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Interviews with Our Editors: Understanding CIICA, Pakistan’s First International Arbitration Centre, with Mr. Rana Sajjad Ahmad, Founder & President

Fri, 2020-11-27 23:28

Mr. Rana Sajjad Ahmad, thank you for joining us on the Kluwer Arbitration Blog! We are grateful to have the opportunity to learn more about the Center for International Investment and Commercial Arbitration (CIICA) and your experience with enhancing the role of international arbitration in Pakistan.

 

  1. Could you briefly introduce yourself to our readers?

In two words, I would describe myself as an “arbitration enthusiast”. In terms of background and professional experience, I am a dual-qualified lawyer (licensed in Pakistan and New York) based in Lahore, Pakistan. At my law firm, Rana Ijaz & Partners, my practice areas include contracts, cross-border transactions, commercial litigation and domestic and international arbitration. I learned about international arbitration while pursuing an LL.M. at Columbia Law School, New York, back in 2001-2002 and also had the opportunity to practice international arbitration at a leading large law firm in the U.S. In 2015, I launched the Center for International Investment and Commercial Arbitration (CIICA), Pakistan’s first and only international arbitration center.

 

  1. Can you take us through your journey in launching CIICA five years ago and tell us about its achievements thus far?

CIICA is a manifestation of my passion for shining a light on international arbitration in Pakistan. My primary motivation for setting up CIICA was the glaring lack of awareness of international arbitration in Pakistan and how the misplaced views about it were adversely affecting the outcomes of the cases in which Pakistan was involved.

Since its launch, CIICA has tried to address this issue by organizing several groundbreaking conferences with a view to discussing and analyzing critical issues in connection with international commercial and investment arbitration. The Pakistan component of the Belt and Road Initiative (BRI), commonly referred to as the China Pakistan Economic Corridor (CPEC), has also been extensively discussed at these conferences. I believe change happens one conversation at a time and CIICA has set in motion the process of raising awareness of the important issues and proposing recommendations for modifying Pakistan’s approach to international arbitration.

As part of its mission of capacity building, CIICA and its officials have conducted training workshops at leading universities in Pakistan, the Lahore High Court, Pakistan Engineering Council and the Punjab Judicial Academy that are aimed at training and building capacity of law students, lawyers, engineers and commercial court Judges.

Earlier this year, CIICA became the first and only dispute resolution organization in Pakistan offering online filing services. Amidst the COVID-19 pandemic, in order to facilitate dispute resolution involving Micro, Small and Medium Sized Enterprises (MSMEs), CIICA lowered its fees substantially and raised the upper limit of the amount in dispute for its expedited arbitration services.

To further its objective of modernizing Pakistan’s legal framework for arbitration, a few months ago, CIICA launched its legislative reforms committee.

 

  1. You have previously written about developing a culture of arbitration (both investor-state and commercial) as a parallel mode to judicial dispute resolution in Pakistan. From your perspective, what are the top three challenges to enhancing the use of arbitration in Pakistan?

The first and foremost challenge is the judiciary’s lack of a deep understanding of the substantive and procedural aspects of arbitration, which impairs its ability to develop a pro-arbitration mindset and approach. The second is the inadequate framework for domestic and international arbitration. The third is the lack of awareness or misperception of the advantages of arbitration over litigation.

In one respect, these three challenges are inter-linked because certain provisions of the outdated arbitration law are misinterpreted by Pakistani Judges who do not have an adequate understanding of the law’s nuances and implications. This leads to either undue court interventions to stay arbitral proceedings or unsatisfactory court decisions that refuse enforcement of arbitral awards. Consequently, a vicious circle is set in motion whereby the value of the arbitration process is undermined and the users are dissatisfied with the entire process that in turn engenders a reluctance to arbitrate disputes in the future. A common complaint of some disgruntled users of arbitration in Pakistan is that it is pointless to arbitrate if the court still wields such broad powers and virtually unfettered discretion to delay and derail the process, a clear case of “once bitten, twice shy”.

 

  1. We have previously published on the Blog about the burning need to modernize Pakistan’s Arbitration Act 1940 (“Act”). We understand that national efforts to do so are now underway and you are involved in the Committee appointed to spearhead the Act’s redesign. Can you walk us through some of the Committee’s major considerations and how it aims to achieve this important goal?

As mentioned, a few months ago, CIICA  formally constituted a legislative reforms committee. The committee’s broad objectives include:

  • Examining Pakistan’s current legal framework for domestic and international arbitration to identify specific provisions that need to be amended;
  • Providing the reasons for and the language of the proposed amendments;
  • Proposing enactment of the UNCITRAL Model Law; and
  • Engaging with relevant government bodies and private sector entities to lobby/advocate for the reforms.

 

  1. Asia is home to both leading arbitration jurisdictions like Singapore and Hong Kong as well as India and Pakistan, where the framework for (and use of) arbitration is in flux. What do you think has led to this unequal development of arbitration in Asia and, in particular, why is South Asia lagging behind some of its neighbors?

I think the primary reason for the difference is the vision of the governments and the will to bring that vision to fruition. I believe that if the government of a country itself spearheads or supports reforms in connection with the law, practice and procedure of arbitration, it creates an enabling environment for the growth and success of globally recognized arbitral institutions such as the ones in Singapore and Hong Kong. In the absence of such a vision or policy of the government, members of a country’s business and legal community need to step up and play a pivotal role to promote and adopt arbitration. In Pakistan, there certainly are bright spots in both these communities and CIICA continues to bring them together to facilitate discussions with the goal of creating a vibrant ecosystem for arbitration in Pakistan.

 

  1. You represented CIICA at recent meetings of UNCITRAL Working Group II. What are some unexpected highlights of your experience?

It was an invaluable learning experience in international relations, especially in the context of international trade and commerce. Specifically, I witnessed how States engage in a back-and-forth on critical issues of national interest. In some cases, the degree to which political considerations underpinned the discussions was a bit unexpected and I found the divide between certain States fairly pronounced. Nonetheless, it was also fascinating to see how the efficient mechanisms designed by UNCITRAL enabled States to reach an agreement on contentious issues and avoid potential impasse.

 

  1. Earlier in this interview you mentioned CIICA as a platform for resolving BRI disputes, particularly those relating to CPEC and you have written about the various such options previously. Indeed, in 2019, to support the resolution of such disputes, CIICA signed a Memorandum of Understanding with the China International Economic and Trade Arbitration Commission (CIETAC). Do you consider that international arbitration offers the most suitable mechanism for resolving such disputes? With the Singapore Convention on Mediation coming into force recently, does it make mediation a viable alternative for stakeholders?

I think in the foreseeable future, international arbitration would still be the predominant method for resolution of disputes across the Belt and Road states. This is primarily due to its wider acceptance and recognition among the States participating in this initiative in particular and around the world in general. Although the Singapore Convention is a significant and welcome development in the realm of international dispute resolution, it may still take a few years before it gains wider adoption among the Belt and Road states. In view of the divergent approaches and preferences of certain States across the Belt and Road states, the hybrid dispute resolution methods of Arb-Med, Med-Arb and Arb-Med-Arb may also gain traction allowing parties more freedom to design the dispute resolution procedures based on their unique preferences and the particular context of their transactions and commercial relationships.

 

  1. Can you briefly discuss the impact of the COVID-19 pandemic on arbitral practice in Pakistan? Is there an increased demand for CIICA’s Online Arbitration and Mediation Filing System?  How has CIICA enhanced its virtual and online services to meet stakeholder demands?

Amidst the COVID-19 pandemic, CIICA launched its online arbitration and mediation filing system and is currently the only institution in Pakistan that is offering these online services. However, online arbitration and mediation do not appear to have gained much traction in Pakistan yet and consequently, there has been no significant impact on the demand for arbitration or mediation in Pakistan.

 

  1. As we look forward, can you tell us the top three goals you hope CIICA will have achieved by 2025, at the time of its tenth anniversary?

By 2025, I hope:

  1. CIICA is recognized as an innovative arbitral institution that can adapt its services to cater to the evolving needs of the users in Pakistan in particular and the region in general.
  2. CIICA is successful is bringing about the legislative reforms that its committee is currently working on.
  3. CIICA is able to create a fairly large pool of well-trained international arbitration practitioners and arbitrators in Pakistan. I hope CIICA has also had the opportunity to build the capacity of Judges in Pakistan to enable them to develop a deeper understanding of the context, nuances and implications of the substantive and procedural aspects of international arbitration. This would minimize undue court intervention and facilitate enforcement of arbitration agreements and awards that would ultimately help develop pro-arbitration jurisprudence in Pakistan and bolster its image as a favorable destination for foreign investment.

 

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

 

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

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An Arbitration Paradise? The Importance of Dispute Resolution for Hainan’s Development

Thu, 2020-11-26 23:23

The designation of Hainan province as a Free Trade Zone (FTZ) in 2018 has sparked a great deal of interest for foreign investors. The proposal for a globally influential free trade port, by the middle of the century, makes Hainan an exciting prospect and a potential venue for new foreign investment. Such a proposal demonstrates a strong commitment by the central government, to turn Hainan into a highly developed centre for international trade. China’s plans for Hainan reveal that a great deal of thought has been put into dispute resolution, in order to make the island arbitration friendly to further attract foreign investment.  The guiding policy for Hainan’s development strongly emphasises the need for effective dispute resolution mechanisms and has specifically called for the “establishment of multiple dispute resolution institutions such as international economic and trade arbitration institutions and international dispute mediation institutions”.1)This is the author’s courtesy translation. jQuery("#footnote_plugin_tooltip_3030_1").tooltip({ tip: "#footnote_plugin_tooltip_text_3030_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This policy highlights the importance placed on building an effective dispute resolution network, which is needed to safeguard foreign investment.

 

The Hainan FTZ

Although the 1994 PRC Arbitration Law provides the legislative framework for arbitration in Hainan, the province is subject to several policies that make it unique, when compared to the conventional dispute resolution framework adopted in the mainland.

Firstly, as is the case with the Shanghai Pilot FTZ, the definition of ‘foreign related’ arbitration has been expanded in Hainan to permit the enforcement of arbitration awards made outside of China. Such awards may be enforceable in Hainan if they are made between or among FTZ registered wholly foreign owned entities, or between Hainan FTZ registered commercial entities. This policy differentiates arbitration in Hainan from standard practice in China, which provides no legal basis for Chinese domestic entities to submit domestic disputes to arbitration outside of China. The expansion of the term ‘foreign related’ to incorporate Hainan FTZ entities increases the scope for the enforcement of foreign arbitral awards involving a Hainan FTZ company. The 2018 Supreme People’s Court Opinion (Opinion)  on the provision of legal services in Hainan, appears to take a more flexible approach to the term ‘foreign related’ than has traditionally been adopted in the past. The Opinion states that extraterritorial arbitration between commercial or civil entities within free trade zones or free trade ports, “should not be deemed invalid on the grounds of no foreign-related factors”.2)This is the author’s courtesy translation. jQuery("#footnote_plugin_tooltip_3030_2").tooltip({ tip: "#footnote_plugin_tooltip_text_3030_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });  This Opinion is important because it appears to widen the scope for the enforcement of foreign arbitral awards within the Hainan FTZ. This Opinion follows the trend within China which has seen an expansion of the term ‘foreign related’ in cases such as Ningbo and Shanghai Golden Landmark, both of which relate to contracts for the sale of goods in the Shanghai FTZ– more on these decisions can be found in a previous blog post here.

Secondly, in order to improve the efficiency in which foreign related disputes are dealt with, the Hainan government has created multiple tribunals, specifically established to deal with international cases. This policy is testament to the central government’s efforts to make Hainan a reliable venue for the resolution of international disputes. These tribunals will centralise the Hainan courts’ jurisdiction over foreign related civil and commercial cases, thereby creating a greater harmonisation in how such cases are dealt with. These tribunals are China’s first provincial-level cross-regional tribunals specifically created to hear first-instance foreign related cases. The establishment of such tribunals demonstrates that a lot of thought has gone into making Hainan’s legal system more international and better prepared for dealing with foreign cases.

Aside from dispute resolution, the Hainan FTZ has adopted several policies in order to further promote foreign investment. Such policies include lower rates of income tax, 30-day visa free access for foreigners and an attractive policy for the recruitment of overseas talent, which are all elements of a strategy, designed to turn Hainan into a centre for global trade. This strategy has also seen the establishment of the Hainan International Arbitration Court (HIAC) (sometimes referred to as the Hainan International Arbitration Commission), a new arbitral institution which was set up in 2018, to facilitate the resolution of international disputes and promote Hainan as a venue for arbitration.

 

The Importance of the HIAC

The HIAC was set up to administer arbitration and mediation cases through its team of over 60 staff. It has invested heavily into the recruitment of international arbitration practitioners in order to increase its global focus. As a result, the HIAC currently has access to around 600 arbitrators over 200 of which are foreign nationals.

A distinctive feature of the HIAC that differentiates it from other arbitration institutions relates to the permitted use of mediation at any stage of the arbitral process. The HIAC, like the China International Economic and Trade Arbitration Commission (CIETAC) and the Beijing Arbitration Commission (BAC), permits the use of Med-Arb during proceedings in order to facilitate a settlement between the parties. The HIAC follows the trend of dispute resolution in China, which includes the use of Med-Arb as a tool to resolve disputes. The legislative basis for the use of Med-Arb can be found in Article 51 of the 1994 PRC Arbitration Law which states that “[t]he arbitration tribunal may carry out conciliation prior to giving an arbitration award”.

Article 48 of the HIAC’s Arbitration Rules states that “[u]pon the request of or with the consent of the parties, the arbitral tribunal may conduct mediation during the arbitral proceedings”. If a settlement is reached, the parties can prepare a settlement agreement themselves, or ask the tribunal to either produce one or write an award by consent based on what is agreed in the settlement. If the parties fail to reach a settlement, the tribunal will proceed with issuing an award. However, under the HIAC Rules “[i]f the mediation fails to lead to a settlement, neither party shall be permitted to adduce evidence of or to refer to or use any statements, opinions, views or proposals expressed by the other party or by the arbitral tribunal during the mediation in support of any claim, defense or counterclaim in the subsequent arbitral proceedings, or as grounds in any judicial or other proceedings”. This requirement also extends to the arbitrators, who cannot produce an award based “on the opinions expressed by the parties during the mediation”.

A distinctive feature that differentiates the HIAC from arbitral institutions within China relates to the way the HIAC is governed. The HIAC is one of only two arbitral institutions within China that adopts a ‘corporate governance’ style of management. The other being the Shenzhen Court of International Arbitration Court (SCIA). This corporate governance style of management relates to a structure which incorporates a board of directors (some of whom are non-Chinese nationals) that operates at the core of the institution. Further to this, the HIAC is the only arbitral institution in China that has received Administrative Measures from a provincial government, which is the first provincial document released separately to an arbitration institution in China and they specify that the HIAC is a statutory body established for the benefit of the public as a non-profit organisation. The establishment of the HIAC is an important milestone for the development of Hainan, given that a global arbitration institution with a strong international focus would strengthen Hainan’s position as a potential venue for foreign investors. Although newly established, the HIAC will foreseeably play a key role in the rapid development of a province which recorded a GDP growth of 5.8% in 2018.

 

Looking Ahead

Hainan is a tropical island with a significant supply of minerals and over 70 types of natural resources, the island features large coastlines that are typical of any global trading port. It is therefore likely that as the island develops, disputes will arise that reflect the increased volume of investments typically made in the province. The construction, energy and maritime sectors are likely to experience an increase in demand for dispute resolution services as Hainan’s development advances. The HIAC’s sector specific offices specialising in financial and maritime arbitration are one answer to this trend.

Going forward, the establishment of Hainan specific FTZ dispute settlement rules may be an option in order to further develop arbitration on the island. Hainan could follow a similar path to the Shanghai FTZ in order to make itself more arbitration friendly, this could include the acceptance of foreign arbitral institutions to administer cases with a Chinese seat in the FTZ and the permissibility of ad-hoc arbitrations, which if enacted, could further develop arbitration within Hainan.

This is an exciting time for Hainan. The establishment of the Hainan FTZ alongside the HIAC represent significant steps that may well turn the island into an arbitration paradise.

References   [ + ]

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International Law Talk Podcast and Arbitration: In Conversation with Professor Joshua Karton

Thu, 2020-11-26 21:46

Welcome to the second post in the series of International Law Talk. During a series of podcasts, Wolters Kluwer will bring you the latest news and industry insights from thought leaders and experts in the field of International Arbitration, IP Law, International Tax Law and Competition Law. Here at Kluwer Arbitration Blog, we will highlight the podcasts focused on international arbitration.

In the second podcast of the series, Dr Maria Fanou, Assistant Editor of Kluwer Arbitration Blog, interviews Joshua Karton, Associate Professor and Associate Dean at Queen’s University. Professor Karton is the General Editor of the Kluwer Arbitration Practical Insights, a new online research service for international arbitration practitioners (launched this year), and also the co-founder and the Managing Editor of the Canadian Journal of Commercial Arbitration.

 

Professor Karton generously offered his invaluable insights on his rich experience and on various relevant topics pertaining to international arbitration, including the following:

 

http://arbitrationblog.kluwerarbitration.com/wp-content/uploads/sites/48/2020/11/KLI-2.-trailer.mp4

 

  • His experience about his early years in law and his path towards becoming an international arbitration lawyer and scholar, emphasizing the role of the Vis Moot as a formative experience which contributed to his discovering the magical world of arbitration.
  • His experience as an editor, including in particular as one of the three General Editors (along with Simon Greenberg and Fan Yang) of the Kluwer Arbitration Practical Insights, a tool that is part of Kluwer Practice Plus set of resources. As Professor Karton explains, Kluwer Arbitration Practical Insights is like a treatise or a handbook but reimagined for the online environment.
  • The role of comparative law as a constituent (and not simply a set of techniques) of international arbitration, as inspired by his article ‘International Arbitration as Comparative Law in Action’.
  • Drawing on his significant work on diversity (see also here) Professor Karton builds on a popular post of his, and discusses the benefits that diversity brings in arbitration.

