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New Arbitration Rules For The Economic And Monetary Community of Central Africa (CEMAC)

Fri, 2022-05-06 01:00

The Economic and Monetary Community of Central Africa, also known as the Central African Economic and Monetary Community (CEMAC),1)CEMAC is the French acronym for “Communauté Economique et Monétaire de l’Afrique Centrale” jQuery('#footnote_plugin_tooltip_41479_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41479_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); has recently enacted a Supplementary Act N° 01/21-CEMAC-CJ-CCE-15 establishing the Statute of the Arbitration Center of the Community Court of Justice (Supplementary Act No 01) and a Supplementary Act N° 02/21-CEMAC-CJ-CCE-15 on the Arbitration Rules of the Court of Justice of the CEMAC (CEMAC Arbitration Rules). The Supplementary Act No 01 became enforceable upon its signing by the President of the Conference of Heads of States of the CEMAC on October 5, 2021. This post provides an overview of and commentary on the Supplementary Act No 01, the CEMAC Arbitration and related issues/developments.

 

Structure of the Newly Created Arbitration Center and Highlights of the Supplementary Act No 01

The institutions of the CEMAC include a Community Court of Justice (Court of Justice). Like the Common Court of Justice and Arbitration under the OHADA Treaty (which encompasses seventeen African countries including the six member States of the CEMAC) the Court of Justice has been entrusted with three main functions: judicial, advisory and administration of arbitration proceedings. The Arbitration Center which is established by Supplementary Act No 01 forms part of the Court of Justice and by virtue of Article 35 §1 of the Convention governing the Court of Justice, arbitration cases can be referred to the Center by any of the CEMAC Member States, and Institutions and Bodies of the CEMAC, pursuant to an arbitration agreement.

The Center is responsible for organizing and administering arbitration proceedings as provided under Article 1 of the Supplementary Act No 01. Article 13 of the Supplementary Act No 01 further provides that the bylaw of the Arbitration Center is expected to set its functions. However, the bylaw is yet to be enacted by the Conference of Heads of States which, under Article 36 of Convention governing the Court of Justice, is competent and no information is publicly available on the date of its enactment. The Center’s jurisdiction is derived from Article 5 of Supplementary Act N°01 which states that ‘[t]he Center is competent to hear disputes arising from an agreement stipulating a clause conferring on it the right to rule in the case regardless of the domicile or usual place of residence of the parties concerned’.

There are three main bodies that make up the Center:

  • the Case Management Committee;
  • the Secretariat General; and
  • the Arbitral Awards Review Committee (Appellate Body).

Each is discussed in more detail in the following sections.

  1. The Case Management Committee

The Case Management Committee has a broad mandate spanning from appointing authority to supporting judges via scrutiny of arbitral awards, among others. As an appointing authority, it appoints and confirms arbitrators, assesses their performance, and contributes to the renewal of the roster of arbitrators. It ensures that arbitral proceedings run smoothly and that the rules on procedural incidents and arbitrator misconduct are in compliance with the ethics of the Center. Additional tasks of the Case Management Committee include suggesting amendments to the CEMAC Arbitration Rules and contributing, along with the Court of Justice, to the research, training, and promotion of the Arbitration Center. These functions are similar to the courts of arbitration in some arbtiraiton centers. However, unlike the general practice within most arbitration centers, where each arbitral tribunal has the power to draft their terms of reference in consultation with parties to the proceedings, it is noteworthy that the Case Management Committee, and not the arbitral panel, is entrusted with the task of drafting the terms of reference of arbitral tribunals per Article 6 of Supplementary Act No 01. Given the importance of the terms of reference in any arbitration proceedings, an arbitral tribunal acting under the CEMAC Arbitration Rules should pay close attention to the phase during which the terms of reference are drafted, since they do not have the upper hand.

  1. The Secretariat General

The Secretariat General assumes the tasks usually reserved for the secretary general of arbitration centers such as the one of the CCJA or the ICC. Additionally, it proposes amendments on the arbitrators’ schedule of fees to the Case Management Committee. The Secretariat General is solely authorized by Article 7 of the Supplementary Act No 01 to receive and transfer all communications during arbitral proceedings. Such practice can be potentially risky as there may be instances where the Secretariat fails to forward all communications simultaneously or fails to do so within the required time. This may lead to a violation of due process and a detrimental risk to the arbitration.

  1. The Arbitral Awards Review Committee

The Arbitral Awards Review Committee functions as an appellate body. It is chaired by the President of the Court of Justice assisted with two Justices of the Court. It handles exequatur requests and hears challenges to arbitral awards rendered under the CEMAC Arbitration Rules.

It is pertinent to point out the provisions dealing with appointment and sanctions of arbitrators under the Supplementary Act No 01, the reason for which will be seen shortly. Article 9 §1 of the Supplementary Act No 01 suggests that only citizens of Member States can be appointed as arbitrator under the CEMAC Arbitration Rules, however Section 9 §2 allows the appointment of arbitrators outside the list, after they are confirmed by the Case Management Committee. In addition to this, under Article 9 §3(2), arbitrators can be removed by a ¾ majority ruling of the Court of Justice. This provision seems to be in conflict with Article 6 §1 of the Supplementary Act No 01 which authorizes the Case Management Committee to rule on any violation of the ethical code of arbitrators. It is unclear the type of sanctions the Case Management Committee can issue while handling disciplinary matters involving an arbitrator, since as mentioned above, only the Court of Justice has the power to remove an arbitrator. The Court of Justice may provide more clarity on this in due time when a related issue arises.

 

Highlights of the CEMAC Arbitration Rules

The Rules entered into force upon their signature by the President of the Conference of Heads of State of the CEMAC on October 5, 2021. This section highlights some noteworthy aspects.

Interim measures: Under Article 7 §1 and 7 §2 of the CEMAC Arbitration Rules, the Arbitration Center can order provisional measures where it deems necessary. Such measures may be ordered in the form of an interim arbitral award or provisional arbitral award for which enforcement can be sought.

Representation of parties: Contrary to the rules applicable in several African countries which do not require any licensed attorney appearing on behalf of a party in judicial or quasi-judicial proceedings to display a special power of attorney, anyone appearing on behalf of a party to arbitral proceedings under the CEMAC Arbitration Rules must be given, by their client, a duly signed special power of attorney (“Mandat special”), which must specify whether representation, assistance or both are contemplated (Article 9 of the Supplementary Act No 02).

Appointment and confirmation of arbitrators: It is noteworthy that under Article 10 of the Rules, any arbitrator appointed by a party must be approved by the other party. The wording of the rule seems to suggest that, contrary to the CCJA or ICC Rules, each party appointed arbitrator must be approved by the other party before confirmation by the Center. Under the CCJA and ICC Rules, a party appointed arbitrator does not have to be approved by the opposing party, who may only challenge the party-appointed arbitrator by raising a reasoned objection to their confirmation. There is a difference between allowing a party to object to the appointment of an arbitrator by the opposing party, as is the case under the CCJA and ICC Rules on one hand, and requiring that a party-appointed arbitrator must be approved by the opposing party, which seems to result in joint appointment of all arbitrators by parties, under the the CEMAC Arbitration Rules.

Case management conference: The case management conference is convened by the Case Management Committee (Article 18 of the CEMAC Arbitration Rules), which is also different from the pattern in the majority of other arbitration rules. For instance, under Article 15 of the Arbitration Rules of the OHADA Common Court of Justice and Arbitration, the case management conrefence is to be convened by the arbitral tribunal. So is the case under Article 24 of the ICC Arbitration Rules currently in force.

Post hearing submissions: Under Article 24 of the CEMAC Arbitration Rules, after the closure of debates, and before the issuance of the award, any party can take the initiative of a post-hearing submission (“Note en cours de délibéré”) and send it to the tribunal after having submitted a copy to the opposing party. This practice is contrary to the practice under the majority of arbitration rules, under which a post hearing submission must be authorized, unless requested by the tribunal itself. See for example, Article 27 §4 of the ICC Arbitration Rules 2021 and Article 19 §1 of the Arbitration Rules of the OHADA Common Court of Justice and Arbitration (2017). This majority rule ensures avoidance of dilatory tactics by parties that may be acting in bad faith. It also limits the risk of proceedings being dragged over the time allowed.

Drafting of awards: Under Article 27 of the CEMAC Arbitration Rules, an arbitral award must be drafted in full after it has been read to the parties. It remains unclear how the scrutiny will be made if the award is not already drafted at that stage.

Dissenting opinions: Where an arbitrator dissents and refuses to sign an arbitral award, the reason of refusal must be indicated in the award (Article 27, § 4 of the CEMAC Arbitration Rules).

Publication of awards: The publication of arbitral awards is allowed, subject to prior and written consent of the parties (Article 11, § 2 of the Supplementary Act No 01).

Liquidation of costs: Under Article 34 of the CEMAC Arbitration Rules, costs of an arbitration proceedings are liquidated by the Case Management Committee, not by the arbitral tribunal; however, it is still the tribunal that allocates cost among the parties.

 

Concluding Remarks

The new arbitration rules of the CEMAC have been enacted to comply with the revised Treaty establishing the CEMAC. Since the new arbitration center of the CEMAC has been created inside the Court of Justice, its jurisdiction is limited to the matters governed by the CEMAC Treaty and its subsequent legal instruments (pursuant to Article 22 and 35 of the Convention governing the Court of Justice), there is no risk of conflict between the OHADA Arbitration Rules which are enforceable in all the six member States of the CEMAC. The innovations reflected in the newly enacted CEMAC Arbitration Rules bring CEMAC’s procedures and practices in line with the latest global best practices.

 

Dr. Mahutodji Jimmy Vital Kodo, FCIArb, is a lawyer.

References[+]

References ↑1 CEMAC is the French acronym for “Communauté Economique et Monétaire de l’Afrique Centrale” function footnote_expand_reference_container_41479_27() { jQuery('#footnote_references_container_41479_27').show(); jQuery('#footnote_reference_container_collapse_button_41479_27').text('−'); } function footnote_collapse_reference_container_41479_27() { jQuery('#footnote_references_container_41479_27').hide(); jQuery('#footnote_reference_container_collapse_button_41479_27').text('+'); } function footnote_expand_collapse_reference_container_41479_27() { if (jQuery('#footnote_references_container_41479_27').is(':hidden')) { footnote_expand_reference_container_41479_27(); } else { footnote_collapse_reference_container_41479_27(); } } function footnote_moveToReference_41479_27(p_str_TargetID) { footnote_expand_reference_container_41479_27(); 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_41479_27(p_str_TargetID) { footnote_expand_reference_container_41479_27(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Fine line? A New Case on Arbitrators’ Power to Impose Sanctions

Thu, 2022-05-05 05:35

It is not uncommon in arbitration proceedings for interim measures to be necessary to avoid the relief intended on the merits from being frustrated. Interim measures in support of arbitration can now fortunately be ordered not only by national courts but also by arbitrators in most jurisdictions. In most instances, interim measures granted by arbitral tribunals are usually observed voluntarily by the parties.1) A 2012 survey found that 62% of interim measures granted by arbitral tribunals were observed voluntarily. International Arbitration Survey: Current and Preferred Practices in the Arbitral Process (2012), p. 17. jQuery('#footnote_plugin_tooltip_41520_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41520_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); But what happens when they are not? Indeed, do arbitrators have any power to compel a party to comply with an interim measure? This is precisely the question that arose in an ICC case in which we were recently involved and that we discuss in this article.

