter to arbitration agreements, he referred to some decisions of the 11th Civil Chamber.1) Decisions (i) dated 22.06.2020, numbered 2019/3799E., 2020/3051K.; (ii) dated 25.02.2020, numbered 2019/8298E., 2020/2018K., (iii) dated 05.02.2020, numbered 2019/293E., 2020/953K. and (iv) dated 26.12.1964, numbered 2428/4446. jQuery('#footnote_plugin_tooltip_37630_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37630_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); These decisions were based on essentially the same contention: (i) Article 105/2 of the TCC provides for exclusive jurisdiction of Turkish courts for agreements concluded with the involvement of Turkish brokers of foreign principals, (ii) the agreement was concluded by a Turkish broker, (iii) the jurisdiction clause in favour of a non-Turkish court stipulated in the agreement is null and void as it is against the exclusive jurisdiction of Turkish courts and (iv) even though the claim is raised against the principal that is situated outside of Turkey (but addressed to the broker in Turkey).

The important question is whether this line of argumentation can be applied to arbitration clauses under similar circumstances. In other words, can disputes arising from agreements concluded through a Turkish broker of a non-Turkish principal be referred to arbitration or do they have to be resolved before Turkish courts on the basis of the latter’s exclusive jurisdiction?

This discussion is of great importance as brokers plays an important role in Turkish commercial activities. Particularly in maritime trade, almost all agreements (in the form of standard terms and conditions) are concluded through Turkish brokers and those agreements provide for arbitration – mostly – in a country other than Turkey.

Finally, Judge Aslan raised the following questions for further deliberation:

  1. Is it possible to stipulate arbitration with a seat outside of Turkey?
  2. Is it possible to stipulate arbitration with a seat in Turkey?
  3. As the broker itself will not be party to the arbitration agreement, is it still possible to sue the broker on behalf of the principal before Turkish courts?
  4. Is it possible to apply to Turkish courts although there is an arbitration agreement stipulating arbitration seated in Turkey?

While Judge Aslan did not answer three of these four questions, he then responded affirmatively to the second question. In my view, in doing so, he contradicted the Chamber’s above-mentioned position. If there is an exclusive jurisdiction in favour of Turkish courts, then the seat of the arbitration should not matter. If the seat of the arbitration has an effect on the jurisdiction of Turkish courts, then the courts’ jurisdiction cannot be exclusive. This contradiction reveals that the chamber does not interpret the exclusivity in Article 105/2 of the TCC in terms of the jurisdiction of the courts and arbitral tribunals, but mostly associates it with the place of the proceedings.

In addition to this flawed interpretation of exclusivity, the chamber should consider that exclusivity in jurisdiction should not be confused with arbitrability. Exclusive jurisdiction of state courts is not an obstacle for a valid arbitration agreement, provided that the subject matter is arbitrable. If the matter is arbitrable, parties should preserve their autonomy to agree upon arbitration, regardless of whether Turkish law provides for exclusive jurisdiction.

 

How Will an International Arbitration Award Rendered in Turkey be Executed in Turkey? 

The second speaker of the first session was Judge Nevzat Boztaş (President of 14th Civil Chamber of Istanbul Regional Court of Appeal). In answering the questions from the audience, Judge Boztaş expressed his views on the execution in Turkey of an international arbitral award rendered in Turkey.

There are two main pieces of legislation that regulate arbitration in Turkey: the International Arbitration Act no. 4686 (“IAA” – click here for the IAA) and the Civil Procedure Code no. 6100 (“CPC” – click here for the CPC). The distinction between international and domestic arbitration in Turkey is based on the existence of a foreign element. The IAA applies mainly to arbitrations in which there is a foreign element whereas the CPC applies to arbitrations without a foreign element.

Unlike the CPC, a party may not apply to execution offices directly for execution of an award rendered in accordance with the IAA. Pursuant to Article 15(B) of the IAA, a certificate of execution is required to execute an award through the execution offices (the problems to be mentioned here relates to cases where no annulment lawsuit was filed). This certificate is issued by the competent court. Except for an ex-officio examination on arbitrability and public order, the conditions for issuing this certificate are not regulated in any legislation. This lack of regulation creates important problems in practice, which were raised to Judge Boztaş. Unfortunately, his responses did not comfort the arbitration community in Turkey.

When an application is made to the competent court (which has to be an ex-parte application in my view), the court notifies the counter-party (the losing party in arbitration) to comment on the applicant’s (winning party in arbitration) request for the issuance of an execution certificate. As the IAA regulates international arbitration and, in most cases, one of the parties is situated outside of Turkey, the court has to notify the applicant’s request to the counter-party by applying international notification regulations. Usually, this procedure takes around six months. Once these notifications are completed, the parties will make written submissions and this will alter the conduct and nature of the proceedings. A mere request for the issuance of an execution certificate will become an ordinary lawsuit.

Once these complaints were raised, both of the judges opined that such way of action is necessary to grant the counter-party the right to be heard. They also stated that the decision of the local court would be subject to appeal as well, which might take an additional year.

In my view, the courts are over-cautious about the right to be heard in such applications. First of all, a certificate of execution can only be issued if the arbitration award becomes final, i.e. no annulment application is made (according to Article 15/A of the IAA, an annulment application will automatically suspend the execution of the arbitral award, unlike the CPC). If the losing party had had any concerns regarding arbitrability and/or public order, it had 30 days to file an annulment action on these grounds. Secondly, by granting the losing party an additional right to raise its arguments on arbitrability and public order to challenge the issuance of an execution certificate even after 30 days, the 30-days deadline for setting-aside the award will be de-facto extended. Thirdly, years of delay caused by the courts in the execution of the award to protect the losing party’s right to be heard, is actually a violation of the winning party’s right to fair trial. Lastly, the reasoning of the courts is against the nature of arbitration: parties to an arbitration aim to collect their receivables as soon as possible. Delay of execution with ungrounded procedural interpretations, and transformation of a request for an execution certificate to a case for “enforcement of awards”, is against that purpose.

Therefore, it is of utmost importance that local courts and the judges of higher instances change their stance as regards this practice. The provision in the IAA should be used as a tool by the courts to perform a limited review upon an ex-parte application in order to prevent execution of awards that are against public order and/or rendered in a non-arbitrable matter. Any interpretation beyond that will harm the arbitration practice in Turkey.

References[+]

↑1 Decisions (i) dated 22.06.2020, numbered 2019/3799E., 2020/3051K.; (ii) dated 25.02.2020, numbered 2019/8298E., 2020/2018K., (iii) dated 05.02.2020, numbered 2019/293E., 2020/953K. and (iv) dated 26.12.1964, numbered 2428/4446. function footnote_expand_reference_container_37630_30() { jQuery('#footnote_references_container_37630_30').show(); jQuery('#footnote_reference_container_collapse_button_37630_30').text('−'); } function footnote_collapse_reference_container_37630_30() { jQuery('#footnote_references_container_37630_30').hide(); jQuery('#footnote_reference_container_collapse_button_37630_30').text('+'); } function footnote_expand_collapse_reference_container_37630_30() { if (jQuery('#footnote_references_container_37630_30').is(':hidden')) { footnote_expand_reference_container_37630_30(); } else { footnote_collapse_reference_container_37630_30(); } } function footnote_moveToAnchor_37630_30(p_str_TargetID) { footnote_expand_reference_container_37630_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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Legal Challenges that the ICC and SIAC May Face in Russia

Kluwer Arbitration Blog - Fri, 2021-06-11 01:08

The Russian 2016 Arbitration Reform (the “Reform”) was a game-changer for both arbitration practitioners and the arbitral institutions. One of the major implications of the Reform was that so-called “corporate” disputes (which definition covers a large number of post-M&A disputes, including those arising out of share purchase agreements and shareholders’ agreements) could now only be referred to arbitral institutions which obtained the status of “Permanent Arbitral Institution” (“PAI”) from the Russian Ministry of Justice.