 

As a final thought answering a question that we will pose to all interviewees in this podcast series, Joshua Karton predicts that we will see more fragmentation of the international arbitration field as it grows and, hopefully diversifies, as well as more specialization, more regionalization and more arbitral institutions focusing on specific industries. He further foreshadows that international arbitration will continue to reflect the pluralism of its users.

Listen to the podcast ‘Comparative Law in Action in Arbitration’ with Joshua Karton.

 

Follow the coverage of the International Law Talk arbitration podcasts on Kluwer Arbitration Blog here.

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Enforcement of Foreign Arbitral Awards in the U.S. Post Daimler AG v. Bauman

Thu, 2020-11-26 00:53

In this post, we discuss some of the challenges created by the personal jurisdiction requirements under U.S. law (explained below) in enforcement of foreign arbitral awards in the U.S. We also delve into details of hurdles posed by the implementation of the personal jurisdiction standard as enunciated in Daimler AG v. Bauman to recognition and enforcement proceedings. Personal Jurisdiction is a U.S. law concept that signifies the power of a court to determine the rights and liabilities of a party involved in a lawsuit.

Given these challenges, we propose a potential solution to bypass these hurdles, to wit, modifying arbitration clauses to include a waiver of jurisdictional objections to the subsequent enforcement of an arbitration award.

 

A Primer: Enforcement of Foreign Arbitral Awards in the U.S.

While the vast majority of arbitration awards are voluntarily complied with, there are still many cases in which a losing party will refuse to satisfy an outstanding award against it. Because “[a]rbitral awards are not self-enforcing” in the U.S., they must therefore “be given force and effect by being converted to judicial orders by courts.” Power Partners MasTec, LLC v. Premier Power Renewable Energy, Inc., 2015 WL 774714 (S.D.N.Y. Feb. 20, 2015). To that end, many U.S. courts require a party seeking to reduce a foreign arbitral award to a judgment to establish compliance not only with the relevant provisions of the New York Convention and the Panama Convention (the “Conventions”) but also federal and state constitutional and legal requirements governing personal jurisdictional. In that connection, the U.S. Court of Appeals for the Second Circuit (the “Second Circuit”) has held that both Conventions limit the ways of challenging a request for recognition and enforcement of an arbitration award. Frontera Res. Azerbaijan Corp. v. State Oil Co. of Azerbaijan Republic, 582 F.3d 393, 397 (2d Cir. 2009). However, the Conventions do not alter the fundamental constitutional requirement that the party against whom enforcement is sought be subject to personal jurisdiction of the court before which enforcement is sought. Id. The Second Circuit has also found that, even when jurisdictional requirements are satisfied, it has authority to dismiss an enforcement proceeding on the grounds that the state in which it was initiated is an inconvenient forum. Monegasque De Reassurances S.A.M. (monde Re) v. Nak Naftogaz of Ukr., 311 F.3d 488, 495-96 (2d Cir. 2002).

Broadly speaking, there are three ways that an enforcing party can meet U.S. federal and state constitutional and legal requirements governing personal jurisdiction. First, the enforcing party can seek to establish “general” or “all purpose” jurisdiction based on the award debtor’s ties to the state where enforcement is sought. Second, an enforcing party may seek to establish so-called “specific” jurisdiction based on the commission of some single or occasional acts of the corporate agent or individual in a state that gives rise to the lawsuit. Third, there is case law permitting a party to rely on the U.S. assets of the award debtor to establish so-called “in rem” (property based) jurisdiction. CME Media Enters. B.V. v. Zelezny, 2001 WL 1035138 (S.D.N.Y. Sept. 10, 2001).

 

Daimler Standard

In 2014, the U.S. Supreme Court (the “Supreme Court”) issued an opinion in Daimler AG v. Bauman 134 S. Ct. 746 (2014) which has been described here as “almost certainly its most important jurisdiction decision in some seventy years.” In that case, the Supreme Court essentially held that, in the absence of extraordinary circumstances, a party will only obtain “all purpose” jurisdiction over a corporation by suing it at its place of incorporation or principal place of business and, over a foreign individual, by suing the individual at her or his domicile. The Supreme Court’s decision is discussed to have “mark[ed] a dramatic change in the law” since it arguably abrogated “[t]he once familiar standard for general jurisdiction—corporate ‘presence’ in a state in which it ‘does business’ both ‘continuously and systematically.’” Naturally, it has had a significant impact on arbitration award enforcement proceedings in the U.S.

 

Implementation of the Daimler Standard

Federal appellate courts in the U.S. have applied the rule articulated in Daimler to recognition and enforcement proceedings. See, e.g., Sonera Holding B.V. v. Cukurova Holding A.S.,750 F.3d 221, 223 (2d Cir. 2014). This shift in the threshold requirement of “general” jurisdiction to a stricter threshold of having a place of incorporation from the erstwhile lower threshold of having continuous and systematic business activities has created potential hurdles for parties in such proceedings that cannot establish the kind of contacts with a state that would authorize “all purpose” or “general” jurisdiction. Consequently, foreign parties may find themselves potentially engaged in expensive and/or otherwise protracted litigation aimed at finding assets and/or contacts that will authorize a U.S. court to exercise “specific jurisdiction” with no ultimate guarantee of success. In practice, this means that a foreign party may be involved in a litigation in the U.S. over several years only to find out that they will be unable to enforce their arbitration award.

 

Does Property-based Jurisdiction Provide a Respite from the Daimler Standard?

As noted above, a party seeking to enforce a foreign award may rely upon the assets of a foreign award debtor to establish jurisdiction. However, there are certain limitations when relying upon such property-based jurisdiction. Generally, there is a limit on the recovery amount, as courts will confirm the award only to the extent of assets present in the jurisdiction. See, e.g., CME Media Enters. B.V. v. Zelezny, 2001 WL 1035138 (S.D.N.Y. Sept. 10, 2001). In addition, courts may be reluctant to order any kinds of additional remedies besides orders against the property. Id. Because such jurisdiction relies on the contemporaneous presence of the property in the forum state, award debtors can also potentially defeat in rem jurisdiction by moving their property out of the forum state. To preempt such situations the award creditors often obtain a pre-judgment attachment of properties under the applicable state law (For example: under N.Y. C.P.L.R. § 5305 (2016)) which is possible when the foreign arbitral award is converted into a foreign judgment, as explained below.

Thus, an enforcing party may also rely upon a double exequatur or dual enforceability approach as discussed in a previous post. This is an indirect route to enforce a foreign arbitration award by converting the award into a foreign judgment recognizing the award, and then seeking recognition of that foreign judgment in the U.S. The personal jurisdiction rules for recognition of foreign judgments are somewhat more flexible when there is no opposition to the enforcement proceeding but not when the defendant challenges or opposes the enforceability of the judgment on substantive grounds. AlbaniaBEG Ambient Sh.p.k v. Enel S.p.A., 160 A.D.3d 93 ( N.Y. 1st Dept 2018).

Although “specific” jurisdiction may offer an easier alternative to satisfying a party’s jurisdictional burden, an enforcing party seeking to rely on such a basis for asserting personal jurisdiction will generally need to show that the award debtor “transacts any business within the state or contracts anywhere to supply goods or services in the state” and the cause of action arises from this conduct. N.Y. C.P.L.R. § 302(a)(1).

 

A Plausible Way for Establishing Personal Jurisdiction 

Faced with the above conundrums, parties may want to include a provision in their arbitration clause addressing enforcement issues in the U.S.

Many U.S. courts have found consent of parties as a valid way of establishing personal jurisdiction for purposes of enforcing a foreign arbitral award, as courts have recognized that personal jurisdiction stems from due process rights of the parties itself, rather than Article III powers of the judiciary, and hence parties can consent to personal jurisdiction. Brown v. Lockheed Martin Corp., 814 F.3d 619, 625 (2d Cir. 2016). Parties usually express their consent through forum selection clauses or contractual consent provisions. For instance, in the case of EGI-VSR, LLC v. Huber, 2020 U.S. Dist. LEXIS 54405 (S.D.N.Y. Mar. 27, 2020) concerning enforcement of a Chilean arbitration award, the court held that the award debtor’s (a Chilean resident) agreement with a forum selection clause providing that “any dispute under this Agreement shall be resolved in a court of competent jurisdiction in New York, New York” conferred personal jurisdiction over the award debtor. Similarly, in the case of D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 104 (2d Cir. 2006), the court found that the award debtor (a Florida resident) was subject to personal jurisdiction of the court for purposes of a confirmation proceeding to reduce an award to a judgment, as the defendants had consented to personal jurisdiction through forum-selection clauses.

Contractual consent to personal jurisdiction should eliminate the need for a separate due process analysis required by the U.S. constitution. See, e.g., EGI LLC, 2020 U.S. Dist. LEXIS 54405 at *14; Recurrent Capital Bridge Fund I, LLC v. Isr Sys. & Sensors Corp., 875 F. Supp. 2d 297, 306 (S.D.N.Y. 2012). Forum selection clauses are especially useful insofar as courts have generally interpreted forum selection clauses broadly and enforced them, unless the clause was obtained through fraud, D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 104 (2d Cir. 2006) or enforcing it would be unreasonable or unjust, see, e.g., EGI LLC, 2020 U.S. Dist. LEXIS 54405 at *15-16. Thus, a party may be able to construct a forum selection clause designating New York as the seat of the arbitration which would permit it to enforce an award stemming from such an arbitration in New York. Similarly, a party may also theoretically designate a seat of arbitration in another, foreign jurisdiction while including a provision in their arbitration clause that would permit them to enforce their arbitral award in the U.S.

Thus, given that “general” jurisdiction is the preferred way of establishing personal jurisdiction in recognition and enforcement proceedings, and the U.S. courts have applied Daimler’s more stringent threshold of establishing “general” jurisdiction over foreign parties, parties may want to include a forum selection clause in their arbitration agreement to address enforcement issues in the U.S.

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New Terrain for International Arbitration: The International Dispute Resolution Track at the 99th Annual International Law Weekend

Tue, 2020-11-24 23:00

The 99th Annual Meeting of the American Branch of the International Law Association (“ILA (American Branch)”), known as International Law Weekend (“ILW”), took place virtually this year in New York City on 22-24 October 2020.  This year’s conference included 27 panels, as well as an Opening Plenary Panel, a United Nations 75th Anniversary Plenary Panel, and numerous virtual networking sessions hosted by ILA (American Branch)’s committees.  The conference continued to include a dedicated International Dispute Resolution track with a specific slate of panels in that area.

The keynote address was delivered by Catherine Amirfar (Co-Chair of the Public International Law Group, Debevoise and Plimpton LLP; President, American Society of International Law) and moderated by Chiara Giorgetti (University of Richmond School of Law).  Ms. Amirfar’s remarks were framed against the backdrop of the United States standing at a crossroads for the international rule of law.  She recalled that international lawyers have a commitment to the progressive ideal that international affairs should be governed by law, not merely power.  As she explained, it is the duty of international lawyers and institutions to ensure this ideal continues to advance even when backward steps are taken in the international sphere.

Ms. Amirfar observed that such backward steps do not constitute a failure of the entire enterprise, but instead allow international lawyers to take a hard look at what is not working and figure out ways to improve so we may move forward.  In her view, there are no inevitabilities in the story of international law; history is replete with examples of how institutions and individuals have made a difference.  At this important juncture in the history of international law, she left the audience with a powerful reminder: across party lines and political divides lies a set of shared norms and common interests that can unite us and allow us to progress slowly but steadily.

The panels forming part of ILW’s International Dispute Resolution track echoed these themes as they considered whether international legal mechanisms for dispute resolution should be extended to address new areas of conflict.  One overarching issue raised during these discussions is how to determine if a particular conflict calls for an international dispute resolution mechanism.  Key questions for this determination included:

  • Is there a need for any additional dispute resolution mechanism to resolve this type of conflict?
  • Is the proposed international mechanism an appropriate means to resolve the conflicts that arise in that area?
  • Can the proposed international mechanism be made accessible enough to contribute meaningfully to the resolution of conflicts in this area?

Two panels stood out as particularly illustrative of these questions and the debates that they engender: one on investor-state dispute resolution as a means to resolve disputes in the global banking and finance sector, and another on international arbitration as a means to resolve disputes over human rights abuses at sea.

 

The Role of Investor-State Arbitration in Regulation of Global Banking and Finance

“Investor-State Disputes, International Finance, and Economic Crisis,” was moderated by Virág Ilona Blazsek (Associate Legal Officer, United Nations Joint Staff Pension Fund).  This panel considered whether investor-state dispute settlement may contribute to the resolution of banking- and finance-sector disputes in times of economic crisis—particularly in light of the emergency measures that States often take to combat such crises.

The answer—as the panel developed it—boiled down to two separate issues: whether investor-state tribunals should address the substance of those disputes, and whether there is sufficient access to these types of tribunals for them to matter.

The panel’s initial discussion centered on the degree to which an investor-state tribunal should second-guess state regulatory measures taken in the face of economic crisis—when many, or even most, state regulatory actions are legitimate and essential.  Anna de Luca (Of Counsel, Macchi di Cellere Gangemi) took the view that tribunals should not evaluate state regulations in the banking and finance sector merely on the basis of their objective correctness.  Prof. Michael Waibel (University of Vienna) later added that because of the uncertainty surrounding which regulatory action is correct, the State should be afforded a margin of appreciation.

Nevertheless, the panel only scratched the surface, leaving unaddressed how, exactly, the standard of review should be calibrated—between the two extremes of review for absolute correctness and no review at all.

Next, the panel turned to whether banking and finance investors have broad enough access to investor-state arbitration for it to play an important role in regulating state crisis measures.  Prof. Waibel argued investor-state arbitration has a fairly limited role simply because any State measure taken during a crisis will affect domestic investors more than international investors.  Indeed, both he and Ms. de Luca underscored that investor-state arbitration may be further curtailed within the European Union, following the Court of Justice of the European Union’s Achmea judgment and subsequent termination of multiple intra-EU bilateral investment treaties.

However, David Attanasio (Associate, Dechert LLP; co-author of this post) noted that, given the lack of alternative avenues of international recourse for banking and finance investors, some may seek to restructure their investments in order to obtain access to international investment protections and to investor-state arbitration.

Despite identifying key factors affecting the scope of access to investor-state arbitration, the panel left open a range of questions affecting investor-state arbitration’s potential significance for resolving conflicts over crisis measures in the banking and finance sector.  These questions included whether international investors make up a meaningful portion of all investors in the banking and finance sector, and whether investors in that sector are able to secure access to international investment protection, including through investment structuring.

 

The Role of International Arbitration in Remedying Human Rights Abuses at Sea 

“Arbitration of Human Rights at Sea: Giving International Law Teeth by Empowering Victims to Enforce It” was moderated by Dr. Anna Petrig (Professor and Chair of International Law and Public Law, University of Basel).  This panel considered whether international arbitration can contribute meaningfully to accountability for human rights abuses committed at sea.

Resolving this issue—as the panel addressed it—requires answering two key questions: whether there is a need at all for accountability for human rights abuses committed at sea, and whether international arbitration, in particular, is the right mechanism to fill that need.

The panel first considered the need for accountability mechanisms for human rights violations at sea, addressing that need from both the supply and demand sides.

  • Regarding the supply side, Dr. Irini Papanicolopulu (Associate Professor, Università degli Studi di Milano-Bicocca) reported that the existing international fora have limited jurisdiction and are therefore ill-equipped to resolve many potential human rights disputes. To her point, even the European Court of Human Rights and the Inter-American Court of Human Rights often do not have jurisdiction to resolve cases of human rights abuses, such as those that are allegedly committed by corporations.
  • On the demand side, Elisabeth Mavropoulou (Lecturer in Law, University of Westminster; Trustee, Human Rights at Sea) set out basic statistics regarding maritime operations: There are 197 states included in this group, 1.6 million commercial seafarers, and at least 56 million people involved in fisheries and aquaculture. As she explained, the maritime sector, then, is a significant area of commercial and social activity that can generate a variety of human rights abuses.

Despite these key observations, the panelists did not delve into the nature and extent of actual human rights abuses occurring at sea, leaving unresolved the extent to which this is a problem calling for a solution.

The panel next took up whether and how arbitration can be made available to those who allege human rights abuses at sea.  As Dr. Ursula Kriebaum (Professor of Public International Law, University of Vienna) noted, the Hague Rules on Business and Human Rights Arbitration were designed precisely to enable arbitration to provide an appropriate forum for human rights disputes.

However, Prof. Emmanuel Gaillard (Head of Shearman & Sterling’s International Arbitration Practice; Visiting Professor of Law, Yale Law School, Harvard Law School) identified the root issue: consent.  As he explained, if victims of human rights abuses committed at sea cannot obtain consent to arbitration in the first place, then these disputes cannot be resolved through arbitration.  Without consent, international arbitral tribunals would lack jurisdiction to hear the disputes and to serve as an accountability mechanism for those human rights abuses.

In Prof. Gaillard’s view, the need for consent would not necessarily be a barrier to resolving disputes over human rights abuses at sea through arbitration.  He noted that States and corporations could be incentivized to give advance consent through political pressure from international organizations or simply civil society itself, or alternatively through economic pressure applied by banks and other financial-service providers.  If they gave such advanced consent with sufficient scope, then international arbitration might be able to play a meaningful role in the area.

That said, the panel did not hazard a guess about the degree to which consent would actually be forthcoming, even in a scenario where such incentives were used.  So it remains an open question whether pressure alone can ensure arbitration becomes available widely enough to act as a real accountability mechanism for human rights abuses committed at sea.

 

The Path Ahead

These and other panels at the 99th International Law Weekend provided a clear reminder of the opportunities for expanding the role of international dispute resolution in novel directions.   As the world looks ahead to possible changes in light of new American leadership, they may guide us toward further establishing an international community governed by law and not power.