 

Case summary

The claimant was a construction company that entered into an agreement to refurbish infrastructure with a public entity, which was ultimately the respondent. The contract was terminated by the claimant due to breaches by the respondent. However, the respondent refused to pay the claimant the amounts triggered by termination of the contract and also refused to return the bank guarantee that the claimant had furnished to secure the fulfilment of its obligations while the contract was in force. After the claimant had started the arbitration proceedings, the respondent continued to refuse to return the bank guarantee and, ultimately, called on that guarantee.

As a result, the claimant requested that the arbitral tribunal grant interim relief ordering that the respondent deposit the amount of the bank guarantee into an escrow account. Although the arbitral tribunal granted the request, the respondent did not comply for more than six months. As a result, the claimant requested that a pecuniary sanction be imposed on the respondent for its continued refusal to comply with the arbitral tribunal’s order.

In deciding on whether to grant the requested sanction, the arbitral tribunal asked the parties to comment on three key issues: (i) the power of the tribunal to impose coercive economic sanctions under the potentially applicable laws (i.e. law of the seat and law of the respondent’s jurisdiction, where the sanction was expected to be enforced); (ii) the criteria for determining the amount of the sanction; and (iii) how the sanction should be paid and to whom. We break down below the response given by the claimant in relation to each of these issues and the arbitral tribunal’s conclusions.

 

Issue 1: Arbitral tribunals’ power to impose sanctions

Neither the law of the seat nor the law of the respondent’s jurisdiction explicitly establish that arbitral tribunals have the power to impose pecuniary sanctions, but they do not include a prohibition to that effect either. Moreover, the parties in the present case had not made any agreement limiting or confirming the tribunal’s power to do so.

In support of its request, the claimant argued that the power to impose pecuniary sanctions on parties is implicit in the powers granted to arbitrators. The claimant relied on a number of authorities,2) Alexis Mourre, “Multas coercitivas y ejecución en especie en arbitraje internacional“, Spain Arbitration Review 10, 2011, p. 25. jQuery('#footnote_plugin_tooltip_41520_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41520_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); in particular citing ICC case No. 7895, which concluded that, under the ICC Rules, in the absence of an agreement by the parties to the contrary, the arbitral tribunal has the power to impose sanctions.3) See, for example, Final Award in Case 7895 (Extract), ICC International Court of Arbitration Bulletin, Vol. 11. No. 1, 64, 2000. jQuery('#footnote_plugin_tooltip_41520_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41520_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The claimant also relied on Hamstein v Williams, a US case decided by the Court of Appeals for the Fifth Circuit, which noted that the inherent powers of arbitrators include the power to sanction parties and, therefore, arbitrators do not exceed their authority when imposing sanctions on a party.4) Hamstein Cumberland Music Group; Howlin Hits Music INC; Hamstein Cumberland Music Co; BH Associates INC, d/b/a Hamstein Music co; Bill Ham v Jerry Lynn Williams and Robert S Farris, 10 May 2013, Nos. 05-51666, pp. 8-9. jQuery('#footnote_plugin_tooltip_41520_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_41520_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Further, the claimant pointed out that the two potentially relevant laws permitted the imposition of sanctions by judges in civil proceedings and, therefore, sanctions were not alien to those legal systems. The claimant also mentioned that the UNIDROIT Principles on International Commercial Contracts provide in article 7.2.4 that courts shall be able to order the payment of a penalty to force a party to comply with a specific order and indicated that those principles could be considered by the arbitral tribunal pursuant to the terms of reference and the ICC Rules.

The arbitral tribunal concluded that it had power to impose a pecuniary sanction on the respondent in this case considering in particular (i) the authorities and precedents submitted by the claimant; (ii) that neither the parties had explicitly excluded the aforesaid power and no provision had been identified under the law of the seat or the law of the respondent’s jurisdiction which excluded that power; and (iii) that the imposition of pecuniary sanctions was in line with public policy in the two relevant jurisdictions given that such sanctions were permitted in civil proceedings.

 

Issue 2: Quantifying the sanction

The second question raised by the arbitral tribunal was how the amount of the sanction should be determined. The claimant argued that sanctions must afford an incentive for the misbehaving party to comply and, therefore, that the amount should be set at a level that was high enough to encourage that behaviour.

In our case, the claimant requested a sanction that would accrue per day of non-compliance and proposed as a benchmark the amount provided in the contract for delays to the completion of the works (0.1% per day of delay). In particular, the claimant suggested applying that percentage to the amount of the bank guarantee cashed by the respondent and for the sanction to accrue with that amount as a cap.

The arbitral tribunal concluded that the claimant’s proposal was reasonable as it imposed sufficient financial pressure on the respondent to make it comply with the order to deposit the amounts in escrow.

 

Issue 3: How and to whom?

The third and final issue was how the sanction should be paid and who should be the beneficiary of the pecuniary sanction.

In relation to the latter point, the claimant explained that the general rule in judicial proceedings is for sanctions to be paid to the courts themselves as they are to some extent responsible for protecting the integrity of the judicial system. However, sanctions in arbitration cannot have that purpose and, therefore, as suggested by a number of authorities, the beneficiary should be the party suffering the consequences of the non-compliance (i.e. the claimant).

As for how the sanction should be paid, the claimant proposed that any amount accrued as a sanction be granted in the award and be paid as established by the tribunal in the award.

The tribunal accepted the claimant’s proposals on both points.

 

Conclusion

Despite the pecuniary sanction, the respondent did not comply with the interim measure and the pecuniary sanction thus continued to accrue until the award was rendered. As ruled by the tribunal in its decision on the pecuniary sanction, the award granted the claimant the entire amount accrued as a result of the sanction and added that amount to the payment order contained in the award for the damages suffered due to breach of contract.

 

To further deepen your knowledge on interim measures in international arbitration, including a summary introduction, important considerations, practical guidance, suggested reading and more, please consult the Wolters Kluwer Practical Insights page, available here.

References[+]

References ↑1 A 2012 survey found that 62% of interim measures granted by arbitral tribunals were observed voluntarily. International Arbitration Survey: Current and Preferred Practices in the Arbitral Process (2012), p. 17. ↑2 Alexis Mourre, “Multas coercitivas y ejecución en especie en arbitraje internacional“, Spain Arbitration Review 10, 2011, p. 25. ↑3 See, for example, Final Award in Case 7895 (Extract), ICC International Court of Arbitration Bulletin, Vol. 11. No. 1, 64, 2000. ↑4 Hamstein Cumberland Music Group; Howlin Hits Music INC; Hamstein Cumberland Music Co; BH Associates INC, d/b/a Hamstein Music co; Bill Ham v Jerry Lynn Williams and Robert S Farris, 10 May 2013, Nos. 05-51666, pp. 8-9. function footnote_expand_reference_container_41520_30() { jQuery('#footnote_references_container_41520_30').show(); jQuery('#footnote_reference_container_collapse_button_41520_30').text('−'); } function footnote_collapse_reference_container_41520_30() { jQuery('#footnote_references_container_41520_30').hide(); jQuery('#footnote_reference_container_collapse_button_41520_30').text('+'); } function footnote_expand_collapse_reference_container_41520_30() { if (jQuery('#footnote_references_container_41520_30').is(':hidden')) { footnote_expand_reference_container_41520_30(); } else { footnote_collapse_reference_container_41520_30(); } } function footnote_moveToReference_41520_30(p_str_TargetID) { footnote_expand_reference_container_41520_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_41520_30(p_str_TargetID) { footnote_expand_reference_container_41520_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 Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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When an Unplanned Flight to Canada Lands You in the Paris International Court of Arbitration

Wed, 2022-05-04 01:00

Aircraft seizures tend to come up at the enforcement stage, oftentimes in relation to investment arbitration awards (see, e.g., proceedings against Tanzania or Equatorial Guinea). In Specter Aviation v. Laprade, however, the seizure of the Beechcraft Super King Air 300 (the “Aircraft”) is what triggered proceedings before the courts of the Canadian province of Québec, the US State of Oklahoma and Guinea, as well as an arbitration tribunal under the auspices of the Paris International Court of Arbitration (the “CAIP”). The main point of contention is the ownership of the Aircraft. In late 2020 the Superior Court of Québec (the “SC”) ruled that this issue belonged in court (2020 QCCS 4392), however a year later the Québec Court of Appeal (the “CA”) referred the parties to arbitration (2021 QCCA 1811). Such disparate conclusions stemmed from, among other things, different takes on separability and arbitrability. In addition to clarifying the interplay between the various provisions of the Civil Code of Québec (the “CCQ”) which regulate the international jurisdiction of Québec authorities, and shining the light on the enforceability of multi-tiered dispute resolution clauses (of which there were two in this case), the CA’s judgment reaffirms the province’s pro-arbitration stance.

 

How it started

The Parties’ 2012 joint venture aimed to develop air transportation services in Africa and came to an end when in 2019 they decided to part ways, formalizing the terms of their break-up in an Addendum to the original Agreement. The Addendum regulated the division of property, including the Aircraft in dispute. In the summer of 2019, the Aircraft left Guinea to undergo maintenance in France. Thereafter, instead of returning to Guinea, one of the Defendants illegally flew the Aircraft to Canada. Upon landing in Canada, the Plaintiffs seized it and requested the SC to: (i) recognize such seizure as valid; (ii) order the Defendants to pay legal costs related to the seizure in the amount of $100K; (iii) acknowledge that one of the Plaintiffs was the registered owner of the Aircraft; and (iv) acknowledge the Plaintiffs’ right to take immediate possession of the Aircraft. After the Defendants filed their defense and counterclaim asking the SC to declare them as Aircraft’s owners, Plaintiffs filed a motion to dismiss or, alternatively, to suspend on grounds of international lis pendens. By this point, Plaintiffs had sought to have their ownership recognized in Guinea (where the court ultimately referred the Parties to arbitration at the Defendants’ request) and Oklahoma. While the status of the latter proceeding is omitted from the CA’s judgment, in the judgment granting leave to appeal (paras. 2, 27-28), the CA had refused to issue an anti-suit injunction to prevent Plaintiffs from taking further steps before the Oklahoma court.

