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The Turn to Fact or Fiction: Ad Hoc Arbitration in the Draft Amendment to PRC Arbitration Law

Sun, 2021-10-24 01:22

The proposed Article 91 in the Draft Amendment to PRC Arbitration Law (the “Draft Amendment”), which was issued by the PRC Ministry of Justice in July 2021, introduces ad hoc arbitration: “The parties to a commercial dispute involving foreign elements may agree on an institutional arbitration or directly agree that it shall be arbitrated by a specially established arbitration tribunal”. According to the PRC Ministry of Justice, the main consideration for permitting ad hoc arbitration is that the PRC has acceded to the New York Convention, and foreign-administered ad hoc awards can be recognized and enforced in PRC—and domestic-administered and foreign-administered arbitration should be treated equally. Nevertheless, considering the current national situation, the Ministry of Justice is proposing to limit the scope of ad hoc arbitration to domestic arbitration with foreign elements in PRC.

This introduction of ad hoc arbitration is expected to be a breakthrough development for the PRC Arbitration Law (the “Arbitration Law”). This post will analyse ad hoc arbitration in the context of current PRC law and in the global context to consider whether ad hoc arbitration will become a reality in the PRC or remain a fiction. This post does not explicitly address the separate issue of differentiating between purely domestic arbitration and domestic arbitration with foreign elements.

 

Ad Hoc Arbitration Under the Current PRC Law

Since officially recognizing arbitration as a means of ADR, the PRC only admitted institutional arbitration domestically. Under Article 16 of the existing Arbitration Law, which was promulgated in 1994, a valid arbitration agreement must contain three elements: (1) the parties’ intention to arbitrate; (2) the specific matter for arbitration; and (3) a designated arbitration commission. Thus, an arbitration agreement that does not designate an institution administering the arbitration procedure will be voided. During the 26 years since the promulgation of the Arbitration Law, more than 4 million cases have been completed through institutional arbitration in PRC, while ad hoc arbitration is not commonly contemplated by parties and arbitrators. The PRC Supreme People’s Court in 2016 promulgated the Opinions on the Provision of Judicial Safeguards for the Construction of Pilot Free Trade Zones, among other purposes, to promote awareness and potential application of ad hoc arbitration as a pilot measures in certain Free Trade Zones. However, due to many barriers posed by the legal framework and unique practising environment, reported ad hoc arbitration cases in those Free Trade Zones were rare.

The Draft Amendment has relaxed the statutory requirement on validity of arbitration agreement, particularly Article 16 of the existing Arbitration Law. It can be reasonably expected that more arbitration agreements will be given effect, at least those that stipulate institutional arbitration. But it still needs to be observed if ad hoc arbitration would indeed increase in PRC, given the historical dominance of institutional arbitration in PRC.

 

Comparative Analysis

Ad hoc arbitration has been facilitated by modern arbitration laws in some countries that have a longer track-record of arbitration, for instance, the English Arbitration Act and Singapore International Arbitration Act, as well as by the UNCITRAL, in particular the UNCITRAL Arbitration Rules, which are often referenced in arbitration clauses providing for ad hoc arbitrations. Compared to these rules and national arbitration laws, the existing Arbitration Law features more on institutional arbitration than on ad hoc arbitration.

First, most of the provisions are mandatory. Fifty-three out of the 80 provisions in the existing Arbitration Law uses mandatory expression, such as “should” or “ought to”. On the other hand, most provisions of the UNCITRAL Arbitration Rules are optional, which allows parties to opt out and facilitates ad hoc arbitration. The English Arbitration Act explicitly lists its mandatory provisions in Schedule 1, and the majority of provisions are considered non-mandatory.

Second, the contents of most provisions in the existing Arbitration Law refer directly to institutional arbitration. For example, Chapter 2 is named as “Arbitration Commissions” and focuses on arbitration institutions. Chapter 4 on arbitration procedure is also dominated by provisions related to arbitration institution, and even the commencement of an arbitration procedure is to be decided by the arbitration commission. On the other hand, the UNCITRAL Arbitration Rules, English Arbitration Act, and Singapore International Arbitration Act do not have a strong focus on institutional arbitration.

The Draft Amendment does not deviate from this general focus on institutional arbitration. This leads to the question of whether the ad hoc provisions in the Draft Amendment could effectively facilitate and sustain ad hoc arbitration in practice. Apart from Article 91, the Draft Amendment also incorporates Articles 92 and 93 to specifically regulate ad hoc arbitration, which provides basic norms, such as tribunal formation, arbitrator challenge, and court supervision over ad hoc arbitration, namely that awards shall be filed in the court of the place of ad hoc arbitration.

These three articles are all in the Chapter 7 on domestic arbitration with foreign elements, and Article 88 in this Chapter stipulates that “The provisions of this Chapter shall apply to the arbitration of disputes involving foreign factors. Where there are no provisions in this Chapter, other relevant provisions of this Law shall apply”. But, like the exiting Arbitration Law, the “other relevant provisions” in the Draft Amendment generally concern institutional arbitration and may be hard to apply to ad hoc arbitration. Therefore, it may be doubtful whether the three articles in the Draft Amendment could adequately facilitate ad hoc arbitration.

 

The Global Popularity of Institutional Arbitration

Traditionally, advantages of ad hoc arbitration are thought to be: (1) low costs; (2) speed; (3) flexibilities of rules of procedure; and (4) international acceptance.1)Harry L. Arkin, “International Ad Hoc Arbitration: A Practical Alternative”, International Business Lawyer, Vol. 15, No. 1 (January 1987). jQuery('#footnote_plugin_tooltip_39026_3_1').tooltip({ tip: '#footnote_plugin_tooltip_text_39026_3_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

While ad hoc arbitration remains an important arbitration model, it is also noted that more parties prefer institutional arbitration as opposed to ad hoc arbitration. According to research by PwC and Queen Mary University of London in 2008, 86% of awards were rendered by arbitration institutions rather than through ad hoc arbitrations.

The same trend could also be observed in recent statistics from major arbitration hubs in Asia. For instance, of the 1,080 cases filed in 2020 at the Singapore International Arbitration Centre, 1,063 cases (98%) were administered by the institution and the remaining 17 (2%) cases were ad hoc appointments; of the 318 filings in 2020 at the Hong Kong International Arbitration Centre, 203 (64%) were administered by the institution.

The reason for the dominance of institutional arbitration is considered to be that arbitration has become increasing complex, thus requiring more effort to organize an international arbitration efficiently.2)Ulf Franke, “Arbitral Institutions: Trends and Developments”, 2009 Asian DR, p. 115. jQuery('#footnote_plugin_tooltip_39026_3_2').tooltip({ tip: '#footnote_plugin_tooltip_text_39026_3_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Arbitral institutions have endeavoured to adapt to these challenges. In addition, the traditional advantage of ad hoc arbitration is less obvious than before, as cases have become more legally, contractually, and financially complicated. The situation is particularly obvious in some emerging markets without a long history of arbitration, like in the MENA (Middle East and North Africa) region, where ad hoc arbitration has not succeeded in gaining popularity.3)Essam Al Tamimi, “International Commercial Arbitration in the MENA: Institutional v Ad Hoc: A Wealth of Choice”, 83 Arbitration, Issue 1 (2017), p. 19. jQuery('#footnote_plugin_tooltip_39026_3_3').tooltip({ tip: '#footnote_plugin_tooltip_text_39026_3_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); By and large, ad hoc arbitration in the MENA region suffers from lack of process, a shortage of arbitrators to undertake ad hoc work, and the abundance of jurisdictional challenges.4)Id. jQuery('#footnote_plugin_tooltip_39026_3_4').tooltip({ tip: '#footnote_plugin_tooltip_text_39026_3_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Similar to MENA in the history of arbitration usage, the PRC may also face challenges in developing ad hoc arbitration.

 

Concluding Remarks

Given the history and tradition in arbitration usage, the dominance of institutional arbitration under the existing Arbitration Law and the Draft Amendment, and popularity of institutional arbitration worldwide, particularly in Asia, it is likely that more efforts in the Draft Amendment and related frameworks are needed before ad hoc arbitration in scale may become a reality.

References[+]

References ↑1 Harry L. Arkin, “International Ad Hoc Arbitration: A Practical Alternative”, International Business Lawyer, Vol. 15, No. 1 (January 1987). ↑2 Ulf Franke, “Arbitral Institutions: Trends and Developments”, 2009 Asian DR, p. 115. ↑3 Essam Al Tamimi, “International Commercial Arbitration in the MENA: Institutional v Ad Hoc: A Wealth of Choice”, 83 Arbitration, Issue 1 (2017), p. 19. ↑4 Id. function footnote_expand_reference_container_39026_3() { jQuery('#footnote_references_container_39026_3').show(); jQuery('#footnote_reference_container_collapse_button_39026_3').text('−'); } function footnote_collapse_reference_container_39026_3() { jQuery('#footnote_references_container_39026_3').hide(); jQuery('#footnote_reference_container_collapse_button_39026_3').text('+'); } function footnote_expand_collapse_reference_container_39026_3() { if (jQuery('#footnote_references_container_39026_3').is(':hidden')) { footnote_expand_reference_container_39026_3(); } else { footnote_collapse_reference_container_39026_3(); } } function footnote_moveToReference_39026_3(p_str_TargetID) { footnote_expand_reference_container_39026_3(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_39026_3(p_str_TargetID) { footnote_expand_reference_container_39026_3(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Upheaval of Dispute Resolution Centres in the Gulf: Recent Developments in Qatar and Dubai

Sat, 2021-10-23 01:27

On 14 September 2021, a Decree (no. 34) by the government of Dubai (currently only available in Arabic)  (the Decree) abolished two of Dubai’s most successful arbitration institutions: the Dubai Maritime Arbitration Centre (EMAC) and the DIFC-LCIA Centre.1)The DIFC-LCIA was established as a joint venture between Dubai International Financial Centre (DIFC), Dubai Arbitration Institute (DAI), and the London Court of International Arbitration (LCIA). jQuery('#footnote_plugin_tooltip_39151_6_1').tooltip({ tip: '#footnote_plugin_tooltip_text_39151_6_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This was done without notice, and it meant that almost overnight, responsibility for regional arbitrations was transferred to the ‘onshore’ Dubai International Arbitration Centre (DIAC).

At or around the same time, the neighbouring state of Qatar issued Law No. 15/2021, which expanded the jurisdiction of the Qatar International Court, which is the competent court of the Qatar Financial Centre (QFC), to include disputes arising in respect of the Qatar Free Zones and Qatar Free Zones Authority (QFZA). With this development, the Qatari government appears to signal the ascendance of the QFC Court as a preferred forum for disputes, even to the detriment of arbitration.

Whilst Qatari Law 15/2021 appears to confirm a rising trend in the Gulf to enhance the remit of transnational commercial courts, the Dubai Decree seeks to eke away the competence of extra-territorial institutions, shifting power to regionally concentrated power bases instead.

For the sake of brevity, this post will focus on the recent developments in Dubai, its background, and the issues arising therefrom.

 

Context to the Decree

Following the Decree’s entry into force, a new DIAC branch will be established in the DIFC, but that will take more time. It is claimed that the Decree aims to promote onshore Dubai as a global arbitration hub, following the issuance of Federal Law No. 6 of 2018 on arbitration (Dubai’s relatively new arbitration law). The new arbitration law modernised Dubai’s archaic arbitration laws, which were (rather unsatisfactorily) contained within a chapter of Dubai’s Civil Procedure Code. However, as they say, the proof will be in the pudding.

 

Arbitration in the United Arab Emirates

One of the most important decisions made by commercial businesspeople when agreeing to arbitrate is deciding which arbitral institution will handle our potential disputes and under which set of rules. By agreeing to arbitrate, parties expressly circumvent the well-trodden route of whichever national court system is jurisdictionally appropriate to resolve disputes. Therefore, it is trite to say that two major requirements of negotiated arbitration agreements in the absence of such default procedures are foreseeability and certainty.

For businesses operating in the Arab world, the DIFC-LCIA Centre provided disputants familiar with Western arbitration practices the assurance that their arbitrations would be handled according to clear and foreseeable methods under the rules of an institution partnered with the LCIA, which carried years of experience of administering arbitrations in Europe. However, the certainty and foreseeability of arbitration in Dubai were called into question following the issuance of the Decree.

 

Transitional Period and Handover

In the immediate ‘handover’ period to the DIAC, and in the transitional period that will succeed it, there will be considerable uncertainty for businesspeople who have already negotiated, or are contemplating inserting, a clause remitting disputes to the DIFC-LCIA under its rules in their contracts.

For parties whose disputes are pending at the DIFC-LCIA, these will continue to be administered under the DIFC-LCIA Rules, but will be supervised by the DIAC pursuant to Article 6(B) of the Decree. For parties whose arbitration agreements contain a clause incorporating the DIFC-LCIA Rules, but whose disputes have not yet arisen, these will be administered under the DIAC Rules by DIAC, unless the parties agree otherwise, pursuant to Article 6(A) of the Decree.

The choice of seat of ‘DIFC’ by parties is not affected by the Decree: this (and the DIFC laws) will continue to apply.

 

Two Institutions, Two Sets of Rules

In theory, the Decree streamlines matters because there is now a centralised hub to deal with disputes (the DIAC) as opposed to two different institutions, one onshore (the previous DIAC) and one off-shore (DIFC-LCIA), operating under two different sets of rules. However, theory and practice do not always align. The homogeneity of the procedures does not always lead to the best result, notably for parties who chose the DIFC-LCIA Rules specifically to benefit from the experience and qualifications of the LCIA and who never signed up to DIAC. The discrepancy between the two sets of rules is the first challenge that parties will need to tackle; the DIFC-LCIA Rules were updated in 2021 whereas the DIAC Rules currently in force2)Pending adoption of the ‘2017’ DIAC Rules by the DIAC. jQuery('#footnote_plugin_tooltip_39151_6_2').tooltip({ tip: '#footnote_plugin_tooltip_text_39151_6_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); date back to 2007 and do not contain many of the innovations in other modern institutional rules to which international parties have become used (such as on joinder and consolidation, expedited procedures, and the use of digital technology).

Having worked at a major arbitral institution administering cases in the past, my personal observations are the following. First, any choice of arbitral institution should be clear and unambiguous in order to avoid conflicts down the line, either between the parties, or between the application of opposing institutional rules. The ability to continue with DIFC-LCIA arbitrations but have them administered by DIAC is problematic. As such, for example, the ICC Rules now provide under Article 1(2) that only the ICC Court is competent to administer arbitrations under its rules. It is likely that this change, which was made following the case of Insigma Technology v Alstom, was created to prevent instances in which parties refer to an arbitral institution but ask it to apply the rules of another (such as the ICC) to the proceedings. It is to be recalled that in Insigma, the Singapore courts permitted a competing institution (Singapore International Arbitration Centre) to apply the ICC (i.e., not its own) rules, pursuant to the parties’ agreement.

At a very basic level, data protection issues might also arise as a result of conflation of two institutional processes, if information about disputing parties which had not intended for their details to be made accessible to anyone other than the DIFC-LCIA is shared with the DIAC. On a practical note, ‘institutional cooperation’ also fails to take into account the different charging structures of institutions, and ways of calculating arbitrators’ pay. For instance, under DIAC Rules, the arbitrators’ pay is subject to a discretionary procedure employed by the DIAC. Under Article 2.2, the DIAC “fixes the advance on costs corresponding to the amount of the dispute, in an amount likely to cover the fees and expenses of the Tribunal and the Centre’s administrative costs”. This is akin to the sliding scale system used at the ICC. However, the DIFC-LCIA Rules are different: the tribunal is remunerated according to an hourly rate determined by the LCIA Court, under Article 2 of the Schedule on Costs. It therefore fluctuates, and depends on fixed hourly fees. It is difficult to see how these systems will be reconciled or applied effectively from an administrative perspective if the accounts department of DIAC is tasked to apply different charging methods to different cases administered by the centre in the transitional period.

Further, the DIFC-LCIA Rules contain multiple references to the LCIA taking supervisory decisions (such as on the appointment of arbitrators and arbitral challenges). This worked when the DIFC-LCIA Centre’s ‘umbrella’ supervisory entity was the LCIA Court. But the insertion of DIAC as administering institution for pending So, to take but one example, the DIFC-LCIA Rules  (Rule 26.9) provide that parties may agree to settle the dispute and thereby end the arbitration proceedings. Usually this is done through a consent award by the tribunal. However, there is a mechanism in the DIFC-LCIA Rules that allows parties to dispense with requesting a consent award, and instead leave it to the LCIA Court to conclude the arbitration proceedings after discharging the tribunal. The problem becomes: what happens when there is no LCIA Court to perform such function, and the DIAC does not have a residual, equivalent rule in such circumstances? It is concerning that this may be one of several ‘black holes’ that will only be discovered in due course, after the handover period, when the time comes to cross such bridges.

Furthermore, it is clear that each arbitral institution has an ethos and methodology that is specifically chosen by its users. At least in the case of the larger and more established institutions, that personality is rooted in a long history. It stands to reason that the parties chose DIFC-LCIA arbitration for a reason; not just for the content of the rules. They considered the depth and breadth of its knowledge in specific sectors and types of disputes, and its management team and direction. An abrupt transition from one institution to another does not entail a sudden ‘brain transplant’: the move to a new DIAC will be a gradual process in which the identity and directional approach of the ultimate entity is yet to be formulated. This is not what DIFC-LCIA would-be users signed up for.

 

Concluding Remarks

In conclusion, parties contemplating inserting an arbitration clause into contracts with a Dubai-based counterparty would be well-advised to take advice on whether and how to amend their existing contracts if they contain a DIFC-LCIA clause. In the interests of clarity and foreseeability, in light of the potential issues touched upon in this post, it is suggested that parties who have not yet entered into a dispute under their contract enter into a separate amendment agreement by which they clarify which rules they intend to be applicable in the DIFC-LCIA clause (for the avoidance of any disputes in due course). The other option would be to replace the disputes clause altogether (for instance, with one that either referred to the LCIA, or another regional institution likely to stand the test of time, preferably not the result of a joint venture, straddling two jurisdictions.

Similarly, in the future, when deciding upon which arbitration clause to insert into a commercial contract, it may be prudent to choose an institution that has been around, not just for a long time, but also in a jurisdiction where the rule of law is rarely called into question and where institutions with a judicial character are unlikely to be deleted with the stroke of a pen.

 

*The views expressed herein do not constitute legal advice. The views are the author’s and do not reflect those of the firm or the firm’s clients.