 

The newcomers to Russia

For a number of years, PAI status was only held by Russian arbitral institutions. However, the situation seems to be improving gradually and in 2019, the Hong Kong International Arbitration Centre (HKIAC) and the Vienna International Arbitration Centre (VIAC) were the first foreign arbitral institutions to secure PAI licences in Russia.

This list has expanded just recently. On 18 May 2021, the Russian Ministry of Justice granted the status of PAI to the ICC International Court of Arbitration (ICC) and the Singapore International Arbitration Centre (SIAC). This is a major development for users of international arbitration in Russia who will now have access to three of the “top-five most preferred arbitral institutions” in the world, according to the respondents of the 2021 International Arbitration Survey prepared by Queen Mary University of London.

The status of PAI provides the ICC and SIAC with the possibility to administer institutional international arbitration proceedings (a) with the seat of arbitration in Russia; and (b) arising out of certain “corporate” disputes (in particular, out of share purchase agreements). Accordingly, a large portion of post-M&A disputes with Russian parties may now be referred to the ICC and SIAC without a risk of being declared unenforceable at a later stage.

 

Conflicting Russian arbitration laws

However, there is still an open question as to whether these institutions may administer disputes arising out of shareholders’ agreements with respect to Russian joint ventures (the “SHA”), which form another big slice of post-M&A disputes.

The confusion is caused primarily by the existing discrepancy between the provisions of the Russian Arbitrazh Procedure Code (the “APC”) and Federal Law No. 382-FZ dated 29 December 2015 “On Arbitration (Arbitration Proceedings) in Russia” (as amended) (the “Russian Arbitration Law”).

The earlier law, being the APC, provides that for an institution to administer disputes out of SHAs, (a) such institution would have to adopt special rules for the arbitration of corporate disputes (the “Special Rules”); and (b) the arbitration clause in the SHA would have to be signed by all shareholders and the Russian joint venture company itself. The amendments to the Russian Arbitration Law introduced in 2018 were aimed at elimination of such requirements. However, what these amendments led to in practice were two conflicting laws and uncertainty as to what rules shall prevail.

Theoretically, this conflict should not be an issue. The general Russian law rules of interpretation being applied, the provisions of the Russian Arbitration Law as the later and more specific law should prevail over the rules of the APC (under both Lex posterior derogat legi priori and Lex specialis derogat generali rules).

However, practitioners are still concerned about the risks which may arise if the Russian state courts resolve this conflict in favour of the APC. For existing arbitrations arising out of SHAs and administered by the ICC, SIAC, HKIAC or VIAC (none of which have adopted the Special Rules), if the APC requirements prevail, this may make it difficult to enforce awards in such arbitration proceedings in Russia.

To date, the Russian courts have not yet revealed their position on the issue. We have been able to identify only one judgment of a first instance court1) Judgment of the Arbitrazh Court of Murmansk Region in the case No. А42-574/2020 dated 5 November 2020. jQuery('#footnote_plugin_tooltip_37733_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37733_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); which has briefly touched upon this question.

In that case the court has rejected a challenge on alleged lack of jurisdiction, basing this inter alia on the fact that the arbitration clause was not signed by / did not apply to the shareholders of the Russian company (which is the abovementioned requirement (b) under the APC). Surprisingly, no reference was made in the decision to the Russian Arbitration Law, which eliminated the APC requirement.

It would be fair to say that the issue of conflict between the Russian arbitration provisions has not been the main concern in this case (the position of the first instance court on the issue has not even found its way into the resolution of the appeal court which has upheld this judgment) and therefore it is far too early to draw any conclusions. However, this judgment should be sufficient to confirm that the existing concerns of practitioners are more than just theoretical.

 

Clarifications from the Russian Ministry of Justice

The Russian Ministry of Justice has tried to address these concerns, publishing in February 2020 clarifications on the application of Russian arbitration legislation in response to the joint request of the HKIAC and VIAC (the “Clarifications”).

In these Clarifications, the Ministry of Justice has confirmed that the provisions of the Russian Arbitration Law have priority over the earlier rules of the APC. According to the Ministry’s logic, the ICC, SIAC, HKIAC and IAC should generally be eligible to consider corporate disputes out of SHAs, notwithstanding the absence of the Special Rules and even if the arbitration clause in the SHA is signed only by the parties to the SHA (and not the related Russian company – a target of the SHA).

At the same time, the Ministry clarified that corporate disputes relating to the appointment, election, termination, suspension and liability of a Russian company’s management can only be resolved by a PAI which has adopted the Special Rules. Given that such management-related issues can be closely connected with other disputes arising under SHAs, it is not clear how the Ministry’s position regarding SHAs may be implemented in practice.

Furthermore, the Clarifications stated clearly that they are not legally binding, which means that the Russian courts may adopt different approaches to the issues raised. The judgment of the first instance Russian court referred to above was issued after the Clarifications and is therefore strong evidence that the risk of conflicting views cannot be excluded.

In that context, it seems that the right of newcomers to Russia, being the ICC and SIAC (and also the HKIAC and VIAC), to consider disputes out of SHAs relating to Russian companies will largely depend on the direction which Russian court practice will take and, in particular, on whether the Russian courts will consistently take into account the conclusions of the Clarifications.

References[+]

↑1 Judgment of the Arbitrazh Court of Murmansk Region in the case No. А42-574/2020 dated 5 November 2020. function footnote_expand_reference_container_37733_30() { jQuery('#footnote_references_container_37733_30').show(); jQuery('#footnote_reference_container_collapse_button_37733_30').text('−'); } function footnote_collapse_reference_container_37733_30() { jQuery('#footnote_references_container_37733_30').hide(); jQuery('#footnote_reference_container_collapse_button_37733_30').text('+'); } function footnote_expand_collapse_reference_container_37733_30() { if (jQuery('#footnote_references_container_37733_30').is(':hidden')) { footnote_expand_reference_container_37733_30(); } else { footnote_collapse_reference_container_37733_30(); } } function footnote_moveToAnchor_37733_30(p_str_TargetID) { footnote_expand_reference_container_37733_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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Shipping Casualties and Arbitration: Reflections on the “EVER GIVEN”

Kluwer Arbitration Blog - Thu, 2021-06-10 01:15

The grounding of the container carrier “EVER GIVEN” in the Suez Canal in March 2021 has been dubbed by some as “shipping’s 15 minutes of fame”. This post hitches its star to that wagon and considers the contracts, claims and dispute resolution clauses likely to be affected by this casualty.

 

The Casualty, Salvage and Re-floating

The Evergreen-operated vessel is reported to have been carrying 18,300 containers out of a total theoretical capacity of 20,124 TEU.  After unsuccessful attempts to re-float using local tugs and excavators, the owners (or perhaps demise charterers) engaged leading professional salvors, Boskalis-owned Smit.  It was reported in the maritime press that Smit had been engaged under Lloyd’s Open Form of Salvage Agreement (“LOF”), although the vessel’s owners denied that.

The salvage presented almost unique challenges, with the vessel wedged into opposite banks of the canal.  Once re-floated and finally freed of the bank, it was towed to the Great Bitter Lake for inspection.  There it and its cargo were seized by order of the Egyptian Court, against a demand by the Suez Canal Authority (“SCA”) for US$900 million, since reduced twice (so far): first to US$600 million and, more recently, to US$550 million (with a “deposit” of ‘only’ US$200 million demanded for the vessel’s release).

 

Contracts, Claims and Clauses

Looking at the “EVER GIVEN” alone, and so leaving aside the hundreds of other ships affected by its grounding, there is the potential for thousands of contracts to be affected by the casualty and its aftermath.  All these contracts will contain dispute resolution clauses.  In the shipping world, arbitration is the favoured choice of dispute resolution mechanism and so many – though not necessarily all – of these contracts will feature arbitration clauses.