 

How it evolved in the Québec courts

The SC refused to refer the Parties to arbitration because the Plaintiffs had attorned to the jurisdiction of Québec authorities, the dispute was not arbitrable and neither of the two dispute resolution clauses was applicable. The CA reversed all these findings, referring the Parties to arbitration pursuant to the 2019 dispute resolution clause.

 

Tacit renunciation to arbitrate

The SC briefly concluded that Plaintiffs’ numerous procedural steps and failure to request referral to arbitration for 10 months demonstrated its attornment to Québec jurisdiction. The CA, conversely, considered Plaintiffs’ actions more closely, noting the distinction between steps related to the Aircraft’s seizure (for which Québec authorities undisputedly have jurisdiction under Art. 623 of the Code of Civil Procedure, “CCP”) and submissions on the merits (i.e. the Aircraft’s ownership). According to the CA, Plaintiffs’ early actions did not concern the merits of the dispute, but only the seizure’s validity (paras. 38, 40). It was only after the Defendants filed their written defense and counterclaim, i.e. the first submission on the merits, that the 90-day deadline for requesting referral to arbitration under Art. 622 CCP was triggered. As the Plaintiffs made their request within this timeframe, they could not be considered to have waived their right to arbitration (paras. 42, 44).

 

Arbitrability and international jurisdiction of Québec courts

The parties’ dispute does not fall into any of the non-arbitrable categories listed in Art. 2639 CCQ: disputes over the status and capacity of persons, family matters or other matters of public order. Nonetheless, according to the SC, the parties’ dispute could not be resolved through arbitration because of the interplay of  three provisions of the CCQ: (i) 3139 which provides that a court’s jurisdiction over the principal demand entitles it to rule on an incidental or cross demand; (ii) 3148(2) which provides that in personal actions of patrimonial nature courts have no jurisdiction if the parties have agreed to arbitrate their differences; (iii) 3152 which grants Québec authorities jurisdiction over real actions if the disputed property is located in the province.

While acknowledging the Supreme Court of Canada’s judgment in GreCon Dimter Inc. v. J.R. Normand Inc. (previously discussed here) which held that Art. 3148(2) trumped Art. 3139 CCQ, the SC found it had jurisdiction under Art. 3152 CCQ because this was a real action and the Aircraft was in the province (paras. 38-42).

The CA opposed this view, noting that Art. 3152 CCQ merely defined the limits of international jurisdiction of Québec authorities and could not be used to bring real actions within the realm of non-arbitrable matters which are clearly identified in the CCQ and must be interpreted narrowly (paras. 14, 22, 48-51). In his concurring reasons Justice Frédéric Bachand emphasized that arbitrability was the rule and, relying on Gary Born’s treatise, pointed to the prevailing view that disputes related to real rights are arbitrable.

 

Separability

Plaintiffs sought to rely on the dispute resolution clause contained in the 2019 Addendum, albeit arguing that their consent to this Addendum had been vitiated by fraud. The SC held Plaintiffs could not have their cake and eat it too. While acknowledging that, in principle, this clause would be presumed valid and any decision as to its nullity would be deferred to the arbitrator (para. 55), the SC concluded that logic did not apply here because the Plaintiffs themselves denied having consented to the Addendum that contained the dispute resolution clause they themselves sought to apply. Emphasizing the separability of arbitration agreements (enshrined in Art. 2642 CCQ) and echoing the findings of the arbitral tribunal which had rendered a partial award on jurisdiction in the meantime, the CA held that Plaintiffs’ reliance on the 2019 dispute resolution clause was well-founded.

 

A closer look at the multiple multi-tiered dispute resolution clauses

Considering the SC’s dismissal of the 2019 clause, it only analyzed the one contained in the 2012 Agreement.1) See para. 12: “Toute litige sera réglé à l’amiable. À défaut de règlement à l’amiable, le cabinet d’audit PWC sera désigné comme arbitre. À défaut de résolution du litige par l’arbitre, le litige sera porté devant le tribunal arbitral de Paris.” jQuery('#footnote_plugin_tooltip_41481_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41481_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This clause required all disputes to be resolved amicably, failing which Price Waterhouse Coopers would act as arbitrator. This clause further provided that, should the arbitrator fail to resolve the parties’ dispute, the matter would be brought before the “tribunal arbitral de Paris”. Since that clause lacked clarity and imperativeness, and Plaintiffs never felt bound by it, as manifested by their actions before the courts of Québec and Guinea, the SC concluded it was competent to decide which party owned the Aircraft (paras. 60-73).

One can hardly disagree that this clause is flawed or, at best, rather ambiguous. First, it names a legal person as an arbitrator, which is rarely seen nowadays2) Gary B. Born, International Commercial Arbitration (2021), pp. 1875-1876. jQuery('#footnote_plugin_tooltip_41481_27_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41481_27_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and even excluded in some countries.3) See, e.g. Art. 1450 of the French Code of Civil Procedure which applies to domestic matters, or Art. 19 of the Serbian Arbitration Act. jQuery('#footnote_plugin_tooltip_41481_27_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41481_27_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Though the issue of legal persons acting as arbitrators is not expressly dealt with in Québec legislation, when commenting on the previous CCP the Supreme Court of Canada in Sport Maska Inc. v. Zittrer noted that its provisions “suggest that only a natural person can act as an arbitrator” (para. 127). Second, it omits to clarify at what point arbitration will be considered to have failed. Finally, “tribunal arbitral de Paris” could mean a multitude of things.

Without commenting on the 2012 clause and while acknowledging that the ultimate decision as to which provision applies rested with the arbitrator under the competence-competence principle, the CA opined that it was rather the 2019 clause that governed. In the CA’s view this clause clearly and imperatively conferred exclusive jurisdiction upon an arbitrator (paras. 17-19).

Again, one cannot deny that this is a better provision. However, this is true only if one considers the clause as it was reproduced by the CA:

Any dispute arising in connection with this addendum and its consequences shall be subject to a prior mediation procedure conducted under the auspices of PriceWaterhouseCoopers.

If the mediation fails, the dispute shall be resolved by arbitration under the auspices of the CHAMBRE ARBITRALE INTERNATIONALE DE PARIS, in accordance with its Rules, which the parties declare that they know and accept.4)See para. 17 : “Toute contestation survenant à l’occasion du présent avenant et de ses suites fera l’objet d’une procédure de médiation préalable conduite sous l’égide de Price WaterhouseCoopers. En cas d’échec de la médiation, le différend sera résolu par arbitrage sous l’égide de la CHAMBRE ARBITRALE INTERNATIONALE DE PARIS, conformément à son Règlement que les parties déclarent connaître et accepter.” jQuery('#footnote_plugin_tooltip_41481_27_4').tooltip({ tip: '#footnote_plugin_tooltip_text_41481_27_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

For reasons unknown, the 2019 clause considered by the SC was slightly, yet sufficiently different to make it ambiguous. In particular, the second paragraph stated:

If the mediation fails, the dispute shall be resolved under the auspices of the CHAMBRE ARBITRALE INTERNATIONALE DE PARIS, in accordance with its Rules, which the parties declare that they know and accept, without however identifying the mediator.5) See para. 13 :  “[…] En cas d’échec de la médiation, le différend sera résolu sous l’égide de la Chambre Arbitrale Internationale de Paris, conformément à son règlement que les parties déclarent connaître et accepter, sans toutefois identifier le médiateur.” jQuery('#footnote_plugin_tooltip_41481_27_5').tooltip({ tip: '#footnote_plugin_tooltip_text_41481_27_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

Considering that CAIP offers both mediation and arbitration services, the absence of “by arbitration” before “under the auspices” coupled with the reference to a “mediator” hardly makes this a mandatory and unambiguous arbitration clause. In the face of two rather poorly drafted dispute resolution clauses, the SC’s decision is, perhaps, a tad less surprising.

 

Conclusion

Certain Canadian judgments may have recently raised doubts about the judiciary’s support for arbitration (see, e.g., discussions about the Supreme Court of Canada’s judgments here and here, as well as those of British Columbia and Ontario courts). Meanwhile, the CA’s judgment in Specter Aviation v. Laprade unambiguously demonstrates respect for some of the most fundamental principles of arbitration: party autonomy, competence-competence and separability.

 

*  The views expressed herein are those of the author and do not necessarily reflect the views of Woods LLP or its partners.

References[+]

References ↑1 See para. 12: “Toute litige sera réglé à l’amiable. À défaut de règlement à l’amiable, le cabinet d’audit PWC sera désigné comme arbitre. À défaut de résolution du litige par l’arbitre, le litige sera porté devant le tribunal arbitral de Paris.↑2 Gary B. Born, International Commercial Arbitration (2021), pp. 1875-1876. ↑3 See, e.g. Art. 1450 of the French Code of Civil Procedure which applies to domestic matters, or Art. 19 of the Serbian Arbitration Act. ↑4 See para. 17 : “Toute contestation survenant à l’occasion du présent avenant et de ses suites fera l’objet d’une procédure de médiation préalable conduite sous l’égide de Price WaterhouseCoopers. En cas d’échec de la médiation, le différend sera résolu par arbitrage sous l’égide de la CHAMBRE ARBITRALE INTERNATIONALE DE PARIS, conformément à son Règlement que les parties déclarent connaître et accepter.” ↑5 See para. 13 :  “[…] En cas d’échec de la médiation, le différend sera résolu sous l’égide de la Chambre Arbitrale Internationale de Paris, conformément à son règlement que les parties déclarent connaître et accepter, sans toutefois identifier le médiateur.” function footnote_expand_reference_container_41481_27() { jQuery('#footnote_references_container_41481_27').show(); jQuery('#footnote_reference_container_collapse_button_41481_27').text('−'); } function footnote_collapse_reference_container_41481_27() { jQuery('#footnote_references_container_41481_27').hide(); jQuery('#footnote_reference_container_collapse_button_41481_27').text('+'); } function footnote_expand_collapse_reference_container_41481_27() { if (jQuery('#footnote_references_container_41481_27').is(':hidden')) { footnote_expand_reference_container_41481_27(); } else { footnote_collapse_reference_container_41481_27(); } } function footnote_moveToReference_41481_27(p_str_TargetID) { footnote_expand_reference_container_41481_27(); 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_41481_27(p_str_TargetID) { footnote_expand_reference_container_41481_27(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Paris Arbitration Week Recap: Affaires d’Etats: Practical Considerations When Defending States In International Arbitration

Tue, 2022-05-03 01:00

In the last three decades, the advent of investment treaty arbitration and more recently third-party funding have led to an exponential rise in the number of international arbitrations pursued by private parties against sovereign States. Against this background, on March 28, 2022, as part of Paris Arbitration Week, Curtis, Mallet-Prevost, Colt & Mosle hosted the webinar “Affaires d’Etats: Practical Considerations When Defending States in International Arbitration.”  This session examined the practical challenges faced by States when defending themselves against these claims.  The event featured Marie-Claire Argac, Jaroslav Kudrna, Claudia Salgado Levy and Jeremy Sharpe, and was moderated by Simon Batifort.  This post encapsulates key takeaways from the webinar.