References[+]

References ↑1 The DIFC-LCIA was established as a joint venture between Dubai International Financial Centre (DIFC), Dubai Arbitration Institute (DAI), and the London Court of International Arbitration (LCIA). ↑2 Pending adoption of the ‘2017’ DIAC Rules by the DIAC. function footnote_expand_reference_container_39151_6() { jQuery('#footnote_references_container_39151_6').show(); jQuery('#footnote_reference_container_collapse_button_39151_6').text('−'); } function footnote_collapse_reference_container_39151_6() { jQuery('#footnote_references_container_39151_6').hide(); jQuery('#footnote_reference_container_collapse_button_39151_6').text('+'); } function footnote_expand_collapse_reference_container_39151_6() { if (jQuery('#footnote_references_container_39151_6').is(':hidden')) { footnote_expand_reference_container_39151_6(); } else { footnote_collapse_reference_container_39151_6(); } } function footnote_moveToReference_39151_6(p_str_TargetID) { footnote_expand_reference_container_39151_6(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_39151_6(p_str_TargetID) { footnote_expand_reference_container_39151_6(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Highlights from CanArb Week 2021: The 2021 ICC Canada Conference – Leaning into the Future

Fri, 2021-10-22 01:34

As part of Canadian Arbitration Week, the 2021 ICC Canada Conference, titled Leaning into the Future, was designed to facilitate critical thinking and debate on several important topics in international arbitration. The focus of the conference was decidedly post-pandemic, exploring fault lines and cleavages in the system of international arbitration as we know it today, potential developments in arbitration as artificial intelligence becomes more familiar and trusted to deliver a fair process capable of fair outcomes, and additional regulation of third party funding to address conflicts and other concerns.

 

The Guardians of the Arbitral Universe

The first conference session, a panel discussion titled Guardians of the Arbitral Universe, was moderated by Martin Doe, Senior Legal Counsel with the Permanent Court of Arbitration. Four panelists, Alexander Fessas, Secretary General of the ICC International Court of Arbitration, Dr Patricia Shaughnessy, Professor at Stockholm University, Tina Cicchetti, Independent Arbitrator, and George Vlavianos, partner with DLA Piper LLP in Doha, explored the role of arbitral institutions in ensuring the integrity of arbitration as a global system of justice.

The topic was inspired by an address delivered by Alexis Mourre, former President of the ICC International Court of Arbitration, at the 2019 GAR Live conference in Istanbul. Mourre’s address was preceded by a warning issued five years earlier by Sundaresh Menon at ICCA 2012, that our industry needed to get its house in order, to self-regulate or be regulated, and a further omen from Gary Born who proclaimed the “sky is falling”. The panelists considered and debated several questions within this universe: Is arbitration a transnational system of justice? What are the most pressing threats to the system? What role do arbitral institutions play in that system – do they serve as its backbone? To what degree does the robustness of this “backbone” shape the legitimacy and predictability of international arbitration?

A deeper question emerged in the dialectic among the panelists. That is, whether there exists a common understanding of international arbitration or a common misunderstanding of international arbitration. Is there an absence of a true transnational ethos? There are threats to be sure – regionalism and parochialism – but perhaps a system nevertheless does exist? There may be types of disputes for which arbitration may need new solutions, as exemplified by the collapse of supply chains during the pandemic. As to what the path forward might be, there is a lot that arbitral institutions can do in terms of capacity-building and enhancing transparency, such as through the publication of awards. A counterpoint to this may be that published awards could be used as persuasive authorities by counsel, which may recreate a common-law litigation-style system.

Dialing the dialogue back from the perspective of seeking to expand the system, perhaps it is in attempting to reach everyone that international arbitration reaches no one. Perhaps it is arbitral institutions doing everything and anything that is causing a real crisis of trust and credibility with users. This has led some stakeholders and States to call for an increase of the regulatory supervision to ensure that arbitral institutions are in fact credible, have integrity, and result in delivering effective service to users. The issue may be a common misunderstanding of international arbitration: everyone thinks that arbitration can solve their problem, regardless of what the problem is. Is it wise to “collect” labour disputes, class actions, consumer problems, non-business disputes, and to some extent investor-state disputes, and bring all into one large universe or forcing into a small planet?

As an apropos segue into the next segment of the conference, the panel also recounted the late Emmanuel Gaillard’s Freshfields lecture on the sociology of arbitration, which presented on one chart the stakeholders in arbitration, all revolving around the users at its center. To properly guard this galaxy, perhaps the focus ought to be on the users, keeping in mind that the value for them is an enforceable outcome. Institutions are the face of arbitration to the users and they shoulder the responsibility to ensure that arbitration lives up to the promises made to the users.

 

Fireside Chat with Claudia Salomon

Following the opening panel, Stephen Drymer, a partner with Woods LLP, hosted the new President of the ICC International Court of Arbitration, Claudia Salomon, in a fireside chat. Ms Salomon spoke about the role of the ICC historically and today, as well as some of her core initiatives.

Ms Salomon recalled that the ICC was established roughly a century ago with a view to promoting peace and prosperity through global trade, and that an efficient dispute resolution mechanism was necessary to facilitate trade. Today, the ICC aims to ensure that its dispute resolution services meet the needs of global business, but also small and medium enterprises and micro-medium enterprises.

Under Ms Salomon’s predecessor, the ICC Court reached gender parity in 2015. Prior to 2015, only 10% of the Court’s membership was female. Today, the ICC Court is the most diverse in its history, with 195 members from 125 countries, more women than men, and more court members from African countries than ever before. The next step among the ICC’s diversity initiatives, under Ms Salomon’s leadership, is to create a taskforce on disability and inclusion.

Ms Salomon also spoke about her goal to reengage with users. Technology can greatly assist in facilitating this for those with busy schedules and who may need or want to be involved in some parts of a proceeding but not others. This ties directly into ensuring that the ICC remains at the forefront of meeting the needs of global business.

 

Debate #1: Our Brave New World – the ‘Artificial Arbitrator’

The first debate focused on artificial intelligence (AI) and considered whether AI is capable of achieving the same or better dispute outcomes than human decision-making. Sarah McEachern, partner with Borden Ladner Gervais LLP, moderated a debate between Sophie Nappert, Arbitrator, 3 Verulam Buildings, and Todd Wetmore, partner with Three Crowns.

While one view is that AI reduces the bias in human decision-making, can biases really be eliminated altogether through AI? Algorithms are coded by humans, ergo human bias infiltrates algorithms. Yet, human judgment is also chronically unreliable: take the example of parole board decisions, which have been found to vary depending on whether a case is heard before or after lunch. AI promises to solve the frailty of human judgment, as exemplified by the algorithm called Prometea, which has been applied by prosecutors in Buenos Aires for years.

Some also believe that an erosion of user trust will eventually lead to the demise of artificial adjudication. Parties will not trust the system if they do not know the decision-makers. While the inner-workings of an arbitrator’s mind will never fully be known, how could one ever “know” the entirety behind the AI programming?

AI adjudication would require parties to jettison everything they hold dear about the process today – no advocacy, no advocates, no process whereby a tribunal could be persuaded. This would be replaced by an antiseptic process of decision-making – data would be generated and collected for a data specialist to feed into a computer. Ultimately, AI adjudication may well be our future for certain types of disputes. Simple and binary disputes lend themselves more easily to an AI adjudicator than complex and non-binary disputes.

Audience polling before and after the debate showed an increase in those audience members responding “no” to the proposition that AI cannot remove decision maker’s bias, and “yes” to the proposition that AI will erode user confidence in arbitration.

 

Debate #2: Third Party Funding – ‘Show me the Money Trail’

The second debate focused on whether the issues associated with third party funding in international arbitration have been adequately dealt with through our current rules framework, or whether greater normativity is required. Geoff Moysa, Investment manager and legal Counsel with OmniBridgeway, moderated this debate between Andrea Bjorklund, Professor at McGill University Faculty of Law, and Wesley Pang, partner at Eversheds Sutherland.

This debate proceeded more as a discussion than a formal debate. A key focus of the discussion was the question of what is third party funding. Different jurisdictions have different levels of sophistication and familiarity with third party funding, and have different visions for the appropriate regulatory framework. These differences can and do lead to forum shopping (which is not necessarily a negative as it is allowing the parties choice).

There appears to be consensus on the potential need for disclosure in respect of a claimant’s ability to cover adverse costs in light of the risk of a funder overextending funding. It also appears to be non-controversial that there are legitimate issues around disclosure for conflicts purposes, and who controls the process at settlement.

Apart from the need (or lack thereof) for greater State regulation applicable to third party funding, the debaters considered whether arbitral tribunals have the power to regulate third party funding. There remains a debate as to whether the older rules are sufficient in their generality, or whether there is a need for newer more specialized and particularized rules. A further complication arises in that the latter potentially imply that the former are deficient and therefore arbitrators are bereft of powers to regulate third party funding in the absence of applicable State regulation.

Polls issued before and after the debate revealed that some members of the audience were persuaded that existing rules and regulations applicable to third party funding are adequate, and that the only reason for regulating third party funding is to manage arbitrator conflicts and adverse costs.

***

The conference brought together Canadian practitioners from around the world and saw a lively discussion in the chat feature throughout. In keeping with its theme, it did indeed lean into the future on a number of topics in international arbitration and for the international arbitration community as a whole.

 

Other posts covering CanArbWeek can be found here

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Highlights from CanArbWeek 2021: Lukewarm on Hot-tubbing – Effective Expert Collaboration Goes beyond the Joint Report

Thu, 2021-10-21 01:34

Just about everyone in the legal profession has made a small mathematical error in front of others and quipped, “well, that’s why I went to law school”. Clients hire lawyers for our legal reasoning, not for our abilities in arithmetic. For this reason, supplementing skilled legal analysis with input from industry and quantum experts is an essential component of effective advocacy in the majority of commercial arbitrations. Yet, knowing that experts are useful, and knowing how to work with them, are two entirely different concepts.

This post considers some of the insights shared by the moderators and the distinguished panel that hosted “Effective Expert Testimony: An Expert’s Guide” at CanArbWeek 2021. The moderators were  Michael Schafler, Paul Tichauer, and Janet Walker, while the panel members were Enzo Carlucci, Scott Davidson, Neal Mizrahi, Robert Patton, Rachel Ryman, and Peter Steger. In particular, this post will highlight the panel’s thoughts on “hot-tubbing”, the potential value of allowing experts to collaborate on joint reports, and the scope of an expert’s role throughout the arbitration.

 

Creativity is an essential tool in counsel’s toolbox

Spurred on by the ongoing COVID-19 pandemic and the consequential suspension of Court hearings and backlog of cases, arbitration is experiencing a rise in popularity in Canada as a means of efficiently resolving disputes. Along with the incumbents whose practice is solely focused on arbitration, the increasing number of arbitrations allows opportunities for litigators to act as counsel in arbitrations as well. Lawyers with a litigation-focused background are encouraged to leave behind the Rules of Court that they are comfortable with and consider arbitration’s more flexible, and potentially less adversarial, approach to dispute-resolution. Against this backdrop, the panel suggested that working creatively with an expert may not only minimize the cost of dispute resolution, but may also increase a party’s chances of success when used appropriately.

The panel’s insights apply equally regardless of background, as the unexpected arrival of COVID-19 has galvanized change across the arbitration community by expediting the adoption of virtual hearings, allowing technological innovation to germinate, and, potentially, giving an advantage to counsel that are (or are willing to become) tech-savvy and work with experts in novel ways.

With arbitration’s dynamic nature in mind, we examine the panel’s discussion from counsel’s perspective and consider potential challenges that practitioners may face when balancing tradition with innovation.

 

Ideas to implement in—or to eliminate from—your practice

There’s a time and a place for hot-tubbing, but when and where require a case-by-case approach

Conferencing between expert witnesses either in advance of or at the hearing is known colloquially as “hot-tubbing,” and the panel explored this method as a creative form of cooperation among experts in arbitration. Providing evidence in this manner may result in several practical effects, including:

  • A narrowing of the issues and a focus on the issues that are truly in dispute;
  • A more convivial and less adversarial approach to expert testimony;
  • Real-time discussion of technical issues amongst the experts, allowing for a more refined consideration of the issues; and
  • Reduced costs and increased efficiencies during the hearing.

Based on the panellists’ discussion, it appeared that the consensus of the experts was that hot-tubbing, in theory, achieves the goals of arbitration of being a less adversarial, more efficient, and more cost-effective means of resolving disputes. However, the panellists had mixed opinions as to the actual effectiveness of the process.

The panellists noted that the effectiveness of hot-tubbing is likely dependent upon how cooperative the experts are willing (or able) to be and at what stage of the proceeding the hot-tubbing occurs.  One expert, Robert Patton, noted that hot-tubbing can be a “free-wheeling experience” that may not be particularly useful to the tribunal or counsel unless it is subsequently reduced to writing (as in a joint report, discussed below). Another expert, Neal Mizrahi, proposed that hot-tubbing at the hearing may be more fruitful than hot-tubbing before the hearing as it allows the experts an opportunity to respond directly to each other and may allow your expert to shine when contrasted directly with another expert.

When making a decision about whether or not to embrace hot-tubbing the experts, counsel may want to ask such questions as:

  • What is the stage of the proceedings?
  • Will there be a joint report filed after hot-tubbing?
  • Is the nature of the dispute highly technical or is it easily accessible for the tribunal?
  • How do I expect my expert’s testimony will hold up against her peers?

These questions and more are the type counsel must be prepared to face moving forwards. And the answer to these questions may depend as much on the facts as they do on the expert chosen.

 

Counsel may need to take their hands off the wheel if they want to arrive at a useful joint report

Much as with hot-tubbing, the panel appeared to be aligned that the utility of a joint report comes down to whether experts are in a position to cooperate. The panel discussed this and some panellists suggested that having the experts meet early on—before drafting the reports and reply reports—may serve to encourage cooperation. This may allow the experts to meet and discuss before becoming convinced by, and entrenched in, their own analyses. However, the tribunal often does not request that a joint report be prepared until a few weeks before the hearing, at which time the experts (and counsel) may be too rooted in their position to render a joint report of much use to the tribunal.

While joint reports may seem like an attractive tool to use in all arbitrations, it is more likely that their efficacy will be dependent upon the parameters of the expert conferences that precede the joint report and upon the instructions provided by the tribunal (or agreed to by counsel) for drafting. Specifically, counsel must consider whether lawyers will be allowed to attend and participate in the pre-hearing conference and the joint report. While many counsel might be instinctually reluctant to take a hands-off approach, the presence of counsel may disrupt the collaborative intent underlying such meetings, reducing the likelihood of success and potentially adding time and expense. Beyond the meeting itself, would counsel be willing to hand over complete control of the report to the experts? If they are, counsel would then need to consider further questions, such as:

  • Should counsel appoint a primary expert to pen the joint report? If so, which expert is best suited for this position?
  • Is my expert likely to stand her ground, or will she be outmatched?
  • Are counsel allowed to interact with their experts during the drafting stage? If so, what are the parameters of these conversations?

Ultimately, counsel is faced with the task of providing clear instructions that simultaneously protect her client’s interests while also granting her expert enough rope to effectively collaborate with her counterpart. It is a delicate balancing act and one that counsel may be reluctant to engage in. But if successful the tribunal may have access to a lucid, less partial report that just may tip the scales in your client’s favour.

 

Be thoughtful about both the expert’s retainer and her role

A final consideration the panellists noted that counsel may not give sufficient thought to at the outset: How involved does she want her expert to be and for how long? If the records are complicated and the assessment of causation or damages is especially technical or speculative, she may benefit from engaging an expert early. Doing so would also allow her expert to get up to speed on the file well before any potential joint report, hot-tubbing, or other interaction with the opposing expert. The client’s appetite for disbursements, as well as other factors mentioned above, may dictate how early to engage an expert.

Another point for the nascent arbitration practitioner to keep in mind is one that the panel gave significant air time: assuming the expert gives oral evidence at all, the expert may only have 30-45 minutes to present her report, not days for an examination-in-chief. As a result, counsel should allow her expert considerable time to prepare and practice (potentially as a mock examination-in-chief) the summary presentation of her written report to be presented to the tribunal.  In the words of Blaise Pascal, “I would have written a shorter letter, but I did not have the time”.

While counsel (and the tribunal) may benefit from having experts involved from the commencement of the dispute through to written submissions, monetary and time constraints may prevent this from occurring as often as we might like.

 

Conclusion

Challenges stemming from the new world that we find ourselves in have served to demonstrate the adaptability not just of arbitration as a means of dispute resolution in Canada, but of arbitration practitioners themselves. When considering how an arbitration will proceed, we encourage counsel to consider not just whether it will be in 2D or 3D, but to take a first-principles approach to all aspects of the arbitration.

Ask yourself: in this dispute, how will the experts best assist counsel and the tribunal? You might end up pouring cold water on opposing counsel’s calls for hot-tubbing.

 

Other posts covering CanArbWeek can be found here

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Highlights from CanArb Week 2021: “New World New Rules” Tackles Transparency, Efficiencies, and Canadian Developments in Arbitration

Wed, 2021-10-20 01:34

Canadian Arbitration Week ran online from September 20 – 24, 2021 under the theme of adaptation and acceleration.  A timely focus as the pandemic continues to accelerate sweeping changes in the legal world.

The 2021 YCAP Fall Symposium titled “New World, New Rules” took place on September 23 and addressed the theme in a session moderated by Sarah Firestone  (associate, Osler, Hoskin & Harcourt). The panelists, Tamryn Jacobson (partner, Goodmans), James Plotkin  (lawyer, Caza Saikaley LLP), and Patricia Snell  (associate, Covington & Burling LLP) discussed recent changes to arbitral institutional rules through three main lenses: 1) ethics and transparency; 2) procedural efficiency and creative mechanisms for the taking of evidence; and 3) Canadian trends and developments.

 

Ethics and Transparency

The first discussion explored rule changes in relation to the popular topic of third-party funding. Notably, the International Chamber of Commerce (ICC) Rules of Arbitration now require parties to disclose the existence of any third-party funding arrangements in order to avoid conflicts and allow greater transparency (see further discussion in previous post). Similar disclosure requirements are featured in the new generation of foreign investment protection agreements, such as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) (Article 8.26).

The panelists further discussed transparency trends, noting that the ICC has been, once again, leading the charge in that respect. The 2021 Note to Parties and Arbitral Tribunals on the Conduct of the Arbitration provides that awards, procedural orders, dissenting and/or concurring opinions will be published by the ICC in their entirety, including the names of the parties and of the arbitrators, unless the parties specifically opt out of the publication. Many other institutions still hold on to the norm that parties must opt-in on publication.

Although privacy and confidentiality are deeply entrenched in the arbitration world, one panelist noted the need for balancing between confidentiality as the cornerstone of arbitration and publication as a means to ensuring the development of the law suggesting that parties should be encouraged to choose publication in cases where confidentiality is not paramount or where appropriate redactions could protect the parties.

In response to the concerns about the law going “stale”, it was suggested that the substantive development of the law was continuing, and would always continue, through the courts. The panelists agreed that the lack of publication of procedural rulings and orders contributes to the lack of understanding of arbitral procedures by litigators who only occasionally dabble in arbitration. The panelists acknowledged that solving this issue and encouraging publication of awards and procedural orders was complex given a key value of arbitration is confidentiality. This void of procedural precedents is perhaps a greater issue in Canada than other jurisdictions, where Canadian litigators who take the occasional arbitration often look to the court’s procedural decisions as precedents without fully appreciating the arbitral process.

 

Procedural Efficiencies and Creative Mechanisms of Taking of Evidence

With respect to changes in procedural efficiencies, the discussion focused on the increase in “early determination” provisions,  starting with Rule 29 of the Singapore International Arbitration Centre (SIAC) Rules. This rule allows a party to apply for early dismissal of a claim that manifestly lacks legal merit or is manifestly outside the tribunal’s jurisdiction. Similar rules have followed, such as Article 22.1(viii) of the London Court of International Arbitration (LCIA) Rules. Under the LCIA Rules, the arbitral tribunal has the authority to dismiss claims upon the application of any party or the arbitral tribunal’s own initiative.