 

Salvage

When a ship suffers a marine casualty and needs assistance to escape its clutches, an owner may engage a salvor.  Typical forms of salvage contract include LOF and three forms published by BIMCO.  An LOF contract is made with all owners of property endangered by the casualty, whereas the BIMCO contracts are made with the owner of the ship alone, who may look to recover some of the cost in general average (explained below).

Disappointingly for fans of Wilbur Smith’s Hungry as the Sea, salvage claims under LOF are not heard by grizzled master mariners sitting at Lloyd’s of London.  Agreement to LOF carries with it agreement to Lloyd’s Salvage Arbitration Clauses (“LSAC”).  This is a form of semi-managed arbitration, in which the arbitrator is picked by the administrator (the Council of Lloyd’s Salvage Branch), in rotation, from a panel of (nowadays) three senior barristers.  All property interests are entitled to be heard and it is common, though not invariable, for ship and cargo interests to be separately represented.

Unusually for English arbitrations (outside the commodities sphere), the LSAC provide for appeal to the appointed Lloyd’s appeal arbitrator.  Further appeal to the Court on points of law is not excluded, subject to the usual criteria under section 69 of the English Arbitration Act 1996.

The continuation of this arrangement – now over 100 years old – is under threat.  Lloyd’s is actively considering withdrawing its support for LOF.  If it does, it is unclear what – if anything – will replace it, or what the knock-on effects will be for the BIMCO contracts, whose arbitration clauses require the appointment of a single Lloyd’s arbitrator with appeal to the Lloyd’s appeal arbitrator.

 

General Average

General Average (“GA”) is likely to feature strongly in disputes arising out of the “EVER GIVEN” casualty.  GA is not itself a contract, but a species of entitlement grounded ultimately in the law of restitution (though, in English law at least, with a distinct historical development).  A party to the so-called “maritime adventure” – such as the owner of the ship, the cargo or the fuel – benefitting from a payment or a “sacrifice”, made at a time when the maritime adventure is in peril to free it from that peril, may become liable to contribute towards that payment or sacrifice.  The contribution is assessed according to the respective values of the various property at risk.

The mechanism for GA assessment typically agreed in contracts of carriage and charterparties (described below) is for the assessment to be governed by the York-Antwerp Rules (“YAR”) and carried out by an “average adjuster”.  The YAR are agreed internationally (though not at state level) and published through the Comité Maritime International.  They can be complicated to apply, but for present purposes only the actionable fault” defence in Rule D need be noted: where the casualty was caused by the claimant’s fault, and the claimant is or would be legally liable for it, then the GA claim must fail.  The defence does not work if the claimant would itself have a defence for (say) negligent navigation under the Hague Rules.

 

GA Security

The party liable to contribute in GA is the owner of the property at the time of the peril.  That simple statement masks a complex picture.  Since cargo ownership often changes during transit, it can be difficult to identify who owned it at the relevant time.  That difficulty is multiplied by the number of containers and sometimes by individual parcels of cargo within each container.

Shipowners nowadays look first to hull and machinery insurance to cover GA contributions.  Some hull policies now contain “GA absorption” clauses, by which insurers agree to pay the GA bill up to a certain limit.

If there is no such clause or the limit is reached (as seems likely in the case of the “EVER GIVEN”), then it will be necessary to collect GA security from the cargo interests and their insurers.  This is complex enough, given the number of containers and interests involved.  It may be harder still, if the cargo was owned by a small company in a jurisdiction where it is difficult, time-consuming or expensive to enforce a judgment or arbitration award, to secure payment.  To address these issues, a practice has evolved of shipowners obtaining GA security from both the cargo interests and their cargo insurers, both of which will answer – subject, of course, to any “Rule D” defence – to the assessment of GA.

GA security often contains court jurisdiction clauses.  This is not invariably the case; it can provide for arbitration.

 

The Contracts of Carriage

The bulk of the contracts immediately affected by the “EVER GIVEN” casualty (and other container carrier casualties) are contracts of carriage (typically, though not always, bills of lading) of the cargoes in the containers on board.  Some of those contracts may be with the vessel’s owner (or bareboat charterer, if the vessel is the subject of a demise charter).  However, a more common arrangement is for the shipper of the container to contract (on its own behalf or on behalf of the consignee) with whichever shipping line it booked with.

The contracts of carriage may also see the bulk of the claims.  Leaving aside the extravagant claims of the SCA, the principal claims arising from the casualty will be salvage and GA.  If salvage is claimed directly against the cargo owners, then it is at least possible that they will seek to recover that from the contractual carriers.  If salvage is claimed against the vessel’s owners (or bareboat charterer), then they can be expected to claim cargo’s “share” of salvage from the cargo owners in GA.  Any claims for cargo damage will also be brought in the first instance under the contracts of carriage.

Bills of lading commonly contain arbitration clauses.  Like some others, however, EVERGREEN’s standard form bill of lading contains a court jurisdiction clause in favour of London (for non-US trades) and the Southern District of New York for trades to or from the USA.  It also permits the carrier to sue before any other competent jurisdiction (no doubt to allow it to side-step any difficulties in enforcing a US or English judgment).

There is likely considerable factual overlap among the many claims that might be brought under contracts of carriage, so efficient case management would suggest that similar claims should be brought before the same forum.  Ordinarily, this is not a readily available option in arbitration, where consolidation and joinder – despite recent changes in at least two well-known institutions’ rules (the ICC and the LCIA) – remain challenging and relatively rare.  However, the most commonly used rules in international maritime arbitration are those of the London Maritime Arbitrators’ Association (“LMAA”)).  The LMAA Terms have long contained an equivalent to what is now Rule 17(b).  This allows tribunals to order “two or more arbitrations [that] appear to raise common issues of fact or law … [to] be conducted and … heard concurrently”.  This Rule is often used, for example, where there are concurrent charters of the same ship, often on back-to-back terms.  There is real potential for significant efficiency savings where the claims can be managed together.  There is equivalent provision in Section 2 of the Maritime Arbitration Rules of the New York Society of Maritime Arbitrators.

 

Slot Charters

For reasons of efficiency, most if not all container lines book capacity on each other’s ships.  They do so under vessel-sharing or slot-sharing arrangements, often using a species of time charterparty known as a “slot charter”.  The “owner” under a slot charter is typically a time charterer of the vessel.  The types of claim and dispute resolution provisions under slot charters are generally the same as under ‘normal’ time charters, considered next.  The exception is that slot charterers do not usually own the vessel’s bunkers (fuel).

 

Time Charter

The ship may be owned by a finance house through a special-purpose vehicle.  The ship’s operator will contract with the SPV (or the demise charterer, explained below) under a long-term time charterparty, often via an intermediate time charter.  The time charterer is responsible for the commercial management of the ship.

The time charterer typically owns the fuel that powers the ship.  To that extent, it may also be liable to contribute towards salvage or in GA.  Both the slot and the time charterers may well also be contractual carriers under the contracts of carriage.  Where this is so, they may face claims by cargo interests for an indemnity in respect of cargo’s GA or salvage contributions.  They may seek to pass both direct and indirect (i.e., via cargo) GA and salvage claims on to the party contracting as owner under the relevant charterparty.  Claims from cargo interests are often regulated under the so-called “Inter-Club Agreement” (“ICA”), a rough-and-ready division of liability often incorporated into time charterparties.

In addition, a grounding – or indeed any casualty causing delay to the voyage – is likely to give rise to a claim by the charterer that the ship is “off hire” under the relevant clause of the charterparty.  The dispute resolution provisions in charterparties tend to be arbitration clauses, often providing for arbitration under LMAA Terms.

 

Demise or Bareboat Charter

Often used as a financing instrument, a bareboat charterparty effectively hands all responsibility for the ship over to the charterer, who becomes its quasi-owner for most purposes.  It is a term of the frequently-used BARECON form of demise charter that the owner is not to contribute in GA and there is no such thing as “off hire” under a bareboat charter.  That usually precludes any dispute under the demise charter from a casualty like this, unless the vessel is so badly damaged as to bring the charterparty to an end.  Disputes are usually subject to arbitration.