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The Role of Arbitral Institutions in Cybersecurity and Data Protection in International Arbitration

Tue, 2020-11-24 00:00

Cybersecurity and data protection have been dominating conversations in the international arbitration community in recent years. From an analysis of how the stakeholders may be best equipped to address cybersecurity risks, to considerations on maintaining confidentiality in international commercial arbitration, as well as calls to address the impact of the General Data Protection Regulation (“GDPR”) on virtual arbitration proceedings, much scrutiny has been afforded to these issues. Discussions on this topic have been further enhanced following the release of the IBA Cybersecurity Guidelines (the “IBA Guidelines”), the ICC-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration, the latest being the 2020 Edition (the “Cybersecurity Protocol”), as well as the public consultation draft of the ICCA-IBA Roadmap to Data Protection in International Arbitration. The author opines that cybersecurity and data protection go hand in hand as both involve the receipt, usage, processing, transmission, and preservation of data in any given setting. The ongoing COVID-19 pandemic has further heightened the importance of these issues since more proceedings with high value and business-sensitive information are being conducted wholly online, are frequently held in different jurisdictions, and often involve unencrypted digital exchanges.

A previous article has highlighted how arbitral institutions are uniquely positioned to address cybersecurity risks both consistently and sustainably. This post now aims to further examine the measures that arbitral institutions may take to alleviate cybersecurity risks and to ensure that data protection principles are adhered to in institutional proceedings.

 

Institutional Rules and Case Management

Effectively, most arbitrations are currently managed, if not completely, through electronic and digital means, e.g. where correspondences and procedural papers are transmitted via email or digital file transfers. It is foreseeable that in time, more and more of these ‘paperless’ proceedings will take place. Undoubtedly, institutions should be up to date to the technological needs of the parties and their institutional rules and procedural guidelines should factor in cybersecurity concerns. One such example can be found in the Hong Kong International Arbitration Centre (“HKIAC”) 2018 Administered Arbitration Rules, where Article 3.1(e) specifically mandates the uploading of files “to any secured online repository that the parties have agreed to use” as a recognised means of communication. Another example is found in the London Court of International Arbitration (“LCIA”) 2020 Arbitration Rules that incorporate new provisions on data protection, cybersecurity and regulatory issues. Specifically, Article 30A provides that “at an early stage of the arbitration the Arbitral Tribunal shall…consider whether it is appropriate to adopt:

(i)        any specific information security measures to protect the physical and electronic information shared in the arbitration; and

(ii)       any means to address the processing of personal data produced or exchanged in the arbitration in light of applicable data protection or equivalent legislation.

In circumstances where such considerations have yet to be incorporated in the institutional rules or guidelines, possible steps to take would be for the administering institution to either alert the tribunal, upon confirmation of its appointment, of the existence of the Cybersecurity Protocol, or to include the protocol as part of the institution’s code of conduct of arbitrators.

The Cybersecurity Protocol neither lists any specific measures to be taken, nor does it establish any liability standards for any purpose (Principle 14). Instead, the Cybersecurity Protocol authorises the tribunal to determine the appropriate cybersecurity measures (Principles 11 and 12). Although the commentary to Principle 11 acknowledges such authority, determination of applicable information security measures should fall back to parties’ agreement.

In terms of case management, the arbitration community can look forward to the soon to be released Protocol for Online Case Management in International Arbitration by the Working Group on LegalTech Adoption in International Arbitration (the “LegalTech Working Group”). Having just released its Consultation Draft in July 2020, the focus of the LegalTech Working Group is the development of a consistent approach to the adoption and use of online case management tools that encompasses confidentiality, data protection, and sustainable values thereof.

 

Internal Management Systems

Arbitral institutions hold large volumes of valuable, highly commercial, and sensitive information pertaining to matters they administer, access to which may have far reaching impacts. This makes arbitral institutions a highly attractive target for cybercriminals. Previous incidents such as the intercepted correspondence in Libananco v Republic of Turkey (ICSID ARB/06/8), and the attack on the Permanent Court of Arbitration (PCA) website during the China–Philippines maritime boundary dispute, have further emphasised the need for arbitral institutions to have effective cybersecurity technology and mechanisms in place to safeguard the confidentiality of proceedings.

What steps then should arbitral institutions take? As a reference, the IBA Guidelines, although aimed at lawyers and legal firms, contains several recommendations which are worth considering by all stakeholders in the arbitral process. They include the following three areas:

  1. Technology: implementing endpoint protections, ensuring the use of secure networks, encrypting data and devices, strictly managing access control, implementing audit logs as well as implementing data retention, and loss recovery capabilities.
  2. Organisational processes: implementing strong username and password management with multi-factor authentication, implementing protection protocols, conducting periodic system testing, implementing a cybersecurity policy, implementing vendor and third-party provider risk management, and considering cyber liability insurance.
  3. Staff Training: educating employees about the importance of cybersecurity and common threats as well as providing staff with essential cybersecurity tips and advice.

In the Data protection, privacy, confidentiality and cybersecurity session at the 22nd Annual IBA Arbitration Day in 2019, Catherine Amirfar further posited some concrete prevention techniques and tips, which included limiting the collection and use of sensitive data, understanding the organisational assets and electronic architecture, as well as establishing a cyber threat mitigation plan in the early stages. Although limiting the collection of sensitive data may be impracticable for arbitral institutions, implementing cybersecurity and data protection measures by design within the institutional structure may limit any risk of breaches exponentially.

 

Virtual Proceedings

Since the outbreak of the COVID-19 pandemic, virtual hearings have become the norm in present times. It is likely that the trend will stay due to its efficiency and convenience. Many arbitral institutions have also introduced their own guidelines to manage and support the conduct of virtual hearings. A quick comparison across some of the protocols and guidelines issued indicates that the minimum standards of cybersecurity and data protection measures in virtual proceedings include, amongst others, usage of access-controlled video conferencing platform/software with an authentication process, usage of encrypted communications, clear identification of data storage facilities, and the applicable laws as well as robust administrative controls in order to maintain the security and integrity of data. The utility of checklists is also encouraged to ensure that the proceedings are conducted in compliance with local as well as regional data protection laws, such as the GDPR.

 

Conclusion

The benefits for arbitral institutions to push for greater emphasis and devoting resources towards cybersecurity and data protection cannot be understated. With the threats of cybersecurity constantly growing coupled with the profound impact of strict data protection laws, addressing these concerns through innovative means provides institutions with the advantage to promote institutional arbitrations particularly to security-conscious high-value commercial arbitration users. Most importantly, it considerably minimises the chances of untoward incidents such as the PCA website hack ever happening again. As the maxim goes, abundans cautela non nocet (abundant caution does no harm). 

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Is 11th of March 2020 a Critical Date for Potential Investment Treaty Arbitration Disputes in Eastern Ukraine?

Mon, 2020-11-23 00:40

The effect on investment protection stemming from Russia’s annexation, and therefore effective control over Crimea, has been a hot topic since 2014. Meanwhile, Ukraine has dealt with an armed conflict in Eastern Ukraine since April 2014 as a result of Russian expansionist maneuvers. Ukraine is now left with the difficult task to, on the one hand, maintain its pro-investment status, while, on the other, handling two territorial interferences simultaneously.

Notably, each action or official communication from the state may eventually be considered a material fact in a potential investment case by investment tribunals. This has the potential effect of working in an adverse manner against Ukraine and/or its investors.

The latest development in this situation took place on 11 March 2020. Ukrainian government intended to sign documents with non-legitimate representatives of the illegal formations within Trilateral Contact Group forum in Minsk. Fortunately, before and after that it stated that Ukraine does not recognize any other authorities in the Eastern Ukraine as legitimate. In this post I analyse what happened on that date, and its potential negative consequences for investment protection and the position of Ukraine in investment arbitration.

 

What are the Trilateral Contact Group and the Minsk Agreements?

On 11 March 2020, the ordinary meeting of the Trilateral Contact Group in Minsk (“TCG”) took place. The main aim of this meeting, as well as previous meetings, was the resolution of the armed conflict in Eastern Ukraine.

The TCG is a forum for negotiations between Ukraine, Russia and the Organization for Security and Co-operation in Europe (“OSCE”) regarding the conflict in the East of Ukraine. These negotiations produced the “Minsk Agreements”. The First Protocol to the Minsk Agreements was signed on 5 September 2014. The Second Minsk Agreement, named the “Complex of measures for implementation of the Minsk protocol”, was agreed in February 2015.

Significantly, the Minsk Agreements are not considered to be international agreements or treaties. However, these documents are important for Ukraine because: 1) they express the official position of Ukraine concerning the situation in the East of Ukraine; 2) measures for their implementation were prescribed by the UN Security Council Resolution 2202 (2015), and therefore gained a somewhat official status; 3) the non-performance by Russia of a package of measures for Immediate and comprehensive ceasefire in certain areas of the Donetsk and Luhansk regions of Ukraine as per United Nations Security Council Resolution is one of the grounds of the EU sanctions regime against Russia; and 4) these may carry evidentiary value in potential future investment arbitration cases.

At its 11 March 2020 meeting, the TCG adopted a Protocol to the Minsk Agreements (the “Protocol”). This Protocol could have potentially shifted the responsibility for any violations of international law that have taken place in certain Eastern Ukraine areas since 2014 from Russia to Ukraine. The Protocol contained the plan to sign a document called “Decision on creating of the Consulting Council” on 25 March 2020. This Decision was not signed, including but not limited to the fact that Ukrainian international law specialists and politicians were against it.

This Protocol could have jeopardized the amount of work by Ukrainian lawyers and diplomats in international courts and arbitrations; that is, a) it could have redefined the international nature of the conflict in the Eastern Ukraine, and b) it could have shifted the responsibility away from the Russian Federation for the violations of human and investors’ rights in Eastern Ukraine since the inception of the territorial dispute in 2014.

 

May the Russian Federation be held responsible for investment arbitration purposes?

There are no Eastern Ukraine conflict-related arbitration cases for the time being, but they might arise in the future based on the ECHR and Crimea-related arbitration experience.1)Ukraine v. Russia (re Eastern Ukraine) (no. 8019/16). jQuery("#footnote_plugin_tooltip_1578_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1578_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); The first question for a potentially aggrieved investor will be: who is responsible for all the violations and damages, namely, who is the Respondent? Ukraine may use the strategy widely described in Crimea-related arbitrations.2)See O.Kuchmiienko, How does the change in effective control over the territory influence the application of the Ukraine-Russia or other BITs, Austrian Yearbook on International Arbitration, Wien (2020). jQuery("#footnote_plugin_tooltip_1578_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1578_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In other words, Ukraine could assert that Russia holds (under protest) effective and/or general control over the territory. Therefore, it might contend on this basis that Russia is responsible for all violations in this Ukrainian area under armed conflict with Russia, including but not limited to the breach of investors’ rights.

To unequivocally state that Russia is a Respondent, Ukraine must be consistent in this strategy, insisting that it is Russia that controls “separate regions of Luhansk and Donetsk districts” as illegal formations in the territory. Moreover, Ukraine does not recognize these illegal formations as separate entities.

The Protocol as of 11 March 2020 may ruin this mentioned position and jeopardize the chances of an investor would have to recover damages from Russia. The reason is that arbitral tribunals in potential arbitration cases may consider this Protocol as a matter of fact, including to read it as the de facto acknowledgement by Ukraine that the territories in question are not under Russian general and/or effective control. That could mean that Russia is not liable for potential disputes there. However, Ukraine reasonably has an opposite view.

In general, there were three provisions that could create big concerns and risks for the Ukrainian position in international arbitrations and courts.

 

Ukraine objects to the presence of any authorized representatives in Eastern Ukraine

Firstly, the Protocol is problematic because it was signed by the representatives of the Donetsk and Luhansk regions as “authorized representatives”. These are pro-Russian representatives and represent an illegal formation on the Eastern territory of Ukraine, which are involved in armed conflict with Russia.

Donetsk and Lugansk are regions in a territory of Ukraine where armed forces of the Russian Federation are engaged in an international armed conflict. The status of the conflict has already been established by the International Criminal Court. In particular, the International Criminal Court’s Report on Preliminary Examination Activities concluded that “direct military engagement between the respective armed forces of the Russian Federation and Ukraine, indicated the existence of an international armed conflict in eastern Ukraine from 14 July 2014 at the latest, in parallel to the non-international armed conflict.”

For arbitration purposes this means that, if Ukraine signs the document together with the “authorized representatives” (as two parties of one agreement), it could indirectly be taken to have recognized the territories as separate state entities. This may cause it to lose any argument that Ukraine is not responsible for the actions of these entities because it “did not permit and objected [to the] presence of unlawful representatives” in Eastern Ukraine.

 

Ukraine does not recognize the power of the unlawful representatives for any actions

The second reason for concern is that the “separate regions of Donetsk and Lugansk districts” were combined in one entity based on wording of the document and its representative was empowered “to present written proposals of the terms and mechanisms of the opening of certain checkpoints”. As these entities are not recognized by Ukraine and are illegal, it is incorrect to attribute mandate and powers to their representatives, including the authority to provide any proposals. These sentences raise deep concerns because they can jeopardize analysis of 1) the international character of the conflict and 2) who is responsible for any violations on the territory in question. In potential arbitration an agreement with such a provision may be considered to constitute the agreement of Ukraine to the substitution of state authorities in part of its territory (such that it cannot blame Russia for the activities of these authorities).

 

Consulting Council as an illegal entity

Finally, the Protocol dated 11 March 2020 contained the Draft of a Decision creating a Consulting Council that would have consisted of “10 representatives of Ukraine, 10 representatives of Separate Regions of Donetsk and Lugansk Districts.” Under this Draft, firstly, Russia was not considered to be a part of the conflict anymore, having instead the status of an observer along with OSCE, Germany, and France. Secondly, representatives of Ukraine and illegal formations of Donetsk and Lugansk Districts were supposed to become members of the Council with equal rights. This could again jeopardise Ukrainian’s position vis-à-vis investment protection: does this mean that Ukraine de facto acknowledged these territories as separate entities? Hopefully not.

 

Why is this important for investment arbitration?

How may the Protocol influence an arbitral tribunal’s decision on jurisdiction, or why, in a worst case scenario, may a claimant try to file a claim against Ukraine as respondent?

If a Tribunal does not find that Russia controls the territory where the violation occurs, it can find no jurisdiction over Russia in such case. The alleged reason may be that Russia as a potential respondent is not responsible for the violations on the territory of another state. We can assume that the investor may then pursue either of two actions, namely, 1) abandon the claim and with it the possibility of any redress, or 2) initiate another case against the alleged “true” respondent – Ukraine.

 

Is the situation critical for Ukraine right now?

The situation is not critical, even after the concerns outlined above. Firstly, the decision on creating the Consulting Council with illegal formation representatives was not signed. Secondly, the attitude of Ukraine to the illegal formations must be assessed in general on the basis of the position of Ukrainian government, as evidenced in public officials’ declarations communicated in international courts and organizations.

Finally, the temporal aspect is important. Russian control over the Eastern Ukraine started in 2014 and Ukraine has constantly communicated its objections to the situation. Theoretically, the Protocol and decision might have influence on the situation after March 2020, even though this fact might be used for the opposite position. However, I do not believe that it is the case as Ukraine persistently asserted that the formations were controlled by Russia before March 2020.

 

Conclusion

11 March 2020 has not become a turning point for potential investor-claimants and Ukraine as a third party. However, this document might have reduced the strength of the position of Ukraine (and Ukrainian investors) in potential investment arbitration disputes. For the time being, we are in good shape, but the task of Ukrainian arbitration practitioners is to ring the bell of investment protection interests when it is necessary, and therefore I am ringing this bell here. In order to avoid the risks associated with Minsk Agreements, Ukraine must clearly articulate its position with the international community; that is, 1) Russia holds effective control over the territory in Donbass, and 2) Russia is responsible for all violations there.

References   [ + ]

1. ↑ Ukraine v. Russia (re Eastern Ukraine) (no. 8019/16). 2. ↑ See O.Kuchmiienko, How does the change in effective control over the territory influence the application of the Ukraine-Russia or other BITs, Austrian Yearbook on International Arbitration, Wien (2020). function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); 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/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Arbitration Corruption? The U.S. Fifth Circuit Says No

Sun, 2020-11-22 00:30

In the second half of 2020 there have been two heavily discussed challenges to arbitration awards stemming from an arbitrator’s nondisclosure. The more recent, OOGC America, L.L.C. v. Chesapeake Exploration, L.L.C, was an appeal in the U.S. Fifth Circuit. The other, Eiser Infrastructure Limited and Energia Solar Luxemburg S.À.R.L. v. Kingdom of Spain, was heard by an ICSID annulment committee. As more fully discussed below, the reviewing bodies came to opposite conclusions, even though they were reviewing the matters under remarkably similar standards of review.

 

The Dispute Before the Fifth Circuit

On September 14, 2020, in OOGC America, L.L.C. v. Chesapeake Exploration, L.L.C; Cause No. 19-20002, the Fifth Circuit vindicated an arbitrator accused of tainting an arbitration. The court ordered an opinion from the Southern District of Texas titled “Opinion on Arbitration Corruption” to be vacated.

This arbitration originated from claims by OOGC that Chesapeake was overcharging fees to it and overpaying affiliates to the tune of $210 million. The arbitration panel was tasked with determining who were “affiliates” or “related parties” under the Development Agreements and JOA between the parties and if Chesapeake paid those entities at market rates. One of these entities was FTS International. The arbitration panel unanimously found that FTS was paid at the market rate, so it took no further action to determine if FTS was an “affiliate” or “related party.” Subsequently, the award was challenged by OOGC.

That district court opinion accused the arbitrator of “deceit” and “corrupt[ion].” The specific conduct complained of by OOGC to the district court included the arbitrator’s business relationship with FTS’s chairman, connections to the chairman’s daughter, and connections to FTS’s general counsel. The latter two were both former coworkers of the arbitrator. Accordingly, OOGC sought to vacate the arbitration awards on the grounds that the arbitrator’s connections to FTS showed “evident partiality” and “misbehavior by which the rights of all parties have been prejudiced.” Both are grounds to vacate an award under the Federal Arbitration Act (FAA). According to the district court, the former was satisfied by the arbitrator failing to disclose professional and social connections with the parties or witnesses. Reviewing the matter de novo, the Fifth Circuit was not convinced that corruption existed. However, the Fifth Circuit was clear that it did not condone the arbitrator’s actions in the matter.