 

The Lack of Institutionalization of Investor-State Dispute Settlement (ISDS)

The speakers noted the differences between ISDS and other forms of dispute settlement involving States. Mr. Sharpe pointed out, for instance, that a first structural difference between ISDS and other forms of international dispute settlement lies in the absence of institutionalization. ISDS differs in this respect from the international trade regime institutionalized around the WTO. The WTO regime is comprised of treaties setting out obligations common to all member States, which facilitates the system’s accessibility. At the domestic level, a bureaucratization is implemented through the establishment of offices and ambassadors. ISDS is different in that there is generally no single body of laws that apply to all States, and BITs may differ greatly from one another. There is also no overarching supervisory international institution managing disputes or delimiting State obligations. As a result, it falls upon each State to organize itself.  However, in practice many States have focused on ISDS episodically, when faced with a claim, rather than through a systemized approach towards arbitration claims.

Dr. Salgado illustrated the impact of these features of ISDS by reference to the evolution since the early 2000s of Ecuador’s legal mechanisms for responding to ISDS claims. Initially, although the Attorney General Office (“AGO”) already existed, there was no specialized team in charge of handling international investment disputes. Ecuador’s first arbitration cases illustrated the need for specialized counsel and experienced arbitrators. The AGO is now a 12-member division dedicated to international affairs, which includes international commercial and investment arbitration. Ecuador combines retaining outside firms to handle arbitral proceedings, while ensuring that they collaborate with the local team for research on domestic law and liaison with public entities. Depending on the workload (currently 15 international commercial arbitrations and 7 investment arbitrations) the local team can play a more active role within the arbitrations.

Dr. Kudrna explained that the Czech Republic has adopted a hybrid model for its defense.  A 10-member internal team is heavily involved in the cases and to the extent necessary is supplemented by outside firms that are chosen after taking into account the initial analysis of the case, the amounts claimed, the expected complexity and risks, and the quality of the opposing counsel.  Boutique law firms tend to be favored for smaller cases.  He went on to list some of the attributes that States value most in outside counsel, including: the experience of the lead counsel and excellent pleadings skills; organizational skills to avoid unnecessary hastiness or delays; an understanding of the State’s needs, interests and inner workings; attention to the client-relationship, including having the lead counsel devote the necessary amount of time to the case; and effective cost management, for example to ensure that not too many resources are spent on secondary issues.

Mr. Sharpe spoke about the importance of formally designating a State agent, i.e., someone within the State bureaucracy who will take the lead on the State’s defense and oversee inter-agency coordination, drawing lessons from the way agents operate in international litigation. Such agents would officially represent States before tribunals, thereby enhancing the reliability of the State by reflecting its consistent position on a given issue. They may also help to coordinate and manage litigations and liaise with outside counsel. Finally, agents can help States articulate their views, as Mr. Sharpe detailed in an article.

 

Access to Documents and Witnesses

Panelists also engaged with certain practical difficulties that may be faced by States defending ISDS claims. Dr. Kudrna mentioned some of the specific challenges that may be encountered during the document production phase such as the fact that many document requests are drafted in an overly broad manner.  Furthermore, he noted that, given the lack of any statute of limitations in old BITs, some investment claims related to facts that occurred decades ago, when documents were not digitalized and have since been destroyed. Dr. Kudrna also referred to the misconception that the State entity in charge of the State’s defense can access any documents produced by other state organs, such as those relating to criminal investigations. Ms. Argac also stressed how difficult it can be to gain access to all of the relevant information and individuals in some cases due to the fact that claims are often brought years after the fact, when the relevant individuals have left and documents may have been lost or destroyed.

Dr. Salgado underscored difficulties arising from the lack of inter-institutional coordination between public entities. In the case of Ecuador, she explained that the law now requires public entities to provide the AGO with relevant documents within a few days. Dr. Kudrna added that it can be more challenging to find witnesses who will testify on behalf of a State, as opposed to employees of the claimant, a difficulty that may be compounded if hearings become open to the public.

 

Procedural Challenges

The session also addressed several difficulties that might arise procedurally for States in ISDS, including challenges associated with frivolous claims and with information asymmetry and limited preparation time.

The proliferation of third-party funding has led to an increase in the number of frivolous claims, said Dr. Salgado. Some investors resort to arbitration as a means of pressure against States.  Even if States ultimately prevail in such scenarios, it may represent a waste of costs and human resources.

Another significant challenge in the defense of States relates to the fact that claimants have months to prepare their case with outside counsel and come up with their optimal case strategy, while States rarely have this luxury.  Ms. Argac noted that in investment arbitration in particular, States receive a request for arbitration with a basic description of the claims and little more to work off of and that they have to wait until the memorial on the merits to get a proper view of the claims.  The limited information available to the States at such early stages may affect their ability to effectively present their case.  In addition, many arbitration rules require that certain rights be exercised early on, such as the right to raise counterclaims for instance.

Ms. Argac emphasized the importance of retaining outside counsel sufficiently early in the case to advise on the composition of the tribunal, noting that arbitration rules generally provide for tight deadlines within which to constitute the tribunal and that there is a limited pool of arbitrators who are sufficiently sensitive to the interests of States.  Another important aspect resides in the arbitrator’s approach towards quantum and DCF, as this can have a devastating effect on potential damages.  Dr. Salgado also referred to the fact that the significant amount of cases faced by Ecuador and the limited pool of arbitrators have led to situations where the same arbitrators who had already decided cases involving Ecuador were reappointed in other cases against the State, which could lead to them being influenced by their previous decisions.  One solution proposed by Mr. Sharpe was to increase the pool of arbitrators sensitive to the interests of States by encouraging former State agents who were directly involved in the defense of States in international arbitration to act as arbitrator.

 

Recommendations for States

In closing, Ms. Argac offered recommendations to States seeking to improve their defense practice:

  1. select outside counsel as soon as possible to be advised early on, especially regarding the constitution of the arbitral tribunal.
  2. think carefully about the selection of outside counsel: prior experience in international arbitration, particularly representing States, is fundamental; parallel representation of investors with diametrically opposed positions on key recurring issues may raise difficulties.
  3. pay attention to the early stages of a case: while it may be tempting to respond to all the accusations raised in a notice of dispute or a request for arbitration, it is often prudent for the respondent to limit itself to what is required by the applicable rules and stay concise.
  4. facilitate counsel’s access to relevant documents and individuals, for example through the designation of an agent to liaise with external counsel or assist with the search for potential witnesses and document gathering.

A final recommendation was directed towards tribunals and arbitral institutions: the legitimate push towards expediency should not come to the detriment of States’ rights to plead their case, locate and gather evidence or witnesses in these often complex, high-stakes disputes, and have sufficient time to liaise among the relevant agencies and obtain necessary approvals.  Having a more realistic schedule from the start will ultimately ensure a smoother arbitration.

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Unearthing FET: What Did States Intend, and Does It Matter?

Mon, 2022-05-02 01:00

FET is often described as the core standard of international investment law.  Recently, there has been renewed discussion on its intended meaning, by reference to a range of source materials that arguably reflect States’ intentions at the time of concluding investment treaties.  On December 10, 2021, the Dispute Resolution Interest Group of the American Society of International Law hosted the webinar “Unearthing FET:  What Did States Intend, and Does It Matter?”.  The event featured Jaroslav Kudrna, Ana María Ordóñez Puentes, Martins Paparinskis and Jennifer Thornton, all speaking in their individual capacities, and was moderated by DRIG co-chairs Simon Batifort and Rémy Gerbay. This post summarizes the key takeaways.

 

States’ Different Negotiating Approaches on the Scope of FET

Quoting the tribunal in Pawlowski v. Czech Republic, which described FET as “a rule of laconic brevity and delphic obscurity”, Jaroslav Kudrna noted that tribunals’ interpretations of FET are sometimes unanticipated due to a lack of universal agreement on the standard’s scope.  Thus, one of the cross-cutting themes of the event was the different negotiating approaches by different States towards FET provisions.

Martins Paparinskis explained how British and German treaty drafters approached FET, drawing on research contained in an article “Investment Law Before Arbitration” he co-authored with Hepburn, Poulsen, and Waibel.  Recalling the provisions of Articles 31(1) and 31(4) of the VCLT, he suggested that FET can have two special meanings and one ordinary meaning.  One special meaning is found in pleadings before the ICJ and PCIJ, according to which FET is thought of as a technically equivalent reference to customary international law, analogous to denial of justice.  The second special meaning comes from the League of Nations’ treaty practice on international trade, given that Article 23(e) of the Treaty of Versailles referred to “equitable treatment.”  Later on, States concluded bilateral treaties in which FET was applied in the context of non-discriminatory competition.  The third – the ordinary meaning – is that FET is a vague term, similar to other vague terms used in fields such as the law of the sea, State succession, human rights, and environmental law.  Paparinskis explained that in applying these alternatives, it is difficult to maintain that British and German treaty negotiators considered that FET had a certain special meaning in the sense of VCLT Article 31(4).  FET was not treated with a great deal of interest, not due to treaty negotiators’ lack of knowledge – they were leading international lawyers – but because it was not something treaty negotiators focused on, unlike the national treatment and expropriation standards.

In turn, Kudrna explained that the negotiating history of investment treaties concluded by the Czech Republic provides scarce evidence of FET’s intended role.  Negotiations focused mostly on provisions regarding national treatment, free transfers of profits, and dispute settlement.  The only treaty negotiations in which the FET standard was touched upon were those conducted with France, as the travaux préparatoires indicate that France suggested a clause in which FET would be afforded in accordance with international law.  Czech representatives conveyed to their French counterparts that this provision should be concretized, but no specification was made in the final text of the treaty, in which the FET standard is linked to principles of international law.