Perhaps the reason for adding this new early determination procedure is comparable to early dismissal procedures that are available in Canadian courts to help clear “hopeless” claims. This power can be seen as one supporting a fair and efficient dispute resolution process. On the other hand, early determination of a claim may mean that the decision is made before a party has presented any evidence. In such cases, the procedural protections differ significantly from that available in Canadian courts, where a right of appeal remains available to correct errors. However, proponents of arbitration would argue that the parties’ rights would remain sufficiently protected as relevant arguments may be asserted during set aside or enforcement proceedings.

The rise of virtual hearings and the electronic taking of evidence has also been much discussed in the arbitral world, and outside. Although these changes have allowed for gains in efficiency, there are also challenges of cyber security and data collection that come with the remote model. Preserving confidentiality and complying with data protection is increasingly challenging and costly, which weighs against the simplicity and efficiency afforded by technology. The audience was pointed to developments in the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration, where the tribunal shall consider whether it is appropriate to adopt security measures to protect electronic information (Article 2.2) and, at the request of parties, can exclude evidence obtained illegally (Article 9.3). As it is an unresolved issue in arbitration as to whether evidence illegally obtained as a result of hacking should be admitted and what factors a tribunal should consider, it is interesting to see this development in the IBA Rules and we can likely expect more of it in the future.

 

Canadian Trends and Developments

The panelists highlighted the significant technology advancements being made with the not too subtle push of the pandemic, noting that arbitrators and practitioners were being dragged into the 21st century, where the panelists all agreed, we would be forced to stay.  The panel encouraged all practitioners and arbitrators to check out the Campaign for Greener Arbitrations to see how choosing greener initiatives can translate to cost savings for clients.

The panelists also tackled the emerging trend of a mediation-arbitration hybrid model which is gaining attention following the domestic 2020 ADRIC Med-Arb Rules. Though 2020 ADRIC Med-Arb Rules were designed to assist in resolving domestic commercial disputes, they can be widely used and applied provided parties wish to adopt them. In med-arb, the arbitrator has a dual role, in which they first act as the mediator and, if issues remain unresolved, they remain as the decision-maker in the second phase of arbitration, unless parties agree from the start to have a separate mediator and arbitrator. In addition to the provincial statutes which allow parties to agree to a hybrid mediation and arbitration process, there are now detailed and thoughtful rules laid out to assist in guiding practitioners through balancing mediation, followed by binding arbitration. Despite the Med-Arb Rules attempting to deal with a number of fundamental issues surrounding arbitrator bias and procedural fairness, the panelists vocalized a common concern among practitioners about the overall effectiveness of the Med-Arb process; specifically, whether or not the parties would truly be forthcoming with a mediator who may ultimately determine their dispute as arbitrator.

There is an incredible amount of time and energy being devoted within the arbitration sphere to understanding unconscious biases of both arbitrators and practitioners in an effort to expand diversity initiatives and to ensure the arbitration sphere correctly and fully reflects the complex diversity of its users. For example, Racial Equality for Arbitration Lawyers (REAL) focusses on racial equality within international arbitration and aims to create platforms that recognize and address issues of systemic discrimination and implicit bias. As discussed in a previous post, diversity in adjudicative bodies directly impacts how claims are evaluated by decision makers.  Given the hesitation of practitioners to embrace the Med-Arb process, it may be prudent to invest some time and resources in better understanding the unconscious biases experienced by mediators who later find themselves the decision-maker. Arbitration is rooted in the idea that arbitrators will be independent and impartial. It is this idea that pushes the new ADRIC Med-Arb Rules to suggest that arbitrators should not allow the information gained in the mediation to influence their decision in the arbitration. For those who attended Professor Craig E. Jones’ lecture on “Biases in Adjudication in the age of Zoom” (forming part of WCCAS’ conference for Canadian Arbitration Week), you know that even where the decision maker has separated the information in their mind, and believes they relied solely on the facts in evidence before them, the unconscious mind is always there to subtly influence and sway them.

The final discussion point on the topic of Canadian developments was related to the dominance of ad hoc arbitrations in Canada and a question of whether, as a result of that, the rule changes might have less of an impact.  One of the reasons provided for the prevalence of ad hoc arbitrations is that many Canadian litigators participating in occasional arbitrations tend to favor ad hoc, into which they can import familiar court rules, over institutional arbitration with obscure rules. Although ad hoc arbitration is meant to allow the parties the freedom to create their own process, in Canadian practice it oftentimes evolves the process and becomes a litigation-look alike. The more arbitration mirrors litigation, the less parties get the benefit of the faster, cheaper, more effective promise of arbitration. Therefore, what is important in ad hoc domestic arbitrations is first, educating litigators and, second, being careful and deliberate about arbitrator appointments. Whether an arbitrator runs an arbitration like a court litigation or takes advantage of the flexibility of arbitration, arguably has more of an impact on the procedure than any particular change to the institutional rules, at least with respect to domestic arbitrations. According to the panelists, one of the silver linings of the pandemic is an increase in the use of arbitration and, as a result,  litigators are swiftly being immersed into the arbitration culture.

This final discussion leaves a number of unanswered questions, such as: With the rising number of Canadian litigators joining the arbitration process what future adaptations are in store? Can existing arbitration practitioners educate and inspire litigation counsel to embrace arbitration as an efficient, effective, and creative process of dispute resolution? Will these additional litigators dilute the advancement of arbitration and hinder the adaptation through their continued reliance on litigation precedents and court procedures?  As the panelists aptly pointed out, arbitration is so much more than “litigation sitting down”. To not only embrace the existing changes but to motivate the next round of adaptations, arbitration practitioners are being called on to showcase and clearly demonstrate the strengths of arbitration to our curious, open-minded, litigation colleagues.

 

Other posts covering CanArbWeek can be found here

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Asset Freezes and the Payment of Advances on Costs: Are the Proceedings Bound to End Before They Have Even Begun?

Tue, 2021-10-19 01:27

This post is the first in a series of three regarding the potential impact of economic sanctions on arbitral and financial institutions. The series addresses critical issues faced by such institutions as a result of restrictions on transfers of funds under primary and secondary sanctions programmes. This first entry discusses the potential effects of asset freezes. Subsequent entries will focus on US secondary sanctions against Iran and against Russia.

While some sanctions programmes make certain types of claims inadmissible and/or prohibit the satisfaction of claims arising out of contracts affected by these programmes, economic sanctions do not, as a matter of principle, prohibit the submission to arbitration of disputes involving one or more targeted parties. Over the last few years, representatives of many major arbitral institutions have readily made public statements to this effect.1) See, for instance, ICC, News: International Economic Sanctions, 1 July 2015, accessible at <https://iccwbo.org/media-wall/news-speeches/international-economic-sanctions/>, and the Joint Statement of the ICC, LCIA and SCC entitled “The Potential Impact of the EU Sanctions Against Russia on International Arbitration Administered by EU-Based Institutions” dated 17 June 2015, accessible at <https://sccinstitute.com/media/80988/legal-insight-icc_lcia_scc-on-sanctions_17-june-2015.pdf>. jQuery('#footnote_plugin_tooltip_39002_18_1').tooltip({ tip: '#footnote_plugin_tooltip_text_39002_18_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

That said, arbitral institutions and banks that maintain accounts in which advances on costs are deposited are subject to the sanctions laws and regulations of their respective jurisdictions.2)Interestingly, in 2015, the ICC went so far as to declare itself bound to operate in accordance even with US sanctions – see ICC, News: International Economic Sanctions, 1 July 2015, accessible at <https://iccwbo.org/media-wall/news-speeches/international-economic-sanctions/>. jQuery('#footnote_plugin_tooltip_39002_18_2').tooltip({ tip: '#footnote_plugin_tooltip_text_39002_18_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); To determine the obligations of arbitral and financial institutions, the specific terms of each sanctions programme must therefore be examined on a case-by-case basis, and arbitral and financial institutions must have in place screening processes that allow them to identify whether any of the parties to an arbitration is (or is owned or controlled by) a person or entity specifically targeted by a sanctions programme (a “Designated Person”).

Payment of a Registration Fee or of an Advance on Costs

Typically, asset freezes are two-pronged: they prescribe the blocking of assets and economic resources owned or controlled by Designated Persons, hence prohibit, in particular, any action that would allow the management or use of such assets; in addition, they prohibit making assets or economic resources available to or for the benefit of Designated Persons. Some programmes also provide that persons and institutions that hold or manage funds or have knowledge of economic resources which ought to be deemed to fall within the ambit of an asset freeze, have a reporting obligation.

It goes without saying that if a party to an arbitration is (or is owned or controlled by) a Designated Person whose assets are frozen, none of its assets in the sanctioning state may be transferred. Furthermore, even if an order to transfer funds is effectively processed (for instance, by a bank in the country against which sanctions are in place), these funds must be frozen by any recipient bank in the sanctioning state, and the competent authorities might have to be informed of the existence of frozen funds. Similarly, if a party becomes a Designated Person in the course of an arbitration, advances on costs already transferred to the account of an arbitral institution (and of which the party in question usually remains the owner or beneficial owner) must in principle be immediately frozen and the existence of frozen assets might have to be reported to the competent authorities.

In sum, “the arbitral tribunal, or institution, shall, as would any entity falling under the scope of the sanctions, report to the competent authorities any transfer of funds from a blacklisted individual or party domiciled in a sanctioned country [should transfers from and to a party domiciled in a sanctioned country be prohibited]. Similarly, the bank that receives the advance on costs shall freeze the portion of the advance it received from [a] blacklisted individual or entity, irrespective of whether the advance was paid before or after the entry into force of the sanction.”3)Elliott Geisinger/Philippe Bärtsch/Julie Raneda/Solomon Ebere, The Impact of International Trade Sanctions on Contractual Obligations and on International Commercial Arbitration, International Business Law Journal, 2012(4), pp. 431-432. jQuery('#footnote_plugin_tooltip_39002_18_3').tooltip({ tip: '#footnote_plugin_tooltip_text_39002_18_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

This being said, under many sanctions programmes, payments from blocked accounts and transfers of frozen assets may exceptionally be authorised.

Certain EU sanctions programmes contain explicit carve-out provisions for the payment of legal services, allowing Member States to release frozen funds if it has been determined that these funds are intended exclusively for payment of reasonable professional fees or reimbursement of incurred expenses associated with the provision of legal services. As to Swiss sanctions, they stipulate that payments from blocked accounts and transfers of frozen assets may exceptionally be authorised inter alia if this is necessary in order to avoid hardship or to honour an existing contract. Situations of hardship are considered by certain authors to cover situations in which assets are required for the payment of legal fees, advances on costs, court costs or the like, and in which a party’s procedural rights could be irreparably harmed should the required funds not be released.4)Olivier Thormann/Anne-Claude Scheidegger/Nicolas Bottinelli/Robert Zimmermann/Alain Chablais, Séquestre, blocage et sanctions, in Giroud/Rordorf-Braun (eds), Droit suisse des sanctions et de la confiscation internationales, 2020, fn. 371. jQuery('#footnote_plugin_tooltip_39002_18_4').tooltip({ tip: '#footnote_plugin_tooltip_text_39002_18_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); It has also been convincingly argued that a release of funds for the payment of a registration fee and advances on costs would allow a Designated Person to honour an existing contract, namely an arbitration agreement.5)Mathias Audit, L’effet des sanctions économiques internationales sur l’arbitrage international, in Loquin/Manciaux (dir.) L’ordre public et l’arbitrage, Actes du colloque des 15 et 16 mars 2013 (Dijon), 2014, p. 147. jQuery('#footnote_plugin_tooltip_39002_18_5').tooltip({ tip: '#footnote_plugin_tooltip_text_39002_18_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

It may thus be possible to obtain, on a case-by-case basis, a specific authorisation (or specific license) for the payment of registration fees and advances on costs. Note, in this respect, that it has been suggested that both the party subject to sanctions and the arbitral institution might need to apply for such an authorisation, in order to access and to receive frozen funds, respectively.6)Evgeniya Rubinina/Romina Rivero/Mali Torres/Daniel Mills/Xenia Kalognomas/Carlos Arrebola/Krupa Vekaria, Impact of Sanctions on Arbitration, Practical Law UK Practice Note w-030-4886, 2021, p. 8. See also on this question Mathias Audit, L’effet des sanctions économiques internationales sur l’arbitrage international, in Loquin/Manciaux (dir.) L’ordre public et l’arbitrage, Actes du colloque des 15 et 16 mars 2013 (Dijon), 2014, pp. 146-147. jQuery('#footnote_plugin_tooltip_39002_18_6').tooltip({ tip: '#footnote_plugin_tooltip_text_39002_18_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

A licence is in principle required even for payments made by a non-designated third party on behalf of a Designated Person. EU sanctions programmes typically prohibit EU operators from taking part, knowingly and intentionally, in any activity the object or effect of which is to circumvent an EU asset freeze, including transactions conducted at the direction of a Designated Person. In Switzerland, while only some programmes explicitly refer, in addition to assets owned or controlled by Designated Persons, to assets owned or controlled by persons or entities acting on behalf of the latter or upon their instructions, it has been determined by the State Secretariat for Economic Affairs (SECO), the supervisory authority appointed by the Swiss government, that assets of such third parties must in any event be deemed to fall within the definition of assets “controlled” by a Designated Person.7)Financial Action Task Force/Groupe d’action financière, 3ème Rapport d’évaluation mutuelle de la lutte anti-blanchiment de capitaux et contre le financement du terrorisme, Suisse, November 2005, p. 58. jQuery('#footnote_plugin_tooltip_39002_18_7').tooltip({ tip: '#footnote_plugin_tooltip_text_39002_18_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Caution is therefore advisable: should a party be a Designated Person, funds transferred on its behalf, be it by a third party that is itself neither listed nor owned/controlled by the party in question, must in principle be frozen unless and until a specific authorisation has been granted, and any reporting obligation must be abided by.

Substitute Payment of an Advance on Costs

If a party does not pay its share of the advance on costs on the ground that its funds are frozen, is the other party entitled, from a sanctions law perspective, to make a substitute payment? Could such a substitute payment for a Designated Person (or for a party owned or controlled by a Designated Person) be regarded as a way of making assets indirectly available to a Designated Person, in breach of prescriptions on asset freezes?

This question has significant practical relevance, in particular if it is the respondent’s assets that are frozen, as this party might have no incentive to seek their release for the purpose of paying its share of the advance on cost. Should a substitute payment be considered to fall within the scope of proscribed activities, the proceedings might well be paralysed.

Indeed, while sanctions programmes imposing asset freezes set out mechanisms to authorise, in certain circumstances, transfers of frozen funds, they usually do not afford a non-designated person the right to seek an authorisation to make (non-frozen) assets available to a Designated Person.

The only way out of such a deadlock might therefore be to reach out to the competent authority and seek confirmation that a substitute payment would be lawful. It should of course be made clear that preventing a substitute payment might ultimately serve the interests of the designated party.

Return of an Unused Portion of an Advance on Costs

As noted above, programmes which impose an asset freeze usually prohibit making available to Designated Persons, directly or indirectly, any assets or economic resources.

In light of this, it might be unlawful to transfer back the unused portion of an advance on costs to a Designated Person (or a person or entity owned or controlled by, or acting on behalf or upon the instructions of, a Designated Person), even if such an advance was actually released, by means of a specific authorisation or licence, for purposes of the arbitration proceedings.

The only way of lawfully returning an unused portion of an advance on costs might therefore be to place the amount in a blocked account and, if required, to report all relevant information to the competent authority.

 

References[+]

References ↑1 See, for instance, ICC, News: International Economic Sanctions, 1 July 2015, accessible at <https://iccwbo.org/media-wall/news-speeches/international-economic-sanctions/>, and the Joint Statement of the ICC, LCIA and SCC entitled “The Potential Impact of the EU Sanctions Against Russia on International Arbitration Administered by EU-Based Institutions” dated 17 June 2015, accessible at <https://sccinstitute.com/media/80988/legal-insight-icc_lcia_scc-on-sanctions_17-june-2015.pdf>. ↑2 Interestingly, in 2015, the ICC went so far as to declare itself bound to operate in accordance even with US sanctions – see ICC, News: International Economic Sanctions, 1 July 2015, accessible at <https://iccwbo.org/media-wall/news-speeches/international-economic-sanctions/>. ↑3 Elliott Geisinger/Philippe Bärtsch/Julie Raneda/Solomon Ebere, The Impact of International Trade Sanctions on Contractual Obligations and on International Commercial Arbitration, International Business Law Journal, 2012(4), pp. 431-432. ↑4 Olivier Thormann/Anne-Claude Scheidegger/Nicolas Bottinelli/Robert Zimmermann/Alain Chablais, Séquestre, blocage et sanctions, in Giroud/Rordorf-Braun (eds), Droit suisse des sanctions et de la confiscation internationales, 2020, fn. 371. ↑5 Mathias Audit, L’effet des sanctions économiques internationales sur l’arbitrage international, in Loquin/Manciaux (dir.) L’ordre public et l’arbitrage, Actes du colloque des 15 et 16 mars 2013 (Dijon), 2014, p. 147. ↑6 Evgeniya Rubinina/Romina Rivero/Mali Torres/Daniel Mills/Xenia Kalognomas/Carlos Arrebola/Krupa Vekaria, Impact of Sanctions on Arbitration, Practical Law UK Practice Note w-030-4886, 2021, p. 8. See also on this question Mathias Audit, L’effet des sanctions économiques internationales sur l’arbitrage international, in Loquin/Manciaux (dir.) L’ordre public et l’arbitrage, Actes du colloque des 15 et 16 mars 2013 (Dijon), 2014, pp. 146-147. ↑7 Financial Action Task Force/Groupe d’action financière, 3ème Rapport d’évaluation mutuelle de la lutte anti-blanchiment de capitaux et contre le financement du terrorisme, Suisse, November 2005, p. 58. function footnote_expand_reference_container_39002_18() { jQuery('#footnote_references_container_39002_18').show(); jQuery('#footnote_reference_container_collapse_button_39002_18').text('−'); } function footnote_collapse_reference_container_39002_18() { jQuery('#footnote_references_container_39002_18').hide(); jQuery('#footnote_reference_container_collapse_button_39002_18').text('+'); } function footnote_expand_collapse_reference_container_39002_18() { if (jQuery('#footnote_references_container_39002_18').is(':hidden')) { footnote_expand_reference_container_39002_18(); } else { footnote_collapse_reference_container_39002_18(); } } function footnote_moveToReference_39002_18(p_str_TargetID) { footnote_expand_reference_container_39002_18(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_39002_18(p_str_TargetID) { footnote_expand_reference_container_39002_18(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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To Our Friend Martin (MI)

Mon, 2021-10-18 06:34

We lost a friend on 9 October 2021. While the news of Martin Hunter’s death filled us with grief, our memories of Martin are quite the opposite. It seems right to share them with you on the Kluwer Arbitration Blog, which he supported from its creation.