 

Implications for Further Analysis before U.S. Courts

For practitioners in the United States, the Fifth Circuit further developed its precedent regarding what constitutes “evident partiality” and “exceeding arbitral authority.” Notably, it did not buy OOGC’s argument that the facts presented to the court satisfied the Fifth Circuit’s Positive Software “evident partiality” test, nor did the facts evidence that the arbitrator had exceeded his authority, analogous to PoolRe Insurance v. Organizational Strategies, Inc., 783 F.3d 256 (5th Cir. 2015) .

Positive Software Solutions, Inc v. New Century Mortgage Corp., 476 F.3d 278 (5th Cir. 2007) (en banc), as a nondisclosure case, was directly on point. In that opinion, the Fifth Circuit made it clear that the nondisclosure must evidence a “reasonable impression of bias” deriving from a “significant compromising connection to the parties” that is “concrete and not speculative.” The Fifth Circuit found that the facts and theories presented to it by OOGC were speculative since OOGC could only speculate that the arbitrator was aware of specific provisions since neither party made the arbitrators aware of the potentially disqualifying condition. Further, the court noted that FTS was properly compensated, meaning the question of whether FTS was an “affiliate” was moot. Accordingly, the arbitrator’s connections to FTS was not a significant compromising connection to the parties as required. Alternatively, OOGC argued that the arbitrator only ruled in favor of Chesapeake so as to not jeopardize future work from FTS. Again, the Court found this to be too speculative and ripe for opening the door to post-award investigations, which would undercut arbitration as an alternative to litigation.

Moreover, OOGC argued that the arbitrator exceeded his powers, permitting vacatur under 10(a)(4) of the FAA. OOGC argued that PoolRe Insurance was instructive. Specifically, OOGC argued that the arbitrator did not remain “neutral” as the contract required. Again, the court did not bite. It found that staying neutral was a “qualification” and not a failure to correctly choose an arbitrator according to the contract’s terms, making it distinguishable from PoolRe Insurance.

In summary, the Fifth Circuit’s opinion was a clear reminder of the burden that those seeking to vacate an arbitration award in the United States must overcome. Particularly, the Court clarified that Fifth Circuit courts must give deference to the arbitrators when possible and resolve all doubts in favor of upholding the award. Overall, it is a stern reminder that arbitral awards are only vacated under extraordinarily narrow circumstances, and this is not one of those circumstances.

 

Placing the Fifth Circuit’s Approach in Context with International Approaches

The outcome of OOGC America is very different from the outcome of the recently decided Eiser Infrastructure Limited and Energia Solar Luxemburg S.À.R.L. v. Kingdom of Spain (ICSID Case No. ARB/13/36), even though both reviewing bodies were faced with the similar nondisclosure complaints. Like in OOGC America, the arbitrator in Eiser failed to disclose a relationship. As discussed more fully in another Kluwer blog post, the arbitrator appointed by the investors, Stanimir Alexandrov, and his former law firm, worked closely and frequently with the claimant investors’ damages expert Carlos Lapuerta and his firm. Based on these facts, the Annulment Committee annulled the arbitral award on the grounds that that a reasonable outsider “would find a manifest appearance of bias.” This is similar to what the Fifth Circuit standard applied in OOGC America, yet that challenge resulted in upholding the arbitration award. There was an important factual difference between the disputes. In Eiser, the relationship that was complained of was between an arbitrator and the damages expert, which was actively part of the arbitration; while in OOGC America, the relationship complained of was between the arbitrator and persons that were unanimously held not to be part of the dispute.

Moreover, the different rulings likely stem from a difference in judicial concerns. The Fifth Circuit expressed a reservation in examining personal relationships, based on future concerns of abuse of procedure by unscrupulous counsel. Specifically, the Court was concerned that those unhappy with the award would examine every personal relationship involved in a dispute to attempt to vacate an award it was not pleased with. The Court stated such actions would defeat one especially important tenant of arbitration, expediency. This opinion is not without merit. In fact, others have expressed similar concerns regarding parties misconstruing personal relationships to attempt to gain a more favorable tribunal or annulment of an unfavorable award. Similar concerns were raised by Daniel Greineder’s article regarding the Eiser dispute. In that article Greineder notes the desire for transparency is still subject to abuse by unscrupulous counsel who will challenge arbitrators to deny their opponents their chosen arbitrator, and delay proceedings.

Further, Eiser reflects the modern movement of hyper-disclosure for international disputes. This movement has been obsessed with categorizing conflicts of interest and erring on the side of disclosure. While disclosure of conflicts of interest are critical to fair decisions, some level nondisclosure must be tolerated. (i.e., non-disclosure should not become the go-to basis for annulment or vacation of an award). It is clear that ICSID and the Fifth Circuit have very different tolerances for nondisclosure failures. In Eiser, there was not a showing of specific acts by the arbitrator that evinced bias or otherwise improper influence. Instead, ICSID was focused on the principle that disclosure is a fundamental rule of procedure which should not be violated. This fundamental rule of fairness was of greater importance than an actual showing of a “significant compromising connection to the parties” that is “concrete and not speculative” to prove a “reasonable impression of bias,” as required in the Fifth Circuit.

 

Concluding Remarks

Moving forward, reviewing bodies, across the globe, will have to decide what they require to annul or vacate an award based on nondisclosure. Will they require complainants to speculate and merely show a nondisclosure of a relationship could have had a material effect on the award as required in Eiser? Or will reviewing bodies require concrete facts and not speculation as was required in OOGC America? The answer to this question will be based on public policy concerns, fundamental fairness to the parties, judicial economy, soft and hard power regarding enforcement and comity.

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UK Government is Seeking Arbitrators for Free Trade Agreement Rosters

Sat, 2020-11-21 21:48

Many of the free trade agreements that the UK has signed or that are currently under negotiation include a requirement for the parties to create rosters of individuals who could act as arbitrators for disputes launched under the state-to-state dispute settlement mechanisms within those agreements. The Department for International Trade (DIT) is seeking to appoint suitably qualified people to be included in these rosters.

 

The Role

We’re seeking to nominate people to serve on general dispute settlement rosters and also specialised rosters for disputes related to financial services, sustainability or labour rights. If a dispute were to occur under an agreement, individuals from the roster may be called upon to serve on an ad hoc arbitration panel to adjudicate on the dispute. The duration of disputes can vary considerably, however, the responsibilities associated with chosen arbitrators may extend beyond 18 months.

Candidates must demonstrate:

  1. Specialised knowledge of law and international trade with eight years proven experience in these fields;

They must also demonstrate at least one of the following requirements:

  1. Experience as an adjudicator (judge, tribunal member, panellist, arbitrator, mediator) in disputes arising under international agreements;
  2. Experience as lead counsel in a state-to-state trade dispute under the WTO Dispute Settlement Understanding or a free trade agreement;
  3. Experience as an academic teaching and/or researching in the field of international trade law for at least ten years;
  4. (For specialised rosters): specific expertise in financial services law or regulation, international environmental law or international labour law (including resolution of disputes arising under relevant international agreements).

Panellists would be remunerated in line with the specific terms set out in the relevant FTA, which is likely to be equivalent to the rates for WTO panellists. Please note that successful candidates will only be remunerated if their services are required and provided.

More information on the role, requirements and recruitment process can be found on the Department for International Trade .GOV webpages here.

Applications should be submitted by 11:59pm on 6 December 2020.

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“Don’t Walk Behind Me, I May Not Lead; Don’t Walk in Front of Me, I May Not Follow “ – Article 29(7) of the ICC Rules and Concurrent Judicial Jurisdiction

Fri, 2020-11-20 23:27

It is a generally accepted rule that while state courts have concurrent jurisdiction to hear and decide motions for interim relief prior to the constitution of an arbitral tribunal, they will only maintain such concurrent jurisdiction in appropriate or exceptional cases following such constitution.

The ICC Rules are unique in the sense that they apply the same rule when dealing with an Emergency Arbitrator (“EA”) and impose restrictions on the jurisdiction of state courts following the making of an application for EA, which are the same as those applicable following the constitution of a tribunal.

In this blog post, we analyze how the courts in Israel perceived their own jurisdiction following the making of an EA application and suggest that the ambiguous and inconsistent interpretation and application of this rule should be taken under careful consideration in any future revisions of the ICC Rules. At the outset, it bears noting that the ICC has recently publicized a revision of the Rules which are due to enter into force in 1 January 2021. This revision does not revise Article 29(7) and the wording of the Article under the 2017 Rules shall remain following the coming into force of the new Rules in 1 January 2021.

 

The Concurrent Jurisdiction of State Courts under Article 29(7) of the ICC Rules

One of the key features in EA proceedings under the 2017 ICC Rules of Arbitration (“ICC Rules“) is that found in Article 29(7), which states:

“The Emergency Arbitrator Provisions are not intended to prevent any party from seeking urgent interim or conservatory measures from a competent judicial authority at any time prior to making an application for such measures, and in appropriate circumstances even thereafter, pursuant to the Rules. Any application for such measures from a competent judicial authority shall not be deemed to be an infringement or a waiver of the arbitration agreement. Any such application and any measures taken by the judicial authority must be notified without delay to the Secretariat.” [Emphasis added]

Similar language is used in Article 28(2) of the ICC Rules which provides “Before the file is transmitted to the arbitral tribunal, and in appropriate circumstances even thereafter, the parties may apply to any competent judicial authority for interim or conservatory measures”. [Emphasis added] Article 28(2) has been interpreted to suggest that after the tribunal is constituted, judicial relief is permitted only in the event that ‘appropriate’ circumstances exist and not automatically.

Implementing this feature to EA procedures by the ICC is unique, considering other arbitral institutions and the UNCITRAL Arbitration Rules (“UNCITRAL Rules”) only provide similar guidelines to that of Article 28(2), i.e., only to interim applications submitted to national courts following the constitution of an arbitral tribunal (see e.g., Article 9.13 of the2020  LCIA Arbitration Rules, Article 30.3 of the SIAC Arbitration Rules, Article 23.9 of the HKIAC Administered Arbitration Rules and Article 26.9 of the UNCITRAL Rules).

 

The Interpretation of Section 29(7) of the ICC Rules

It is common interpretation and practice that Article 29(7) of the ICC Rules sets out the concurrent jurisdiction of national courts and EA and the non-exclusive nature of the EA (See, Emergency Arbitrator Proceedings – Commission Report, 2019, p. 15 (“ICC EA Report)), an exception to the general principal of exclusivity and judicial non-interference in the arbitral procedure.1)Gary B. Born, International Commercial Arbitration (Second Edition, 2014), Volume II: International Arbitral Procedures p.2522- 2523; 2544-2545, §17.04. jQuery("#footnote_plugin_tooltip_5367_1").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Article 29(7) was introduced to the ICC Rules due to concerns of members of the ICC Commission on Arbitration and ADR (“Commission”) that the existence of EA Provisions on its own “could lead to the adverse consequence of some state courts deciding to deny their own jurisdiction to issue interim or conservative measures”.2)Nathalie Voser, “Overview of the Most Important Changes in the Revised ICC Arbitration Rules”, ASA Bulletin, Vol. 29, No. 4, 2011, p. 814. jQuery("#footnote_plugin_tooltip_5367_2").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Following the amendment of the ICC Rules in 2012, and the introduction of Article 29, the interpretation of the Rules in the Secretariat’s Guide to ICC Arbitration3)J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration, ICC Publication 729 (Paris, 2012), p. 310. jQuery("#footnote_plugin_tooltip_5367_3").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_3", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); followed the same interpretation suggesting that the “Emergency Arbitrator Provisions are not intended to be the only means of seeking urgent relief”, but simultaneously noting that “Article 29(7) slightly qualifies” this concurrent jurisdiction when the application to the court is made following the EA application, and highlighting that in such circumstances the “Rules require circumstances that make it ‘appropriate’ for the party to resort to a state court”.4)Ibid, § 3-1106. jQuery("#footnote_plugin_tooltip_5367_4").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_4", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

Although these were the initial concerns and intentions of the drafters of the Rules and the members of the Commission, following the introduction of the EA provisions to the ICC Rules, the Commission and scholars gave little attention to the way in which state courts apply this “concurrent jurisdiction”.

In practice, on the occasions where a respondent asserts that by applying to a state court for interim relief the applicant waived the EA jurisdiction and its right to commence arbitration, such “waiver” arguments were rejected by the EA themselves, based, inter alia, on the language of Article 29(7) (ICC EA Report, p. 15).

In fact, most arbitration rules also explicitly confirm that applying to national courts for interim relief shall not constitute a waiver or infringement of the arbitration agreement (See e.g., Article 28(2) of the ICC Rules, Article 26(9) of the UNCITRAL Rules, Article 24(3) of the ICDR Rules) and judicial precedent generally arrives at the same conclusion.5)Gary B. Born, International Commercial Arbitration (Second Edition, 2014), Volume II: International Arbitral Procedures pp.2549-2551, §17.04. jQuery("#footnote_plugin_tooltip_5367_5").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_5", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, the mirror image, of the national courts’ position towards their “concurrent jurisdiction” alongside EA was rarely examined (ICC EA Report, p. 15).

And thus, although the drafters of Article 29(7) were concerned with courts denying their own jurisdiction, the language of the article did, at least to a certain extent, exactly that, and while the “concurrent jurisdiction” exists before making the application for EA, it only partially exists after the EA application was filed, and only in “appropriate circumstances”. The language of Article 29(7) overturned the presumption of jurisdiction – meaning that by default the court should deny jurisdiction unless “appropriate circumstances” persuade it to determine otherwise.

This position is in line with Webster & Buhler’s interpretation, namely that the actual effect of Article 29(7) will depend on the applicable law of the state court where a party applies for relief.6)T. Webster & M. Buhler, Handbook of ICC Arbitration (Fourth Edition, 2018), p. 501, §29-137. jQuery("#footnote_plugin_tooltip_5367_6").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_6", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); An illustration to this approach, deferring the application of the concurrent jurisdiction to the state courts and the applicable law, is that of Gerald Metals SA v. Timis, [2016] EWHC 2327 (Ch), where the English court denied jurisdiction, inter alia, based on the fact that Gerald Metals previously applied for an EA and was denied by the LCIA.

However, bearing in mind the drafters’ concerns, it is interesting to note that the language of Article 29(7) does not address these concerns in a conclusive manner, leaving the concurrent jurisdiction aspect of the EA Provisions to the discretion of different courts in different jurisdictions, rather than to that of the parties and the institutions.

 

The Position Taken by The Courts in Israel

Earlier this year, a decision by the Tel-Aviv District Court in O.M. (Tel-Aviv) 56844-10-19 Mer Telecom Ltd. v. Sint Maarten Telephone Company N.V. (Nevo, 17.3.2020) (“Mer Telecom Decision”) provided insight on how courts in Israel may view EA applications, and their effect on the jurisdictional level and specifically the concurrent jurisdiction aspect.

In the past, the Supreme Court of Israel determined that when parties authorized an arbitral tribunal to issue interim measures and orders, such tribunal shall have the jurisdiction to decide motions for interim measures instead of a local court (see RCA 9389/06 Advanced Highway Systems Ltd. v. FTS Formula Telecom Solutions (Nevo, 14.10.2009)). The court, in turn, will be authorized to give only ex-parte or temporary emergency orders, and only prior to the constitution of the Tribunal.7)When an ex-parte motion is filed or if the petitioner cannot wait until the constitution of the Tribunal or the EA. See also: T. Webster & M. Buhler, Handbook of ICC Arbitration (Fourth Edition, 2018), pp. 501-502. jQuery("#footnote_plugin_tooltip_5367_7").tooltip({ tip: "#footnote_plugin_tooltip_text_5367_7", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); However, until of late, the Israeli courts did not directly address the EA Provisions and their interplay with past case-law and precedents.

Earlier this year, the Tel-Aviv District Court had to address these matters in the Mer Telecom Decision, where the court was requested to issue an interim injunction against the payment of a bank guarantee.

In that case, Mer Telecom petitioned the Court to issue an interim injunction against the payment of a bank guarantee until the final disposition of its main claim. Mer Telecom informed the Court that it intends to file for EA under the ICC Rules and that the interim petition and the main claim it filed with the Court were filed as a temporary relief, until such time that the EA or the Tribunal can decide on the merits of the interim measure (The Mer Telecom Decision, ¶¶ 24-25).

Although the Court initially granted Mer Telecom’s petition for emergency temporary injunction, it eventually denied the motion for interim injunction, stating that once the arbitration has commenced there was no place for the proceedings in the Israeli Court to continue, thus, denying the motion on jurisdictional grounds. The District Court also reasoned that its conclusion is in line with the Israeli case-law and with the parties’ pleadings.

Surprisingly, the Court did not analyze Article 29(7) and did not inquire if the circumstances of the application before it are appropriate circumstances which justify applying jurisdiction regardless of the EA application, and satisfied itself by noting that the EA application was dismissed. A motion for leave to appeal to the Supreme Court was denied on other grounds on April 4, 2020 in the framework of RCA 2388/20 (Justice Solberg).

 

Concluding Remarks

It is possible that the Court in the Mer Telecom Decision did not analyze the question of its concurrent jurisdiction as the application itself highlighted that it is only a temporary application pending the Tribunal’s decision, but nevertheless, the decision  highlights the risks of too wide of a discretion given to national courts. Such wide discretion and the variances between courts in different jurisdictions and legal traditions may lead applicants to “forum shopping”, favoring the jurisdictions which will hold a looser approach to the concurrent jurisdiction principle.

Although a “tight” approach to the interpretation of the concurrent jurisdiction principle or the “silent” approach taken by other arbitral institutions and the UNCITRAL Rules may lead to abuse of the EA Provisions, it would be advisable for the arbitral institutions and in particular the ICC, to define in greater detail the appropriate circumstances which will lead to the exclusion of the concurrent jurisdiction of the EA and state courts.

 

Shai Sharvit is an of counsel at Gornitzky & Co. and a member of the LCIA Court, the ICC Commission on Arbitration and ADR and the task force on Emergency Arbitrator; Nuna Lerner is a partner at Gornitzky & Co. The authors’ practice focuses mainly on international arbitration and complex multi-jurisdictional commercial disputes.