Jennifer Thornton explained that the United States’ consistent position is that FET refers to a developed body of customary international law that evolved in the era of diplomatic protection and requires that States provide certain minimum standards of protection to the property interests of foreign nationals.  The U.S. has always maintained that no single standard applies to all FET claims or to all MST claims.  Rather, the U.S. maintains that it is an umbrella concept, and a floor beneath which no State can fall, but that ultimately it is akin to a set of common law tort claims with unique elements that claimants must prove.  The U.S. has acknowledged that the obligation prohibits States from denying justice to foreign nationals in their courts, as well as unlawfully expropriating foreign property interests and repudiating their contractual commitments to foreign nationals in certain circumstances, in addition to requiring States to offer full protection and security to foreign property interests. Notwithstanding its best efforts to use conventional mechanisms to clarify the obligation’s scope, such as NAFTA’s Free Trade Commission’s Note of Interpretation and non-disputing party (“NDP”) submissions, the U.S. has never been able to persuade tribunals to completely embrace its approach on FET.  The consequence of this lingering ambiguity is that U.S. treaty negotiators have been unable to persuade Congress that the obligation is sufficiently well-defined so it can be fully embraced in future agreements.

 

Joint Interpretations, NDP Submissions, Amendments

The event also addressed the role of joint interpretations, NDP submissions and amendments calibrating the scope of FET.  Ana María Ordóñez explained that joint interpretations and NDP submissions are valid international law instruments that States rely on to define the scope of concepts such as FET.  These do not constitute a supplementary source of interpretation but a keystone of treaty interpretation, which in the context of ISDS exist precisely because States are aware of current arbitral practice that sees standards such as FET as empty clauses needing interpretation.  As to whether these instruments are taken into consideration in practice, Ordóñez opined that arbitral practice was inconsistent.  She held that whenever NDP submissions were taken into account, tribunals’ level of engagement with them seemed more concerned with the need to avoid allegations of failure to state reasons than with engaging with the arguments raised.  Ordóñez also noted that in 2020, UNCITRAL Working Group III (“WGIII”) issued a note in which it made specific reference to NDP submissions as authoritative interpretation mechanisms under VCLT Article 31(3)(b).  She pointed out that WGIII meetings show that States share a concern about tribunals adopting questionable interpretative approaches, and that WGIII’s work could indicate a general understanding between States that tools such as joint interpretations or NDP submissions can ensure that vague treaty provisions are not interpreted in a manner inconsistent with States’ intentions.

As to the proposition that States should amend their treaties if they are unsatisfied with tribunals’ interpretations of FET, Thornton opined that amending treaties is easier said than done, as the process can be complicated.  She concluded that States need to be more precise in their treaties when identifying FET’s scope, while recognizing that even their best efforts to clarify the obligation may not be fully embraced by a tribunal interpreting the treaty.  She stressed that this is the sort of bargain that States make when entering into these agreements to protect the offensive interests of their investors.

 

New-generation FET Clauses and the Uncertain Impact of Current Reform Efforts

Speakers also considered the possibility for new-generation FET clauses to clarify the meaning of FET provisions into the future.  In recent treaties, some States have opted for a more elaborate concept of FET, in order to set a higher threshold for the application of this standard for tribunals, which in turn results in more predictability.

Kudrna referred to the European Union’s practice and explained that the scope of FET was an issue in the negotiations of CETA, in which Canada wanted to link the FET standard to the MST under customary international law, a proposal which was strongly opposed by the EU.  The EU instead proposed to set out elements of the FET standard, codifying existing elements appearing in case law.  New agreements concluded by the EU containing its revised FET standard provide for an exhaustive list of conduct that can result in an FET standard violation.  This new approach is also being used by EU Member States individually when negotiating new investment treaties with third States or renegotiating existing treaties.  Regarding future treaty negotiations, Thornton opined that States should be clear about FET’s scope because conventional control mechanisms can be ignored.  She considered that the U.S. needs to move towards the CETA approach if the FET obligation is to remain in U.S. agreements.  Still, the devil is in the details: every time an attempt was made to enumerate the norms that had sufficient State practice and opinio juris to have crystallized into custom, there was fierce debate within the U.S. government about what those norms actually were.

Paparinskis contended that European and American approaches to FET are not similar but rather address very different points.  He explained that in examining FET, one intellectual exercise goes to the determination of the content of the rule, i.e. interpretation, and another goes to the application of that rule.  We have sophisticated machinery for determining whether interpretation of a treaty provision or the determination of the content of custom is correct or persuasive:  the VCLT for one, and rules of determination of customary law for the other.  Application of FET on the other hand is something about which international law says little.  We must be clear about these different exercises.  He referred to the above-mentioned quote by the Pawlowski v. Czech Republic tribunal, and explained that the tribunal conflated two meanings of vagueness.  One is vagueness as opposed to concreteness.  The other is vagueness as something similar to what VCLT Article 32 refers to, namely a meaning that is obscure.  He explained that there was nothing wrong with a rule being vague in the sense of not being concrete.  That is a plausible conclusion – after all, international law is full of vague but applicable and routinely applied rules.  The problem appears at the application level, where we can identify good and bad examples of the rule’s application.  Thus, U.S.is addressing the first point, namely clarifying and concretizing the content of the rule.  Europe is addressing the second point, namely identifying examples of application that fit within the rule.

However, these new approaches to FET do not come without difficulties. Kudrna noted that it is not always easy in practice when States attempt to negotiate reforms to unqualified FET clauses with third States, as some prefer to link the FET standard to the MST under customary international law.  As he concluded, we still remain far from a uniform understanding of the scope of the FET standard.

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International Arbitration as an Instrument of Economic Development: The Indo-Pacific Case Study

Fri, 2022-04-29 01:00

Historical records indicate that Tuesday, 10 June 1958 must have been a busy day in the corridors of the United Nations.1)Gary Born and the author are Expert International Commercial Arbitration Consultants retained by the Asian Development Bank to advise states on accession to the Convention, legislative reform and capacity building. jQuery('#footnote_plugin_tooltip_41369_24_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); On that day, following the diplomatic conference which had taken place in May and June 1958 as a precursor to the adoption of the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “Convention”), 10 states formally signalled their intent to become the first contracting parties to the Convention by becoming the Convention’s first signatories. A further 14 states followed later that year. In subsequent years, all of those original signatories eventually ratified the Convention, but not necessarily with immediate effect.2)Pakistan did not ratify the Convention until 2005. jQuery('#footnote_plugin_tooltip_41369_24_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

It is noteworthy that the initial signatory states represented a diverse cross-section of developing and developed economies. Amongst them, India, Pakistan, the Philippines, Sri Lanka and Egypt joined France and The Netherlands as first adopters on 10 June 1958. Almost 65 years later the current count of states which are parties to the Convention is 166 out of the 193 states presently represented at the United Nations.3)In the South Pacific the Cook Islands is a party to the Convention but is not a Member State of the United Nations. jQuery('#footnote_plugin_tooltip_41369_24_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Whilst that number represents an array of states on all inhabited continents and across the five oceans, it is instructive to consider which states remain to accede to the Convention and why that might be the case.

One area where, en bloc, the Convention had gained limited traction was the Indo-Pacific, and in particular the South Pacific. Of the 14 states comprising the South Pacific very few had acceded to the Convention prior to 2018.4)The South Pacific states which had acceded included the Cook Islands and the Marshall Islands. Fiji had acceded to the Convention in 2010 but did not enact legislation ratifying until the International Arbitration Act 2017. jQuery('#footnote_plugin_tooltip_41369_24_4').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); That statistic is curious in circumstances where many of those same states which had not acceded to the Convention had in fact acceded to the ICSID Convention, some as far back as the 1970s.5)Fiji, Samoa and Papua New Guinea acceded to the ICSID Convention in 1978. jQuery('#footnote_plugin_tooltip_41369_24_5').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

There has been a concerted push in recent years to bring the South Pacific under the umbrella of the Convention. This initiative, led by the Asian Development Bank in cooperation with UNCITRAL has been supported across the academic, institutional and professional arbitration community.6)Asian Development Bank technical assistance program entitled “Promotion of International Arbitration Reform for Better Investment Climate in the South Pacific”. jQuery('#footnote_plugin_tooltip_41369_24_6').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); What are the reasons for this reform and why now?

The answer is multidimensional. When a state considers whether to adopt such a reform the underlying policy case for the reform must run deeper than the argument that most states have acceded to the Convention and therefore Pacific states should follow suit. The real case for the reform is founded in the theory of economic development and the role international arbitration can play in facilitating foreign direct investment. In their Journal of Law and Economics article entitled “Does International Commercial Arbitration Promote Foreign Direct Investment?” the authors conducted empirical research on bilateral investment flows and concluded that foreign direct investment followed arbitration reform.7)Andrew Myburgh & Jordi Paniagua, 2016. “Does International Commercial Arbitration Promote Foreign Direct Investment?,” The Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 597-627. jQuery('#footnote_plugin_tooltip_41369_24_7').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_7', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); The reasons for this are multi-faceted but prominent amongst them are that investors and the recipients of the investment have a neutral and level playing field, avoid one another’s home jurisdictions and have an enforceable award as a result. This increased foreign direct investment flow appears particularly pronounced in countries with weaker institutions and in relation to larger projects.8)Ibid. jQuery('#footnote_plugin_tooltip_41369_24_8').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_8', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The effects of accession to the Convention and arbitration reform across the South Pacific resonate in two principal ways: first, the combination of accession and reform signals to the world that the country is open to business. Second, the effects of increased flows from foreign direct investment have been measured at as high as an 11% increase in gross domestic product for the South Pacific.9)Jordi Paniagua, “The Economic Impact of International Commercial Arbitration” Third South Pacific International Arbitration Conference, Sydney, 17 March 2021. jQuery('#footnote_plugin_tooltip_41369_24_9').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_9', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

In developing economies, where foreign investment inflows are crucial to employment, education, training and infrastructure, and also to current and future climate adaptation and mitigation efforts, arbitration reform alone will not be a magic bullet but rather an important condition precedent to attracting such investment. That investment is needed even more urgently given the impact of COVID-19 which has devasted all South Pacific economies and particularly the many Pacific economies which rely heavily on tourism. For example, the economies of Fiji and Palau have depended on tourism for between approximately 40-55% of their GDP.10)Fiji Market Insights 2021, Department of Foreign Affairs and Trade (Australia) https://www.dfat.gov.au/sites/default/files/fiji-market-insights-2021.pdf and World Tourism Organisation for Palau in 2015 https://www.theglobaleconomy.com/Palau/international_tourism_revenue_to_GDP/. jQuery('#footnote_plugin_tooltip_41369_24_10').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_10', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

As to the impetus of the timing of the reform, the Asian Development Bank helped drive the reform by investing ongoing in-country time and resources over a considerable period by assisting governments in developing policy papers, and by briefing all relevant government departments, businesses and the legal community on the potential benefits of the reform. This was in response to the growth of arbitration as the primary means of dispute resolution and the recognition of the potential benefits of foreign direct investment as a development tool which may have been underappreciated in the South Pacific prior to the Asian Development Bank’s involvement.