 

Insurance

The insurance contracts potentially engaged by a casualty of this sort are also numerous.  The ship will have hull and machinery cover (insuring physical damage and risks, with cover for GA and salvage), P&I cover (insuring liabilities), freight demurrage and defence (legal expenses insurance) and loss of hire cover.  A time charterer of the vessel will almost certainly carry its own P&I and FD&D cover.  The cargo will typically be insured as well.  Cargo insurance policies almost invariably cover GA and salvage charges, but not always loss, damage or expense caused by delay.

Many marine insurance policies still contain court jurisdiction clauses.  However, the position is changing with P&I cover.  There is an increasing trend for coverage disputes to be subject to tiered dispute resolution clauses, with arbitration the final step.

Even if subject to arbitration, disputes between insurer and insured will not be determined concurrently with the shipping claims but in separate arbitrations.  The terms on which those are to be conducted, if not specified in the policy, often involve submission to institutional rules such as those of the ICC and LCIA.  As mentioned above, the new joinder and consolidation provisions of the ICC and LCIA Rules may prove useful in managing disputes arising from this casualty, although they remain less flexible than the LMAA equivalent.

 

Concluding Remarks

The “EVER GIVEN”, at the time of writing, is still detained in the Great Bitter Lake.  As time goes on, the likelihood grows that her detention will give rise to even more serious claims than the original grounding.  If, for example, its owners pay an extortionate sum for its release, they might seek to recover that in GA.  More prosaically, the longer the goods on board are delayed, the greater the risk of damage to perishable cargoes, to say nothing of other claims for losses caused by delay.

Shipping’s 15 minutes of fame may have a long tail in terms of the disputes that follow.

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The Abu Dhabi Court Considers Special Authority is Required to Conclude an Arbitration Agreement by Power of Attorney

Kluwer Arbitration Blog - Wed, 2021-06-09 01:21

The Abu Dhabi Court of Cassation in Case No. 922 of 2020 recently considered the requirements that must be satisfied to conclude an arbitration agreement by powers of attorney. The judgment is the latest in a line of authorities confirming that special requirements apply to the formation of arbitration agreements (a courtesy translation of the judgment is available here).

In summary, the Court of Cassation held that:

  • Whether a party has authority to conclude an arbitration agreement is a matter which the court rather than the tribunal is competent to determine.
  • An arbitration agreement is an “exceptional arrangement” as a form of waiver of the right to access courts. As such a party’s intention to arbitrate must be explicit and free from doubt.
  • A special, rather than a general power of attorney or authorization is required for an agent (such as a company director or general manager) to bind a company to an arbitration agreement. A lack of the requisite special authority will result in an arbitration agreement being void and unenforceable.

The decision indicates that some courts in the UAE continue to consider that an arbitration agreement is an exceptional arrangement that must be authorized in a special way. This is problematic because it is based on the notion that heightened requirements apply to the formation of arbitration agreements, including international ones, to ensure that parties are aware they are waiving their otherwise available access to judicial remedies in national courts. This view has, rightly, been rejected by the decisive weight of international authority. The notion that an agreement to arbitrate is an exceptional waiver of judicial remedies should be abandoned by national courts as it has no place in modern international commerce where arbitration is the natural mode of dispute resolution. Indeed, the New York Convention forbids the imposition of heightened requirements for arbitration agreements to be valid.

 

Background

The underlying dispute arose from a construction project. The main contractor subcontracted works under two subcontracts that were subject to arbitration agreements (“Subcontracts”).

The Subcontracts were signed by a representative of the subcontractors under a power of attorney dated 28 November 2012. The power of attorney did not grant the subcontractor’s representative express authority to conclude arbitration agreements. Instead, it provided that the subcontractor’s representative had full power to act on behalf of the subcontractor “without prejudice to Article 58 of the Civil Procedure Law etc.” Article 58(2) of the Civil Procedure Law provides that “[n]o admission or waiver of a right alleged or settlement or submission to arbitration etc. may be made without special authority.”

The subcontractor completed the works in July 2017 but remained unpaid by the main contractor. In May 2018, the subcontractor executed a new power of attorney which expressly confirmed that the authority of the subcontractor’s representative extended to “the power provided for in Article 58 concerning civil procedure”.

In 2019, the subcontractor commenced proceedings in the Court of First Instance against the main contractor. Following an expert’s decision in the subcontractor’s favour, the main contractor challenged the court’s jurisdiction to hear the case on the basis that the Subcontracts were subject to arbitration agreements. In February 2020, the Court of First Instance concluded that the dispute should be arbitrated. The subcontractor appealed to the Appeals Court which upheld the first instance decision in June 2020.

The subcontractor subsequently appealed to the Court of Cassation arguing that: (i) the arbitration agreements were void and unenforceable because the subcontractor’s representative did not have the requisite authority to agree to arbitration; and (ii) the contractor waived its right to invoke the arbitration agreements.

 

Decision of the Abu Dhabi Court of Cassation

The Court of Cassation overturned the Appeals Court’s decision, holding that the subcontractor’s representative lacked authority to bind the subcontractor to the arbitration agreements in the Subcontracts. The arbitration agreements were, therefore, null and void.

The Court of Cassation reasoned that arbitration is a waiver of the right to access national courts. As such, an arbitration agreement will only be valid if made by a person with authority to dispose of this right and any agreement to arbitrate that is concluded without such authority will be null and void.

The Court held that the original power of attorney did not grant the subcontractor’s representative authority to bind the subcontractor to arbitration because the authority granted to the subcontractor’s representative in the original power of attorney was “without prejudice to Article 58 of the Civil Procedure Law etc.” (Case No. 922 of 2020, at p. 3.) The Court considered that this meant that the power of attorney gave the subcontractor’s representative full authority to act for the subcontractor except the ability to conclude an arbitration agreement. In reaching this conclusion, the Court referred to the requirement in Article 58(2) that submission to arbitration may only be made with “special authority.” (Id. p. 2)

The Court also held that the subsequent power of attorney concluded in 2018 was incapable of ratifying the arbitration agreements in the Subcontracts. The Court reasoned that the subsequent power of attorney was only applicable to new contracts and did not apply retrospectively to the Subcontracts.

The Court justified this surprisingly narrow construction of the subcontractor’s powers of attorney by explaining that arbitration is an exceptional dispute resolution method:
“an arbitration agreement is an exceptional arrangement whereby its parties opt for arbitration rather than litigation before the ordinary courts of law. This exception may not be interpreted broadly or extracted through analogy and must be construed within the narrowest limits. Furthermore, the parties’ intent must be clear and explicit and free from ambiguity and doubt.” (Id. p.3)

Applying this approach, the Court of Cassation held that it could not be clearly established that the subcontractor’s representative that signed the two Subcontracts had authority to bind the subcontractor to arbitration. Accordingly, the Court reversed the decision of the Appeals Court and remanded the matter to the Court of First Instance to consider the merits of the dispute. Having determined that the arbitration agreement was null and void, the Court of Cassation did not consider whether the contractor had waived its right to arbitrate by litigating the dispute.

 

Implications

This judgment is the latest in a series of decisions in which UAE courts have (mistakenly) referred to arbitration, including international arbitration, as an “exceptional” means of dispute resolution to justify the imposition of special requirements to the formation of arbitration agreements.