 

We are the “M”s – Martin’s research assistants, whom he numbered from M II to M XXVIII.  The legend goes that this numbering was born of Martin’s first two research assistants sharing his first name. After much confusion, to identify which Martin was who, Martin decided to call himself M I, the first research assistant M II, and the next M III. By the time his third research assistant turned out to be named Roman rather than Martin, the tradition had been set, and Roman became M IV. The practice lasted through his 27 successive research assistants.

 

Readers of the various texts written in recent days about Martin will have noticed that the word “friend” appears and reappears frequently. One of his most profound contributions to the (legal) world is a sentence we have heard him say many times when speaking about lawyers, barbers, hotel bartenders, and pretty much everyone who crossed his path:

“Yeah, I know them: a good friend!”

In fact, he was so prolific with the term “friend” that, at first, more than one of us thought he was being facetious. Turns out he was not – far from it! While intellectually brilliant and equipped with clarity of legal mind that kept stunning his peers and students, he radiated a warmth, joviality, and a joie de vivre that made him bridge cultural and social divides and win even more hearts than his mind had already conquered.

Whenever there will now be talk of his legacy, we feel it is our duty to Martin to continue paying forward the gift that he gave to us across continents and cultures: friendship and generosity towards younger lawyers and peers with mentorship and guidance.

Martin’s approach was the same wherever he went. He wanted to “leave things better than you find them”. Some 14 years ago, at the Vis Moot in Vienna, Martin said: “My dream is that one day, when there is yet another conflict between two countries, the legal representatives sent to negotiate will recognise each other from the Vis Moot they did decades ago, where they faced the same problem and forged friendships. This, I think, will allow them to resolve that conflict.” Today, this message rings truer than ever.

Martin had a knack for profoundly influencing the many people who crossed his path, be it at Freshfields, Essex Court, KCL, KIIT, the Vis Moot, through his book, or at a barber shop near the Lemon Tree pub where he held his “Friday Clinics”. Jovially, Martin always enjoyed suggesting a new hairstyle.

His mentorship and guidance went beyond international arbitration. Once, after a class at King’s College, just outside the Strand building, he stopped by an elderly man who looked like a rough sleeper feeling sick, ignored by all students and  passers-by. Martin helped him up and made sure the man was well before letting him go. The M present then, who was ready to walk past the man, had just learned the most valuable lesson of that school year.

More lightly, one of his friends recalled that “Martin once wrote on a photocopy of his book Redfern & Hunter, made for a class with him because I could not afford to buy it: ‘Dues are to be paid in beer at Essex Court Chambers!’ However, he later changed it to say that the dues were due in Gin&Tonics!”. Martin, from then on, insisted that there always be an affordable version “student edition” of his book, with identical substantive content.

Martin loved being surrounded by young minds. They inspired him, and he never felt threatened by them. Always empathetic and taking personal interest in the lives of people around him, his humane spirit indelibly impacted all who knew him, most of all, his “M”s.

He and his wife Linda (and their cats, whom Martin adored) would always keep the doors of their home open to us. We cannot count the numerous days and nights we spent at their house in Walton-on-Thames. His study, the walls filled floor to ceiling with books and journals on international dispute resolution, witnessed hard work as well as many joyful moments (always a glass of G&T in our hands). Fond of technological developments, he would often purchase the latest technical marvels at airports, and not only excitedly share his latest acquisition when we visited him at Walton, but also give away the previous iteration to a student or a friend.

Martin once told us that he had made it his personal project to support aspiring arbitration enthusiasts from the BRICS countries. In particular, his activity in the past two decades evidences his love for India and Brazil. He was a devoted supporter of KIIT University and of the University of Sao Paulo, as well as of various other universities in both countries; many of the Ms are Indian or Brazilian nationals. His generosity and zeal gave his younger friends wings to fly and the self-belief to succeed.

Of course, the world knows Martin as one of the founders of modern international arbitration, which he helped develop through sheer intellectual brilliance and remarkable contributions, such as the book Redfern & Hunter on International Arbitration. Make no mistake – Martin would often repeat that it is important to distinguish arbitration and “international” arbitration.

Such conversations were often held on the back of one of his various boats — Martin had “always” owned a boat, the latest one called Chamois. Together with Joe, one of Martin’s best friends from his neighbourhood, we would drive down to Lymington harbour, set sail (or turn on the engines) and discuss a case, draft a new section for Redfern & Hunter, comment on the latest developments in international dispute resolution, or prepare a class for one of the many university modules he taught.

His favourite teaching style was skills-based teaching. He deemed practical skills more important than niche theoretical knowledge. Using the Kaspenistan or Abukarabia case study (which he had drafted with an M in his car on the way to Lymington), he would teach thousands of students from all over the world how arbitration proceedings materialise in real life, how to properly cross-examine a witness, or how to plead convincingly.

Oral advocacy was important to Martin – he was a regular at the Vis Moot in Vienna, the most important date in his calendar. He would stay at the Vienna Marriott Hotel or the Hilton Plaza for people to be able to visit after the mooting sessions and have lunch, G&T or dinner with him. For us, the highlight of that week was the “supper” (the word mattered to Martin) he hosted every first Saturday of the Vis Moot week at Plachutta Wollzeile, an occasion to which he would invite the “M”s (and “honorary ‘M’s”) to share Tafelspitz accompanied by much Grüner Veltliner. Typical of Martin, his parting gift to us is a supper to be held there in his honour.

Martin wanted to create a legacy that would outlast him. He believed in impacting the lives of people, who would in turn impact people around them. As we look back to the memories that Martin gifted us, there is no doubt that he succeeded. He leaves behind an ever-expanding bond of camaraderie between all those who crossed his path. If you are reading this, chances are you are one of them.

 

In memory of M I, the Ms are:

M II – Martin Lau, London

M III – Martin Eimer, Munich

M IV – Roman Brnčal, Olomouc

M V – Tomislav Nagy, Zagreb

M VI – Alexander Lütgendorf, Dubai

M VII – Guy Conde e Silva, Lisbon

M VIII – Anne Hoffmann, Sydney

M IX – Florian Cahn, Nuremberg

M X – Alexis Martinez, London

M XI – Yves Wolters, London

M XII – Edin Karakas, Zagreb

M XIII – Alexandre Vagenheim, Paris

M XIV – Sameer Chaudhary, New Delhi

M XV – Sonal Kumar Singh, New Delhi

M XVI – Katia Finkel, London

M XVII – Gregory Travaini, Paris

M XVIII – Ziva Filipic, Paris

M XIX – Javier Garcia Olmedo, Luxembourg/London

M XX – Platon Guryanov, Moscow

M XXI – Ranamit Banerjee, London

M XXII – Alipak Banerjee, New Delhi

M XXIII – Valério Salgado, São Paulo

M XXIV – Abinash Barik, Bhubaneswar/Kuala Lumpur

M XXV – Vítor Castro, Porto Alegre/London

M XXVI – Renan Frediani Torres Peres, Sao Paulo

M XXVII – Adriano Stagni, London

M XXVIII – Simon Weber, London/Zurich

 

This post was co-authored by Martin Lau, Martin Eimer, Tomislav Nagy, Alexander Lütgendorf, Guy Conde e Silva, Florian Cahn, Alexis Martinez, Edin Karakas, Alexandre Vagenheim, Sameer Chaudhary, Sonal Kumar Singh, Katia Finkel, Gregory Travaini, Ziva Filipic, Javier Garcia Olmedo, Platon Guryanov, Ranamit Banerjee, Alipak Banerjee, Valério Salgado, Abinash Barik, Vítor Castro, Renan Frediani Torres Peres, Adriano Stagni, Simon Weber.

 

 

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How to Manage Work-Life Balance in Context of First Arbitral Appointments

Mon, 2021-10-18 01:52

I recently co-chaired with Gustav Flecke-Giammarco a Delos roundtable on this topic, at the kind invitation of its President and Co-Founder, Hafez Virjee. The topic links to a broader theme: how to be an international arbitration practitioner and manage some balance while at it? It can be tricky, and I am conscious that especially during the pandemic the opportunities for a human connection and frank discussion are rare.

I therefore wanted to take the opportunity to blog my views in case they help anyone. To understand the challenge, I begin with a quick look at my personal smörgåsbord:

I have had a busy practice for 14 years at leading international arbitration teams at Freshfields, Latham & Watkins and Quinn Emanuel, and have recently launched my own label to act as an international disputes counsel and arbitrator. I have seen a fantastically interesting and busy portfolio of disputes, and have learnt from brilliant colleagues. I love my clients and meeting new people, and therefore seek out opportunities to bring in new cases and run them. Which then adds to my work-load. I sit as arbitrator. I publish. I lecture as external professor. I try to make time to mentor my team, and have recently agreed to mentor law students at the University of Oxford where I hail from. I have two little boys, aged eight and four, and a puppy who is invariably caked in mud from the morning school run and makes a mess everywhere. I sit on the board of my boys’ school because education is key. I try to look after my health, friendships and sleep. My husband is an oculoplastic surgeon with a Harley Street practice. He handled the boys and their schooling during the pandemic. We have no family in London to help. At night I get kicked and punched by a child who is dreaming of dragons. I am breaking a slight sweat even writing this paragraph.

 

If your set-up is anything like mine, and you are thinking about getting your first appointment as arbitrator, the question arises: With what time? And how to do a good job? Some of my pointers, from a pool of my experience and inevitably some pain:

  1. Harness the institutions: Chances are that your first appointment comes from an arbitral institution. Institutions such as the ICC, LCIA and SCC are very focused on achieving a diverse roster of arbitrators. The institutions are also a gold mine of support. Don’t hesitate to draw on it. They will have great practical pointers on how to formulate procedural timetables and orders, and communications to a non-responsive Respondent to ensure that you balance expeditious progress with giving each party an opportunity to be heard. They also have great insights on the contents of awards, down to details such as how to formulate an award of interest.
  2. Expect the unexpected: What took me by surprise was that my first cases as arbitrator were very different from the high-value counsel cases I have seen in my practice over the years. Put another way, your past career may not prepare you for the issues that crop up. I had unrepresented Respondents, and no help from sophisticated counsel in the way that Tribunals on high value cases benefit from. I had to go to first principles on the meaning of fairness in ensuing that the legally unsophisticated Respondent (who refused to engage counsel) understood what I was saying, and that I did not veer into acting as advocate for the Respondent and so prejudice the Claimant. On another dispute, a consensus award threw up the possibility of money laundering, which I had to investigate with very little guidance, conscious that serious consequences arise for those who miss attempts to white-wash. These experiences are great for skills, and ensure that you keep developing as a lawyer and practitioner. It can be uncomfortable at times, but I try to get comfortable feeling uncomfortable, because it means that I keep evolving.
  3. Choose your team with care: I have found the colleagues in my prior firms key to handling sole arbitrator appointments. You may need the support of senior colleagues to be able to clear conflicts and take the case on. And to bounce ideas off each other in a relaxed and creative way whilst maintaining confidentiality. I cannot emphasize enough how important this support has been to me. You need like-minded colleagues who see that first appointments add to your tool-kit and eventually will lead to chair appointments. Spot those mentors and sponsors quickly, seek them out and cherish them. (And then be that mentor and sponsor to others!)
  4. Be creative: The nut of work-life balance is real, and hard to crack. One positive challenge I have found in the pandemic is how to be creative and use the time previously spent travelling and commuting in ways that recharge me and allow me to deliver high quality work product over long days. I have seized on the culled morning commute to do a yoga, weights and ballet/barre classes via zoom. On a separate topic, I have tried to feed vegan foods to my kids to reduce our carbon footprint, but they recently asked in earnest if my minced quorn (a fungal product masquerading as meat) was “dog food”. I therefore started ordering Mindful Chef ready recipes for the evening to add variety and more vegetables to our diet. Some recipes only take 15 minutes to cook, which is how long one can spend wandering out to a sandwich or sushi shop to pick out dinner for a night at the office. We try to make time for dinner, light a few candles and play our boys’ “what animal am I thinking of” guessing game. Being recharged then allows for focused, productive time on counsel and arbitrator work. I am not saying it is easy. Often it is very hard. But approaching it as a creativity problem allows me to view it through a more positive lens.
  5. Keep evolving: Some of Winston Churchill’s quotes are out of step with the Zeitgeist. But this one I like: “To improve is to change. To be perfect is to change often”. I try to start the day by asking what I can change and improve, whether it is to pick up the phone to the institution earlier, or to think of a third way solution on how to deliver justice on a dispute. I also put myself out of my comfort zone by going to dance classes where I bumble around hopelessly. If I can get through it with a few new moves under my belt, I can surely master a new sector or a new legal issue. Being willing to be a humbled student every day is key to growth as arbitrator, counsel and I guess in everything.
  6. Challenge the premise: It was rightly pointed out to me during the round table that a full plate of life may not be desirable in the first place. Maybe it is not possible to do everything at once, and stay zen. Perhaps one should do it in stages, and say not try to publish with a six-week-old child nursing in one’s lap. This reflection is important, and the exact balance is personal to everyone. I would also challenge the premise of the arbitrations we run. I wholly endorse expeditious arbitrations. Speed is key, and I hear the end-users. However, I also think that a three-month goal for rendering an award from the last submission may sometimes be unrealistic. As diversity is a shared value, and we want arbitrators with diverse characteristics, we may want to build in an extra week here or there to accommodate the fact that lawyers with care responsibilities (for loud toddlers as well as for aging and unwell loved ones) need more than three months to deliver a high-quality award. See my diversity checklist which explores this in detail. On a separate theme of challenging the premise, if most of your arbitral appointments get blocked by conflicts, think about whether there is a better professional stable that results in fewer conflicts. This type of migration was very clear on our roundtable.
  7. Embrace solitude: This is an important one. One’s professional existence can feel lonely, drafting an Award solo and operating from home mid-pandemic. I am in charge of huge disputes, the family’s wellbeing, and expected to be a rock who handles everything calmly and smoothly. I witness the attrition of female peers – many seem to have left the profession. The loneliness is particularly real for arbitrator cases where you sit as a sole arbitrator and have no co-arbitrators or Tribunal secretary to brainstorm with. Whilst you can confer with colleagues on an abstract level, the legal analysis turns on detail which you must get right, alone, being very conscious that you have been asked to deliver justice, and that it will have a significant impact on entities and individuals. I have come to see these moments spent in the throes of the evidence and tricky points of law as invaluable: they can lead to great flow and excellent legal thought. I’ve also learnt to see loneliness as solitude – as a positive, creative space, pivoting off Aldous Huxley’s comment “[t]he more powerful and original a mind, the more it will incline towards the religion of solitude”. Once the flow has produced ideas, you can then bounce them off supportive and talented colleagues in your network, against whilst maintaining confidentiality.
  8. Work smart: On a related note, excellent lawyering is a creative exercise. Identify your regenerating space that crystallises your best ideas. For some it’s a walk amid greenery, for others a muddy run or cooking. Then come back to your draft with the fresh ideas.
  9. Promote your specialism through social media: You can harness social media to communicate your specialism as an arbitrator – institutional rules, sectors, commercial/treaty arbitration – to secure further appointments. I had the pleasure of speaking recently about this very topic at an ICC YAF and Quadrant Chambers event, and many participants expressed anxiety over being present in social media in the “right way”. It’s actually very straight forward, with little magic involved.  One of my top tips is to lead with content rather than with yourself.  What I mean is that it is good to give your reader something of value – inspiration, insights, ideas, legal news etc – rather than just ask the reader to celebrate your personal achievements, worthy though they are.  And I would always keep it relatable and honest, to avoid putting on a gloss that creates unnecessary pressure for others.
  10. Find joy: When it all gets intense, I try to look back at my day and ask when I felt joy. At our roundtable, I felt joy at the excellent exchange of honest ideas. I got energy from the follow-on exchanges. And from the uninterrupted hours of drafting which followed and where solid ideas crystallised. I start my days with a run to Taylor Swift and Daft Punk so that I inhabit a confident and clear headspace. At this very moment I am hoping that the day can be wrapped up with President Obama’s chronicle. With that said, he does plough admirably from one intractable problem to the next, which is not exactly the lightest evening reading. I therefore couple it with a giggle with my boys over Julia Donaldson’s Snuggly Snerd and other children’s stories. I then look back at what brought me joy, and try to incorporate more and more of those moments into the days ahead.

 

In these times of disconnection, I would love to hear your experiences. Please get in touch.

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Jumpstarting Arbitration through Tax Incentives? Macau’s Tax Incentive Scheme for Choosing Arbitration

Sun, 2021-10-17 01:54

If you are a party to a lease agreement or a grant of right to use commercial space in Macau, tax considerations may now be critical for determining whether “to arbitrate or not to arbitrate”. In fact, aside from the typical advantages of arbitration over litigation, tax reduction has now become an additional advantage for choosing arbitration to resolve a dispute in Macau following the introduction of the amendment bill on Macau Stamp Duty on 16 December 2020.

 

The new arbitration law of Macau

More than a year has passed since Macau’s new arbitration law (Law No. 19/2019) came into force on 4 May 2020 (2019 Law). The new law incorporates the best practices in international commercial arbitration and is consistent with the goal of the Macau Special Administrative Region (SAR) government to promote Macau as a preferred Lusophone arbitration seat. Based on the UNCITRAL Model Law, the 2019 Law transformed the dual arbitration system in Macau into a unified system for both domestic and international arbitration. Also, the new law is more flexible than its predecessor with regard to the formalities of an arbitration agreement, allowing for the conclusion of arbitration agreements by electronic communications evidenced in writing. Under the 2019 Law, arbitral tribunals have wide-ranging powers to issue interim measures. In addition, both the parties and the arbitral tribunal may now seek the Macau courts’ assistance in obtaining evidence. All these characteristics have established an arbitration regime in Macau that is fully in line with international practice.

The 2019 Law has presented an opportunity in Macau to launch a new industry. The city has long been very dependent upon its gaming industry. As such, the drive for economic diversification has been one of the government’s political and economic goals. Macau’s unique position, international characteristics, and legal system have long suggested that legal services and dispute resolution in particular could serve as an economic niche that the city could explore further. Many of Macau SAR’s top officials have urged the need to vigorously promote the development of arbitration, so as to give full play to Macau’s advantages as a Sino-Portuguese platform and turn Macau into an arbitral platform for resolving disputes in the context of the PRC’s ambitious Greater Bay Area economic plan. In 2020, of 946 cases, ICC registered 199 disputes involving parties from Portuguese-speaking countries, and 21 awards were issued in Portuguese.

Still, those in Macau are well aware of the difficulties of establishing Macau as a major arbitral seat given the heavy competition from Hong Kong and Singapore. The current chief executive, Mr Ho Iat Seng, has pointed out that, given the relative underdevelopment of arbitration in Macau, faith in Macau as a reliable seat of arbitration can only be firmly established by increasing the number of cases and developing sufficient experience.  Indeed, Macau, albeit having shown ambitions in the arbitration field for a long time, has never been a major player in this area. While there is no doubt that the new law has provided a better legal framework for the development of arbitration in Macau, cases in the Macau SAR’s arbitral institutions (namely, World Trade Center (WTC) Macau Arbitration Center and Voluntary Arbitration Center of the Macau Lawyers’ Association) have remained scarce, with many of the businesses in Macau opting instead to use Hong Kong as their preferred seat of arbitration.