References   [ + ]

1. ↑ Gary B. Born, International Commercial Arbitration (Second Edition, 2014), Volume II: International Arbitral Procedures p.2522- 2523; 2544-2545, §17.04. 2. ↑ Nathalie Voser, “Overview of the Most Important Changes in the Revised ICC Arbitration Rules”, ASA Bulletin, Vol. 29, No. 4, 2011, p. 814. 3. ↑ J. Fry, S. Greenberg, F. Mazza, The Secretariat’s Guide to ICC Arbitration, ICC Publication 729 (Paris, 2012), p. 310. 4. ↑ Ibid, § 3-1106. 5. ↑ Gary B. Born, International Commercial Arbitration (Second Edition, 2014), Volume II: International Arbitral Procedures pp.2549-2551, §17.04. 6. ↑ T. Webster & M. Buhler, Handbook of ICC Arbitration (Fourth Edition, 2018), p. 501, §29-137. 7. ↑ When an ex-parte motion is filed or if the petitioner cannot wait until the constitution of the Tribunal or the EA. See also: T. Webster & M. Buhler, Handbook of ICC Arbitration (Fourth Edition, 2018), pp. 501-502. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); 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/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Challenging the Validity of An International Arbitration Agreement at the Pre-Arbitration Stage: Is There a Remedy Available under the Pakistani Arbitration Laws?

Thu, 2020-11-19 23:00

In Pakistan, the law governing international arbitrations resulting in a foreign award is the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act, 2011 (“2011 Act”). To those who are unfamiliar with the 2011 Act, it may come as a surprise that it does not provide any remedy to an applicant challenging the arbitration agreement at the pre-arbitration stage. But there is a way out!

When promulgating the 2011 Act, the legislature intended to design a law which limits judicial intervention in order to create a pro-foreign investment climate in Pakistan. A brief overview of the 2011 Act reveals that it significantly restricts the discretion of the courts to declare the arbitration agreement invalid prior to the commencement of arbitration.

The dilemma of which provision to apply for a challenge to the validity of an international arbitration agreement first arose in Pakistan before the High Court of Sindh in Karachi Development Company Limited v. IM Technologies Pakistan (Private) Limited, 2017 CLCN 157, in which Justice Shafi Siddiqui held that a possible remedy available for the applicant to challenge an international arbitration agreement is under Section 9 of the Civil Procedure Code, 1908 (“C.P.C.”), which relates to residuary proceedings of the court.

In the author’s opinion, there is a lacuna in the 2011 Act which fails to provide opportunity to the applicant to challenge the validity of the international agreement and the answer to it does not lie by invoking Section 9 of the C.P.C. This is for two reasons:

  • Firstly, under the Arbitration Act, 1940 (“1940 Act”) which is applicable to domestic arbitration agreements, Section 33 allows the applicant to challenge the arbitration agreement at the pre-arbitration stage. Such a provision is completely missing under the 2011 Act leaving an applicant without a remedy at the pre-arbitration stage.
  • Secondly, C.P.C. is general law and Section 9 is a procedural provision as opposed to a substantive one. It confers jurisdiction upon courts and does not grant a substantive right of action. The right of action is to be established by reference to substantive law which in this case is the 2011 Act.

Interestingly, under the 2011 Act, an applicant can challenge the validity of the arbitration agreement both post commencement of arbitration and again once an arbitral award has been rendered under Section 4 and Section 6 respectively. One of the reasons to explain the scheme of the 2011 Act to allow challenge to the validity of the arbitration agreement during and post arbitration may be to allow the arbitrator to decide the question of jurisdiction as opposed to the courts deciding it. This is because in Pakistan, court cases tend to proceed at a slow pace due to overcrowded dockets and inherent delays in the system. Another reason would be to give effect to the purpose of the New York Convention incorporated under the 2011 Act which is summarised by the Lahore High Court in Louis Dreyfus Commodities Suisse S.A. v. Acro Textile Mills Ltd., PLD 2018 Lahore 597 as follows:

The general pro-enforcement bias which permeates the 2011 Act is the policy of the law and must be the underlying thrust to liberalise procedures for enforcing foreign arbitral awards. The courts, on a proper objective analysis must give effect to the intention of the legislature and the purpose of the New York Convention, in the enforcement of foreign arbitral awards. The centrality of the statutory enterprise consists in shunning a tendency to view the application with scepticism and to consider the arbitral award as having a sound legal and foundational element.”

The legal position in Pakistan can be juxtaposed with that in India, which shares common history with Pakistan in relation to the 1940 Act up until 1996 when India enacted its Arbitration and Conciliation Act, 1996 (“1996 Act”). Unlike the 2011 Act, the 1996 Act codifies the principle of competence-competence in the statute itself under sub-section (1) of section 16 which provides that the “the arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement.”

In principle, pursuant to an application under sub-section 3 of section 16 of the 1996 Act,1)A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. jQuery("#footnote_plugin_tooltip_1783_1").tooltip({ tip: "#footnote_plugin_tooltip_text_1783_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); an Indian court cannot refuse the arbitral tribunal to determine its own jurisdiction if a party wishes to challenge the validity of the arbitration agreement. In case an arbitral tribunal upholds a challenge to its jurisdiction, the aggrieved party can immediately file an appeal against the said order under section 37(2)(a) of the 1996 Act.2)37. Appealable orders – … (2) An appeal shall also lie to a court from an order of the arbitral tribunal – Accepting the plea referred to in sub-section (2) or sub-section (3) of section 16. jQuery("#footnote_plugin_tooltip_1783_2").tooltip({ tip: "#footnote_plugin_tooltip_text_1783_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); This is a marked distinction from the 2011 Act which does not contain any provision authorising the arbitral tribunal to rule on its own jurisdiction.

In this author’s opinion, the approach adopted under the 1996 Act is much more preferable given that it acts as a deterrence for frivolous claims raised by the party before the courts of its home jurisdiction. In Pakistan, it is a standard practice for a party which fears an unfavourable award may be passed against it, to adopt obstructionist and dilatory tactics. If Pakistan were to codify the principle of competence-competence under the 2011 Act, the legislature could indirectly ensure that only genuine claims challenging the validity of the arbitration agreement are raised before the arbitrators.

So, what is the solution under the 2011 Act to challenge an international arbitration agreement prior to the commencement of arbitration? The answer is that one may institute a suit for declaration and injunction in a Pakistani court pursuant to the provisions of the Specific Relief Act, 1877 without challenging the arbitration agreement at all. The opposing counsel would then file an application under Sections 3 and 4 of the 2011 Act to stay the legal proceedings. Such an application would then have to be contested under the limited grounds provided under Section 4 of the 2011 Act which are confined to an arbitration agreement being null and void, in operative or incapable of being performed.

Recently, in Ovex Technologies (Private) Limited v. PCM PK (Private) Limited and others, PLD 2020 Islamabad 52 = 2020 CLD 15, the Lahore High Court discouraged the practice of filing cases in court by roping in other parties who are not signatories to the arbitration agreement  alongside those who are party the arbitration agreement as co-defendants in a suit to avoid the proceedings in the court from being stayed. The reasoning given by the court was that this results in abuse of process as the matter which is supposed to be resolved through arbitration is unnecessarily dragged to the court.

On the contrary, in Aroma Travel Services (Pvt.) Ltd. v. Faisal Al Abdullah Al Faisal Al-Saud and 20 others, PLD 2018 Sindh 414 = 2017 YLR 1579, the High Court of Sindh dismissed an application under Sections 3 and 4 of the 2011 Act to stay the legal proceedings on the grounds that an unwritten and unsigned arbitration agreement would result in a futile exercise of referring the matter to the arbitrator. Thus, the discretion of the courts to stay the legal proceedings depends on the facts and circumstances of each case and whether or not the grounds provided under Section 4 are met with certainty.

Overall, it appears that the real issue lies with poor drafting of the 2011 Act. Ultimately, it is the Parliament which through an amendment to the 2011 Act should legislate on whether or not challenge to the arbitration is permissible at the pre-arbitration stage.

References   [ + ]

1. ↑ A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. 2. ↑ 37. Appealable orders – … (2) An appeal shall also lie to a court from an order of the arbitral tribunal – Accepting the plea referred to in sub-section (2) or sub-section (3) of section 16. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); 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/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Arbitrating Insolvency Disputes? The English High Court Showcases Its Pro-Arbitration Stance Once Again

Wed, 2020-11-18 23:00

On 23 September 2020, the England and Wales High Court (“High Court”) rendered its judgment in Riverrock Securities Limited v International Bank of St Petersburg (Joint Stock Company) granting Riverrock Securities Limited (“RSL”) an interim anti-suit injunction in respect of bankruptcy proceedings in Russia brought against RSL by the receiver of the International Bank of St Petersburg (“IBSP”).

The court held that the avoidance claims brought in the foreign bankruptcy proceedings fell within the scope of the LCIA arbitration agreements concluded between RSL and IBSP and were arbitrable as a matter of English law, even though such claims were non-arbitrable under Russian law.

 

Facts Are Facts: What Happened?

IBSP was a major retail bank incorporated in Russia until it was declared insolvent. In contrast, RSL is a company whose place of incorporation is England and Wales. The two parties concluded nine almost identical contracts (“the Contracts”) whereby IBSP purchased securities from RSL in the form of credit link notes. Looking at the bigger picture, other parties had a role to play in the transactions as well, including UBS AG (“UBS”) (through its London branch), a major Swiss multinational investment bank and financial services company. Essentially, by purchasing the aforementioned credit link notes, IBSP undertook the credit risk stemming from certain loans given by UBS in exchange for a coupon.

The Contracts provided for English law as the governing law of the main contract. Furthermore, they all contained an arbitration clause which stated that “[a]ny dispute under the Agreement or in connections with it shall be referred to and finally resolved by arbitration under the LCIA Rules […]”. As for the seat, the arbitration clause pointed to London, England.

The Russian authorities conducted an investigation into the activities of IBSP, finding numerous irregularities and non-compliance with Russian banking law. IBSP’s banking license was revoked, and eventually, on 24 September 2019, the bank was declared insolvent. The Russian State Corporation Deposit Insurance Agency (‘the DIA’) was appointed as IBSP’s official receiver in bankruptcy.

It was against the background of the bankruptcy proceedings that IBSP sought that the Russian court invalidates the Contracts with RSL on the basis that these had been nothing but the tools to siphon off the Russian bank’s assets. The laws on which IBSP relied in this context were the Russian Bankruptcy Law and the Civil Code of Russia.

In turn, RSL turned to English courts for the purposes of securing an interim anti-suit injunction. RSL opined that, as a result of the arbitration clauses that were included in the Contracts, the matters arising out of or in relation to them must be resolved through the LCIA London-seated arbitration, and not be entertained by the Russian court. Unsurprisingly, IBSP challenged RSL’s application for an interim anti-suit injunction on several grounds, as discussed below.

 

Issues in the Case and Positions Taken by the High Court

The High Court was asked to shed light on the following issues:

  1. Is the Russian Federation, as opposed to England and Wales, a natural and appropriate forum for RSL’s application for an interim anti-suit injunction?
  2. Is the action before the Russian court pursued by DIA, and not by IBSP?
  3. Are the claims brought before the Russian court, as a matter of construction, to be deemed as falling outside of the coverage of the LCIA arbitration agreements?
  4. Are the claims brought before the Russian court actually arbitrable?

In discussing the first issue listed above, the High Court referred to Enka Insaat Ve Sanayi A.S. v. Chubb case (discussed in a previous post on the blog) and characterised the position of IBSP as hopeless. Given the fact that the parties had chosen London, England as the legal seat of their arbitration, this in and of itself meant that the parties had also submitted themselves to the jurisdiction of English courts in certain respects, including the power of English courts to grant anti-suit injunctions when such a need arises. Thus, England and Wales indeed is an appropriate forum for seeking anti-suit injunctions in the case at hand.

In terms of the second issue, the underlying argument brought against the application was that, since DIA was behind the steering wheel when it came to the proceedings before the Russian court, the substantive matters of those proceedings were thus outside of the purview of the LCIA arbitration agreements. The High Court disagreed, concluding that the claims before the Russian court were indeed brought by DIA, but on behalf of IBSP. To support its stance, the English High Court, among other things, relied on the document with which the proceedings before the Russian court had been commenced (the said document contained the following wording: ““Applicant: [IBSP] represented by the Official Receiver State Corporation Deposit Insurance Agency””) as well as the judgment of the Singapore Court of Appeal in Larsen Oil and Gas Pte Ltd v Petroprod Ltd. In this case, the Singaporean judges opined that the claims of the liquidator seeking to set aside a transaction in accordance with the (Singapore) Bankruptcy Act would be deemed as claims by the actual party to the arbitration agreement.

As for the third issue, the High Court recapitulated the “generous approach” to the construction of arbitration agreements as espoused in the case law since Fiona Trust & Holding Corporation & Others v Yuri Privalov & Others and basically noted that there is no place in English law for the “presumption that an arbitration agreement should not extend to claims which only arise on a company’s insolvency”. Moreover, the expansive wording of the parties’ arbitration agreements “(“under or …. in connection with”)”, as per the High Court, leads to the conclusion that the claims brought before the Russian court are within the reach of the LCIA arbitration agreements.

As for the last issue listed above, the High Court noted that both under Russian and English laws the claims under the Russian Bankruptcy Law indeed belonged in the realm of insolvency. This finding, however, did not render these claims non-arbitrable as a matter of English Law. Only in rather specific circumstances would insolvency claims under English law not be arbitrable, including when the order sought would be of the type that only a court could make, something that here certainly was not the case. Furthermore, there was nothing in the facts of this case that would bring the High Court to trample “the clear policy of English law of upholding arbitration agreements”.

In reaching the relevant conclusions, the High Court relied heavily on Nori Holding Ltd v PJSC Bank Otkritie Financial Corp, a case with comparable facts to the case at hand.

 

Key Takeaways

The judgment of the High Court is important as it confirms that avoidance claims brought under foreign insolvency law are arbitrable in England and Wales, maintaining England’s position as an attractive jurisdiction for international arbitration.

The High Court did not accept IBSP’s argument of non-arbitrability of insolvency claims under Russian law as a strong reason not to grant an anti-suit injunction. Instead, it reaffirmed the robust pro-arbitration approach of the English courts in holding parties to their agreement to arbitrate when the latter is broad enough to cover the claims under dispute.

The judgment demonstrates the importance of the wording of the arbitration agreement, the choice of the governing law and the seat of arbitration, reminding once again that parties should be mindful when drafting their agreement to arbitrate.

If the parties use the wording “any dispute under the agreement or in connections with it”, they should be prepared to face a broad range of claims that touch upon their contractual obligations.

Concerning the governing law, the High Court did not discuss at length which law should apply to the LCIA arbitration agreements. It merely relied on Enka Insaat Ve Sanayi A.S. v. Chubb to conclude that English law governs the arbitration agreements, whichever of the two approaches for identifying that law discussed in Enka is adopted.

Further, if the parties choose England as the seat of their arbitration, they should consider English courts’ expansive interpretation of the scope of the arbitration agreement, even where the dispute that arises under the agreement invokes the application of foreign law. A party can be sure that their will to arbitrate will not be overridden by the existence of foreign bankruptcy proceedings against their counter-party.

The present judgment also delves into the question of the interaction between insolvency and arbitration.

In light of the inevitable economic consequences of the COVID-19 pandemic and the expected increase of insolvencies, arbitration may facilitate the resolution of insolvency disputes.

The case at hand is indeed a good illustration of an ongoing trend that is here to stay, namely that arbitration seems to be a growing nest in which an ever-expanding number of various claims find their place under the sun, including those on and related to insolvency.

While the judgment obstructs IBSP’s receiver from pursuing bankruptcy claims against RSL in Russia for the time being, it remains to be seen whether the Russian court will give effect to it.

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Alpha BIT: Awaiting The First Arab-Israeli Bilateral Investment Treaty

Wed, 2020-11-18 00:42

The announcement on 13 August 2020 of a rapprochement between Israel and the United Arab Emirates (‘UAE’) took the world by surprise. Seasoned regional observers noted quiet cooperation and cross-border transactions over the past few years, but few expected these covert relationships to burst into public view so fully and wholeheartedly. The joint declaration, soon replicated by Bahrain and Sudan, was meant to lead to the full normalization of relations between the countries, including a subsequent series of binding bilateral agreements. Most interesting to the readers of this Blog is the promise of agreements on finance and investment, including the first ever Arab-Israel bilateral investment treaty (‘BIT’). A series of Arab-Israeli BITs would be noteworthy not only in their own right, but also in light of the current period of widespread ISDS reform. The purpose of this post, therefore, is to examine the ISDS practices of the primary parties to the Abraham Accords (at the moment, Israel, Bahrain, Sudan, and the UAE) and to anticipate whether and how the forthcoming BITs may appear.

 

Setting the Stage: From the Abraham Accords to the First BIT

The Abraham Accords, signed 15 September 2020, are a framework agreement to establish “peace, diplomatic relations and full normalization of bilateral ties” between these States, and envision further binding international agreements on a broad range of subjects, including security cooperation, civil aviation, exchange of science and technology, telecommunications, and energy.. Under the Accords, Israel and the UAE have agreed to “deepen and broaden bilateral investment relations,” including by giving “high priority to concluding agreements in the sphere of finance and investment.” They also “reaffirm their commitment to protecting investors, consumers, market integrity and financial stability, as well as maintaining all applicable regulatory standards.” (See here, Annex, p. 1.) Since the UAE agreed to establish normal relations with Israel, Bahrain and Sudan have followed suit, with several other Arab States expected to follow this template as well.

Press reports suggest that the UAE and Israel have agreed to sign the first Arab-Israeli BIT, though the text of the agreement is not yet publicly available. Might a series of Arab-Israeli BITs follow? Egypt and Jordan have had diplomatic relations with Israel for decades, but neither has concluded a BIT despite having many of their own. Yet Middle Eastern States are sophisticated actors in investor-State dispute settlement (‘ISDS’). According to ICSID’s most recent caseload statistics report, State Parties from the Middle East and North Africa (‘MENA’) region are involved in 11% of ICSID’s proceedings historically, and 10% of new proceedings in the 2020 (US) financial year. Despite a high number of regional BITs, they form an incomplete patchwork quilt across the MENA region, leading litigants to turn to the underutilized OIC Investment Agreement and the Arab Investment Agreement in increasing numbers. The OIC’s reform efforts have anticipated and reflected much of the ISDS reform discussion elsewhere in the world. Recent scholarship has revealed the “Euro-Arab Investment Treaty that nearly was”, including to consider its influence on the subsequent development of ISDS. Middle Eastern States also challenge the strict dichotomy of developed/capital-exporting versus developing/capital-importing States.