In DCC Case No. 946/2018, the Dubai Court of Cassation concluded that arbitration is an “exceptional” means of dispute resolution requiring “special” authorization for any person other than the general manager to bind a company to arbitration. Similarly, in DCC Case No. 182/2018, the Dubai Court of Cassation held that “[t]he doctrine of apparent authority is inapplicable in the context of an agreement to arbitrate whose parties must verify each other’s capacity and competence to enter into such agreement which entails a waiver of filing the case to the courts, including related guarantees.” More recently, in DCC Case No. 990/2019, the Court of Cassation partially annulled an arbitral award on the basis that a party’s legal representatives were not authorized under a general power of attorney (pursuant to which they were acting) to agree to grant a sole arbitrator the authority to award legal costs. According to the Court, a party representative should be specifically authorized to empower an arbitral tribunal with the right to award legal costs. Another post on DCC Case No. 236/2020 previously highlighted a UAE court holding arbitration agreements as invalid when special authority has not been proven or when the arbitration agreement was not signed by specific persons.

This line of decisions stand in marked contrast to another body of authority, including DCC Case No. 547/2014 and DCC Case No 386/2015, where UAE courts appear to have relaxed the strict requirements for special powers of attorney. UAE courts have applied the doctrine of apparent authority or a presumption of validity to the formation of arbitration agreements in those cases. There remains some hope that other UAE courts will restrict this decision of the Court of Cassation to its particular facts, i.e., cases where an arbitration agreement is concluded by a power of attorney that is expressly stated to be “without prejudice to Article 58 of the Civil Procedure Law.”

There is no system of binding precedent in the UAE judicial system and the two approaches, one friendly, and one hostile, to arbitration are difficult to reconcile. The weight of international authority makes clear that the Court of Cassation’s decision is mistaken. For most commercial parties, arbitration is the natural and preferred mode, rather than an exceptional means, of international dispute resolution. International arbitration avoids jurisdictional uncertainties, enforcement difficulties and concerns about neutrality, speed, appropriate experience and expertise that are associated with proceedings in national courts. These, in themselves, are good reasons not to impose special requirements on arbitration agreements.

More fundamentally, the decision of the Court of Cassation is at odds with the pro-arbitration treatment of agreements to arbitrate under the New York Convention. Article II (l) of the New York Convention expressly requires each Contracting State to recognize an “agreement in writing” for parties to submit their disputes to arbitration. Courts and other authorities around the world have interpreted Article II, and parallel provisions of the UNCITRAL Model Law as prohibiting states, like the UAE, from imposing heightened or discriminatory requirements on international arbitration agreements. Put simply, the approach endorsed by the Court of Cassation wrongly singles out agreements to arbitrate for heightened requirements to be valid, which is inconsistent with the presumptive validity and enforceability of arbitration agreements under the New York Convention (see G. Born, International Commercial Arbitration 802 (3d ed. 2021)). The approach could potentially have more far-reaching consequences for the enforcement of arbitral awards in the UAE. Commercial parties can be expected to reconsider decisions to seat arbitrations in the UAE, in light of the uncertainties that arise as to the validity of such agreements.

It is unfortunate that Federal Law No. 6 of 2018 on Arbitration (“Federal Arbitration Law”) reinforced, rather than removed, the requirement of special authority to conclude an arbitration agreement. Article 4.1 of the Federal Arbitration Law provides that “[a]n Arbitration Agreement may only be concluded, on pain of nullity, by a natural person having the legal capacity to dispose of his rights or on behalf of a juridical person by a representative with specific authority to arbitrate” and Article 53.1(c) provides that an award can be set aside if “a person does not have the legal capacity to dispose of the disputed right under the law governing his capacity, as provided for in Article 4 of this Law.” The Court of Cassation did not expressly rely on these provisions, presumably because the arbitration agreement in issue was concluded prior to the entry of the Federal Arbitration Law. However, the existence of these provisions confirms that a special authority requirement to conclude an arbitration agreement is the law in the UAE (and emboldens UAE courts to issue judgments along these lines).

The Court of Cassation did not expressly consider the subcontractor’s second argument of waiver. However, the argument that a claimant has waived its right to arbitrate by seeking to resist court proceedings brought in breach of an arbitration agreement is similarly common in the UAE, and equally problematic in terms of compliance with the New York Convention. Waiver is not expressly identified in the New York Convention as a basis for denying effect to an otherwise valid arbitration agreement and the application of rigid rules of waiver or technical defaults is clearly inconsistent with the fundamental pro-enforcement treatment of arbitration agreements under the New York Convention.

 

Lessons For Foreign Parties Operating in the UAE

There are preemptive steps that parties can take to protect themselves from arguments that an arbitration agreement is void due to lack of authority. Foreign parties operating in the UAE commonly assume that a director, in particular a managing director or general manager, of a UAE company will have authority to enter into arbitration agreements on behalf of their company, or that general authority is sufficient. The Court of Cassation’s decision makes it clear that this assumption is mistaken and it remains essential for parties contemplating arbitration in the UAE to draft powers of attorney, and review other contractual documentation, carefully. Foreign investors are advised to review their company by-laws and shareholder resolutions carefully, and to check the authority of directors or general managers to enter into arbitration agreements on behalf of their company.

Ultimately, the key lesson to be learned for foreign investors dealing with Emirati companies, and negotiating arbitration agreements with a UAE seat, is to consider selecting the Dubai International Financial Centre (“DIFC”) or Abu-Dhabi Global Markets (“ADGM”) as the arbitral seat. Both the DIFC and ADGM have their own arbitration laws that do not have this specific authority requirement and any awards issued in the DIFC or ADGM would be fully insulated against the special authority issue that arose in this case. The DIFC Courts, in particular, have been robust in maintaining that they are not bound by the decisions of the onshore Dubai Courts, whether by common law principles of res judicata or by Art 5(A)(4) of the Dubai Judicial Authority Law, that have been obtained in proceedings brought in breach of arbitration agreements.

 

The authors wish to thank Rupert Reed QC of Serle Court Chambers and Thomas R. Snider, Partner and Head of Arbitration at Al Tamimi & Co. for their valuable comments on earlier drafts of this article.  All errors are those of the authors alone.

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Journal of Dispute Resolution Writing Competition – August 15 Deadline

ADR Prof Blog - Tue, 2021-06-08 15:50
My colleague, Ilhyung Lee, the director of Missouri’s Center for the Study of Dispute Resolution, announced the initiation of an annual writing competition, co-sponsored by the National Academy of Arbitrators (NAA). With a generous grant from the NAA Research and Education Foundation, this initiative encourages research and scholarship in the labor and employment field. Beginning … Continue reading Journal of Dispute Resolution Writing Competition – August 15 Deadline →

Will London-Seated Arbitration Follow The English Courts’ Approach To Witness Statements?

Kluwer Arbitration Blog - Tue, 2021-06-08 01:24

This post considers Practice Direction 57AC (“PD57AC”), which changes the approach to witness evidence in the English Courts, and its potential impact on London-seated arbitration.

 

The New Approach to Witness Statements in English Litigation

On 6 April 2021, the English Business and Property Courts marked a significant change in the approach that lawyers, and witnesses, are to take to witness statements, as PD57AC came into effect.

Witness statements in the English Courts became the norm with the introduction of the Civil Procedure Rules (“CPR”) in 1999. The intention was to save time in Court and ensure that a witness’s evidence was not determined by their ability to recall the facts under the stress of being in Court. It was hoped that the evidence would be more accurate.1)The ICC commissioned a study by Dr Wade of the University of Warwick which published its findings in November 2020 (the “ICC Report”). The study found that biasing people in favour of a particular company and exposing them to suggestive post-event information affected their memory reports. This arguably militates against an approach whereby a witness is required to recount everything for the first time in cross-examination. jQuery('#footnote_plugin_tooltip_37597_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37597_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The outcome was that statements became (i) over-lawyered, (ii) a vehicle for submissions, whereby a witness would provide a commentary on a substantial number of key documents (often quoting those documents at length), and, as the years passed, (iii) longer and longer, and (iv) more and more expensive. As it was put by Sir Geoffrey Vos V-C:

[W]itness statements became gargantuan and costly, and did not stick to the main evidential points in issue, but began over time to range far and wide over the entire history of the relationship between the parties. They were drafted by lawyers and often moved miles away from the [precise words] of the witnesses.”