 

Macau’s new Stamp Duty regime

In view of this, the Macanese legislature has decided that if arbitration is to become a more commonly used dispute resolution mechanism, more radical supporting measures are needed. Most innovatively, tax incentives have been introduced in the recent amendments of the Stamp Duty Law (Law no. 24/2020), which entered into force on 30 March 2021, to attract and encourage individuals to use the Macanese arbitration system to resolve disputes. More specifically, a 50% tax reduction in Stamp Duty is offered if an arbitration clause stipulating that a dispute should be resolved through an arbitral institution in Macau is included in (i) a lease contract for immovable property or (ii) a grant of right to use commercial space (see Articles 27(3) to (5) and 30B(4) to (6), Stamp Duty Law).

This tax advantage is especially significant in the context of the grant of right to use commercial space, which, under the new Stamp Duty law, is now subject to a 0.5% stamp duty like normal lease agreements. In Macau, it is very common for gaming operators to include large-scale shopping malls within the complex (the so-called integrated resort model). In this case, the rent payable by the retailers can be rather hefty, as the taxable scope is extensive and includes annual remuneration resulting from the grant of right to use the commercial space, machines, furniture or other movable assets within the complex. The introduction of an arbitration clause, however, halves the payable stamp duty on such agreement.

It should be underlined that the tax benefit is only applicable if the arbitration clause submits the dispute to one of the recognized arbitration centers in Macau. This means that an arbitration clause that provides for ad hoc arbitration will not be relevant for the purposes of the tax reduction. Currently, for resolving matters arising from lease or grant of right to use of commercial space agreements, parties can resort to (1) the WTC Macau Arbitration Center or (2) the Voluntary Arbitration Center of the Macau Lawyers Association.

Also, importantly, the law sets out several situations that will lead to the loss of this tax benefit, namely:

  1. The arbitration agreement is revoked or expired;
  2. There is a decision, with res judicata effect, from a court or arbitral tribunal that rules that the arbitration agreement does not exist, is ineffective, or does not produce any effects;
  3. The landlord or the grantor filed a lawsuit with the court on an issue that falls within the scope of the arbitration agreement;
  4. The landlord or the grantor, as the defendant in a court case, failed to raise the jurisdictional objection that the case should be heard by the arbitral tribunal.

If one of the above circumstances occurs, the landlord or the grantor must pay back the reduced stamp duty to the Financial Services Bureau within 30 days of the date of the occurrence.

 

Conclusion and expectations

The introduction of the tax incentive at issue shows how serious the Macau government is with regard to not only encouraging and promoting the use of arbitration but also developing the arbitration industry in Macau. The usage of this tax reduction is ingenious, with Macau taking a radical step toward making sure that its own arbitral institutions will see a steady and growing number of cases. Although the full effectiveness of the measure remains to be seen, this measure has aroused much interest especially for retailers operating in the many large shopping malls and outlets in Macau.

It should be noted that the development of arbitration in Macau is still hampered by its relative lack of experience in this field and that of its arbitral institutions. In this respect, it is worth noting that the rules of Macau’s two main arbitral institutions were heavily revised and updated, with the changes having come into effect earlier this year. Still, in comparison with the HKIAC and SIAC rules, they have not incorporated some of the recent arbitral developments such as provisions addressing third-party funding, disputes involving multiple contracts and/or multiple arbitrations, and the possibility of an arbitral tribunal making an early determination regarding a point of law or fact that is manifestly without merit or manifestly outside of the tribunal’s jurisdiction.

At the same time, seeking recognition and enforcement in Macau of an award rendered in an arbitration seated outside Macau presents its own challenges. Aside from the parties not being able to benefit from the tax incentives described above, the recognition and enforcement process of a foreign arbitral award in Macau is substantially lengthier than that for a domestic (Macau) award, and it is procedurally more complicated than in Hong Kong. The two-step procedure is first initiated by an application for the recognition of the foreign arbitral award filed with the Macau Second Instance Court. It typically takes at least between three and six months for the court to recognize a foreign award, while in Hong Kong this takes a matter of days. Then the applications for enforcing the reviewed award should be filed with the Macau First Instance Court, which will in turn take at least 12 to 18 months to conclude the enforcement proceedings.

Altogether this means that Macau’s more ambitious goal of becoming the main Sino-Portuguese arbitral platform and a major arbitral player is still, somehow, a remote dream. Nonetheless, with its new legislative setting, Macau is now one step closer to developing a more mature arbitration practice.

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“Breaking In: How International Arbitration Becomes More Diverse” – A Report from the GAR Connect Event

Sat, 2021-10-16 01:29

On 1 September 2021, Global Arbitration Review (GAR) launched a new diversity-themed addition to its GAR Connect series, “Breaking In: How international arbitration becomes more diverse.”1)The authors would like to thank Racial Equality for Arbitration Lawyers (R.E.A.L.) for providing a scholarship to attend the event. jQuery('#footnote_plugin_tooltip_39140_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_39140_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The event, co-chaired by Adriana Braghetta (Adriana Braghetta Lawyers), Nayla Comair Obeid (Obeid & Partners), Vladimir Khvalei (Baker McKenzie), and Kevin Kim (Peter & Kim), showcased individuals and ideas from seats or regions newer to international arbitration, along with some of the challenges that newcomers to the world of international arbitration face.

 

Keynote Address

The keynote address was delivered by Gaston Kenfack Douajni (Director of Legislation, The Ministry of Justice, Cameroon). Mr. Douajni raised criticisms on appointments of arbitrators specifically in Africa. He shared his exchange with the late Emmanuel Gaillard, who agreed with him that arbitration will only be “truly international” when renowned arbitral institutions appoint African arbitrators in cases that do not necessarily involve African parties.

He remarked that the “condescension and paternalism” with which some practitioners view African arbitrators and institutions are “not likely to promote diversity in international arbitration.” He also observed that a small pool of international arbitration practitioners from developed countries are regularly appointed in international arbitration. As a result, the arbitrations take longer as it is “not humanly possible” for arbitrators sitting simultaneously in several cases to manage them.

In concluding his address, Mr. Douajni quoted Winston Churchill: “criticism can be disagreeable, but it is necessary. It’s like pain to the human body: it calls attention to what’s wrong.” He explained that calling attention to the lack of geographical diversity in the appointment of arbitrators emphasizes that this deficit impacts the effectiveness of international arbitration.

 

Building a Local Arbitration Bar

The panel was moderated by Adriana Braghetta (Adriana Braghetta Lawyers) and featured speakers Lucas Britto Mejias (TozziniFreire), Una Cho (Kim & Chang), Ahmed Ibrahim (Independent Arbitrator), and Sanjeev Kapoor (Khaitan & Co). Each speaker explained the steps taken in their jurisdictions—Brazil, South Korea, Egypt, and India—that led to the rise of international arbitration and the establishment of a local arbitration bar.

For Brazil, Mr. Mejias stated that there are four main factors: (1) modern and strong arbitration law; (2) courts supporting arbitration; (3) a strong arbitration community; and (4) a large and diverse business community that favors arbitration, particularly due to delays in decision by the courts and arbitration being a better mechanism to resolve specialist disputes.

Ms. Cho stated that the same factors helped the development of international arbitration in South Korea. She stated that the Asian financial crisis in 1997 also played a role, as insolvencies of companies were resolved through arbitration.

Mr. Ibrahim highlighted the fact that all four countries were business hubs in their region. In Egypt, the economy relies heavily on sectors like telecom, which in turn promotes dispute resolution through arbitration.

Mr. Kapoor also noted that similar factors led to the expansion of international arbitration in India. He added that a very reactive legislature and reduction of court interference in arbitral awards have played a major role. Mr. Kapoor mentions that talented Indian lawyers who study and train abroad have returned to India to develop the market. High-proficiency in English and the fact that India follows the common law system have also helped.

 

Barriers to Real Diversity; How to Expand the Arbitrators Pool?

Clients, institutions, counsel, and arbitrators argue that the pool of arbitrators should reflect the world it serves. However, it is easier said than done to introduce young faces, particularly from less popular legal systems. Speakers Diamana Diawara (Africa Director for Arbitration and ADR, ICC), José Feris (Squire Patton Boggs), Kevin Nash (Deputy Registrar & Centre Director, SIAC), Emilia Onyema (Professor, School of Oriental and African Studies, University of London), and moderator Vladimir Khvalei (Baker McKenzie) discussed methods to do so while maintaining international arbitration’s reputation for excellence.

There are three types of diversity issues to becoming an arbitration practitioner: gender, age or experience, and ethnic diversity.

As for gender, based on 2020 ICC Dispute Resolution Statistics, the number of women arbitrators increased by 2.3 percent. However, there is regional disparity, and female arbitrators in Europe lead in the number of appointments compared to female arbitrators in other regions.

As for age and experience, while prior knowledge and trust are essential in arbitral appointments, there has been a tendency to appoint younger practitioners as arbitrators in institutions, as seen in the ICSID list of arbitrators. They will provide fresh ideas that would encourage the parties to appoint them instead of traditional names. For practitioners in some regions with fewer arbitrations, achieving the requisite experience level may require practicing abroad—but that changes once arbitration becomes more popular.

However, as to national origin, while French, English, or American arbitrators often practice anywhere, there is an obstacle for arbitrators from other jurisdictions to practice outside their regions. Even though there is a talent pool of arbitrators in Latin America, developing them in the other areas requires more time. Local arbitration institutions could offer a solution by appointing young arbitrators with diverse characteristics as arbitrators, for example, on behalf of the non-participating respondent in cases or nominating young arbitrators as chairs of arbitral tribunals.

Diverse students and practitioners should also consider internships in international organizations such as the United Nations Conference on Trade and Development (UNCTAD), joining young arbitration groups, publishing or speaking at events, and differentiating themselves by getting a degree in international law or obtaining a Ph.D. to build their way in the arbitration world.

Even though education in other jurisdictions helps students and young practitioners build a global network of future arbitrators, there are some obstacles to pursuing these goals, such as financial difficulties. In this regard, several initiatives such as the Racial Equality for Arbitration Lawyers (R.E.A.L.) aim to provide opportunities to diverse students and practitioners.

 

Debate: Is the Future of International Arbitration Regional?

Nakul Dewan SA (Twenty Essex), Mustafa Hadi (Berkeley Research Group), Ucheora Onwuamaegbe (Arent Fox), and Janet Walker (Independent Arbitrator) argued for and against the debate motion. The debate was judged by Sheika Haya Rashed Al Khalifa (Haya Rashed Al Khalifa), Nayla Comair Obeid (Obeid & Partners), and Elie Kleiman (Jones Day).

The first group argued that international arbitration in the future would focus on regional hubs, as shown in the 2021 Queen Mary report that found that the regional seats in arbitration are increasing. In this regard, Singapore and Hong Kong are as popular arbitration seats as Paris or London. The key reasons that made the regional seats more attractive are more support for arbitration by local courts, improved neutrality, impartiality of the local legal system, and a better track record in implementing agreements to arbitrate and arbitral awards.

BITs have also caused the development of regional arbitration centers, such as in the case of Turkey for the China-Turkey BIT. The customers determine the future, not the suppliers, and the parties prefer some centers with shared languages and business cultures. Parties engaging in regional transactions are keen to find someone who understands their needs and the business environment.

The second group argued that the future of international arbitration is not regional. Arbitral awards are enforced globally through the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Technology and new types of transactions will make participation in arbitration easier, and arbitration over these new transactions (such as cryptocurrency) is often focused on subject matter, not geography. All countries must come together to protect the future of international arbitration, and students and young practitioners can benefit from learning from those in other regions.

 

Concluding Thoughts

The event shed light on several questions and issues that are not often touched upon in international arbitration conferences and literature. One issue that was briefly addressed was access to training for junior lawyers from newer arbitration jurisdictions. One of the participants mentioned that only one arbitration center is currently running a virtual internship. Inequalities in access to training exist and have long-term ramifications. More initiatives and broader discussions on reducing inequality in access to training are the need of the hour.

The discussions, especially with people who likely share the same experiences relating to diversity, allowed attendees to reflect not only on the current shortcomings but also the ways forward to achieving more diversity—whether in race, gender, or age—in international arbitration. There is no dearth in initiatives on the part of organizations in achieving diversity. To name a few, organizations such as ArbitralWomen, Rising Arbitrators Initiative and the Racial Equality for Arbitration Lawyers (R.E.A.L.) were launched towards this goal. Recently, Arbitrator Intelligence also launched a diversity campaign to collect feedback that will make it easier for parties, counsel, and institutions to appoint diverse and newer arbitrators.

The event gave a unique opportunity to connect practitioners from across the world and hear inspirational figures share their experience in tackling the challenges to “break in” the world of international arbitration. The authors believe that although there is still much work to be done, the recent increase in the number of initiatives and events like this show that we are moving in the right direction.

References[+]

References ↑1 The authors would like to thank Racial Equality for Arbitration Lawyers (R.E.A.L.) for providing a scholarship to attend the event. function footnote_expand_reference_container_39140_30() { jQuery('#footnote_references_container_39140_30').show(); jQuery('#footnote_reference_container_collapse_button_39140_30').text('−'); } function footnote_collapse_reference_container_39140_30() { jQuery('#footnote_references_container_39140_30').hide(); jQuery('#footnote_reference_container_collapse_button_39140_30').text('+'); } function footnote_expand_collapse_reference_container_39140_30() { if (jQuery('#footnote_references_container_39140_30').is(':hidden')) { footnote_expand_reference_container_39140_30(); } else { footnote_collapse_reference_container_39140_30(); } } function footnote_moveToReference_39140_30(p_str_TargetID) { footnote_expand_reference_container_39140_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_39140_30(p_str_TargetID) { footnote_expand_reference_container_39140_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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The Contents of the Yearbook Commercial Arbitration, Volume XLVI (2021), Upload 4

Sat, 2021-10-16 01:00

Subscribers to KluwerArbitration.com enjoy access to the ICCA Yearbook Commercial Arbitration.

A selection of major CRCICA awards concerning contracts for the supply of commodities and dealing with a variety of notorious issues – parallel arbitration proceedings, non-signatory parties, res judicata, corruption, and force majeure ‑‑ is now available on KluwerArbitration.com.

Two awards, rendered in Madrid and Cairo, relate to the same dispute, and discuss issues connected to parallel proceedings. In the Madrid proceedings, the tribunal held that the claim for shortfall compensation had already been decided in an ICSID arbitration initiated by the same claimant against the State rather than the State entity involved in the Cairo arbitration. The tribunal applied Art. 26 of the ICSID Convention to decline jurisdiction. In the Cairo arbitration, the arbitrators held that the claimant had not breached the arbitration clause that was at the basis of the Cairo proceedings by commencing the parallel Madrid arbitration, as the clause provided for the possibility of multiple arbitrations.

Another award addresses to which extent a non-signatory party was bound to the arbitration clause in the parties’ contract under Egyptian law, addressing doctrines, such as the group-of-companies doctrine. universal succession, implied consent, piercing the corporate veil, and doctrines relating to the creation of confusion as to who the proper party was to the agreement.

Finally, the upload contains four awards rendered in the same case, in which the tribunal discusses the preclusive effect of a related ICC award in a parallel proceeding, arguments that a supply contract had been obtained through corruption, and the role of the doctrine of force majeure.

These awards will also appear in Volume XLVI (2021) of the Yearbook Commercial Arbitration in January 2022.

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Clarity in Dispute Resolution Clauses

Fri, 2021-10-15 01:21

How do English and BVI courts address inconsistencies in arbitration clauses? The English Court of Appeal decision in AdActive Media Inc v Ingrouille [2021] EWCA Civ 313 demonstrates that English courts will make every effort to honour the express terms of a contract.

In AdActive, the Court of Appeal examined three apparently inconsistent dispute resolution clauses which appeared sequentially in an agreement. The issue was whether there was an irreconcilable inconsistency between a “Governing law” clause (clause 15) and the provision for arbitration in a “Disputes” clause (clause 17). The result of the appeal was that a California judgment could not be recognised or enforced in England, because section 32 of the English Civil Jurisdiction and Judgments Act, 1982 prohibited the recognition or enforcement of a foreign judgment if bringing those proceedings was contrary to the underlying arbitration agreement.

The “Governing law” clause designated the law of the Federal or State Court of the Los Angeles County in California as the governing law and provided that the state courts in Los Angeles County have jurisdiction. Federal courts are more formal in nature and deal with cases involving federal laws, whilst county courts preside over state and local municipal law cases. A second clause, headed “Consent to Suit” (clause 16), provided that the parties consented to the jurisdiction of the courts of California in relation to “any legal proceedings arising out of or relating to the agreement.” Although the phrase “legal proceedings” could have been misleading because it is relatively wide and lends itself to different meanings, the Court of Appeal found that there was no inconsistency between this clause and the Governing law and Disputes clauses. The Court of Appeal found that the phrase could only be interpreted as referring to court proceedings especially since the agreement contained an arbitration clause which immediately followed the consent to suit clause. Clause 17, the “Disputes” clause, provided that except for claims in relation to certain specific clauses in the agreement, all disputes in relation to the agreement were to be settled or decided by way of arbitration.

First, the Court of Appeal in AdActive reiterated the well-established principle under English law that English courts should, “give effect to every clause of the agreement and not to reject a clause unless it is manifestly inconsistent with or repugnant to the rest of the agreement”.1)Chitty on Contracts (33rd ed.) (2018 and 2nd cumulative supplement 2020) at 13-071. jQuery('#footnote_plugin_tooltip_38949_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38949_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Upon an examination of the relevant dispute resolution clauses, the Court of Appeal found that it was apparent from each clause and their respective headings that they generally dealt with different aspects of jurisdiction and there was no irreconcilable inconsistency between all three dispute resolution clauses (clauses 15, 16 and 17).  The court relied on the judgment in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, [2020] 1WLR 4117 (previously discussed here and here) for the principle that contracting parties could not have intended that a significant clause, such as an arbitration clause, would be invalid.  This principle originates from a purposive interpretation approach. Based on this reasoning, the court adopted a purposive interpretation of the language of the contract to give effect to, rather than defeat, the underlying aim or purpose of the contract. The court noted that an interpretation resulting in an arbitration clause being void and of no legal effect at all gives rise to a powerful inference that such a meaning could not rationally have been intended by the parties.

The court found that the structure of the provisions provided consistency and noted that the clauses were grouped together, not scattered in unrelated areas. This meant that it was objectively less probable that the clauses were inconsistent. The court reconciled the various dispute resolution clauses contained in the agreement by finding that all claims and disputes arising under the agreement were to be referred to arbitration pursuant to clause 17 except for the specified exceptions under clauses 7 and 8. The excepted category of claims brought under clauses 7 and 8 which related to the use and protection of confidential information and protection of the work product respectively, were specifically to be dealt with by the federal and state courts of Los Angeles County.