 

Previous Practice of Abraham Accords States towards Investor-State Dispute Settlement

Of the four States, the UAE is perhaps the most active vis-à-vis investment treaty protection and arbitration. Over the past decade, like other Gulf Cooperation Council (‘GCC’) States, it has gradually liberalized its domestic investment laws in a bid to diversify and stimulate its national economy in a post-oil world. This activity was not only matched, but surpassed, by its enthusiasm for negotiating, signing and ratifying BITs. Remarkably, the UAE has signed 52 BITs in the past decade (of which 21 were subsequently brought into force), for a total of 52 in force with a further 36 signed, but not yet in force. 1)The figures in this section are derived from UNCTAD record-keeping. jQuery("#footnote_plugin_tooltip_6010_1").tooltip({ tip: "#footnote_plugin_tooltip_text_6010_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] }); In the past two years alone, the UAE has signed BITs with Panama, Mali, Kazakhstan, Argentina, Japan, Zimbabwe, Uruguay, Brazil, Gambia, and Hong Kong SAR, though only the last one has been brought into force as yet.

Sudan and Bahrain are less active treaty participants in comparison: Sudan has 14 BITs in force and a further 19 that have been signed, but not yet in force; whereas those figures for Bahrain are 25 and six. In the past decade Sudan and Bahrain have signed three and four BITs respectively. With 34 BITs in force and two signed but not yet in force, Israel falls in the center of BIT activity between the UAE on the one hand and Bahrain and Sudan on the other. That Israel and its bilateral partners appear much more committed to ratifying BITs after they have been signed—Japan in 2017, Myanmar in 2014, and Ukraine in 2010—suggests that Israel takes investment promotion and protection seriously as a matter of policy. That Bahrain and Sudan are less likely to bring recent signed treaties into force suggests that they are less of a priority.

For its middling number of BITs, investors claiming Israeli nationality have not been shy to use Israeli BITs, having  acted as claimants in at least five known cases. Three of these are canonical, having made meaningful contributions to ISDS jurisprudence: Phoenix Action v. Czech Republic, Fuchs v. Georgia, and Metal-Tech v. Uzbekistan. While Israel does not appear to have been haled as a respondent, however, Bahrain has acted as a respondent in investor-State proceedings at least twice and Sudan at least once. The UAE, again, is much more seasoned in investment arbitration proceedings. At least thirteen known cases involve investors invoking their Emirati nationality, while the State has been named respondent in at least five.

The other countries rumored to establish normal relations—Saudi Arabia, Oman, Kuwait, Qatar, Morocco, Niger—show a similar diversity of ISDS experience. Morocco and Kuwait each have sixty or more BITs in force (and several proceedings apiece as respondent), while plucky Niger has only five—including two of the earliest BITs with Germany and Switzerland from the 1960s.

Each State’s familiarity or novelty with concluding and enacting BITs, as well as their relative success in ISDS proceedings, might influence their desire to conclude BITs with Israel in the wake of the Abraham Accords. There is also a degree of path dependency: the ease with which the UAE concludes its BIT with Israel might induce other Abraham Accords States to follow suit. It might even induce the Arab Abraham Accords States to conclude BITs as among themselves. For instance, Sudan has signed, but not yet enacted, BITs with each of the UAE and Bahrain; and there is no BIT signed between the UAE and Bahrain. As noted above, the OIC Investment Agreement and Arab Investment Agreement may fill some gaps in the region such, but these three States and others might wish to strengthen their bilateral ties with each other to the same extent they do so with Israel.

 

A Conservative or Progressive Approach towards Investor-State Dispute Settlement?

As the text of the draft Israel-UAE BIT is not yet publicly available, it is not yet clear whether the parties will choose a cautious or more ambitious approach. For instance, Israel’s recent BITs with Ukraine (2010) and Myanmar (2014) closely resemble its Model BIT (2003), while its most recent BIT with Japan (2019) does not.

According to press reports, the Israel-UAE BIT will include protections against “nationalisation, confiscation, judicial seizures, freezing assets, [as well as provisions on] establishing licenced investments, and transferring profits and revenues in convertible currencies.” Further, “the agreement also provides national and MFN treatment, no interference on all investment related topics, fair and immediate compensation for the investor in case of seizures according to the law, without any form of discrimination and according to the market value of the investment.” These fairly standard provisions will need to be analyzed in greater detail when the final text is released.

It is no guarantee, however, that the Israel-UAE BIT, or any others that follow, will stick to the same old script. It bears noting that the UAE and Sudan are both parties to the OIC Investment Agreement (though not Bahrain: Member States of the OIC are not automatically parties to the OIC Investment Agreement). Recently, that agreement has been the subject of a reform effort aimed at dramatically scaling back both the scope of investment protection as well as the procedural mechanisms afforded to aggrieved investors. That the Israel-UAE BIT seems unlikely to follow suit might speak to the durability of conventional BITs, as well as the likelihood or not that the OIC succeeds in its reform efforts. Perhaps, on the other hand, the Israel-UAE BIT will instead contain procedural innovations, such as the mandatory conciliation provision included in the 2019 Hong Kong-UAE BIT. Morocco—another possible Abraham Accords State—attracted attention for the public interest provisions and Joint Committee established by its 2016 BIT with Nigeria. Further, in a region where dual nationality is common and offshore business operations are familiar and routine, the treaty drafters might pay special attention to the definition of investor, as well as the desirability of denial of benefits clauses.

Finally, a brief word on the matter of Palestine. The effect of the Abraham Accords with respect to Israeli-Palestinian relations is far beyond the scope of this post. Yet, several Arab States make significant investments in Palestine, particularly its infrastructure. One might expect more detail than usual to be paid to the definition of “territory” under the Israel-UAE BIT to clearly define an investment “in Israel.” On the other hand, the issue might draw more attention to Palestine’s five BITs, including ones with Egypt (1998) and Jordan (2012).

The Middle East has been an important but under-heralded player in ISDS. Come what may, the forthcoming Israel-UAE BIT and other Abraham Accords-inspired agreements should bring the region to the fore.

References   [ + ]

1. ↑ The figures in this section are derived from UNCTAD record-keeping. function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); 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/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Due Process Concerns in Virtual Witness Testimonies: An Indian Perspective

Mon, 2020-11-16 23:00

Before the Covid-19 pandemic, virtual witness testimonies were prevalent in specific instances, such as when witnesses could not reach the venue because of illness. Article 8.1 of IBA Rules on Taking of Evidence in International Arbitration permits virtual testimony only at the discretion of the tribunal. The Commentary on the Rules establishes that the tribunal’s decision to allow video-conference should depend upon the “sufficiency” of the reasons given.

The uncertainty of the return of normalcy has forced the parties to adapt to a new normal, by relying entirely on virtual hearings, including virtual witness testimonies. Arbitral institutions are organizing virtual hearings using various video-conferencing platforms. As parties get more comfortable with technology and realise the associated time/cost benefits, virtual witness testimonies are likely to become more prevalent.

Accordingly, there is a need to analyse the manner in which procedural safeguards such as, “due process”, would play out in virtual witness testimonies, in order to enable a fair and proper hearings.

The exact contours of “due process” vary amongst national laws, but certain broad principles, including, the right to be heard and equal treatment of parties are universally accepted. While the principle of the right to be heard entails that each party should have an opportunity to present its case and defend against opposition’s case, the concept of equal opportunity entails that a party should not be less favourably treated than its counterparty.

 

Understanding the prevalent due-process concerns

One prevalent due process concern is that witnesses may be coached using concealed means of communications during virtual witness testimony. Moreover, the credibility of virtual testimony, particularly in cross-examinations, has been questioned as the practice involves analysing body language and non-verbal cues of the witness, such as eye gestures, gesticulation, and expressions, which becomes difficult during virtual hearings.

However, modern technology combined with logistical best practices has alleviated these concerns. Using HD video quality ensures that facial expressions and body gestures are clearly visible. As opposed to an in-person hearing, video-conferencing provides a closer-up view of the witness and allows for video replays (if recording permitted) for analysing body language. Through the installation of rotating or 360-degree view cameras, parties/tribunals may monitor the witness and ensure that he or she is not accessing other devices or persons for being coached. Separately, software applications/extensions may be used for blocking other web-pages for communication while the hearing is in progress.

These tech-solutions coupled with logistical best practices provided by the Seoul Protocol on Video Conferencing in International Arbitration, (“Protocol”) address a majority of these concerns. The Protocol’s requirements include: a reasonable part of the interior of the (witness’s) room to be visible and giving testimony on an empty desk, which would further eliminate risks of witness coaching. The safeguard to opt-out of the videoconference, if the tribunal deems it unfair to either party, ensures a safe back-up.

However, certain shortcomings of the virtual testimonies still need to be addressed. Virtual hearings may be more time-consuming in cases requiring bulky documents to conduct cross-examination. Moreover, there are issues of unreliability of technology. For instance, the right to be heard may be impacted when the connection is lost during a cross-examination leading to the loss of momentum and enabling the witness to re-evaluate their answers in the extra time. Virtual cross-examination may also not be helpful if there are audio/video distortions/ freezing of images/ time-lags. Further, concerns regarding equal treatment may arise where one party presents evidence and cross-examines in person, while the counterparty is expected to take evidence by virtual hearing.1)See, for instance, Sino Dragon Trading Ltd (“Sino Dragon”) v. Noble Resources International Pte Ltd (“Noble Resources”) [2016] FCA 1131. Sino Dragon argued that the technical glitches arising in witness testimony given via video-conference violated principles of equal treatment of parties, opportunity to be heard and public policy. The Federal Court of Australia held that there was no lack of equality because, (i) the mode of taking evidence was chosen by Sino Dragon; (ii) the technical difficulties were due to act/omission of Sino Dragon; (iii) the evidence of Sino Dragon was not excluded because of technical difficulties; (iv) the technical difficulties more acutely disadvantaged Noble Resources as they arose while cross-examination of Sino Dragon’s witness. Overall, no “real unfairness” was caused to Sino Dragon, and hence the challenge was unsuccessful. jQuery("#footnote_plugin_tooltip_7652_1").tooltip({ tip: "#footnote_plugin_tooltip_text_7652_1", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

A close-up view of the parties may also lead to over-interpretation of the visible gestures or actions. For instance, a miniscule-time lag in answering a question or visibility of sweat on the face may be over-interpreted.2)Stuke v. ROST Capital Group Pty Ltd [2012] FCA 1097, where, in context of giving evidence by video-link, the Federal Court of Australia discusses as follows: “And what if there is a delay in giving a response to a critical question? It may be impossible to tell whether the delay is due to evasiveness or uncertainty on the part of the witness or merely to difficulties with the transmission.” jQuery("#footnote_plugin_tooltip_7652_2").tooltip({ tip: "#footnote_plugin_tooltip_text_7652_2", tipClass: "footnote_tooltip", effect: "fade", fadeOutSpeed: 100, predelay: 400, position: "top right", relative: true, offset: [10, 10] });

In my opinion, amidst these challenges, safeguarding the right of due process should be a dual responsibility of both the participants of the arbitral process (parties, arbitrators, institutions) and the courts enforcing the award. To minimize issues of unreliability/misuse of technology, parties (to the extent it can be afforded) should implement the logistical/technological best-practices, including installation of rotating cameras, communication blocking software, etc. Counsel should make a judgement call on whether to remotely take a clinching testimony, i.e., one which would affect the award. Tribunals may order to opt-out of videoconference where connectivity issues persist.

If, however, participants fail to remedy due process breaches internally, courts must ensure that grounds to challenge or resist enforcement dynamically interpreted in order to address due process violations owing to unreliability/misuse of technology.

 

Witness Examination by Video in India

While the legislation is silent on video-conferencing, the recording of witness testimony through video-conferencing has been permitted by the Indian Supreme Court, where the presence of witness is required, but the witness cannot appear without an unreasonable amount of delay, expense or inconvenience. (State of Maharashtra v. Dr. Praful Desai, (2003) 4 SCC 601.)

Accordingly, in cases where witnesses have had poor health conditions, financial burden, were aged or resided abroad, testimonies have been taken through videoconferences. (See The State of Maharashtra v. Chandrabhan Sudam Sanap, 2018 SCC OnLine Bom 6576; Zaishu Xie & Another v. The Oriental Insurance Company Ltd. & Others, 2014 (207) DLT 289; Amitabh Bagchi v. Ena Bagchi, 2004 SCC OnLine Cal 93.)  At the same time, the courts have given directions for conducting a videoconferencing examination including, (i) proper identification of witnesses; (ii) the appointment of a technical coordinator; (iii) ensuring access of documents to witnesses; and (iv) presence of an officer to ensure witness is not coached. The Court has further caveated that the cross-examinations should be finished in one-go, without granting adjournments. Although, High Courts have also noted the unsuitability of virtual cross-examination where there are voluminous documents. (R Shridharan v. R Sukanya, 2011 (2) MWN (Civil) 324.)

Likewise, the courts have been largely positive towards video testimonies in arbitrations. The Calcutta High Court directed a witness present in Russia to present himself for a cross-examination through videoconference. (Saraf Agencies Private Limited v. Federal Agencies for State Property Management, 2018 SCC OnLine Cal 5958.) The Madras High Court went one-step further and encouraged parties from different parts of the country to conduct entire arbitration via videoconference. (Axis Bank v. M/s Nicco UCO Alliance Credit Limited, 2017 SCC OnLine Mad 33928.) More recently, the Delhi High Court, in the case of Rategain Travel Technologies Private Limited v. Ujjwal Suri, recognizing the possibility of conducting virtual arbitral proceedings, stated, “the arbitral tribunal may consider conducting the hearings and recording of evidence by video-conferencing, if considered feasible”. (Rategain Travel Technologies Private Limited v. Ujjwal Suri, High Court Of Delhi, O.M.P (MISC) 14/2020, May 11, 2020.)

In light of these judicial precedents, it may be reasonable to conclude that the Indian courts may continue taking a positive view towards video testimonies in arbitration. Taking inspiration from above-cited decisions, in order to further eliminate risks of witness coaching, either the representative of an institution or the counterparty may be present in the same room as witness. Moreover, parties should be encouraged to keep the virtual cross-examinations brief and conduct them in one session.

 

Enforcement of awards in India

For due process purposes, a party may challenge or resist the enforcement of an award on grounds of, inability to present one’s case or the tribunal’s lack of compliance with the procedure contemplated in the agreement.

A common instance where an award may be successfully challenged or resisted on the ground of inability to present one’s case, is where no opportunity was given to a party to deal with an argument which goes to the root of the case. (Vijay Karia and Others v. Parysmian Cavi E Sistemi SRL and Others (“Vijay Karia”), 2020, SCC OnLine SC 177;  Ssangyong Engineering and Construction Company Limited v. NHAI (“Ssangyong”), 2019 SCC OnLine SC 677.) In Vijay Karia case, the Supreme Court propounded that the test to determine if a party has been unable to present its case is – “whether factors outside the party’s control have combined to deny the party a fair hearing.

Further, the ground of violation of “public policy” may also be invoked by courts sua sponte to set aside or resist enforcement. However, the Indian Judiciary has been taking a pro-enforcement approach by narrowly interpreting the ground of public policy.

Given the pro-enforcement approach of the Indian judiciary, the courts are unlikely to set-aside/resist enforcement of domestic/foreign awards, unless there has been an “apparent” due process violation during virtual testimony. Accordingly, enforcement challenge to an award based on virtual witness testimonies would be successful when fairness has been visibly impacted, and not when grounds made out are hyper-technical. In my opinion, such a standard, although high, aims to strike a balance between fairness and ensuring that parties do not indulge in speculative litigation. The standard would also assist in reducing due process paranoia, i.e., “a perceived reluctance by arbitral tribunals to act decisively in certain situations for fear of the arbitral award being challenged on the basis of a party not having had the chance to present its case fully”.

 

Conclusion

The due process concerns in virtual testimonies are yet to be fully resolved. In my opinion, until such resolution, the decision to take virtual testimonies should be taken carefully – technological capabilities of participants, importance of witness, are relevant considerations in such decision-making. Furthermore, in my opinion, where virtual testimonies are taken, implementation of technological/logistical solutions coupled with vigilance of courts is necessary to avoid due process concerns.

 

Disclaimer: The material/opinion expressed is exclusively my own and does represent the views of my employer or any other firm.

References   [ + ]

1. ↑ See, for instance, Sino Dragon Trading Ltd (“Sino Dragon”) v. Noble Resources International Pte Ltd (“Noble Resources”) [2016] FCA 1131. Sino Dragon argued that the technical glitches arising in witness testimony given via video-conference violated principles of equal treatment of parties, opportunity to be heard and public policy. The Federal Court of Australia held that there was no lack of equality because, (i) the mode of taking evidence was chosen by Sino Dragon; (ii) the technical difficulties were due to act/omission of Sino Dragon; (iii) the evidence of Sino Dragon was not excluded because of technical difficulties; (iv) the technical difficulties more acutely disadvantaged Noble Resources as they arose while cross-examination of Sino Dragon’s witness. Overall, no “real unfairness” was caused to Sino Dragon, and hence the challenge was unsuccessful. 2. ↑ Stuke v. ROST Capital Group Pty Ltd [2012] FCA 1097, where, in context of giving evidence by video-link, the Federal Court of Australia discusses as follows: “And what if there is a delay in giving a response to a critical question? It may be impossible to tell whether the delay is due to evasiveness or uncertainty on the part of the witness or merely to difficulties with the transmission.” function footnote_expand_reference_container() { jQuery("#footnote_references_container").show(); jQuery("#footnote_reference_container_collapse_button").text("-"); } function footnote_collapse_reference_container() { jQuery("#footnote_references_container").hide(); jQuery("#footnote_reference_container_collapse_button").text("+"); } function footnote_expand_collapse_reference_container() { if (jQuery("#footnote_references_container").is(":hidden")) { footnote_expand_reference_container(); } else { footnote_collapse_reference_container(); } } function footnote_moveToAnchor(p_str_TargetID) { footnote_expand_reference_container(); 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/2 }, 1000); } }More from our authors: International Arbitration and the COVID-19 Revolution
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International Law Talk Podcast and Arbitration: In Conversation with Professor Bernard Hanotiau

Mon, 2020-11-16 00:00

Welcome to the first post in the series of International Law Talk. During a series of podcasts, Wolters Kluwer will bring you the latest news and industry insights from thought leaders and experts in the field of International Arbitration, IP Law, International Tax Law and Competition Law. Here at Kluwer Arbitration Blog, we will highlight the podcasts focused on international arbitration.