Cross-examination risked being a contest as to which witness could best remember the contents of their voluminous witness statement, with advocates regularly alighting upon a word the meaning of which the witness did not know.

PD57AC seeks to address these issues in relation to trial witness statements as follows:

  1. The purpose of a trial witness statement is to set out in writing the evidence in chief that a witness of fact would give if they were allowed to give oral evidence (para. 2.1).
  2. Trial witness statements are important in informing the parties and the Court of the evidence a party intends to rely on (para. 2.2).
  3. A trial witness statement must contain only (para. 3.1):
    • evidence as to matters of fact that need to be proved at trial by the evidence of witnesses in relation to one or more of the issues of fact to be decided; and
    • the evidence as to such matters that the witness would be asked by the relevant party to give, and the witness would be allowed to give, if they were called to give oral evidence at trial.
  4. A trial witness statement must set out only matters of fact of which the witness has personal knowledge that are relevant, and must identify by list what documents, if any, the witness has referred to for the purpose of providing the evidence in their trial witness statement (para. 3.2).
  5. The witness is not only required to provide the statement of truth but also required to sign a ‘confirmation of compliance’ making clear the understanding that the witness statement is only to contain matters of fact of which they have personal knowledge (para. 4.1).
  6. The legal representative also has to sign a ‘certificate of compliance’ with PD57AC (para. 4.3).
  7. The Court has the full range of sanctions if there is non-compliance, including a refusal of permission to rely on, or strike out part or all of, the witness statement (paras. 5.1-5.2).

PD57AC has led to a sea-change in the preparation of witness statements:

  1. Prior to PD57AC, lawyers could spend weeks, or sometimes months, meticulously reviewing disclosure and piecing together a narrative, often with an answer to perceived weaknesses. This could all precede the involvement of the witness. Following this process, the witness would review, (possibly) amend and sign.
  2. Following PD57AC, the process is far more witness-led; it starts with interviews and/or questionnaires with the witness, seeking to elicit “own words”, much like oral examination-in-chief.2)Those conducting such interviews could helpfully review Section V of the ICC Report which contains a number of measures that can be taken with a view to improving the accuracy of witness memory. jQuery('#footnote_plugin_tooltip_37597_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37597_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The lawyer’s job is now to bring those answers together into the witness’s own language, following which the draft goes back and forth between the witness and the lawyer numerous times until it is what the witness would say orally.
  3. As to content, whereas before the statement could be a behemoth covering every aspect of the case by reference to hundreds of pages of exhibits, it is now limited solely to what the witness wishes to contribute as factual evidence. In the Commercial Court, it should be no more than 30 pages in length.

In our view, this is a welcome change that seeks to ensure the Court will be provided with the best approximation of a witness’s evidence-in-chief to it being given orally. There will be less need for the Judge to decipher the witness’ true evidence from cross-examination. Early experience suggests it shortens witness statements and reduces the costs of drafting.

However, the old process of providing a narrative on the underlying documents may not be gone. This may now form part of a longer skeleton argument for use at trial, as is more appropriate for submissions, subject again to page limits (50 pages in the Commercial Court).

 

The Impact on International Arbitration

Until this recent development, the approach to witness statements in commercial litigation and arbitration in London has been much the same. The significant shift in the English Court’s approach begs the question of what will now happen in London-seated arbitration.

The interface between arbitration and litigation in London lies in applications to the curial English Courts under the Arbitration Act 1996. In that context, Baker J (who chaired the working group that led to PD57AC), had previously made statements seeking to limit over-lawyerly witness evidence in Orascom TMT Investments SARL v VEON Ltd [2018] EWHC 985 (Comm), §5 and Exportadora de Sal S.A de C.V v Corretaje Maritimo Sud-America no Inc. [2018] EWHC 224 (Comm), §25.

In terms of arbitration itself, the London Maritime Arbitrators Association (“LMAA”) has moved first and adopted a similar approach to PD57AC in Sch. 4, para. 2 of its 2021 Terms, applicable to arbitrations commenced after 1 May 2021.

Whilst other major London arbitral institutions confer powers on the tribunal to control witness evidence, there is, as yet, no real guidance on the correct approach to its content:

  1. The ICC Rules (2021), provide the tribunal with the power to limit the length and scope of written evidence in the Expedited Procedure Rules (Appendix VI, Art. 3(4)), and make a similar broad suggestion “so as to avoid repetition and maintain a focus on key issues” as a possible Case Management Technique (Appendix IV, para. (e)), but there is nothing which makes clear the correct approach to the preparation of such statements.
  2. The LCIA Rules (2020), provide the tribunal with powers to decide the manner, form and limit of such statements (Art. 20.4) but, again, there is no guidance as to the correct approach to their preparation more generally.
  3. The IBA Rules on the Taking of Evidence in International Arbitration (2020), Art. 4(5)(b) (which is unchanged from their 2010 iteration) states that a witness statement shall contain “a full and detailed description of the facts, and the source of the witness’s information as to those facts, sufficient to serve as that witness’s evidence in the matter in dispute. Documents on which the witness relies that have not already been submitted shall be provided.

On one view, that IBA Rules are an invitation to the fuller narrative statements away from which PD57AC is trying to steer. It has, however, been rightly acknowledged in this context that best practice already involves “adoption of the words actually used by the witness”, “[not] finessing evidence to express it in terms that fit neatly with a legal argument or concept”, “[confining] the statement to events of which the witness has direct knowledge” and “[not having] a witness comment on or explain every document in the case”.3)See A Guide to the IBA Rules on the Taking of Evidence in International Arbitration, Roman Khodykin and Carol Mulcahy, 2019, at 7.94 to 7.100. jQuery('#footnote_plugin_tooltip_37597_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37597_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Conclusion

PD57AC will have a big, and we think positive, impact on the approach to and contents of witness evidence in the English Courts. The LMAA has followed the Courts’ lead. It remains to be seen whether others follow suit. On the one hand, the consensual nature of arbitration might be used as the basis to say that the parties should be left to take their own course in relation to the presentation of their witness evidence. On the other hand, provisions akin to PD57AC would not look out of place amidst the increasing codification of the procedures in institutional rules.

Whilst there is already scope to take the same approach under the ICC and LCIA Rules, in our view those institutions should consider similar provisions to PD57AC being made explicit in their rules (even if they are less prescriptive), and the IBA might usefully consider similar guidance. The result would be that neither party would feel at a disadvantage if it did not provide its entire case, and argument, in its client’s witness statements. In our view, this would be a further positive step towards re-balancing the use of witness evidence in the London dispute resolution landscape.

References[+]

↑1 The ICC commissioned a study by Dr Wade of the University of Warwick which published its findings in November 2020 (the “ICC Report”). The study found that biasing people in favour of a particular company and exposing them to suggestive post-event information affected their memory reports. This arguably militates against an approach whereby a witness is required to recount everything for the first time in cross-examination. ↑2 Those conducting such interviews could helpfully review Section V of the ICC Report which contains a number of measures that can be taken with a view to improving the accuracy of witness memory. ↑3 See A Guide to the IBA Rules on the Taking of Evidence in International Arbitration, Roman Khodykin and Carol Mulcahy, 2019, at 7.94 to 7.100. function footnote_expand_reference_container_37597_30() { jQuery('#footnote_references_container_37597_30').show(); jQuery('#footnote_reference_container_collapse_button_37597_30').text('−'); } function footnote_collapse_reference_container_37597_30() { jQuery('#footnote_references_container_37597_30').hide(); jQuery('#footnote_reference_container_collapse_button_37597_30').text('+'); } function footnote_expand_collapse_reference_container_37597_30() { if (jQuery('#footnote_references_container_37597_30').is(':hidden')) { footnote_expand_reference_container_37597_30(); } else { footnote_collapse_reference_container_37597_30(); } } function footnote_moveToAnchor_37597_30(p_str_TargetID) { footnote_expand_reference_container_37597_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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The Often-Overlooked Value of African Seats for African-Chinese Disputes

Kluwer Arbitration Blog - Mon, 2021-06-07 01:48

On 12 March 2021, Fangda Partners, ASAFO & CO and Delos Dispute Resolution hosted an interactive roundtable on “The Often-Overlooked Value of African Seats for African-Chinese Disputes”. The panelists for the roundtable discussion were Tunde Fagbohunlu SAN , Julia (Zhang) Le Roux, Michael Tam, Olga Boltenko and Peter Po Kwong Yuen, and it was moderated by Andrew Skudder and Thomas Granier. With the steady increase of foreign investments in Africa, and the desire for African countries to achieve international recognition as prospective seats and venues for the resolution of international disputes, this event was timely and covered perspectives relevant to both investment arbitration and commercial arbitration. This post highlights the key takeaways from the roundtable discussion.