Secondly, the court found that the language used in the various dispute resolution clauses lacked similarity and demonstrated the absence of any inconsistency. The court noted that the thrust of the “Disputes” clause as contained in clause 17 was to subject all claims, disputes, etc. to arbitration save for the specified exceptions, of claims brought under clauses 7 and 8 of the contract which could only be brought by way of court proceedings before the federal and state courts of Los Angeles County. This was in contrast to the “Governing law” clause 15 which was concerned with the appropriate court as the venue for cases, suits, actions, etc. which fell within the specified exceptions.

The Court of Appeal’s decision suggests that parties should exercise care when drafting an agreement. As the English courts will seek to reconcile potentially inconsistent clauses where possible and are reluctant to declare an arbitration agreement void or unenforceable unless it is manifestly inconsistent with or repugnant to the rest of the agreement.

A similar warning was echoed in the BVI case of Anzen Limited and others v Hermes One Limited [2016] UKPC 1 in litigation that went up to the Judicial Committee of the Privy Council on the interpretation of an arbitration clause in a shareholder’s agreement providing that either party ‘may submit the dispute to binding arbitration.’ The question was whether that clause entitled the appellant to a stay of litigation under section 6(2) of the relevant act of the time, the BVI Arbitration Ordinance, 1976. There, the Judicial Committee of the Privy Council cautioned that ‘clauses depriving a party of the right to litigate should be expected to be clearly worded.’  However, the court recognised the public policy shift towards upholding arbitration clauses and continued: ‘even though the commercial community’s evident preference for arbitration in many spheres makes any such presumption a less persuasive factor nowadays than it was once.’  The court allowed the appeal, rejected the High Court and Court of Appeal rulings and found that the shareholder was entitled to enforce the arbitration clause by a stay of litigation pursuant to the Arbitration Ordinance, 1976. Whilst the court recognised that the term ‘may’ suggested that arbitration was optional and not mandatory, the court applied the principle in the House of Lords case Bremer Vulkan Schiffbauund Mashinenefabrik v South India Shipping Corp Ltd [1981] AC 909 that parties to arbitration agreements are mutually obligated to cooperate in the pursuit of arbitration. Consequently, whilst the clause did not prohibit shareholders from commencing litigation, its wording permitted the other party to enforce the arbitration clause by the imposition of a stay of litigation and insisting on arbitration.

By the advent of the current BVI Arbitration Act, 2013 the mechanisms for upholding arbitration clauses are now even more robust. For instance, section 59(1) of the BVI Arbitration Act, 2013 provides useful guidance and parameters for binding arbitration agreements, whether signed or unsigned or whether those agreements are for determination of all or some specific disputes by way of arbitration. The Act provides for the recognition of arbitration agreements irrespective of whether they were entered into in the BVI or elsewhere and Part III of the Act provides that arbitration agreements must be in writing and can take the form of a separate agreement or be contained in a clause of an existing contract. The Act also provides guidance on how the tribunal of choice will determine the governing law of the substantive dispute. Section 32 of the Act even includes mechanisms for severing arbitration clauses and treating it as an independent agreement – a useful mechanism for upholding the power to arbitrate even if the main agreement fails or is later found to be invalid.

For users of arbitration, the crucial lesson to be taken from these cases is that careful attention should be paid to ensuring that the dispute resolution clauses accurately and clearly state the intended objective and avoid ambiguity. Clarity of language and intent is critical for ensuring that parties are able to enforce the use of the intended jurisdiction, choice of law and forum when disputes arise. Should there be any ambiguity, this could lead to potentially costly and drawn-out issues that could require a court judgment to resolve. In the BVI, the courts will make every effort to honour the express terms of a contract, and the BVI Arbitration Act, 2013 contains robust mechanisms for upholding arbitration clauses in order to provide a level of reassurance for parties which is also supported by past case law. Nonetheless, the ambiguous wording in AdActive and Anzen Limited resulted in extensive litigation and delay for both cases; a cautionary tale for all.

References[+]

References ↑1 Chitty on Contracts (33rd ed.) (2018 and 2nd cumulative supplement 2020) at 13-071. function footnote_expand_reference_container_38949_30() { jQuery('#footnote_references_container_38949_30').show(); jQuery('#footnote_reference_container_collapse_button_38949_30').text('−'); } function footnote_collapse_reference_container_38949_30() { jQuery('#footnote_references_container_38949_30').hide(); jQuery('#footnote_reference_container_collapse_button_38949_30').text('+'); } function footnote_expand_collapse_reference_container_38949_30() { if (jQuery('#footnote_references_container_38949_30').is(':hidden')) { footnote_expand_reference_container_38949_30(); } else { footnote_collapse_reference_container_38949_30(); } } function footnote_moveToReference_38949_30(p_str_TargetID) { footnote_expand_reference_container_38949_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_38949_30(p_str_TargetID) { footnote_expand_reference_container_38949_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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Conflicting Dispute Resolution Clauses in Related Contracts in the UAE: Which Forum?

Thu, 2021-10-14 01:00

The purpose of a dispute resolution clause is to provide for a process and a forum through which disputes can be resolved efficiently. However, dispute resolution clauses are too often ignored and relegated to the end of contractual negotiations or considered boilerplate provisions without regards to the overall context. Issues may arise from the parties’ chosen dispute resolution forum where parties conclude multiple related contracts with conflicting dispute resolution clauses. Efficiency considerations play in favour of having mutual claims arising out of the same fact pattern heard in a single forum although such disputes arise under separate agreements. This is particularly relevant in the context of construction disputes, which frequently involve multiple related contracts and various stakeholders who are not always signatories to the same agreements.

This post reports on a recent decision of the Dubai Court of Cassation dated 21 April 2021 in Case No. 209/2021, which involved claims under two distinct contracts relating to the same transaction but only one of which contained an arbitration agreement. As the arbitration agreement was not binding on all parties, the Dubai Court of Cassation held that the local courts were the proper forum to resolve the parties’ dispute “in the interests of justice” and to “avoid contradictory judgments”.

 

The Background Facts

In this case, a real-estate developer entered into (i) a construction contract for the performance of enabling works for the construction of a tower (the “construction contract”) and (ii) a separate agreement with a consultant for the provision of engineering, design and supervisory services over the enabling works to be performed by the contractor (the “consultancy contract”). The consultancy contract contained an arbitration clause while the construction contract did not.

Following completion of the enabling works, the real-estate developer hired another contractor for the erection works of the tower, but the new contractor faced issues in completing its own works because of inadequate enabling works. Upon the developer’s request, a panel of court appointed experts confirmed that both the first contractor and the consultant defaulted on their respective obligations and were jointly liable to pay damages to the developer.

 

The Judgments

Relying on the experts’ opinion, the developer commenced proceedings before the onshore Dubai court against both the contractor and the consultant jointly, seeking damages for the harm suffered as a result of the consultant having mistakenly certified the enabling works as complete when in fact they were not.

The Dubai Court of First Instance (“Court of First Instance”) accepted the claim against the contractor but dismissed the case against the consultant for lack of jurisdiction based on the existence of a valid arbitration agreement in the consultancy contract, as was raised by the consultant. This decision is in line with the provisions of Article 8 of the 2018 UAE Federal Arbitration Law, which provides that:

[t]he Court before which the dispute is brought in a matter covered by an Arbitration Agreement, shall declare the inadmissibility of the action, if the defendant has raised such plea before any claim or defence on the substance of the case, and unless the Court finds that the Arbitration Agreement is null and void or incapable of being performed”.

Nevertheless, upon appeal by the developer, the Court of Appeal overturned the Court of First Instance decision and rejected the jurisdictional challenge raised by the consultant. In reaching its decision, the Court of Appeal stated that:

(i) A finding of liability on part of the consultant was dependant on a finding of liability on part of the contractor. In other words, to determine whether the consultant was in breach of its obligations under the consultancy contract, it was necessary first to establish a breach by the contractor of its own obligations under the construction contract.

(ii) In the interests of justice and to avoid contradictory decisions, all related issues, should be determined in one forum.

(iii) Given that the arbitration agreement in the consultancy contract was not binding upon the contractor, the claims could not all be determined by arbitration, and the proper forum with jurisdiction was the local court.

Upon further appeal by the consultant, the Court of Cassation upheld the Court of Appeal’s decision and agreed with the reasoning of the lower court that where disputes related to a transaction that was the subject of multiple but closely related contracts, these disputes should not be divided and determined separately. In circumstances where it was not possible for the whole dispute to be determined by arbitration, the forum with jurisdiction must be the court with original competence. The Court of Cassation also noted, in line with previous decisions, that arbitration under UAE law remains an exceptional means of dispute resolution, and arbitration agreements are to be construed narrowly and cannot bind third parties who have not consented to arbitrate, as have been commented on in some previous posts here.

 

Commentary

The Dubai Court of Cassation disregarded an express choice of dispute resolution forum in favour of its own jurisdiction. This decision illustrates that a party may find itself having to litigate before the local courts despite having signed a contract with a valid and otherwise binding arbitration clause if the “interests of justice” so require. However, the decision is fact specific and should be understood in the light of all the circumstances of the case. In this case, the consultancy contract included the arbitration agreement whilst the construction contract, which was arguably the main underlying agreement, did not. The Court of Cassation may possibly have ruled differently if it was the construction contract that contained the arbitration agreement rather than the consultancy contract or if the issue in dispute was a different one, i.e. if the resolution of the parties’ dispute did not depend on a finding of liability under the construction contract.

This decision is interesting as it highlights the importance of ensuring consistency in the choice of dispute resolution in the context of multiple and distinct but related contracts.

If multiple parties to a construction project wish for all their potential disputes to be determined by arbitration, they should ensure that all related contracts contain compatible arbitration agreements allowing for joinder of additional parties and consolidation of arbitrations. Otherwise, they run the risk of having to litigate before the local courts. In this context, it is noteworthy that, unless contracts are entered into on a back-to-back basis, not all parties will necessarily be aware of the contractual terms entered into by others in relation to the same project and/or one party may not be in a strong negotiating position and therefore not able to impose its preferred choice of dispute resolution forum. It will not always be possible to ensure consistency in the choice of dispute resolution forum across all distinct but related contracts at the outset of a particular project. Once a dispute arises, it remains open to the parties to agree to submit their dispute (or a particular aspect of it) to arbitration by signing a separate submission agreement. Submission agreements that allow parties without pre-existing arbitration clauses to choose to submit a particular dispute to arbitration may possibly remedy the absence of a pre-existing arbitration agreement. In practice, parties may sign a submission agreement while engaged in negotiations for resolution of their disputes or even where a dispute is already being litigated before the courts. In the context of multiple contracts, parties should carefully consider how the submission agreement aligns or conflicts with all concerned agreements to ensure it achieves the desired relationship between all contracts. When negotiating and drafting a submission agreement, parties will have to consider (as with any arbitration clause) whether the arbitration should be administrated by an institution or conducted ad hoc, which arbitrations rules are to apply, what the seat of the arbitration and number of arbitrators should be. Once a dispute has arisen, parties have the benefit of understanding the precise issues and amounts in dispute, which will allow them to better tailor the process to best suits their needs.

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The Impending Binance Arbitration: a Primer on the World of Cryptocurrencies, Derivatives Trading and Decentralised Finance on the Blockchain

Wed, 2021-10-13 01:07

Introduction – What is Binance?

The rise of the cryptocurrency industry has spawned some of the fastest growing and most profitable companies since the original dotcom boom, with those like Coinbase, which was valued at almost US$100 billion after its recent IPO, being prime examples. However, Coinbase, as a cryptocurrency exchange, is dwarfed by the runaway success and size of the Chinese-founded exchange, Binance. On average, around US$100 billion is traded there daily. The current size of this exchange and trading platform is equally impressive in light of the fact that the company was originally founded in 2017 (five years after Coinbase). The reasons for Binance’s rapid development have obviously mirrored the cryptocurrency industry’s massive expansion, but they are also likely due to its unorthodox approach to providing its services in every corner of the globe over the past four years. This latter point is one of the many interesting parts of the impending arbitration to be filed by disgruntled traders against the platform.

 

News of a dispute involving Binance originally broke in mid-August 2021, when mainstream news outlets such as CNBC and the Financial Times released stories about a recently created third-party funder based in Switzerland called Liti Capital, which was planning to fund a ‘class action’ style HKIAC arbitration with potentially up to 700 claimants. The circumstances of the dispute arise out of a shutdown of many parts of the Binance online trading platform on
19 May 2021, the day of one of the largest percentage drops in the value of Bitcoin ever, and allegedly resulting in huge losses for traders who could not access their accounts.

 

What has brought a lot of mainstream media attention to this dispute is Binance’s long-standing, ambivalent approach to regulation when providing its services around the globe. The corporate entities behind the platform have shifted around the world regularly as its success has grown, avoiding stricter regulation as regulators have reacted to Binance’s presence within their remit. Critics have pointed to comments by Binance’s CEO Changpeng Zhao (known colloquially as ‘CZ’) repeatedly touting Binance’s ‘decentralised’ – implying “stateless” or “lawless” – nature.  Let us look at the publicly-known facts.

 

From a corporate legal point of view, Binance appears to have originally been founded in mainland China in 2017, before moving its servers and headquarters to Tokyo, Japan later that year in advance of China’s crackdown on Bitcoin exchanges and initial coin offerings (ICOs). After hints of stricter regulation in Japan in 2018, Binance announced plans to move some of its operations to Malta, and later also to Bermuda and Jersey. Today, the platform has entities in the Cayman Islands, The Seychelles, Singapore, South Korea, Uganda, Ireland, U.S.A and the UK, amongst many other countries, without any clear indication as to which of the entities are parent companies, which are subsidiaries or how they are related.

 

However, in an article published by the South China Morning Post on 16 September 2021, CZ admitted that the platform would need a centralised entity to “work well with regulators”. This marks a turning point from Binance’s prior “catch-me-if-you-can” approach to regulation, and the platform’s recognition that it cannot continue to operate wholly outside of national regulatory boundaries. This recent sequence of events puts to rest the media narrative that Binance as a whole is a stateless and decentralised set of entities with no corporate foundations and therefore a minimal level of obligations to either customers or regulators. An important distinction should be made between the fact that the Binance corporate entities are undoubtedly grounded in the corporate structures of each of their respective countries (and, as such, are clearly subject to their laws) and the fact that a number of services hosted on the Binance platform operate in a legal vacuum, raising the open question of whether the platform is a legal entity distinct from those corporate underpinnings and, if so, what legal regime governs it?

 

The Dispute, and the Billions behind Cryptocurrency Derivatives

While no requests for arbitration or other statements of case have been made publicly available (it is not known, for example, which Binance entity is a respondent), a video interview by CNBC with Liti Capital CIO, David Kay, along with other print interviews, have revealed some details around the potential allegations involved and approximate quantum of the claims. Of the 700 potential traders as claimants, six individuals allege losses of over US$20 million in aggregate, with the size of the total claims possibly reaching more than US$100 million. From the information available, most if not all of the potential claimants appear to have been trading cryptocurrency derivatives, a factor which is key not only to understanding the crux of the dispute but also Binance’s commercial success and the recently heightened regulatory scrutiny of cryptocurrency trading in jurisdictions around the world. Generally speaking, derivatives are contracts created on top of financial assets that have set correlations in relation to those assets.

 

Crypto derivatives on exchanges like Binance are almost identical to those that one might see on stocks, commodities or indexes in traditional financial markets, except for the fact that the underlying financial assets are obviously cryptocurrencies. Where crypto derivatives can be especially risky, and potentially catastrophic, for traders is through the high volatility of cryptocurrencies, especially over short periods of time.

 

What is alleged by the potential claimants in the Binance dispute is that they were unable to access their accounts and/or trading positions during one of the most volatile days in the history of cryptocurrencies.  This was due to Binance’s platform shutting down, preventing them from either limiting their losses, or posting more collateral to avoid liquidation. These types of claims are not unheard of in regulated traditional markets (see India’s NSE outage for four hours in February 2021).  However, in the case of Binance, cryptocurrency trading is unregulated by any jurisdiction other than by subjecting it to de facto bans on crypto derivatives trading in countries such as the U.S., China and the U.K.

 

Unique Aspects of the Binance International Arbitration

On the surface, this is a dispute that presents several features in common with many other disputes regularly brought to international arbitration:

 

  • Binance has Terms of Use that provide a clear reference to HKIAC arbitration, a seat of arbitration in Hong Kong and Hong Kong law as governing law;

 

  • Binance has a number of corporate vehicles behind the platform, one of which is Binance Holdings Limited, a company incorporated and with an address in the Cayman Islands and another being Binance Limited, a company incorporated and with an address in Hong Kong; and

 

  • Although, according to the information shared by Liti Capital, the prospective claimants may attempt to file a class arbitration against Binance, the Terms of Use provide a waiver of class arbitrations, albeit this could have been added after the current dispute started.

 

However, some aspects of this dispute present very unique challenges arising from the world of cryptocurrencies.  Some of these challenges include the following:

 

i. Identifying Proper Parties

While the consistent media characterisation of Binance as an ephemeral, stateless and decentralised platform may be overblown, from a contractual point of view, the Terms of Use for Binance.com remain equivocal as to what Binance corporate entities control and are responsible for the platform’s operations. The Terms of Use refer only to “Binance Operators” as being the parties that run Binance, without naming any incorporated legal persons, and conversely, including language to the effect that the identities of these operators are subject to change. This is likely to be a very hotly contested legal issue in the impending arbitration due to the fact that Binance’s global corporate structure continues to be opaque and unknown, even to regulators such as the UK’s FCA, who reportedly requested this information and was refused by Binance’s UK entity.

 

Further, in a jurisdictional context, the question arises whether Binance would be able to argue that the trading services provided on its platform are decoupled from nearly every Binance entity (especially those which own the majority of its assets) except those entities which Binance could essentially select due to the open drafting of the Terms of Use. This leads to the larger, and unanswered, question of identifying the legal status of the Binance platform itself and how its prior approach to providing its services around the globe has contributed to ‘muddying the waters’ of its corporate governance.

 

ii. Applying Substantive Legal Standards & Potential Arbitrability Concerns

The next question is which substantive legal and liability regimes govern the derivatives trading services allegedly used by foreign claimants on the Binance platform, considering that Hong Kong law (the governing law of the Terms of Use) does not allow unlicensed derivatives trading in its territory and its residents are ostensibly banned from using Binance derivatives services according to the Terms of Use. While we do not know the nationalities of the claimants, it is likely that they comprise a large number of countries. This raises the question of the propriety of the sole application of Hong Kong legal standards to an arguably international and decentralised set of services, performed by the parties outside that jurisdiction. This also has the potential to bring up serious illegality concerns and the question of arbitrability under Hong Kong law.

 

iii. Traditional Enforcement against Cryptographic Assets & On-chain Enforcement

Decentralised services provided through blockchain technology bring about a range of obstacles, and also opportunities, when confronted with the traditional commercial and corporate world.

 

Firstly, the legal nature of cryptographic assets remains uncertain in many jurisdictions, leading to doubts as to the enforceability of a successful award over certain amounts of cryptocurrencies. There are a small number of countries where Bitcoin and other cryptocurrencies are banned or highly restricted but many other countries have simply not yet legislated for their existence. For example, India has not yet attributed any legal status to cryptocurrencies but a legislative bill is being discussed at the present time.