 

In the first podcast of the series, Dr Crina Baltag, Editor of Kluwer Arbitration Blog, interviews Professor Bernard Hanotiau, partner with Hanotiau & van den Berg in Brussels, Professor of Law and Arbitrator. Professor Hanotiau is the author of Complex Arbitrations: Multiparty, Multicontract, Multi-issue (Wolters Kluwer, 2nd edition, 2020) and of numerous articles on international commercial law and arbitration.

With a successful career in law of over 50 years, as arbitrator and lawyer, Professor Hanotiau shares his thoughts on various relevant topics pertaining to international arbitration:

 

http://arbitrationblog.kluwerarbitration.com/wp-content/uploads/sites/48/2020/11/KLI-Trailer1.wav

 

  • judicialization of international arbitration, after the release of IBA’s Rules on the Taking of Evidence in International Commercial Arbitration, with numerous and long submissions to the arbitral tribunal;
  • arbitration as a complex process, with increasing situations of multi-party, multi-contract, and multi-issue, as projects are becoming more and more complex and arbitration a preferred dispute resolution mechanism;
  • theories considered by arbitral tribunals with regard to non-signatories, including agency, estoppel, third-party beneficiary, implied consent etc.;
  • the appropriateness of group of companies doctrine;
  • support found by arbitral tribunals on “practical reasons and considerations of equity”;
  • ISDS reform and legitimacy of investment arbitration;
  • consolidation and coordination of arbitrations under the proposed ICSID Arbitration Rules. On this particular point, Professor Hanotiau emphasizes that ICSID has always encouraged consolidation of arbitrations and the use of different tools such as single award, same composition of arbitral tribunals etc. On the latter example, Professor Hanotiau refers to the Alcoa, Kaiser Bauxite and Reynolds cases against Jamaica. Professor Hanotiau also explains that, in the past years, in particular from his position as member of the Court of Arbitration of the Singapore International Arbitration Centre (SIAC), he has seen an enormous number of request for consolidation in international arbitration.

As a final thought, Professor Hanotiau highlights that international commercial arbitration, while it might not see radical changes in the next 5-10 years, will begin to address issues of diversity of arbitrators more vigorously.

 

Listen to the podcast ‘Complex arbitrations’ with Professor Hanotiau.

 

Follow the coverage of the International Law Talk arbitration podcasts on Kluwer Arbitration Blog here.

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The Contents of the Yearbook Commercial Arbitration, Volume XLV (2020), Upload 5

Sat, 2020-11-14 23:33

Subscribers of KluwerArbitration.com enjoy access to the ICCA Yearbook Commercial Arbitration. The most recent upload of ICCA Yearbook materials in 2020 is now available online. It features 17 court decisions applying the 1958 New York Convention from Argentina, Sweden, Switzerland, the United Kingdom, and the United States, as well as six decisions of US courts applying the 1975 Panama (Inter-American) Convention. Four decisions are particularly interesting.

The Supreme Court of Justice of Argentina, in Deutsche Rückversicherung AG, held that the appellate court was correct in modifying an award rendered in the United States against an Argentinean public entity before enforcing it, in order to bring it in line with Argentina’s public policy on debt consolidation – the system established in 1991 under which public debts under court decisions or arbitral awards could be paid in government securities instead of actual money.

The Swiss Federal Supreme Court affirmed enforcement of two awards rendered in the United States in the Abengoa case despite claims that there was appearance of bias on the part of the chairman of the arbitral tribunal, whose law firm had certain links with the group of the claimant. The Court, invoking the IBA Guidelines on Conflicts of Interest as guidance, stressed the restrictive reading to be given to the public policy exception under the New York Convention and found the links not sufficiently significant. The Brazilian Superior Court of Justice, by contrast, had reached the exact opposite result.

In Sladjana Cvoro the United States Court of Appeals for the Eleventh Circuit heard a case of first impression on whether enforcing an award that is based on a choice of law or choice of forum clause depriving a seaman of the right to pursue a Jones Act statutory claim is contrary to US public policy in the sense of Art. V(2)(b) of the New York Convention. The Court answered this question in the negative and distinguished the standard to determine compliance with public policy that applied at the stage of enforcing arbitral awards from the standard to be applied when determining whether to compel arbitration in the first place.

The Eleventh Circuit also decided a case under the Panama Convention concerning the enforcement of an award dealing with an agreement for the distribution of CBD oil, a cannabidiol product. In Earth Science Tech Inc., the Court disagreed with defendant, the producer of CBD oil, that confirmation of the award would be illegal under federal law proscribing all products containing THC. Not only had defendant advertised its products as deriving from the “federally legal industrial hemp plant”, and did not require a prescription or permit to buy; any illegality would also become moot when the 2018 Farm Bill was enacted, which removed hemp-derived CBD with low levels of THC from the group of prohibited substances.

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Six Lessons from the Sixth Sarajevo Arbitration Day

Fri, 2020-11-13 23:10

The Sixth Sarajevo Arbitration Day conference took place on 23 October 2020 and it was dedicated to the opportunities to adopt positive arbitration practices amidst the challenges created by the Covid-19 pandemic. This annual conference organized by the Association ARBITRI took place online for the first time and gathered legal practitioners from all over the world to hear from six of the leading international arbitration experts. Under the umbrella of the overarching theme of seeking opportunities for better arbitration, each speaker informed and inspired the participants with their insights and experiences in the field. The main lessons drawn from the conference are outlined below.

 

Less talk, more action – The Three E’s in International Arbitration

The keynote speaker Lucy Greenwood cautioned that international arbitration as an industry has lagged behind in three E’s: efficiency, equality and environmental care for decades. However, the recent developments caused by the Covid-19 pandemic are a good starting point in providing more attention and action to these important matters. This pandemic gave us the opportunity to pause and reflect on our wasteful ways of life and business which directly decrease the efficiency of arbitration. Efficiency could be increased, and costs reduced if we tackled the issues of other two E’s and if International arbitration would no longer waste talents and natural resources, aside from time and costs. Ms Greenwood highlighted that the increased reliance on virtual hearings and speaking engagements can enhance the equality and diversity in international arbitration, by providing exposure for junior lawyers from diverse backgrounds. Additionally, Ms. Greenwood stressed that international arbitration practitioners from ”flight pride” and that instead we should suffer from ”flight shame” because 93% of carbon emission related to international arbitration comes from air travel. We must embrace behavioural changes caused by this pandemic and embrace video conferencing, paperless arbitration and sustainability because the Environmental E is already a dangerous emergency.

 

The window of opportunity is wide open

The second speaker, Professor Mohammed Abdel Wahab, described the Covid-19 pandemic as a door of opportunity for international arbitration, which should be approached with a positive outlook and sincere optimism. Even though 2020 was the most stressful year in lives of many people, Professor Abdel Wahab holds that the silver lining of the pandemic is getting broader rather than thinner for arbitration industry. He noted three effects of the pandemic on international arbitration: the pandemic will be a catalyst for the transformation of arbitral proceedings as we know them, it will lead to the development of new digital legal support tools and services and different generations of arbitration practitioners will find a way to adapt to the new and flexible working arrangements.

Abdel Wahab also pointed out that the new approach to arbitration practice will make tech savvy arbitration practitioners indispensable, and the removal of physical barriers in the virtual setting will allow the breakthrough of persons who previously had limited visibility and mobility– a phenomenon described as the ”New blood transfusion”. Professor Abdel Wahab concluded by touching upon the likely regionalization of international arbitration where the arbitrators and counsels might be selected not because of their skills but because of their national or regional proximity which will simplify the technical organization of arbitral hearings.

 

Virtual arbitration is here to stay

The third speaker, Steven Finizio (WilmerHale London) focused on the idea of the increased efficiency of virtual hearings in international arbitration. The key idea was that international arbitration needs to be flexible and tailored for the needs of the parties in order to remain more attractive than national court litigation. To achieve this, arbitration professionals need to reconsider their habits and make sure that they abandon practices which are reflexive and not thoughtful. This pandemic has certainly forced us to revisit the use of technology and embrace it in international arbitration where cases are going forward – unlike the national courts where the backlog are only getting worse. Mr Finizio pointed out that we need to make sure that arbitration remains a better option than court litigation through technology and flexibility. Finally, Mr. Finizio addressed the criticism of virtual hearings, such as the opinion that use of technology makes arbitration less serious and emphasized that arbitral awards have been rendered in virtual arbitral proceedings and that there is no reason to believe they are any less legitimate than the awards issued under normal circumstances.

 

Hearings etiquette and technical support in virtual hearings

The fourth speaker, Florian Haugeneder (Knoetzl Vienna) shared reflected on the practice of remote hearings in international arbitration, from first-hand experience. He noted that the Covid-19 pandemic transformed the perception of remote hearings among international arbitration practitioners, which were not a common practice just one year ago. Addressing the admissibility of remote hearings, Mr. Haugeneder explained that remote hearings are a procedurally permissible modus operandi which is also used in court proceedings and cannot be seen as a violation of Article 6 of the ECHR, i.e. the right of each individual to have a fair and public hearing before a neutral tribunal established by law. Mr. Haugeneder highlighted some of the practical steps we can take to improve the quality of remote hearings by emphasizing the importance of hearing etiquette: muting the microphone while others speak, preventing audio and video interruptions and refraining from private statements in remote hearings He also suggested that capacity building and technical assistance for arbitration practitioners in remote hearings can improve the quality of the proceedings and the level of trust and reliance in the process. Finally, Mr. Haugeneder concluded that remote hearings are here to stay but that they probably will not entirely replace physical hearings because people will always prefer in-person interactions over online meetings.

 

The doors of the Vis East are open to anyone with a computer, internet and the CISG

When Coronavirus struck Hong Kong in January 2020, Louise Barrington (ArbitralWomen) knew that cancelling a Vis East competition in international arbitration scheduled for March was not an option. Months of legal analysis, drafting and teamwork could not simply be ignored. As discussed in a previous blog post, for the first time ever, the competition was held online and, as Ms Barrington notes, it was a huge success that highlighted the flexibility of international arbitration and its ability to overcome difficulties. 72 out of the original 138 signed up for the online competition and have overcame the reluctance to embrace this technological step. Ms Barrington noted that the introduction of technology in arbitration moot competitions also enabled more arbitrators to participate because they no longer had to travel from across the world. Organizers soon realized that online moot competitions actually opened the doors for more “mooties” and more diversity into the world of Vis East since financial constraints, visa requirements and geography were no longer constraints. The Vis East, as a powerful generator of future international arbitration experts and practitioners, became open to anyone who has a computer, internet and the CISG.

 

Arbitration is no longer a playground for the select few

Catherine Rogers (Arbitrator Intelligence), as the final speaker of the conference described the Covid-19-motivated, transparency-driven innovations in international arbitration as an opportunity for “The Rise of the Rest“. Smaller arbitration institutions, less known arbitrators and smaller disputes are finally getting the opportunity to „go out there“ and venture into the world of international arbitration. The old traits success in international arbitration, such as the number of flights taken to participate in proceedings or number of appointments, are no longer an eligibility factor for those seeking first appointments. Nowadays, the proficiency in technology is its own marker of success in international arbitration, for both counsel and arbitrators. Ms Rogers pointed out that we should welcome the breakdown of these stale myths and markers and accept the fact that international arbitration needs to expand to Africa, Latin America and Asia instead of sticking with North America and Europe – which are all long established arbitration hubs. Finally, Ms Rogers emphasized the importance of the availability and equal access to information about diverse arbitrators to all stakeholders. She highlighted the need for data-driven resources, such as Arbitrator Intelligence reports, which will level the playing field and provide visibility to arbitrators from diverse backgrounds, as discussed on previous blog posts.

Although all the speakers touched upon the „new-normal“ in international arbitration from different perspectives, there is a common thread of opportunity and the recognition that these uncertain and challenging times can result in sustained positive change. The Seventh Sarajevo Arbitration Days will be an opportunity to look back and see if the predictions and insights from this conference still hold true. We hope to see you there.

 

The full recording of the Sixth Sarajevo Arbitration Day conference is available on the Association ARBITRI YouTube Channel

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Does Issuing a Dissenting Opinion to an Arbitral Award Constitute a Violation of the German Ordre Public?

Fri, 2020-11-13 00:59

A one paragraph obiter dictum in an annulment decision rendered by the Frankfurt Higher Regional Court (the “Court”) on 16 January 2020 (26 Sch 14/18) reignited an old debate: are dissenting opinions in German arbitration proceedings permissible?

From an international perspective, dissenting opinions in arbitral awards are by no means unusual.  That is why it came as a surprise to many that the Court took a strong stance against written dissenting opinions in arbitral awards in German-seated arbitrations.  According to the Court, issuing a written dissenting opinion undermines the secrecy of the arbitral tribunal’s deliberations.  The principle of secrecy of deliberations is regarded as an important principle of German law because it serves the impartiality and independence of the arbitrators. Thus, the Court indicated that a dissenting opinion may violate the procedural ordre public and expose a majority arbitral award to a risk of annulment.

This obiter dictum is the first time that a German court has taken an express position on the long-debated issue of the admissibility of dissenting opinions in German arbitration proceedings.  Unfortunately, the Court was not definitive in its view and neither annulled or confirmed the award in question based on the issue of the dissenting opinion.   This decision will add to pre-existing uncertainty surrounding this issue.  Unless the Federal Court of Justice (Bundesgerichtshof) clarifies – and ideally rectifies – the position advanced by the Court, the Frankfurt decision has potential to harm Germany’s position as an internationally recognized place of arbitration.

 

The Decision and Facts of the Dispute

The Court ruled on an annulment application against an award issued by a three-member arbitral tribunal under the 1998 ICC Rules of Arbitration.  The place of arbitration was Frankfurt am Main, Germany.  In its final award, the arbitral tribunal had dismissed all claims by way of a majority decision.  The dismissal was based, in part, on the majority’s confirmation of the company’s valuation prepared by a tribunal-appointed valuation expert.  One arbitrator submitted a dissenting opinion in which he objected to the valuation expert’s opinion and to the arbitral tribunal’s evaluation of that opinion.

The Court annulled the award, finding that one party was denied the right to be heard.    Then, in a single paragraph (almost as an afterthought), the Court discussed, but ultimately left open, the question of whether the award also had to be annulled because one arbitrator filed a dissent:

However, in the court’s opinion, there is much to be said for the fact that the publication of a dissenting opinion is inadmissible in domestic arbitration proceedings, even taking into account the considerations of the legislature that has refrained from regulating this matter, and violates the secrecy of deliberation which also applies to domestic arbitral tribunals.  The particular importance of the secrecy of deliberation for the protection of the independence and impartiality of the arbitrators may also suggest that the secrecy of deliberation – even after the final deliberation and the issuing of the award – should not be put at the disposal of the parties and/or the arbitrators and should be regarded as part of the procedural ordre public.” (internal citations omitted; emphasis added)

The annulment decision is subject to an appeal before the Federal Court of Justice.

 

The German Debate

In many jurisdictions, dissenting opinions in judgments are permitted.  By contrast, in Germany, judges are prohibited from rendering dissenting opinions because they are bound to uphold the secrecy of deliberations.  There is an exception in constitutional courts at the federal and state level.

Whether arbitrators in German-seated arbitration proceedings are also prohibited from rendering dissenting opinions is subject to an ongoing controversial debate among scholars and practitioners.  While most agree that an arbitral tribunal’s deliberations are secret, (German Federal Court of Justice, 11 December 2014, I ZB 23/14; German Federal Court of Justice, 23 January 1957, V ZR 132/55, NJW 1957, 592) there are diverging views as to whether, and to what extent, this renders dissenting opinions unlawful.  Even among those who oppose dissenting opinions in arbitration proceedings, there is some disagreement as to the consequences of a member of an arbitral tribunal impermissibly filing a dissent. One school of thought is that this is a procedurally inconsequential violation of contractual duties; but another (older) is that it violates the German procedural ordre public, which may be fatal for the arbitral award as a whole. (For a discussion see, e.g.,H.P. Westermann, “Das dissenting vote im Schiedsverfahren” (2009) SchiedsVZ, 102; M. Escher, “Die Dissenting Opinion im deutschen Handelsschiedsverfahren – Fear of the unknown” (2018) SchiedsVZ, 219)

The Court seems to agree with those who believe that the existence of a dissenting opinion can violate the German ordre public.  The Court’s position thus deviates from the position of the German legislature which considered this debate settled when reforming the German arbitration law in 1997:

The (…) question whether a dissenting opinion can be rendered with the arbitral award did not require any express regulation; under the current regime this is predominantly considered permissible.” (BT-Drs. 13/5274, p. 56)

The traditional view among German scholars and practitioners – in line with the legislature’s position – has been that parties can waive the secrecy of deliberations and thereby allow dissenting opinions.  Some additionally consider the arbitrators’ consent to be necessary for such waiver to be effective. (See R. Schütze, “Das Zustandekommen des Schiedsspruchs” (2008) SchiedsVZ, 10 (14); I. Sänger, Zivilprozessordnung, 8th ed., Münster, Nomos, 2019, § 1052 para. 3; H.P. Westermann, “Das dissenting vote im Schiedsverfahren” (2009) SchiedsVZ, 102 (105)) The Federal Court of Justice, in a 1957 decision, appears to have agreed with the possibility that the parties can waive the secrecy of the deliberations with the consent of the arbitrators, but ultimately left this question open. (German Federal Court of Justice, 23 January 1957, V ZR 132/55, NJW 1957, 592)

In its recent ruling, the Court acknowledged the legislature’s view, but nonetheless disagreed and even considered a dissenting opinion a violation of the procedural ordre public, although it provided no explanation for this determination.  And it did this despite the obvious consequence that every German arbitral award with a dissenting opinion would thus be subject to annulment, irrespective of whether the dissent was relevant to the outcome of the proceeding.