 

Nature of disputes between China and African States

 Tunde Fagbohunlu SAN, spoke about the growing involvement of Chinese firms in oil and gas exploration and production activities, as well as infrastructure projects for the construction of roads and bridges in Africa. From his experience, Chinese investors have a pragmatic approach to the resolution of disputes. Using the Mambilla Hydropower Project (potentially West Africa’s biggest hydro-power plant), as an example, he explained how the Chinese investors insisted that the dispute involving this project should be settled with the Nigerian Government, and how the Chinese export bank played a role in ensuring the dispute was settled. However, it has been reported, that Nigeria is facing a new ICC claim, for reneging on the settlement terms.

He highlighted that, although Nigeria has been a signatory to the ICSID Convention since the late 1960’s, only four claims have been brought against Nigeria. On the other hand, it is generally rare to see arbitrations initiated by State parties, since governments usually have other means of achieving their objectives in dispute scenarios, including through legislative change and regulatory measures. From his perspective, this fact suggests that Chinese parties would rather explore settlement, as well as that African States might prefer to resolve disputes through other means as mentioned above. This, however, has the potential to trigger stabilization claims from investors.

He however noted that there have been some recent contractual and investor-State arbitration claims filed against African States or companies. Examples are the claim filed by Chinese investors against Nigerian National Oil Company and the recent construction claim filed by a Chinese company against Ghana.

Finally, Tunde Fagbohunlu SAN noted that dispute resolution clauses between Chinese investors and African States may be different in contracts between private entities and public entities. In explaining this, he noted that Nigerian contracts with public entities, particularly production sharing contracts, tend to reflect standard format embodying the nature in which the Government would prefer disputes to be resolved (e.g., with the application of Nigerian law and with a Nigerian seat for the dispute). On the other hand, contracts with private entities reflect more pronounced freedom of contract, with the agreed terms being largely based on negotiating and bargaining strength of the parties.

He also noted that governments are now paying increasing attention to arbitration clauses and adopting policies to implement similar clauses across all sectors. This is where the input of local counsel or local co-counsel is needed, as they can assist Chinese investors in understanding attitudes and behaviors of the government.

Chinese investors and African host states are advised to conduct detailed negotiations to agree on a dispute resolution mechanism that considers the interests and approaches of both cultures to the resolution of disputes. From his understanding, governments should also try to be flexible to accommodate investors’ needs.

 

The importance of the arbitral seat and distinctive features that make specific seats fit for Chinese disputes

Julia (Zhang) Le Roux expressed that the judiciary has a huge role in encouraging arbitration, which would in return provide parties with the confidence needed to choose African seats. She noted that the constitutional court in South Africa and the International Arbitration Act 15 of 2017 recognize the role the judiciary plays in encouraging arbitration and spoke about the Johannesburg commercial court’s works to expedite arbitration matters. She also highlighted  that countries in Southern Africa are currently seeking to replicate international adjudicatory bodies like the Chinese International Commercial Court (which deals with China-related international disputes and was created to provide support for the Belt and Road Initiative), by working to harmonize their laws to encourage the use of African seats.

Michael Tam explained that Chinese investors usually inquire about the laws, culture, nature, and political environment of the host State, to ensure that its environment is suitable for their investments and that their investments will be protected. He further highlighted that this is important to Chinese investors because of sovereign risks insurance, such as expropriation or situations where a State’s local judiciary disputes an arbitral tribunal’s jurisdiction on the grounds that the dispute in question should be resolved by the local judiciary. He noted that insurers are usually reluctant to cover risks of this nature, and will usually argue that such risks are not covered under the insurance.

Olga Boltenko highlighted the dynamic nature of the South African and Nigerian environments, which allow for easy location of local co-counsel and arbitration practitioners. Transparency of legal systems, adoption of the UNCITRAL Model Law and ratification of international conventions, such as the ICSID Convention were also mentioned as key features that make specific seats attractive for Chinese investors.1)46 out of the 55 African States are parties to the ICSID Convention and 40 out of the 55 African states are parties to the New York Convention. jQuery('#footnote_plugin_tooltip_37588_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_37588_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Tunde Fagbohunlu SAN emphasized the importance the seat plays in enforcing an arbitration agreement and/or award. From his experience, host States may renege on their obligations under clauses in a bid to bring more disputes before their local courts, and Chinese investors should be aware of this. However, States which are signatories to the New York Convention (NYC) have a treaty obligation to enforce arbitration agreements and awards, which allows for easier enforcement of assets in host States. He highlighted that in Nigeria, the Arbitration and Conciliation Act implements the NYC, thereby attracting investors to Nigeria as a seat and potential venue for arbitration proceedings.

While the resolution of disputes in developed seats and under international conventions has its obvious advantages, such as the attainment of an independent and fair resolution of the dispute, choosing African seats for the resolution of African disputes has its benefits. It allows for easy enforcement of the host State’s assets in situations where most of its assets are located in its local territories. Moreover, selecting an African seat might encourage arbitrators to develop a better understanding of the dispute, because the dispute is being resolved in the location where the subject matter was performed or is being performed, which has the potential to assist the arbitrators understand the often nuanced cultural aspect of the dispute. It also allows for easier and efficient collaboration between local and foreign counsel in representation of clients during the dispute resolution process either during negotiations or the arbitration proceedings.

More importantly, selecting African seats for the resolution of Africa-related disputes presents a unique opportunity to aid development of the host State’s international and arbitration laws. This will allow African courts, when determining arbitration-related applications, to analyze, examine and review their arbitration laws in relation to local and international aspects that the arbitration might raise. This has the potential to improve African States’ jurisprudence on international law and arbitration related matters, and provide opportunities to update arbitration laws in order to ensure that statutes are up-to-date with the constant developments in international arbitration.

 

What African States are currently doing to encourage Chinese investors to choose African seats

 Julia (Zhang) le Roux explained that through the China-Africa Joint Arbitration Centre (CAJAC), China and African countries are working on a practical and effective dispute resolution mechanism to cater to the wider jurisdiction in African States. She highlighted that most Chinese investors view Africa as a country rather than a contintent comprised of more than fifty distinct legal jursidictions, and as such, may not be aware of the various and distinct laws that apply to each African State. This is why there has been a co-operation between neighboring African States to divide Africa into regions with similar backgrounds and laws. Examples of these are North Africa, West Africa, East Africa, the OHADA and the SADC regions.

This division influenced the development of the CAJAC rules which seeks to cater to the regions in Africa, as well as to Chinese investors. The rules are  largely based on the Chinese Arbitration Rules, and allow for the parties to agree on (a) a full document only hearing,2)Article 5 of the CAJAC Rules. jQuery('#footnote_plugin_tooltip_37588_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_37588_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); (b) the arbitration to be conducted in Chinese,3)Article 34 of the CAJAC Rules. jQuery('#footnote_plugin_tooltip_37588_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_37588_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and (c) a short timeline for conclusion of the arbitration.4)Article 34 of te CAJAC Rules. jQuery('#footnote_plugin_tooltip_37588_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_37588_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); These Rules can be adopted by Chinese investors and African parties for the resolution of their disputes.