Following the Asian Development Bank’s technical advisory program, states which have acceded to the Convention and/or enacted arbitration legislation include Fiji, Palau, Tonga, Papua New Guinea and Timor-Leste. The Asian Development Bank has invested significant resources into not only assisting these states with reform but also in capacity building of judiciary, government and the private sector so that there is a sufficient knowledge base to implement the reform and to use arbitration with confidence. As a result, arbitration continues to grow in those states in a concrete sense and there is no reason to believe there is resistance in other states in the South Pacific to adopting similar measures.

The Asian Development Bank’s reform program is ongoing but the single most important factor in whether other states in the South Pacific will elect to undertake arbitration reform is likely to be the ongoing capacity and commitment to on-the-ground engagement which necessarily was curtailed during COVID-19. Personal relationships are highly valued in the South Pacific and ministers and ministerial departments need specialised advice and consultation. Such legislative reform requires considerable bandwidth from politicians and public servants in developing states who have other pressing commitments, takes time to percolate amongst stakeholders through public consultations and is subject to parliamentary sitting calendars and election cycles.

It is positive to note that institutional arbitrations have been filed before such institutions as SIAC and ACICA and arbitration-related proceedings have occurred before various courts in the region under new best practice legislation.11)See for example South Pacific Fertilizer Ltd v Allied Harvest International Pte Ltd [2019] FJHC 400; HBC142.2017 (8 May 2019); Stantec New Zealand Ltd v Fiji Roads Authority [2018] FJHC 867; HBC324.2016, HBC227.2017 (14 September 2018). jQuery('#footnote_plugin_tooltip_41369_24_11').tooltip({ tip: '#footnote_plugin_tooltip_text_41369_24_11', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); It is hoped that foreign direct investment will grow concurrently for those states which have engaged in the reform and signalled to the world they are open for business with reliable, predictable and dependable dispute resolution scaffolding in place.

References[+]

References ↑1 Gary Born and the author are Expert International Commercial Arbitration Consultants retained by the Asian Development Bank to advise states on accession to the Convention, legislative reform and capacity building. ↑2 Pakistan did not ratify the Convention until 2005. ↑3 In the South Pacific the Cook Islands is a party to the Convention but is not a Member State of the United Nations. ↑4 The South Pacific states which had acceded included the Cook Islands and the Marshall Islands. Fiji had acceded to the Convention in 2010 but did not enact legislation ratifying until the International Arbitration Act 2017. ↑5 Fiji, Samoa and Papua New Guinea acceded to the ICSID Convention in 1978. ↑6 Asian Development Bank technical assistance program entitled “Promotion of International Arbitration Reform for Better Investment Climate in the South Pacific”. ↑7 Andrew Myburgh & Jordi Paniagua, 2016. “Does International Commercial Arbitration Promote Foreign Direct Investment?,” The Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 597-627. ↑8 Ibid. ↑9 Jordi Paniagua, “The Economic Impact of International Commercial Arbitration” Third South Pacific International Arbitration Conference, Sydney, 17 March 2021. ↑10 Fiji Market Insights 2021, Department of Foreign Affairs and Trade (Australia) https://www.dfat.gov.au/sites/default/files/fiji-market-insights-2021.pdf and World Tourism Organisation for Palau in 2015 https://www.theglobaleconomy.com/Palau/international_tourism_revenue_to_GDP/. ↑11 See for example South Pacific Fertilizer Ltd v Allied Harvest International Pte Ltd [2019] FJHC 400; HBC142.2017 (8 May 2019); Stantec New Zealand Ltd v Fiji Roads Authority [2018] FJHC 867; HBC324.2016, HBC227.2017 (14 September 2018). function footnote_expand_reference_container_41369_24() { jQuery('#footnote_references_container_41369_24').show(); jQuery('#footnote_reference_container_collapse_button_41369_24').text('−'); } function footnote_collapse_reference_container_41369_24() { jQuery('#footnote_references_container_41369_24').hide(); jQuery('#footnote_reference_container_collapse_button_41369_24').text('+'); } function footnote_expand_collapse_reference_container_41369_24() { if (jQuery('#footnote_references_container_41369_24').is(':hidden')) { footnote_expand_reference_container_41369_24(); } else { footnote_collapse_reference_container_41369_24(); } } function footnote_moveToReference_41369_24(p_str_TargetID) { footnote_expand_reference_container_41369_24(); 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_41369_24(p_str_TargetID) { footnote_expand_reference_container_41369_24(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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What do the Turkish Courts Think about Article 54 ICSID Convention?

Thu, 2022-04-28 01:37

It is trite to suggest that the awards rendered under the aegis of the International Centre for Settlement of Investment Disputes (“ICSID”) are insulated from national court review. In the context of recognition and enforcement, national courts are not permitted to examine ICSID arbitral awards. In 2006, 50 years after the ICSID Convention came into force, commentators noted that no court of the Contracting State had ever denied enforcement of an ICSID award. This very effective enforcement system also contributed to the prevailing practice of voluntary compliance with the ICSID awards.

To the surprise of many, questions have arisen regarding a national court’s scope of examination (if any) of ICSID awards. Article 54(1) of the ICSID Convention has started to be understood as allowing the courts of a Contracting State to examine awards from substantial and jurisdictional perspectives. The EU and its member states are prime examples. In the Achmea judgment, for example, the European Court of Justice has in effect directed Member State courts to examine ICSID awards in terms of substance or jurisdiction if the parties raise these matters (for related posts on the Achmea judgement click here).

This post examines how the Turkish Court of Cassation has interpreted Article 54 of the ICSID Convention in a recent case in 20211)Turkish Court of Cassation, 12th Civil Division, Case No: 2021/875 Decision No: 2021/4586 dated 28.04.2021 jQuery('#footnote_plugin_tooltip_41427_27_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41427_27_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });. To the best of the authors’ knowledge, this was the first decision in which the Turkish Court of Cassation has discussed the meaning of Article 54 of the ICSID Convention after the Achmea judgment. Hence, this decision may shed some light on how the Turkish courts will treat the question of the availability of national court examination of ICSID awards in Turkey going forward.

 

Legal Proceedings in Turkey

The dispute arose out of the failed investment arbitration claim made against Turkmenistan by a Turkish construction company (İçkale İnşaat Limited Şirketi (“İçkale”))2)İçkale İnşaat Limited Şirketi v. Turkmenistan (ICSID Case No. ARB/10/24) jQuery('#footnote_plugin_tooltip_41427_27_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41427_27_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });. The arbitral tribunal dismissed the claim as meritless and ordered the claimant to pay 20 per cent of the legal and expert fees and expenses of Turkmenistan (approximately US$1.75 million). The claimant did not comply with the adverse cost award, and Turkmenistan initiated legal proceedings in Turkey in 2016.

However, when the claimant commenced the legal proceedings in 2016, Turkey had not yet designated a competent court or other authority as per Article 54(2) of the ICSID Convention. In the absence of a designated competent court and authority, Turkmenistan sought to execute the ICSID award using the procedure applicable to the execution of a judgment of a local court. Accordingly, the claimant commenced the proceedings before the Turkish execution offices and sent an execution order, as if the ICSID award is a Turkish court judgement. The basis for this, presumably, was that, given Article 54(1) requires the contracting states to enforce an ICSID award “as if it were a final judgment of a court in that State”, in the absence of a designated competent court and authority, Turkmenistan could rely on the procedure available for local court judgments.

İçkale sought to dismiss execution proceedings commenced by Turkmenistan on two grounds: first, the procedure for the execution of a judgment of a local court does not apply to the execution of an ICSID award; and secondly, an ICSID award cannot be executed in Turkey without a competent court or authority being first designated in accordance with Article 54(2). Whilst these arguments were rejected at first instance, and on appeal to the regional appellate court, in 2021, the Turkish Court of Cassation overruled these decisions.

The Court confirmed that Turkey, as a Contracting State, shall recognise an ICSID award as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in Turkey, pursuant to Article 54(1). Nevertheless, the Court found that such obligations can only be triggered where the procedural requirements set out in Article 54(2) have been satisfied; that is, where the award-creditors have applied to a competent court or other authority designated by Turkey, and have furnished a copy of the award certified by the Secretary-General of ICSID.

Predicting potential criticism of the Turkish Court of Cassation taking a formalistic approach,3)See for example Nuray Ekşi, ICSID Hakem Kararlarının Tanınması Tenfizi ve İcrası, İstanbul-2009 jQuery('#footnote_plugin_tooltip_41427_27_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41427_27_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); the Turkish Court of Cassation went on to suggest that any other interpretation would be contrary to the wording of the ICSID Convention. The Court noted that the ICSID Convention aims to facilitate the conciliation and arbitration of investment disputes and, in this respect does not make ICSID awards subject to the procedures that are applicable for the recognition and enforcement of a judgment of a foreign court. Instead, the ICSID Convention makes these awards subject to the procedure as set out in Article 54(2) ICSID Convention, which provides less restrictive requirements for execution.

In the Court’s view, the ICSID Convention could not provide for such a procedure, nor could it be suggested that, if the Contracting State has failed to designate a competent court or authority, an ICSID award could be executed as if it were a judgment of a local court. The fact that the ICSID Convention does not regulate such provisions supports the conclusion that an ICSID award cannot be executed without first complying with the procedure set out in Article 54(2).

Although Turkey designated the competent court in accordance with Article 54(2) in 2017, there was still no use for the claimant. This was because Turkey required award creditors to furnish a copy of the award to the competent commercial courts of first instance, whilst the claimant, in this matter, provided such award to the Turkish execution office.

Finally, the Court concluded its reasoning with a puzzling (and rather worrying) reference to the domestic law of Turkey. The Court stated that, given that a judgment of a foreign court can only be enforced in Turkey by an enforcement decision of a Turkish court, it would be contrary to both Turkish law and the ICSID Convention to suggest that an ICSID award can be enforced in Turkey without any examination by any national authority.

 

Evaluation

Somewhat unexpectedly, serious divergences have recently arisen over the exact import of the ICSID Convention provisions on the enforcement of ICSID awards. It is, therefore, no longer sufficient to proceed solely on the basis of a prior assumption that all ICSID awards can be successfully enforced if not complied voluntarily.