The decision implies that any waiver of secrecy by the parties is insignificant.  The Court, by stating that the secrecy of deliberations is part of German procedural ordre public, deprives the parties and arbitrators of the power to waive the secrecy of deliberations and thus allow for dissenting opinions.  It is inherent in the concept of ordre public that those things which fall within it cannot be waived by the parties since they embody the core values of the rule of law which are enforced ex officio. (S. Wilske, L. Markert, Beck Online Kommentar ZPO, 36. Ed., 1.3.2020, § 1059 para. 56)

 

The practical implications of the Court’s obiter dictum

Arbitrators conducting German-seated arbitrations are now faced with the difficult question of how to navigate the uncertainties created by the Court.

Any party that is dissatisfied with the outcome of a German-seated arbitration will now seriously consider having the award annulled if a dissenting opinion exists.  To a losing party, the Court’s ruling is appealing – it considers the mere existence of the dissenting opinion a violation of the German ordre public, and this is a fact that a party can easily establish.  Whether an annulment action based on a dissenting opinion will succeed will ultimately be decided by the German Federal Court of Justice.  The Frankfurt decision is currently subject to an appeal, so the Federal Court of Justice may clarify the issue soon.

For now, and until the German Federal Court of Justice has definitively ruled on this issue, arbitrators should refrain from issuing dissenting opinions in German arbitrations.  Parties should agree at the outset that the arbitrators are not permitted to issue dissenting opinions, even if an arbitrator disagrees with a majority view.  With respect to arbitrations already in progress, the parties or the chairperson should proactively raise the issue in order to make all participants aware of this German particularity that international arbitrators may not be familiar with.

Not only the parties, but also the arbitrators, have an interest in avoiding dissenting opinions in German-seated arbitration.  Arbitrators have a fiduciary duty to render an enforceable award that withstands scrutiny in set-aside proceedings.  Issuing a dissenting opinion despite being on notice of the Frankfurt decision could subject the dissenting arbitrator to damages claims for the costs of the arbitration if the award is annulled.

Any party to a German-based arbitration must discuss the Frankfurt decision with their (prospective) arbitrator(s) in order to ensure that the eventual award will not be subject to challenge on this ground.  Having heard the presiding judge during the oral hearing leading up to the Frankfurt decision, we have little doubt that the Court will enforce its obiter dictum and annul an arbitral award accompanied by a dissenting opinion, if and when it is called upon to do so.

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The Contents of the Asian International Arbitration Journal, Volume 16, Issue 2 (November 2020)

Thu, 2020-11-12 22:09

The contents of this issue of the journal is now available and includes the following contributions:

 

Georgia Dawson & Kate Apostolova, Banks as Claimants in Investment Arbitration

Historically, banks have tended to prefer litigation over arbitration for their disputes. However, in recent years, banks have increasingly been using international arbitration instead, particularly when doing transactions in Asia and in emerging markets. The 2018 Queen Mary International Arbitration Survey also concluded that financial institutions, including banks, and their counsel are ‘contemplating arbitration with much greater interest than ever before’. In addition to using international commercial arbitration more often, banks have increasing sought to benefit from treaty-based international investment arbitration. The protections afforded in investment treaties mitigate some of the key risks banks face when investing abroad, such as having their investment nationalized or being subjected to unfair investigations. This article focuses on banks as claimants in treaty-based investment arbitrations, a subject not addressed in commentaries. It examines the publicly available investment arbitration awards in cases brought by banks against States and sets out to identify some key trends and themes.

 

Eunice Chua, The Singapore Convention on Mediation and the New York Convention on Arbitration: Comparing Enforcement Mechanisms and Drawing Lessons for Asia

This article considers the enforcement mechanism for international mediated settlement agreements proposed by the Singapore Convention on Mediation and critically examines this mode of enforcement as against enforcement as an arbitral award in Asia, including through a hybrid process like Arb-Med-Arb. Similarities and differences between the New York Convention and the Singapore Convention on Mediation will be discussed and used to consider how Asian jurisdictions may respond to the Singapore Convention on Mediation and what lessons may be learnt from the arbitration context.

 

Faadhil Adams, The Semi-Autonomy of the Arbitral Legal Order

The term arbitral legal order refers to the tapestry of conventions, model laws and guidelines that applies in the field of international arbitration and renders it a selfstanding community among the international legal order of States. This article discusses the allegiance owed by the arbitral community to States generally and the State in which it is seated more specifically. It takes as its point of departure that the growth in international arbitration merits a reconsideration of the international standing of the arbitral legal order. The article considers earlier viewpoints that argued for the total detachment of arbitration from State legal systems in terms of what is referred to as delocalization. It delves into the impact that such views have on the choice of law process and considers the possibility of this detachment against pluralistic and State sovereign perspectives. It comes to the conclusion that modern day arbitration is neither dependent on States nor independent from them but exists among them as a semi-autonomous community. The semi-autonomy derives from the idea that the international arbitral community is by and large afforded the freedom to regulate itself. It has the ability to create norms and to create international jurisprudence that is largely followed, regardless of the State in which the tribunal is seated. In this way the field is autonomous. This freedom is, however, restricted by the interests of States where certain countries can and sometimes do impose their will on the community in the form of legislation that restricts the freedom of the arbitral process. On the other hand the arbitral order is still in need of States, as it is only State machinery that can compel parties to comply with the arbitral process where a party chooses to attempt to escape the obligation imposed by the arbitral clause or choose to delay or subvert the arbitral process. The arbitral community is also dependent on State machinery for enforcement of its awards. In these cases, State assistance is not only welcomed but imperative. States have, however, gradually reduced impediments to arbitration through a pro-arbitral sentiment that is globally expressed. The article thus concludes that a symbiosis exists between the international arbitral community and States more generally.

 

Anirudh Hariani, Indian Arbitration and the Shifting Sands of Public Policy

The ‘public policy’ test is a statutory exception to the enforcement of arbitration awards. The doctrine has its roots in common law. At times, the test has been construed narrowly, and at other times, expansively. What actually constitutes and what is contrary to public policy, however, is never clear. This article seeks to trace the tumultuous development of the public policy doctrine in India, from its beginnings as a common law concept, to arrive at the current understanding of the doctrine and its parameters, in the context of Indian arbitration law. In the process, this article discusses the approach of Indian courts in limiting interference with foreign arbitration awards on the public policy ground. The author argues that it is necessary to further check the public policy exception in India, particularly in the context of enforcement of foreign awards and awards from international commercial arbitration, in view of the Indian government’s aim of making India a ‘hub of arbitration’.

 

Ritunjay Gupta, Res Judicata in International Arbitration: Choice of Law, Competence & Jurisdictional Court Decisions

Given the twin goals of finality and efficiency, the doctrine of res judicata has come to be applied, although less frequently, in the international arbitration context as well. However, being largely perceived as a proverbial ‘twilight issue’ in international arbitration, its application is fraught with uncertainties and inconsistencies. Amongst the more compelling concerns regarding the subject matter, this Article tackles the ambiguities around the choice of law analysis for preclusion standards; the doubts regarding the arbitral tribunal’s kompetenz-kompetenz to address the issue; and the peculiar nature of jurisdictional court decisions and its res judicata effect in subsequent arbitral proceedings.

Rarely, if ever, does the lex arbitri shed light on the precise standards of preclusion to be applied in a particular case. Instead, the choice of law analysis by arbitral tribunals are guided by a fluid balancing act between varying degrees of private rights and public interests. While the The International Law Association (ILA) Recommendations (Resolution No. 1/2006) do come close to a purported international standard, its limited acceptability within the community and lean adoptability across jurisdictions, brings to the fore the uncertainties attached to the doctrine itself.

Confusion further ensues when the authority of the tribunal to decide on its own jurisdiction is brought into question on confronting the defense of res judicata. While the New York Convention’s mandate of recognition of awards empowers the Courts to afford res judicata effect to a prior adjudication, the same conflicts with the arbitral tribunal’s own competence to address arguably procedural arbitrability issues such as this. These concerns amplify manifold when an arbitral tribunal encounters a prior Court’s decision regarding the tribunal’s jurisdiction, including the question of non-arbitrability of the disputed claim.

In the absence of exacting standards and principles to deal with any of these issues, different tribunals have been discharging their own brand of the doctrine’s broad interpretation. This Article expounds the existing literature on the subject, and thereafter, attempts to analyse each of these complex and controversial issues to better equip practitioners and arbitrators when faced with such concerns; at least until universal conformity is achieved through promulgations bordering a truly international standard.

 

Book Review: Edward Poulton (ed), Arbitration of M&A Transactions: A Practical Global Guide (Second Edition) (Globe Law and Business, 2020) by Angela Yap

Ashwin Shanbhag & Amoga Krishnan, NAFED v. Alimenta: Has India Missed the Wood for the Trees?

Crests and troughs mark the development of the jurisprudence of Indian arbitration law. The enforcement of arbitral awards has regularly been hobbled by an anachronistic judicial approach that allowed for the merits to be examined despite it not being within the court’s remit – the proverbial Achilles heel to an otherwise robust legal framework that mirrors the UNCITRAL Model Law, 1985. Judgments that applied the brakes on the advancement of India as an arbitral hub took shelter behind the esoteric ‘public policy’ principle. A recent decision by the Supreme Court of India in National Agricultural Cooperative Marketing Federation of India (NAFED) v. Alimenta serves as a worthy example. This case note considers the implications of the Court’s approach in setting aside an arbitral award that was held to violate the public policy of India. It argues that though the Court may have erred in examining the terms of the parties’ contract, its ultimate decision to set the award aside is capable of justification.

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Arbitration of Consumer Disputes in France: Get Thee Behind Me Competence-Competence?

Wed, 2020-11-11 23:50

On 30 September 2020, the French Supreme Court rendered a decision, that, on its face, appears to overturn its fabled 1997 Jaguar (95-11.427, 95-11.428 and 95-11.429) and 2004 Rado (02-12.259) decisions, which held that the principle of competence-competence applied even in the case of consumer disputes.  In PwC, to the contrary, the Supreme Court refuses to refer the parties to arbitration, and holds that the arbitration agreement is not binding on the consumer.  While this constitutes a major shift in the reasoning of the court, the court is not replacing one bright-line rule with another.  Rather, it makes room for early-on case-by-case analysis of the arbitrability of consumer disputes by domestic courts.

 

A Little Bit of Context

The principle of competence-competence is enshrined in Article 1448 of the French Civil Procedure Code, which provides that “[w]hen a dispute subject to an arbitration agreement is brought before a court, such court shall decline jurisdiction, except if an arbitral tribunal has not yet been seized of the dispute and if the arbitration agreement is manifestly void or manifestly not applicable.”

Over time, this arbitration-friendly principle has been tested in many contexts, but it is safe to say that no debate has been more heated than that surrounding the arbitrability of consumer disputes in light of Article 6(1) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, which provides that “Member States shall lay down that unfair terms used in a contract concluded with a consumer by a seller or supplier shall, as provided for under their national law, not be binding on the consumer and that the contract shall continue to bind the parties upon those terms if it is capable of continuing in existence without the unfair terms.”

In two instances, Jaguar and Rado, the principle of competence-competence and the imperative of consumer protection butted heads, and in both instances, priority was given to arbitration – much to the satisfaction of arbitration practitioners and chagrin of others.

 

Jaguar

In Jaguar, three individuals had separately ordered limited-edition Jaguars from the British automaker, through a French subsidiary.  The contracts provided that any dispute would be arbitrated in London.  Each buyer then attempted to rescind the separate sales, and initiated proceedings in French courts.  The individuals argued that the purchases were made in their individual capacities, and that international trade interests were not at stake as all payments were made to the French subsidiary.  The Paris Court of Appeal declined jurisdiction, noting that the contracts “which contained a clear and legible arbitration agreement” covered an international transaction, and that it was irrelevant in this light that each individual had made the purchase “for his individual use.”  The Supreme Court endorsed this approach, noting that “the arbitration agreement should be enforced, by virtue of the independence of such agreement under international law, under the control of the set-aside judge as to his own jurisdiction, and notably as to the arbitrability of the dispute.”

 

Rado

In Rado, a French individual had opened an account with a New York entity offering brokering services through a doorstep sale.  Pursuant to that contract, the individual wired a substantial sum of money to an account in the United States.  The contract provided for arbitration in the United States through the National Futures Association.  Four months later, the balance of the account became negative, and the individual initiated proceedings in front of the French courts.  This time, the individual did not contest the international nature of the transaction, but argued that because of the nature of the contract (entered into in her individual capacity and through a doorstep sale the legality of which was questioned), the court could hold that the arbitration agreement was manifestly void.  The court refused to entertain this argument, and held that an examination of the arbitration clause showed no inequality of arms, such that it was not manifestly void, and the dispute should therefore be remanded to arbitration subject to review at the enforcement stage.

 

New Beginnings?

PwC

Following the passing of her father in Spain, a French woman retained the services of the Spanish arm of an international consultancy and legal services provider in the context of a dispute with her brother and the executor of the estate.  The contract, in French, included an arbitration agreement which consisted in the translation of the consultancy’s boiler-plate Spanish-language arbitration clause, and provided for CIMA arbitration, presumably in Madrid.

Evidently dissatisfied with the services provided, the consumer initiated proceedings against the consultancy in French courts.  The consultancy objected to the jurisdiction of the court, pointing to the arbitration agreement contained in the contract, and arguing in the alternative that Spanish courts should hear the dispute.

Following the conventional Jaguar/Rado approach, the Versailles Court of Appeal should have remanded the case directly to arbitration.  It did not.  Rather, without regard to the principle of competence-competence, the court directly launched into its own analysis of the arbitration agreement, and held that it was unfair because it had not been negotiated and reflected the standardized language used by the consultancy.

It was the perfect opportunity for the Supreme Court to revisit its prior rulings.

The Supreme Court first engaged in a lengthy recitation of the principles of European and domestic consumer laws to reach the conclusion that the procedural rule contained in Article 1448 (the principle of competence-competence) cannot result in a party being effectively deprived of the consumer-protection provisions of European law.  Consequently, the court upheld the decision of the Court of Appeal, holding that “the court of appeal which, after having examined the applicability of the arbitration agreement by looking at all appropriate factual and legal elements at its disposal, declined to apply the arbitration agreement, performed its obligation as a domestic judge to ensure the full effectiveness of European consumer protection laws without disregard to the provisions of Article 1448” (emphasis added).  The court then briefly endorsed the finding of the lower court that the arbitration agreement was an unfair term, reiterating that that finding was in the full discretion of the lower court “taking into account the nature of the services described in the contract, as well as all circumstances surrounding the conclusion of the contract.”

 

Potential impact of the decision

Much could be said about a potential spill-over effect of the decision and corresponding weakening of the negative effect of the principle of competence-competence even beyond the scope of consumer disputes, or on the desirability of further alignment between labor and consumer cases in domestic and international settings.

Likewise, the actual foundation for the result reached by the Supreme Court in PwC remains open to interpretation: Is the court holding that the arbitration agreement was manifestly void because the dispute involved a consumer, or is the court completely side-stepping competence-competence?  The wording of the decision strongly suggests the latter.  If that is indeed the case, on what ground?  Some sort of public policy exception?  If so, why only hint at it and not say so explicitly?

Focusing on the practical impact of the decision and how courts are likely to apply it going forward actually provides a good approximation of the court’s thinking.  It also puts to rest any temptation to read PwC as a pure reversal of Jaguar and Rado.

First, in Jaguar and Rado, affluent individuals entered into international transactions for highly specific goods and services, eliciting little of the sympathy usually directed at individuals in need of the shield of consumer laws.  They were sent directly to arbitration.  In PwC, a consumer sought the services of a consultancy to address an intricate and delicate family matter.  She was spared having to go to arbitration as a prerequisite to the adjudication of her dispute.  Overall, an equitable – if not intellectually satisfactory – result seems to have been reached in all three cases.

Second, the 1997 Jaguar court limited itself to noting the international nature of the arbitration, and giving full effect to the principle of competence-competence, while refusing to engage into any discussion as to the nature of the underlying dispute.  For its part, the 2004 Rado court already moved away from that bright-line rule to usher in a more factual analysis, noting that the court of appeal “having analyzed the arbitration agreement […] held that [it] presented all the necessary guarantees as to equality of arms in the appointment of the arbitrators and the independence of the arbitrators” (emphasis added).

The fact that the same result was reached in Jaguar and Rado should therefore not obfuscate the fact that Rado already endorsed a factual analysis going well beyond a prima facie review of the arbitration agreement and blind application of the negative effect of competence-competence.

With PwC, the court goes one step further: in consumer disputes, a full analysis of the applicability of the arbitration agreement by looking at all appropriate factual and legal elements at the disposal of the court becomes possible, without recourse to Article 1448, and without having to wait for a hypothetical set aside or enforcement action.

In other words, the same practical result reached in PwC could also have been reached by applying a Rado-like Article 1448 enquiry to the PwC set of facts.  Conversely, auto-enthusiasts and aspiring financiers might not fare much better in 2020 than they did in 1997 or 2004.  In this light, the evolution in reasoning presented by PwC comes across more as a recasting than a repudiation of the Rado test.

Finally, if anything, this evolution is oddly reminiscent of the French courts’ willingness in recent years to apply a more stringent level of scrutiny to awards where issues of jurisdiction and public policy are concerned (even if, to be fair, issues of public policy usually arise in the more familiar settings of fraud or corruption).  In other words, by side-stepping Article 1448 in consumer cases, where the issues of jurisdiction and public policy are ultimately one and the same, PwC makes it possible for any domestic court to seize the opportunity to opine on the jurisdiction of an arbitral tribunal straight away, rather than having to wait for hypothetical set aside proceedings to do so.

PwC therefore constitutes more of an evolution than a revolution.  The trade-off, of course, is that domestic courts now have the option to side-step Article 1448 in consumer disputes.  Whether this is the right price to pay for consumer protection is a question for another day.  At the very least, this new rule of thumb approach tackles the issue with nuance Jaguar did not provide.

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