 

Secondly, and perhaps more interestingly from both a technical and practical point of view, is the possibility of on-chain enforcement, e.g. where ownership of cryptographic assets can be automatically transferred to the winning parties of an arbitration through the execution of smart contracts on the blockchain, therefore dispensing with the necessity of resorting to the traditional levers of enforcement such as national courts. Practically, it would appear unlikely that the Binance dispute would culminate with the execution of any type of on-chain enforcement mechanism. However, there are crypto/blockchain disputes which have or currently are being resolved in this manner. Traditional arbitral institutions, such as JAMS, are beginning to look at drafting arbitration rule sets relating to disputes involving smart contracts.

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Can an Arbitral Tribunal Award a Claim in a Different Currency Than Requested? – The Case of Switzerland

Tue, 2021-10-12 01:35

Swiss substantive law allows a debtor to pay a debt in the national currency of the place of payment even though the debt is actually owed in a foreign currency, except for cases where the contract expressly requires fulfillment of the debt in “actual currency” by using the term “actual” or words to that effect (Article 84(2) of the Swiss Code of Obligations). A creditor has to accept fulfillment of a monetary debt payable in Switzerland by means of payment in Swiss francs even if the debt is owed in a foreign currency. In contrast, a creditor cannot claim compensation in a currency other than the currency owed (see, e.g., the decision of the Federal Supreme Court, ATF 134 III 151, consid. 2.2). Thus, a Swiss court cannot award a claim in the national currency of the place of payment if the compensation is actually owed in a foreign currency but has to dismiss such claim (see, the decision of the Federal Supreme Court, ATF 134 III 151, consid. 2.4). Likewise, a Swiss court may not award a claim in the currency owed if the creditor has wrongly claimed compensation in a different currency – by doing so, the Swiss court would violate the Swiss procedural law principle of ne extra petitawhich forbids a court to award “something else than what has been claimed” as set out in Article 58(1) of the Swiss Civil Procedure Code (see, e.g., the decision of the Federal Supreme Court, dated 1 October 2015, Case no. 4A_319/2015, consid. 3). This blog post will shed light on this issue in the context of international arbitration against the background of a recent decision rendered by the Swiss Federal Supreme Court.

 

Swiss Lex Arbitri: Enshrining the Principle of Ne Extra Petita

In international arbitration proceedings, the lex arbitri of Switzerland, as set out in Chapter 12 of the Swiss Private International Law Act (“PILA“), also requires an arbitral tribunals to adhere to the principle of ne extra petita. An arbitral award that disregards this principle may be set aside on the ground as set out in Article 190(2)(c) PILA. Article 190(2)(c) PILA reads as follows:

An arbitral award may be set aside only:

[…]

c. where the arbitral tribunal ruled beyond the claims submitted to it, or failed to decide one of the claims;

[…]

An arbitral award can thus be set aside if it grants a party more than it has claimed (ultra petita), if it grants a party something else than it has claimed (extra petita), or if it fails to decide on one or more claims (infra petita).

In the context of the topic at hand, the question one must ask is whether an award can be set aside in which the arbitral tribunal has awarded payment of a claim in a different currency than the currency claimed, as would be the case under Swiss substantive and procedural law as described above. In a recent decision rendered on 8 April 2021 in French, the Federal Supreme Court was presented with the opportunity to assess this question (Case no. 4A_516/2020, no English translation yet available at the time of this posting).

 

What Does the Federal Supreme Court Have to Say?

The background of the Federal Supreme Court’s decision was an international investment arbitration proceeding under the ICC Rules. The dispute concerned the investment of several Turkish investors in cement plants in Syria. In the course of the Syrian war, in April 2012, the Syrian government lost control over the region where the plants were located. As a consequence, the investors had to abandon their plants. In order to obtain compensation for the value of their investment in the plants, the investors commenced arbitration against Syria and requested payment of damages in USD. In its award rendered on 31 August 2020, the Arbitral Tribunal awarded the investors compensation of their claim in Syrian pounds (SYP) but allowed the investors to request payment in USD at the official exchange rate of the Syrian Central Bank on the day of payment. However, because of the Syrian pound’s significant currency devaluation between 2012 (when the investors lost control over the plants) and 2020 (when the award was rendered), the USD value of the amount awarded in SYP in 2020 was considerably lower than USD value of the amount of damages suffered by the investors in 2012.

The investors commenced setting aside proceedings before the Federal Supreme Court arguing, among others things, that the Arbitral Tribunal had violated the principle of ne extra petita by awarding the investors compensation in SYP rather than in USD.1)The investors also claimed that the award was against substantive public policy as the investors were only awarded a fraction of their loss on investment incurred. This argument was rejected by the Federal Supreme Court. jQuery('#footnote_plugin_tooltip_38927_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_38927_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The Federal Supreme Court considered that the compensation in SYP was “technically” something else than what the investors had claimed (in the words of the Court, an aliud) but nonetheless refused to set aside the award. Rather, the Court considered the investors to lack a legitimate interest in having the award set aside (as required by Article 76(1)(b) of the Swiss Federal Supreme Court Act). According to the Federal Supreme Court, it was uncertain whether a setting aside of the award and a remand to the Arbitral Tribunal for a new decision would be more favorable to the investors. The Court assumed that the Arbitral Tribunal in such case would reject the investors’ claim in USD. Although the investors could commence new proceedings claiming compensation in a currency other than USD, the Court considered that there was nothing to suggest that such a solution would be more favorable for the investors (Case no. 4A_516/2020, consid. 5.5).

Eventually, the Federal Supreme Court left open the question whether an arbitral tribunal can award a claim in a different currency than the currency claimed by the plaintiff. Instead, the Court submitted that the principle of ne ultra/extra petita may be less rigorously applied in a case concerning international commercial law than in a case governed by Swiss law (Case no. 4A_516/2020, consid. 5.5).

 

Federal Supreme Court’s Reasoning Leaves One Unsatisfied

The Court did not answer the question whether an arbitral tribunal can award payment of a claim in a different currency than the currency claimed, although the Court considered that in this case the Arbitral Tribunal awarded something else than what had been claimed. Rather, the Court noted that the principle of ne infra petita might be applied less strictly in an international commercial setting, without however defining what this means.

Moreover, the Federal Supreme Court simply assumed that the Arbitral Tribunal would reject the investor’s USD claim if the case were remanded without detailing the basis of this assumption. The Court’s conclusion that the investors lack a legitimate interest in having the award set aside ignores the fact that the award of a sum in a currency other than the one claimed resulted in a significant loss for the investors because of that currency’s devaluation.

In any case, this decision confirms the high threshold to be met to successfully set aside an award in Switzerland.

 

Key Takeaways

Parties to international arbitration proceedings seated in Switzerland involving different currencies are well advised to assess the correct currency of their claim and, in case the claim is for a currency other than the apparent currency, to show the arbitral tribunal why a different currency is claimed.

In commercial arbitration proceedings, parties should also consider to designate in their contract the currency for all claims arising out of or in connection with the contract. Absent such a clause, under Swiss substantive law, the contractually agreed currency designates the currency of a claim for performance. In case of a claim for damages, the correct currency is usually the currency of the state where the damages occurred (see, e.g., the decision of the Federal Supreme Court, dated 10 February 2017, Case no. 4A_341/2016, consid. 2.2).

In investment arbitration proceedings, the bilateral investment treaty may designate a specific currency for compensation claims, e.g. the currency of the investor’s state of domicile or the currency of the state where the investment is made. In the case at hand, the bilateral investment treaty in question did not designate the currency and the Federal Supreme Court considered that there was no established international rule determining the currency for compensation in investment arbitration (Case no. 4A_516/2020, consid. 4.3.2). In such a case, it is up to the claimant to convince the arbitral tribunal that the claimed currency is the correct one.

References[+]

References ↑1 The investors also claimed that the award was against substantive public policy as the investors were only awarded a fraction of their loss on investment incurred. This argument was rejected by the Federal Supreme Court. function footnote_expand_reference_container_38927_30() { jQuery('#footnote_references_container_38927_30').show(); jQuery('#footnote_reference_container_collapse_button_38927_30').text('−'); } function footnote_collapse_reference_container_38927_30() { jQuery('#footnote_references_container_38927_30').hide(); jQuery('#footnote_reference_container_collapse_button_38927_30').text('+'); } function footnote_expand_collapse_reference_container_38927_30() { if (jQuery('#footnote_references_container_38927_30').is(':hidden')) { footnote_expand_reference_container_38927_30(); } else { footnote_collapse_reference_container_38927_30(); } } function footnote_moveToReference_38927_30(p_str_TargetID) { footnote_expand_reference_container_38927_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } } function footnote_moveToAnchor_38927_30(p_str_TargetID) { footnote_expand_reference_container_38927_30(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Arbitration and the COVID-19 Revolution
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The Contents of the Yearbook Commercial Arbitration, Volume XLVI (2021), Upload 3

Mon, 2021-10-11 01:00

Subscribers to KluwerArbitration.com enjoy access to the ICCA Yearbook Commercial Arbitration.

A new upload of materials for the 2021 volume of ICCA’s Yearbook Commercial Arbitration is now available on the KluwerArbitration website. The upload consists of 27 decisions. Here are some highlights.

The Federal Supreme Court of Germany held that the need to avoid contradictory results required that the applicable-law rules of Art. V(1)(a) of the New York Convention, which concern the enforcement of awards, have to be applied by analogy in proceedings concerning the enforcement of arbitration agreements.

In its decision in the PAO Tatneft v. Ukraine case, which saw judgments in three jurisdictions, the UK High Court rejected Ukraine’s application to deny enforcement of a French investment treaty award under the 1998 Russia-Ukraine BIT, finding that Ukraine could not object to enforcement arguing that the tribunal had lacked jurisdiction, because it had not raised that issue in the arbitration.

Consequences of the COVID-19 pandemic were discussed in two decisions of the Southern District of Florida. In Fnu Isanto, the Court granted a motion to compel arbitration under an employment contract for a dispute concerning the death of a seaman due to a COVID-19 infection he allegedly contracted on a cruise ship because of the failure of his employer to timely implement social distancing measures. In Maglana, the issue was whether the arbitration agreement in the employment contracts of several seamen had become null and void because the cruise ship operator had failed to pay wages when all cruises were cancelled and the seamen were forbidden to disembark due to the pandemic.

Finally, two decisions in the Hulley v. Russian Federation dispute granted or confirmed a stay of the proceedings to enforce three PCA awards, pending a set-aside action in the Netherlands. In November 2020, the United States District Court for the District of Columbia held that a stay was appropriate in terms of judicial economy, balance of hardships, and considerations of international comity – since denying the stay would risk the possibility of inconsistent results in the primary (Dutch) and secondary (US) jurisdictions. Similarly, in April 2021, the English High Court of Justice denied the application to lift the stay previously granted, finding that the grounds for annulment invoked by the Russian Federation in the Dutch annulment action had at least a realistic prospect of success.

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Cultural Heritage Law and Investment Treaty Law: A Balancing Act?

Sun, 2021-10-10 01:45

Investor-state disputes often involve an interplay of different bodies of international law.  In addition to investment law, disputes may invoke issues involving public international law, international human rights law, and international environmental law – and tribunals are faced with the challenges of trying to reconcile the sometimes conflicting rights created under these different bodies of law.  International cultural heritage law is one of the areas of law that can sometimes be relied on in the context of investment treaty disputes, particularly where an investment touches upon an area that has been granted international recognition and protection either by the competent authorities of the host State, and/or by the United Nations Educational, Scientific and Cultural Organization (“UNESCO”).  Relevantly, the 1972 Convention Concerning the Protection of the World Cultural and Natural Heritage (“1972 World Heritage Convention”) creates obligations on States to protect and conserve sites that are inscribed on the UNESCO World Heritage List (article 5), and UNESCO publishes Operational Guidelines requiring States to take legislative and regulatory measures to protect listed sites.

The recent designation of the land at the center of the 4.4 billion USD dispute in Gabriel Resources Ltd. and Gabriel v Romania (ICSID Case No. ARB/15/31) (“Gabriel Resources v. Romania) as a UNESCO World Heritage site brings to the fore the conceptual challenges that may arise where an investment dispute concerns a site of international cultural significance.  In this case, the inscription of Roşia Montană as a World Heritage site came after the tribunal had heard oral arguments and received post-hearing briefs.  Accordingly its significance may be limited for the decision.  However, the case provides a useful opportunity to reflect on past developments in investment treaty disputes involving culturally or environmentally significant sites, and how tribunals might approach these two different bodies of law.

 

Gabriel Resources v Romania

In 2015, Gabriel Resources Ltd. and Gabriel Resources (Jersey) Ltd. (“Claimants”) initiated a claim against Romania under the Romania-Canada BIT and the Romania-United Kingdom BIT.  The claim alleged that the government had breached its treaty obligations by failing to approve the Claimants’ environmental impact assessment and issue an environmental permit to allow exploration at the Roşia Montană gold mining project.

The Claimants’ project was planned for Roşia Montană, which is located in the Apuseni Mountains in the western region of Romania.  The site was used extensively for gold mining during the Roman Empire, and evidence of the infrastructure and mining techniques used during these times is preserved to this day.  The Roşia Montană site is now renowned as the most “significant, extensive and technically diverse underground Roman gold mining complex”.

In 2017, Romania applied to UNESCO to have the Roşia Montană site listed on the World Heritage List.  In 2018 however, Romania suspended this process, reportedly pending ICSID’s determination in the ongoing proceedings.  In February 2020, the Romanian government resumed its application to include Roşia Montană on the World Heritage List.  In July 2021, at the 44th Session of the World Heritage Committee, the Roşia Montană site was inscribed on the UNESCO World Heritage List.  Relevantly, UNESCO noted that “the current mining proposal means that the integrity of the property is highly vulnerable.”  UNESCO also indicated the need for the Romanian government to take adequate controls to prevent active mining licenses on the site from being extended.

As noted above, the tribunal in Gabriel Resources v Romania has already heard oral argument, and received post-hearing briefs. It is unclear accordingly what effect, if any, the UNESCO inscription will have on the dispute.

 

Previous Investment Treaty Cases Involving UNESCO Listed Sites

While the UNESCO listing of the Roşia Montană site came after the hearing in Gabriel Resources v. Romania, there have been a number of earlier cases where tribunals have had to consider the relevance of this cultural designation in determining an investor’s rights.

This issue featured significantly in the proceedings in Thomas Gosling and other v. Republic of Mauritius (ICSID Case No. ARB/16/32), determined in February 2020.  In that case, the claimants alleged that Mauritius had infringed the UK-Mauritius BIT by not granting them the right to build a luxury tourism development in Le Morne, an area in southwest Mauritius that was used as shelter for runaway slaves in the 18th and 19th centuries.  The State had initially provided the claimants with a letter of intent to issue a tourism development certificate.  At the same time however, the State was pursuing UNESCO listing for Le Morne.  After having the application for UNESCO listing twice rejected, the State submitted a further application for listing to UNESCO that stated that development at the site would not be permitted.  Following that statement, the site was approved by UNESCO.  The claimants argued, inter alia, that the revised UNESCO application, which excluded the possibility of future development at Le Morne, constituted an expropriation of their contractual rights.  The majority dismissed the claim.  However, this was not due to the UNESCO listing, but rather on the basis that the State had not yet granted the claimants any development rights nor provided them with any assurances that could give rise to a treaty violation.

Other tribunals have also had to grapple with the relevance of a UNESCO World Heritage Listing for an investment dispute, with varying results.  For example:

  • In Compañia del Desarrollo de Santa Elena SA v. Republic of Costa Rica (ICSID Case No. ARB/96/1), Costa Rica reclaimed property owned by American investors in order to expand the Santa Rosa National Park in the Guanacaste Conservation Area. The investors brought proceedings claiming that the State had expropriated their investment without providing compensation.  While the proceedings were pending, Costa Rica applied for and received UNESCO World Heritage Listing for the Guanacaste Conservation Area.  The tribunal accepted that the property had been expropriated and ordered the State to pay the investors fair market value.  The tribunal noted that while takings for environmental reasons may constitute takings for a public purpose, this does not affect the State’s obligation to pay compensation (Award, February 17, 2000, para 71).
  • In Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt (ICSID Case No. ARB/84/3), the Investors had commenced excavation and construction works to build a tourism complex at the pyramids of Giza, when they uncovered artefacts of archaeological importance. The Egyptian Government then declared the land surrounding the pyramids to be “public property” , and withdrew approval for the project.  Two years later, the Pyramid Fields became a World Heritage Listed site.  The Investors later instigated proceedings claiming that the State had expropriated its investment. Similar to the Tribunal in Saint Elena v. Costa Rica, the Tribunal in this case found that there had been expropriation, but that the taking was in the public interest as it was for the purpose of protecting the State’s antiquities (Award, May 20, 1991, paras 158).  Interestingly however, the Tribunal limited the award of damages to lost profits accrued up to the date that the site was listed as a World Heritage site.  Its rationale for doing so was that the sale of land on a heritage listed site is illegal under Egyptian and international law, and that “any profits that might have resulted from such activities are consequently non-compensable” (Award, May 20, 1992, paras 190-191).
  • In Parkerings-Compagniet AS v Republic of Lithuania (ICSID Case No. ARB/05/8), the Municipality of Vilnius in Lithuania granted the Investor the right to construct parking facilities in the historic city center of Vilnius, a World Heritage Listed site. However, the Municipality later terminated the agreement, due to both technical difficulties and concerns regarding the effects that the project would have on the city’s archaeological heritage.  The Municipality then signed an agreement with a Dutch company for construction of the parking lot.  Relevantly, the Dutch company’s construction plans did not involve excavating under the historic city centre.  The Investor brought proceedings, claiming that Lithuania had breached the 1992 Lithuania-Norway Bilateral Investment Treaty.  The Tribunal however found that the State had not breached its obligations under the treaty, and “historical and archaeological preservation and environmental protection could be and in this case were a justification for the refusal of the [Claimant’s] project” (Award, September 11, 2007, para 392).

 

Takeaways for Investment Law and Cultural Heritage Law

This brief survey of investment law cases involving UNESCO World Heritage Listed sites shows the difficult task that tribunals face in seeking to balance what can be two competing areas of international law.  This challenge is not unique to international cultural heritage law, as tribunals are often required to undertake similar tasks in disputes involving, for example, international human rights law, or international environmental law.

It is clear from this brief survey that tribunals do recognize the legitimacy and, indeed, the value in States taking steps to protect their cultural and natural property.  However, while such actions may be necessary, this does not necessarily relieve States of their obligations under investment law – with these tribunals holding that investors must be compensated for any rights that are transgressed in the process of the State attempting to protect its cultural property.  However, the measure of compensation may vary depending on when the site is listed by UNESCO and whether the tribunal takes this cultural designation into account in determining the investors’ loss.

It remains to be seen whether the designation of Roşia Montană on the World Heritage List at such an advanced stage of proceedings in Gabriel Resources v Romania will be considered by the tribunal in that case.  However, with the number of natural and cultural sites inscribed on UNESCO World Heritage Listing continuing to increase, the issue of how investor’s rights will be balanced against the State’s obligations under the 1972 World Heritage Convention will inevitably come up again, and it will be interesting to see how tribunals continue to balance cultural heritage against an investor’s rights under international law.