With regards to Turkey, the Turkish Court of Cassation clarifies that Turkey’s failure to designate a competent court or other authority as per Article 54(2) does not entitle the award creditors to trigger procedures available to the local court judgements when executing ICSID awards. According to the Turkish Court of Cassation, Turkey is required to enforce ICSID awards “as if it were a final judgment of a court in that State”, only if the procedure under Article 54(2) is followed, and failure to designate such competent court or authority would bar enforcement under ICSID Convention.

Whilst the Court’s reasoning can be adopted by other national courts in circumstances where such a designation has not been made, this judgment seems no issue for Turkey as it made such a designation on 1 February 2017.

What is worrying is that in the same decision, the Turkish Court of Cassation implied that some sort of “examination” by the national authorities is necessary before executing ICSID awards in Turkey. The Court did not explain the scope of such examination. It may adopt its EU counterparts’ reasoning and examine the ICSID awards both on jurisdiction and substantive grounds, or it might simply consider this examination to the confirmation of the certification of the award by the Secretary-General of ICSID.

References[+]

References ↑1 Turkish Court of Cassation, 12th Civil Division, Case No: 2021/875 Decision No: 2021/4586 dated 28.04.2021 ↑2 İçkale İnşaat Limited Şirketi v. Turkmenistan (ICSID Case No. ARB/10/24) ↑3 See for example Nuray Ekşi, ICSID Hakem Kararlarının Tanınması Tenfizi ve İcrası, İstanbul-2009 function footnote_expand_reference_container_41427_27() { jQuery('#footnote_references_container_41427_27').show(); jQuery('#footnote_reference_container_collapse_button_41427_27').text('−'); } function footnote_collapse_reference_container_41427_27() { jQuery('#footnote_references_container_41427_27').hide(); jQuery('#footnote_reference_container_collapse_button_41427_27').text('+'); } function footnote_expand_collapse_reference_container_41427_27() { if (jQuery('#footnote_references_container_41427_27').is(':hidden')) { footnote_expand_reference_container_41427_27(); } else { footnote_collapse_reference_container_41427_27(); } } function footnote_moveToReference_41427_27(p_str_TargetID) { footnote_expand_reference_container_41427_27(); 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_41427_27(p_str_TargetID) { footnote_expand_reference_container_41427_27(); var l_obj_Target = jQuery('#' + p_str_TargetID); if (l_obj_Target.length) { jQuery( 'html, body' ).delay( 0 ); jQuery('html, body').animate({ scrollTop: l_obj_Target.offset().top - window.innerHeight * 0.2 }, 380); } }More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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Arbitration Tech Toolbox: Arbitrating Digital Asset Disputes

Wed, 2022-04-27 01:00

At the YSIAC Conference 2021 ARBXTalk symposium at the end of 2021, it was noted that “[a] consensus shared amongst the panellists was that arbitral disputes surrounding [cryptocurrencies, blockchains and non-fungible tokens; collectively, ‘digital assets’] do not differ greatly from disputes in other industries beyond the change in underlying subject-matter of the disputes.”

Yet even if the differences between digital asset disputes and other commercial arbitrations might not be described as “great”, there is something separate and distinct about digital asset arbitrations as recognised in several developments arising from the work of the UK Jurisdiction Taskforce (“UKJT”).

 

The Legal Statement on Cryptoassets and Smart Contracts

The British Ministry of Justice set up the UKJT in 2019, in conjunction with the English judiciary and the Law Society of England and Wales, to consult the legal and technology communities over the status of distributed ledger technology, cryptoassets, smart contracts and associated technologies, and to produce an authoritative legal statement on the status of cryptoassets and smart contracts under English private law.

The UKJT published the fruits of its consultation and research in November that year in the form of the Legal Statement on Cryptoassets and Smart Contracts (the “Statement”). The Statement concludes inter alia that as cryptoassets cannot be physically possessed but are “purely ‘virtual’”, as a matter of English law they cannot be the object of bailment and only some types of security can be granted over them.1)Statement, para. 17, page 7. jQuery('#footnote_plugin_tooltip_41356_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

The Statement has had persuasive traction in the English Courts including in AA v Persons Unknown and ors [2019] EWHC 3556 (Comm), the first English case to expressly discuss and recognise cryptocurrencies as property under English law. The Statement has also been repeatedly relied upon in later cases including Ion Science Limited & Anr v Persons Unknown (21 December 2020), Fetch.ai Ltd v Persons Unknown [2021] EWHC 2254 (Comm), and Zi Wang v Graham Darby [2021] EWHC 3054 (Comm).

 

The Digital Dispute Resolution Rules

While it remains to be seen whether other common law courts agree with these propositions, the UKJT has not sat still. In 2021, it published rules for the resolution of digital disputes known as the Digital Dispute Resolution Rules (“DDRR“). This is one of the first major efforts to create arbitration rules for digital asset disputes, noticeable not least because the major arbitral institutions have at present not introduced any special rules for cryptocurrency disputes. The DDRR is designed to be incorporated into on-chain digital relationships and smart contracts. The sixteen rules allow for arbitral or expert dispute resolution within a very short period of time.

There are many notable aspects of the DDRR:

  1. Extremely broad applicability to digital asset disputes coupled with maximum flexibility. The DDRR “may be incorporated into a contract, digital asset or digital asset system by including the text (which may be in electronic or encoded form) “Any dispute shall be resolved in accordance with UKJT Digital Dispute Resolution Rules” and, optionally, by specifying: a. whether any particular issue or type of dispute (an expert issue) should be resolved by expert determination instead of arbitration; b. any preferences as to the number, identity or qualifications of any persons to be appointed as arbitrators or experts; c. any preferences as to the procedure to be adopted for the resolution of a dispute, including as to form and timing of any decision or arbitral award (as applicable), recoverable costs and anonymity; d. any modifications to the application or operation of the rules.”2)Rule 3. jQuery('#footnote_plugin_tooltip_41356_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); This rule and the proposed arbitration clause capture both the range of disputes that may arise (“[a]ny dispute…”) and offer maximum flexibility in the application of the DDRR, permitting “any modifications” to their application or operation. This is appropriate given the wide definition of a “digital asset” under the DDRR.3)Rule 2(a) states that “a digital asset includes a cryptoasset, digital token, smart contract or other digital or coded representation of an asset or transaction; and a digital asset system means the digital environment or platform in which a digital asset exists”. jQuery('#footnote_plugin_tooltip_41356_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });
  2. Accommodation of automatic dispute resolution processes. The DDRR define an automatic dispute resolution process as “a process associated with a digital asset that is intended to resolve a dispute between interested parties by the automatic selection of a person or panel or artificial intelligence agent whose vote or decision is implemented directly within the digital asset system (including by operating, modifying, cancelling, creating or transferring digital assets)”.4)Rule 2(c). jQuery('#footnote_plugin_tooltip_41356_30_4').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_4', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Rule 4 gives considerable legal force to automatic dispute resolution processes by stating that “[t]he outcome of any automatic dispute resolution process shall be legally binding on interested parties” and rule 5 states that the DDRR shall not apply to disputes that have been subjected to an automatic dispute resolution process.
  3. Preference for use of electronic means of communication. Rule 6(b) mandates that a request for arbitration “shall include” the “electronic contact details for the claimant and each respondent”, and the respondent is obliged to include its electronic contact details in its response to the request. No definition of “electronic contact details” is stipulated in the Rules. They are distinguished from the “identity details” of the parties (also undefined). Rule 10 contains the nub of the preference for electronic means: the tribunal shall “have absolute discretion as to what evidence and argument it receives and in what form but shall as far as practicable permit parties to submit evidence and argument electronically”.
  4. Arbitrator appointments by a specialist, expert body. The DDRR provide for the arbitrators to be appointed by the Society for Computers and Law (“SCL“) if not chosen by the parties (rule 8). The SCL, which also administers arbitrations under the DDRR, is expected to develop a panel of arbitrators with experience in relevant technologies, well-versed in the particular language and concepts of cryptocurrencies, including the technical coding side and the business practices of their trade.
  5. Direct enforcement by the tribunal. Rule 11 grants powers to arbitrators “at any time to operate, modify, sign or cancel any digital asset relevant to the dispute using any digital signature, cryptographic key, password or other digital access or control mechanism available to it. The tribunal shall also have the power to direct any interested party to do any of those things”. This provision echoes the automatic dispute resolution processes permitted by the DDRR, but relies on the parties granting access to the arbitrator to the relevant digital assets.
  6. Extension of the usual principles of anonymity – but permissive publication of the award. There is an interesting extension of the usual principles of confidentiality in rule 13: parties are obliged to provide details and evidence of their identity to the reasonable satisfaction of the tribunal, but the parties may agree to provide that evidence to the tribunal alone and not include them in the notice of claim or initial response. The tribunal is obliged not to disclose the identification details unless disclosure is necessary for the fair resolution of the dispute, enforcement, protection of the tribunal’s own interests, or if required by law, regulation or court order. This clearly goes well beyond mere right of confidentiality over process. Furthermore, rule 15 permits the tribunal to provide the award in an anonymised format to the SCL for publication, if the tribunal “considers that an award or decision is of general interest” and the parties do not object. This raises the curious spectre of a discrete body of DDRR jurisprudence potentially arising.
  7. Courts experienced in cryptocurrency arbitrations as the default seat, in a jurisdiction friendly to digital assets. The default seat is England and Wales (rule 16), whose courts are gathering considerable early experience in digital asset disputes.5)E.g. Ion Science, Fetch.ai and Zi Wang; Vorotyntseva v Money-4 Limited, trading as Nebeus.com [2018] EWHC 2598 (Ch) and Liam David Robertson v Persons Unknown (unreported 15th July 2019), where bitcoin was recognised as property; Toma v Murray [2020] 2295 (Ch), where an injunction over bitcoin was discharged because damages were an inadequate remedy given the price volatility of bitcoin; and Tulip Trading v Bitcoin Association for BSV & Ors [2022] EWHC 141 (Ch), where cryptocurrency was insufficient security for costs, again given its price volatility. jQuery('#footnote_plugin_tooltip_41356_30_5').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_5', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], });

 

Conclusion

The DDRR have not (to this author’s knowledge) yet been tested, and there appears to be no publicly available awards or judicial treatment in any cases. They were, however, described by the Law Commission of England and Wales in its advice to the UK Government on smart legal contracts as being “particularly well-suited” for digital asset disputes.6)Para. 5.156, page 14. jQuery('#footnote_plugin_tooltip_41356_30_6').tooltip({ tip: '#footnote_plugin_tooltip_text_41356_30_6', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); In all, the DDRR are a very welcome addition to the panoply of tech-bespoke arbitral dispute resolution mechanisms that include Codelegit (which uses human arbitrators), Kleros, a decentralised arbitration service that enables peers to sit as ‘jurors’ and pass judgment over the dispute, and the draft JAMS Rules Governing Disputes Arising out of Smart Contracts.