While referring to African seats, Tunde Fagbohunlu SAN explained that Nigeria and South Africa complement each other and highlighted the sensitive nature of Nigerian judiciary to arbitration and that the Nigerian Arbitration and Conciliation Act reflects the UNCITRAL Model Law and NYC.

In addition, Andrew Skidder highlighted that (a) Mauritius is a stable and neutral seat for arbitration in Africa; (b) the judiciary is supportive without being intrusive; and (c) the LCIA-MIAC and PCA have offices in Mauritius. He further highlighted the quality of the local bar and practitioners, and that Mauritius allows foreign arbitration lawyers to practice without going through the local bar qualification and/or registration process.

Olga Boltenko stated that Hong Kong is one of the most advanced arbitration jurisdictions in the world: its laws reflect the UNCITRAL Arbitration Rules, the courts are arbitration-friendly, the practitioners pool is diverse, multiple languages are spoken – including African languages – and Hong Kong has a mutual agreement with China on enforcement of interim disputes.

Arbitral institutions in African jurisdictions have also played an important role by training legal practitioners on relevant factors to consider when drafting contracts and dispute resolution clauses.

 

Conclusion

This roundtable discussion highlighted the overlooked value of selecting African countries as the arbitration seat, particularly in relation to Africa-based projects. Although the discussion was focused on Chinese investors, the insights provided apply to all Africa-based investments. By raising awareness to the value of choosing seats in African jurisdictions, law practitioners and investors will undoubtedly improve African States’ prospects of becoming important arbitral seats.

References[+]

↑1 46 out of the 55 African States are parties to the ICSID Convention and 40 out of the 55 African states are parties to the New York Convention. ↑2 Article 5 of the CAJAC Rules. ↑3 Article 34 of the CAJAC Rules. ↑4 Article 34 of te CAJAC Rules. function footnote_expand_reference_container_37588_30() { jQuery('#footnote_references_container_37588_30').show(); jQuery('#footnote_reference_container_collapse_button_37588_30').text('−'); } function footnote_collapse_reference_container_37588_30() { jQuery('#footnote_references_container_37588_30').hide(); jQuery('#footnote_reference_container_collapse_button_37588_30').text('+'); } function footnote_expand_collapse_reference_container_37588_30() { if (jQuery('#footnote_references_container_37588_30').is(':hidden')) { footnote_expand_reference_container_37588_30(); } else { footnote_collapse_reference_container_37588_30(); } } function footnote_moveToAnchor_37588_30(p_str_TargetID) { footnote_expand_reference_container_37588_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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Mediate.com Expands into Arbitration

Business Conflict Blog - Mon, 2021-03-01 11:15

With a new CEO at the helm of Mediate.com, after a generation of loyal and visionary service by co-founder Jim Melamed, the pre-eminent online resource for mediation has now launched an initiative to offer the pre-eminent online resource for arbitration. Launched last week, Arbitrate.com looks to be a winner.

The site’s subtitle is “Everything Arbitration.” While that’s a hefty claim, you can see already that Colin Rule, Melamed’s successor, is ready to take a stab at it. Like its mediation-oriented predecessor, Arbitrate.com hosts lists of practitioners with easy links to their websites and contact information. It also maintains a home for informed threads of discussion, called “Arbitration Conversations,” and a separate group of threads called “Arbitration TNT” — shorth for “tips-and-tricks,” a place to share experiences and administrative suggestions.

Across the top banner of the home page are links to topic-specific arbitration practices: commercial, government, intellectrual property, international arbitration, and labor and employment. There is also a section for Colin’s favorite topic, “O-Arb.”

The site is intended to attract informed content contributors and one assumes that, with the passage of time, Arbitrate.com will be a repository of insights in both theory and practice as robust as its mediation sibling. Let’s welcome a new and, one expects, uniquely valuable resource for arbitration students, practitioners and end-users.

The post Mediate.com Expands into Arbitration first appeared on Business Conflict Blog.

Mediation Confidentiality in Federal Court

Business Conflict Blog - Tue, 2020-12-29 12:13

As a consequence of the absence of uniform adoption of the Uniform Mediation Act, the confidentiality of mediation communications in various jurisdictions often cannot be assured. Thanks to Alan Waxman, President and CEO of the International Institute for Conflict Prevention and Resolution (CPR), for bringing to our attention the most recent contributions to this confusion.

In Accent Delight International Ltd v Sotheby’s, 18-cv-9011 (S.D.N.Y. Dec 8, 2020), Judge Jesse Furman ruled on a motion seeking discovery of materials relating to a private (as opposed to court-ordered) confidential mediation that took place in an effort to settle a separate dispute between Sotheby’s and certain sellers of an artwork. In that prior mediation, Sotheby’s and the sellers entered into an agreement with the mediator that the mediation “was a settlement negotiation deemed private and confidential.” Plaintiff Accent Delight sought production in this action of the confidential settlement agreement reached in the prior litigation, as well as approximately 250 other documents related thereto, including communications between Sotheby’s counsel and the sellers’ counsel, and communications with the mediator.

The problem in the Second Circuit is the holding in In re Teligent, 640 F.3d 53 (2d Cir. 2011). There, the court affirmed the denial of a motion to compel disclosure of documents relating to a mediation, holding that a party seeking such disclosure “must demonstrate (1) a special need for the confidential material, (2) resulting unfairness from a lack of discovery, and (3) that the need for the evidence outweighs the interest in maintaining confidentiality.” One might have hoped for a more categorial assurance that confidential means confidential, but it was a welcome holding nonetheless.

The problem was that the mediation at issue in Teligent was court-ordered. One would assume that such a fact mattered as much as whether it was held on a Tuesday, but unfortunately no. In 2019, the Southern District held in Rocky Aspen Mgmt. 204 LLC v. Hanford Holdings LLC that the heightened showing required in Teligent applied only with respect to mediations that — like the one in Teligent itself — were conducted pursuant to court order. The court there reasoned that the promise of confidentiality had been extended by a government agency — the court — and not by private parties engaged in private discussions. Rather, the mere “good cause” standard of FRCP 26(c) applies to the discovery of information exchanged during mediation where there is no promise of confidentiality by a court.

In Accent Delight, by contrast, Judge Furman held that the heightened standard articulated in Teligent applied to mediation communications irrespective of whether they are court-ordered. The rationale of the confidentiality of settlement discussions — that they lead to resolution of disputes — applies equally whether the discussions take place voluntarily or by order. Making such a distinction would act as a disincentive to parties considering entering into private mediation. And such a ruling conforms to the conclusion of courts outside the Second Circuit. Some of those other rulings expressly link a “heightened standard” to FRE 408, which shields statements made during settlement negotiation for precisely the same reasons.

Things remain, as noted, un-uniform. In the Southern District a court has compelled mediator testimony to establish whether the mediator gave permission to a party and counsel to be excused from in-person attendance at a court-ordered mediation. Usherson v Bandshell Artist Management (S.D.N.Y. Dec. 9, 2019). On the other hand, the Fifth Circuit recently held that allegedly threatening statements made during mediation were inadmissible in an action to set aside a mediated settlement on the ground that the plaintiff had been coerced. Areizaga v. ADW Corp., 796 Fed. Appx. 205 (5th Cir. 2020).

Where does this leave the practicing mediator? We include in our agreements a promise of confidentiality. The parties agree that statements and other communications will be held both confidential and inadmissible. We require that they agree not to subpoena documents or testimony from the mediator, and to indemnify the mediator for any costs related to such an effort. Then, I suppose, having done all we can, we let the participants do as they deem fit.

They will anyway….

The post Mediation Confidentiality in Federal Court first appeared on Business Conflict Blog.

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