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Estonia: Public Policy Must Be Interpreted Narrowly

Sat, 2021-10-09 01:30

The 168 parties to the New York Convention, including Estonia, have made a promise to recognize and enforce foreign arbitral awards. One of the few grounds – and probably the most discussed one – to refuse the recognition and enforcement is, under Article V(2)(b) of the New York Convention, the contradiction to the public policy of the country where the recognition and enforcement is sought. The New York Convention Guide admits that public policy forms part of a wider range of tools that allow a court to protect the integrity of the legal order to which it belongs.

Estonia has demonstrated itself to be an arbitration friendly country by defining public policy in a narrow way.

 

Selected case law on public policy

In case 2-18-4731 the Supreme Court of Estonia explained that not all of the country’s mandatory provisions constitute public policy, but only those that reflect the core values of the country’s legal system.

In the same decision, the Supreme Court dealt with enforcement of an arbitral award rendered in a case where the respondent – that was about to become bankrupt – did not dispute the claim. The decision also notes that it was possibly the parties’ joint intent to rapidly obtain an enforcement deed against the respondent before the start of bankruptcy proceedings. This would allow the claimant to have an automatically acknowledged claim in the bankruptcy procedure. The court found that these circumstances do not result in a conclusion that the arbitral award contradicts public policy. Since arbitral awards obtained in Estonia in proceedings where the parties do not argue about the existence and extent of the claim are enforceable, the same should be applied to foreign arbitral awards. Hence, an allegation that the parties have used arbitration to achieve an advantage in the domestic bankruptcy proceedings does not render the arbitral award unenforceable.

Previously, in case 2-16-15675, the Supreme Court had also outlined that the recognition and enforcement of an arbitral award does not contradict public policy merely because the domestic laws of the country where the recognition and enforcement is sought were not followed – in this case, the procedure of service under Estonian law. The Supreme Court opined, however, obiter dictum that Article V(2)(b) of the New York Convention might be triggered where Estonian law does not allow to arbitrate the type of disputes at all. Sections 718 and 7181 of the Estonian Code of Civil Procedure respectively render the residential lease, employment termination and consumer credit disputes non-arbitrable and provide for strict rules applicable to arbitration agreements with consumers.

In contrast, when defining public policy, the Supreme Court found in an earlier case 3-2-1-186-15 that the independence of the arbitrator is a core value of the legal system and constitutes public policy. Estonia would not recognize an arbitral award rendered by an arbitrator who would simultaneously protect the interests of one party.

 

Conclusions

In summary, Estonian courts define public policy in a narrow way. They see arbitrator’s independence and impartiality, as well as non-arbitrability of some disputes, as core values of Estonia’s legal system. An award that contradicts any of these values is not recognized and enforced pursuant to Article V(2)(b) of the New York Convention. Most of the other mandatory provisions do not fall within the scope of Estonia’s public policy and are not grounds to refuse the recognition and enforcement of a foreign arbitral award.

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Aligning Human Rights in Business with International Commercial Arbitral Rules

Sat, 2021-10-09 01:00

This year marks the 10th anniversary of the UN Guiding Principles on Business and Human Rights (“UNGPs”), which set out the duties of States and responsibilities of companies to embed human rights considerations in business activities. Of the three Pillars in the UNGPs, Pillar II (principles 11-24) specifically sets out human rights principles by which businesses should abide, including responsibilities to:

  • Avoid infringing on the human rights of others and address adverse human rights impacts (Principle 11);
  • Seek to prevent or mitigate adverse human rights impacts even if they have not contributed to those impacts (Principle 13);
  • Have a human rights due diligence process in place, including the remediation of adverse human rights impacts (Principles 15 and 22); and
  • Seek ways to honor internationally recognized human rights when faced with conflicting requirements (Principle 23).

Despite the enactment of these principles, the scorecard for the first decade has been rather disappointing. According to the UN Working Group on Business and Human Rights, business-related abuses are still a major concern and a source of deep frustration. Child labor implicates 160 million children worldwide. Other abuses range from one-bathroom-break rules to slavery to torture.

As was recognized at UNGPs’ inception, “there is no single silver bullet solution to the institutional misalignments in the business and human rights domain” and all social actors “must learn to do many things differently.” For these reasons, UNGPs have been adopted by standard-setting bodies in the corporate,  investment and accounting communities. In this same line, bar and trade groups are mapping out implementation strategies of UNGPs.

The commercial arbitration community, however, has been largely non-committal. As a recent report on UNGPs notes, commercial arbitration is seen as a “problematic forum” for resolving human rights-related disputes. According to the report, this is due to various features of commercial arbitration, including its “confidentiality, lack of transparency and participation by affected stakeholders, and the lack of human rights expertise of commercial arbitrators.”

While the new Hague Rules on International Arbitration of Business and Human Rights Disputes have been justifiably hailed as a milestone in providing a new forum for human rights matters, as with any arbitral rules, the Hague Rules kick in only if the underlying contract so provides or the parties so agree post-dispute.

Against this backdrop, this post examines the possibility of aligning UNGPs with pre-existing international commercial arbitral rules such as those promulgated by the ICC, ICDR, SIAC, LCIA, UNCITRAL, and HKIAC, with a view to assisting businesses in enhancing their human rights practices.

This post will shed a light on questions such as: (a) should an arbitral tribunal be empowered to consider evidence of human rights violations without fear of breaching its duty to render an enforceable award? and, (b) what if arbitral rules were amended to specifically include language authorizing tribunals to factor in human rights considerations as akin to trade usages?

Such a reference will enable global corporations to assign increased risk factors to human rights abuses (especially when transacting in countries where such abuses are more prevalent). Business decision-makers will thus be able to financially justify reducing human rights abuses.

There are numerous concerns raised by the application of human rights principles to commercial arbitrations; however, such legitimate fears should not be insurmountable, provided that participants are willing to endeavor, with an open mind, to “do many things differently”.

Below are some likely objections and answers to the integration of human rights in international commercial arbitration:

 

Objection 1: Arbitral rules are no place for substantive, non-contractual rights.

Many of the widely-used arbitral rules such as Article 21 of the ICC Rules, SIAC Rule 39 and Article 34 of the ICDR Rules require tribunals to consider trade usages in their determination of liability. According to some practitioners, these types of provisions “underscore arbitration’s historic roots in, and objective of, providing resolutions of disputes in a manner that accords with commercial expectations and practices.” In turn, globally recognized standards are routinely proffered as evidence of trade usages. Given the universally accepted nature of fundamental human rights, UNGPs could be considered analogous to trade usages if deemed applicable to the contract. Accused parties would be hard pressed to argue it is not industry practice to respect human rights in conduct relating to the contract at issue.

The international arbitration community should not disregard the power of institutions to impact business human rights practices. Arbitral rules typically provide that the current version govern even where the operative contract predates rules amendments. Tribunals and national courts have held that a reference to an institution or its rules means the rules themselves form part of the parties’ agreement by incorporation. And, while tribunals’ rulings are sometimes vacated as contrary to national law or public policy, arbitral rules themselves are rarely questioned under party autonomy principles.

One might argue that institutions lack a mandate to meddle in human rights issues. However, institutions are becoming increasingly proactive in shaping arbitration’s operative framework. NIMBY phenomena could be avoided if leading institutions joined forces, as many did last year in issuing their “Arbitration and COVID-19” joint statement.

 

Objection 2: Victims won’t benefit. What’s the point?

One could argue that because arbitration is inter-partes, the application of UNGPs may not benefit non-party victims. However, a reference to human rights considerations should still have an indirect, deterrent effect. Further, a tribunal’s finding that a company violated UNGPs could have a binding, collateral estoppel effect in subsequent or parallel proceedings involving the victims themselves, especially in arbitration-friendly jurisdictions where corporations are often headquartered.

Given tribunals’ broad power to fashion remedies, evidence of UNGP violations could even in some cases lead to an order directing the breaching party to correct its wrong and/or compensate victims. Tribunals might even provide an avenue for victims to join in as third-party beneficiaries or necessary parties, enabling them to obtain relief in the arbitral proceeding itself.

 

Objection 3: Since commercial arbitration is private, will victims even know?

Due to arbitration’s confidential and private nature, victims may never even learn of a finding implicating them. Certain arbitral rules such as SIAC Rule 39 have robust built-in confidentiality protections. That said, in practice, the confidentiality of arbitral proceedings is increasingly called into question, as parties sometimes compromise the confidentiality of proceedings or the award. Taking a page from the Hague Rules mentioned above, arbitral rules could include a carveout allowing evidence of human rights violations a higher degree of transparency in the proceedings.

 

Objection 4: Is this an improper importation of equitable principles?   

One could argue that such provisions grant tribunals equitable powers whereas many arbitral rules prohibit tribunals from deciding as amiable compositeur absent consent. However, such a scenario is unlikely where the reference to human rights or UNGPs is expressly made in the rules, which are considered part of parties’ agreement by incorporation. Parties will remain free to modify or opt out as prescribed in other parts of the various arbitral rules. A tribunal should thus have comfort that it is not acting beyond its mandate from the parties.

 

Objection 5: Delay, costs, and existential threats: will there be user support for this proposal? 

Injecting human rights concepts into arbitral rules could reduce the predictability of the outcomes, delay proceedings and increase costs, at a time when the arbitration community is striving to do the opposite. Amidst a renewed debate on international commercial courts and the Hague Choice of Court Agreements Convention, such references could discourage arbitration. However, if fairness, security, or conflicts of interest are worthy of consideration in arbitral proceedings, human rights deserves its own seat at the table. Moreover, the risk of counsel or parties abusing human rights issues is mitigated by already-existing rules empowering tribunals to determine relevance, weight, admissibility, and materiality of evidence.

 

Objection 6: Will it be a toothless addition?

UNGPs use predominantly permissive language (e.g., “should” and “responsibility” instead of “shall” or “duty”). While human rights will not likely confer a separate cause of action for breach of UNGPs until codified in national laws, the commercial arbitral community should begin somewhere. Empowering counsel and parties to proffer, and tribunals to consider, evidence of UNGPs or human rights considerations would be a good starting point.

Notably, Commentary to UNGP 11 notes: “The responsibility to respect human rights…exists over and above compliance with national laws and regulations protecting human rights.

 

Conclusion:

The most frequent opposition might be “it’s just not done.” As others have noted, we must “learn to do many things differently.” Commercial arbitration should not be considered a problematic forum in businesses’ efforts to promote human rights.

Throughout history, arbitration has flourished in societies that prioritized human rights, and floundered in those that did not. The arbitration community owes its existence to a humane society. Even if the most we achieve is giving rhetorical power to business’ human rights decisions, that would be a start. Ultimately, we need to find ways to do our share.

 

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Arbitrability of IPR Disputes through the Lens of the Iranian Legal System

Fri, 2021-10-08 01:00

A significant number of disputes related to Intellectual Property Rights (“IPR”) that have been settled by arbitration are reflected in the 2011-2020 World Intellectual Property Organization (“WIPO”) Caseload Summary. The expansion of the notion of arbitrability to include IPR disputes in recent years illustrates the global trend toward arbitration of IPR disputes despite concerns over the capability of resolving such disputes through arbitration in some jurisdictions, which include Iran, Brazil and South Africa.

This post explores the Iranian approach to the аrbitrаbility of IPR disputes. In doing so, this post will briefly explain the intellectual property landscape of Iran before discussing the arbitrability of IPR disputes in Iranian intellectual property and arbitration legislations.

The IPR Legal Regime in Iran

IPR essentially deal with creativity and innovation. The IPR regime seeks to “balance the moral and economic rights of creators and inventors with the wider interests and needs of the society” through legislation. In the Iranian legal system, the main legislature related to IPR at the domestic level currently are the Act for the Protection of Authors, Composers and Artist Rights 1970, Patents, Industrial Designs and Trademarks Registration Act 2008, the Act on translation and reproduction of books, publications and audio works 1974 and the Act on the protection of rights of computer software creators 2000.

At the international level, Iran is a member of WIPO and has acceded to key intellectual property treaties such as the the Paris Convention for the Protection of Industrial Property, the Madrid Agreement and Protocol for International Registrations of Trademarks, the NICE Agreement for International Classification of Goods and Services, Lisbon Agreement for the Protection of Appellations of Origin and their International Registration. In the context of copyrights, however, Iran has not signed the Berne Convention for the Protection of Literary and Artistic Works. Hence, Iran has not gone as far as the west with respect to its intellectual property legislation.

Arbitrability refers to whether a dispute is capable of resolution by arbitration or whether it can only be adjudicated through the domestic courts. Generally, non-arbitrability is dependent on a number of factors and each state determines whether a dispute is arbitrable by considering its own economic, social and legal circumstances The arbitrability of IPR disputes in the existing Iranian IPR regulations and in the current arbitration legislations will be discussed below.

Arbitrability in the IPR Legislation

Neither of the existing IPR domestic legislation in Iran expressly prohibits recourse to arbitration for IPR disputes. However, pursuant to article 59 of the Industrial Designs and Trade Marks Registration Act, “disputes related to the application of this Act and the relevant bylaws shall fall within the scope of jurisdiction of the general courts of Tehran that shall be designated by the head of the Judiciary within a maximum period of six months, from approval of the present Act”. The wording of this provision is ambiguous and leads to confusion as to whether it provides for the exclusive jurisdiction of the courts in resolving disputes falling under this statute or whether it merely comments on the exclusive jurisdiction of Tehran general courts. Legal scholars note that this article is concerned with the exclusive jurisdiction of the courts of Tehran in cases where they are the only or chosen dispute resolution forum, and not the exclusive jurisdiction of the courts over IPR disputes. This particular article should be read alongside other articles like 18, 41 and 29 dealing with the jurisdiction of the courts over disputes regarding the annulment of the registered patents and trademarks. Therefore, it would seem that only those IPR disputes that require registration at the Iranian Industrial Property Office are to be exclusively settled in the courts. Under this interpretation, state sovereignty and the right of a state to legislate in the public domain is preserved when IPR disputes are arbitrable and article 59, as mentioned above, is indicative of the exclusive jurisdiction of domestic courts over some IPR disputes.

Arbitrability in Iran’s Arbitration Legislation

The criteria for arbitrability is mainly set forth in the Iranian Civil Procedure Code and Law on International Commercial Arbitration 1997 (“LICA”). Article 496 of the Iranian Civil Procedure Code provides an illustrative list of the non-arbitrable disputes, which include disputes related to insolvency, marriage, divorce and paternity. Additionally, article 34.1 of LICA stipulates that if “[t]he subject matter of the dispute is not capable of settlement by arbitration under the laws of Iran”, the arbitral award is unenforceable, null and void. There is no express reference as to whether IPR disputes are arbitrable in the arbitration legislations.

There is also a restriction under article 139 of Constitution which requires authorization from the board of Iranian Ministers/Parliament before disputes pertaining to public and state properties can be referred to arbitration. Yet, this article is vague as to the arbitrability concept. Its wording gives rise to doubts as to which disputes may be arbitrable. Indeed, Iranian courts have interpreted the wording in different ways. For instance, the First Instance Court had ruled that there was no restriction on referring disputes involving governmental companies to arbitration and article 139 was merely applicable to governmental properties (judgement number 8809970228700102, 3 May 2009). However, in the same case, the Appeal Court reversed this and held that since the party was an insurance company and the shares belonged to the government, the properties also belonged to the government. Therefore, the dispute was not deemed to be arbitrable.

More importantly, the Comprehensive Draft Bill on Arbitration (“Comprehensive Draft Bill”) was recently drafted with contribution by the Judiciary and the Iran Chamber of Commerce in order to foster the use of arbitration in light of the Sixth Development Plan which sets out the general goals and the economic, cultural and social development plans of Iran for 2016 to 2021. The Sixth Development Plan has also adopted a pro-arbitration policy by stating that arbitration should be promoted in Iran. At the time of writing, the Comprehensive Draft Bill has not yet been ratified in the Parliament but can be relied on to better understand the latest approach of the legislator. Article 5.3 of the Comprehensive Draft Bill states that “if one of the parties is a governmental entity like Industrial Patent Office or the Ministry of Culture and Islamic Guidance, the IPR disputes are not arbitrable”. In other words, both disputes that require registration in the governmental authorities like the disputes related to the registered IPR, patents, designs or trademarks are not arbitrable. This is due to the exclusive jurisdiction of the Iranian domestic courts over some registered IPR disputes. Disputes related to marriage, divorce, paternity, custodianship and insolvency are also considered non-arbitrable pursuant to articles 5.1 and 5.2.

Further, according to the note in article 5 of the Comprehensive Draft Bill, “the disputes related to infringement of rights, transfer of rights, exploitation privileges and similar to these issues are arbitrable”. For the first time, Iranian legislation contains a provision on the resolution of IPR disputes in Iran that expressly allow for it to be arbitrable. Contrary to the registered IPR that are territorial in nature, disputes regarding the transfer of trade secrets, for example, which do not require to be registered and have private and confidential nature do not raise the sovereignty or public policy defense. The logic behind this categorization here is to avoid a situation where the arbitrators invalidate actions undertaken by the governmental authorities in response to the respondents’ challenging the registered IPR and initiating a jurisdictional defense.

While disputes concerning breaches of IPR, assignments of ownership or interpretation of license agreements ought to be arbitrable, challenges on the validity of IPR should not be resolved through arbitration. Given the fact that the issues of validity and ownership of IPR are associated with enforcement by the governmental IPR offices, the protection of these rights is territorial. These include, for instance, patents that are granted by a government for an invention.

On the global front, public policy restrictions and accordingly reservation of the exclusive jurisdiction of the state courts are the major grounds for the non-arbitrability of certain types of IPR disputes. It seems that the prescribed arbitrability of the IPR disputes in the Comprehensive Draft Bill are not merely concerned with whether they fall within the ambit of public policy. Instead, it is whether they fall under the exclusive jurisdiction of the national tribunals over registration of these rights.

Concluding Remarks

The current position on the arbitrability of IPR disputes under Iranian law still remains unsettled. It remains to be seen whether the Comprehensive Draft Bill will eventually be ratified in the Parliament or not. No specific case law has been reported in this regard and future case laws would be welcomed to clarify the issues discussed above.

However, the existing domestic regulations and the Arbitration Bill suggests that the types of IPR disputes need to be differentiated. To this effect, only the disputes related to a governmental entity or those that require registration should be deemed non-arbitrable. It is recommended that the domestic laws include express provisions which authorize the resolution of certain IPR through arbitration. In other words, there exists a strong need to modify the current legal framework for arbitration in order to have an enhanced arbitration-friendly environment to resolve complex IPR disputes more efficiently and effectively. Until such a reform is achieved, parties should take into account whether the applicable law of their contract and the law of the state where the award will finally be enforced recognizes the arbitrability of the IPR or not.

At the international level, the heavy caseload, highly technical subject matter of disputes, as well as agility, neutrality, specialty and confidentiality of the proceedings are reasons to shift towards arbitration as the preferred forum of dispute resolution for IPR disputes. In Iran, however, some of the IPR practitioners are not yet acquainted enough with the peculiarities of arbitration and prefer litigation. Hence, more initiatives should be taken to promote training in arbitration generally as well as for the IPR disputes.

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