 

Further posts on our Arbitration Tech Toolbox series can be found here.

The content of this post is intended for educational and general information. It is not intended for any promotional purposes. Kluwer Arbitration Blog, the Editorial Board, and this post’s author make no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information in this post.

References[+]

References ↑1 Statement, para. 17, page 7. ↑2 Rule 3. ↑3 Rule 2(a) states that “a digital asset includes a cryptoasset, digital token, smart contract or other digital or coded representation of an asset or transaction; and a digital asset system means the digital environment or platform in which a digital asset exists”. ↑4 Rule 2(c). ↑5 E.g. Ion Science, Fetch.ai and Zi Wang; Vorotyntseva v Money-4 Limited, trading as Nebeus.com [2018] EWHC 2598 (Ch) and Liam David Robertson v Persons Unknown (unreported 15th July 2019), where bitcoin was recognised as property; Toma v Murray [2020] 2295 (Ch), where an injunction over bitcoin was discharged because damages were an inadequate remedy given the price volatility of bitcoin; and Tulip Trading v Bitcoin Association for BSV & Ors [2022] EWHC 141 (Ch), where cryptocurrency was insufficient security for costs, again given its price volatility. ↑6 Para. 5.156, page 14. function footnote_expand_reference_container_41356_30() { jQuery('#footnote_references_container_41356_30').show(); jQuery('#footnote_reference_container_collapse_button_41356_30').text('−'); } function footnote_collapse_reference_container_41356_30() { jQuery('#footnote_references_container_41356_30').hide(); jQuery('#footnote_reference_container_collapse_button_41356_30').text('+'); } function footnote_expand_collapse_reference_container_41356_30() { if (jQuery('#footnote_references_container_41356_30').is(':hidden')) { footnote_expand_reference_container_41356_30(); } else { footnote_collapse_reference_container_41356_30(); } } function footnote_moveToReference_41356_30(p_str_TargetID) { footnote_expand_reference_container_41356_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_41356_30(p_str_TargetID) { footnote_expand_reference_container_41356_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 Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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The Contents of the Yearbook Commercial Arbitration, Volume XLVII (2022), Upload 1

Tue, 2022-04-26 01:00

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

The first upload of materials for the 2022 volume of ICCA’s Yearbook Commercial Arbitration is now available in the KluwerArbitration database. It consists of 25 court decisions from 17 countries and includes, among others, an update of jurisprudence from El Salvador on the 1958 New York Convention, two decisions of the Court of Cassation of Qatar, and a decision rendered by the recently established Specialized Commercial Branch of the Civil Court of Tehran. Here are some of the highlights.

The Supreme Court of India in Amazon held that an interim award rendered by a SIAC emergency arbitrator was enforceable under the 1996 Indian Arbitration and Conciliation Act. It reasoned that the Act gave parties the freedom to refer disputes to the arbitral institution of their choice, and did not prohibit them from resorting to emergency arbitration. Hence, if the rules of the chosen arbitral institution provided for emergency arbitration, as was the case with the SIAC, the emergency award fell within the scope of the Indian Arbitration and Conciliation Act.

The Egyptian Court of Cassation, in an October 2020 decision, found that it need not set aside a CRCICA award rendered in an international arbitration seated in Egypt on the ground that foreign lawyers had represented the parties. The Court reasoned first that this was not one of the grounds for annulment exhaustively listed in the Egyptian Arbitration Law, which mirrored the grounds for refusal of enforcement in the 1958 New York Convention. Further, it could not be a reason to annul the award on grounds of public policy, because the rules on party representation in arbitration did not pertain to public policy and thus did not supersede the provision in the Egyptian Arbitration Law allowing the parties to be represented by foreign lawyers.

The Austrian Supreme Court concluded on 23 July 2020 that a VIAC arbitral tribunal had not acted unfairly in deciding that the arbitration hearing would be held via videoconference due to the COVID-19 pandemic. The Court reasoned that by allowing the administration of justice to continue despite the pandemic, the tribunal had not breached, but rather implemented the principles of a fair trial and the right to be heard laid down in Art. 6 of the European Convention on Human Rights.

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“Do You Know What Your Neighbour Is Doing?”: Understanding Key Differences in International Arbitration in the U.S and Canada

Mon, 2022-04-25 01:33

A dual webinar series “Do You Know What Your Neighbour is Doing?” (available at links here and here) recently hosted by Dentons provided an overview of how to navigate international arbitration in the United States (“US”) and Canada. The first webinar was moderated by Rachel Howie, FCIArb (Calgary). It featured three panelists who discussed international arbitration in the US:  John J. Hay (New York, Head of the US International Dispute Resolution group), Kristen Weil (New York) and Diora Ziyaeva (New York). The second webinar was moderated by Diora Ziyaeva, with three panelists: Mike Schafler, FCIArb, QArb (Toronto, Member of the Dentons Canada Region Board), Chloe Snider (Toronto), and Rachel Howie, all of whom addressed international arbitration in Canada.

The two webinars engaged in wide ranging discussions to familiarize businesses operating in either the US or Canada with practical differences in international arbitration systems between these countries. While similar in some respects, there are also critical differences as discussed below.

 

Arbitration Legislation

International arbitration in the US is governed by the Federal Arbitration Act (“FAA“). However, state law can also be relevant, if not contradictory to federal law (e.g., parties can contract to apply state arbitration law in commercial transactions. If there is a conflict between state and federal arbitration law, parties’ choice of law will not override the FAA. (Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995)). This is in contrast to Canada where each province and territory has separate and specific legislation governing international arbitration, except for Quebec where the Code of Civil Procedure governs both domestic and international arbitrations. Generally, these statutes addressing international arbitration (including in Quebec) are based on the UNCITRAL Model Law. That does not mean these statutes are without difference. Some provinces have customized their legislation adding specific details. There is also federal legislation, the Commercial Arbitration Act, which applies when an international arbitration involves the Crown or any Crown corporation, or admiralty and maritime matters.

 

Arbitral Institutions

There is a strong tradition of ad hoc arbitration in Canada that is not shared in the US. While there has been a shift of late toward institutional arbitration, and an increase in Canadian-based arbitral institutions, many dispute resolution clauses still refer disputes to ad hoc arbitration. See an earlier blog posting for more detail on this tradition. A key issue flagged by the panel in this regard is that under most legislation in Canada, if the arbitration is truly ad hoc then if the parties cannot agree on an arbitrator a party will need to apply to the appropriate court to have an arbitrator appointed. Given the timelines for this type of an application in many courts it may be prudent to, at a minimum, include in the dispute resolution clause agreement on an arbitral institution to act as appointing authority (and there are many institutions that will do this, even if their rules are not subsequently used and the institute does not ultimately administer the dispute).

The arbitral institutions commonly referred to in both countries provide to parties a range of choices in applicable rules for an arbitration. Institutional rules can differ in certain respects (for example, different thresholds for expedited procedure rules, or different approaches to consolidation), and therefore businesses must recognize what rules would benefit them the most when choosing an arbitral institution. One example highlighted by the panel is the potential for companies with smaller, more routine disputes, that they wish to refer to arbitration to draft into their dispute resolution clauses agreement to institutional arbitration using rules with an expedited procedure. This way those companies can look to streamline their own approaches to the disputes with their business and in-house teams.

 

Arbitration Procedure

The procedure for an arbitration is essentially a function of the arbitration clause, governing legislation and the rules (if any) governing the arbitration; this did not vary between the countries. With that in mind, the panelists from both webinars raised three differences between the US and Canadian systems that businesses should remain conscious of: arbitral jurisdiction, discovery and costs.

Arbitral Jurisdiction

An important discussion between the panelists centered on the arbitrator’s jurisdiction. In Canada, as in many jurisdictions, the principle of competence-competence generally dictates that the arbitrator has the power to rule on questions of their jurisdiction. This is enshrined in legislation and case law. As a result, the arbitrator will usually be the one to determine their jurisdiction and whether a matter is arbitrable. In contrast, in the US, there is no default rule giving the arbitrators the authority to decide their own jurisdiction and the arbitrability of the matter at issue. Rather, the court will decide whether the question of arbitrability has been delegated to the arbitrators. In doing so, the FAA provides that a presumption of arbitrability is applied when assessing whether a matter falls within the scope of the arbitration clause.

Generally, the courts in the US will determine arbitrability, unless there is clear and unmistakable evidence that the parties agreed to have the issue decided by the arbitrator. Therefore, as explained by Diora Ziyaeva, “the recent trend has been for courts to find that the issue of arbitrability has been delegated to the arbitrator.” (See e.g., First Options of Chicago, Inc v Kaplan, 514 US 938, 944-45 (1995); AT&T Technologies, Inc v Communications Workers, 475 US 643, 649 (1986) and further discussion here.)  However, the language of the arbitration clause or institutional rules can provide that the arbitrator shall decide upon their own jurisdiction. Notably, in its fairly recent decision, the US Supreme Court held that when an arbitration agreement contains a clear and unmistakable delegation of authority to the arbitrator, the issue of arbitrability must be decided by the arbitrator. (Henry Schein, Inc v Archer & White Sales, Inc, 139 S Ct 524 (2019).)  However, there are lower courts that still found that when an arbitration claim is groundless, the issue of arbitrability is to be decided by the court, notwithstanding a clear and unmistakable delegation of authority. (See e.g., Metropolitan Life Insurance Co v Bucsek, 919 F3d 184 (2d Cir), cert. denied, 140 S Ct 256, 205 L Ed 2d 134 (2019); 20/20 Communications, Inc v Crawford, 930 F3d 715 (5th Cir 2019).)

In Canada, the arbitrator generally decides on their jurisdiction in international arbitrations unless the issue was one of a pure question of law or a question of mixed fact and law that necessitated only a superficial consideration of the evidence. As such, Canadian courts are directed to follow this procedure, but may depart from this rule if there are issues of access to justice, such as where an agreement to arbitrate is unconscionable, as Dentons has discussed in the past.

Discovery

Other procedural differences can influence the arbitration process. As is well-known, the discovery process in US litigation is long and tedious. In the words of one of the panelists, US lawyers depose “anything that moves,” and this process will sometimes find its way into international arbitrations. In contrast, Canadian lawyers rarely incorporate an oral discovery process in international arbitration cases. The significance of this difference is that businesses can avoid time-consuming discovery in the US by ensuring that the institutional rules agreed to by the parties are those that limit discovery processes. As pointed out by Kristen Weil, “careful drafting of [a] dispute resolution clause can avoid very costly problems in the future.”

Costs

As for lawyer fees, generally the case in Canadian law is that costs follow the event and are awarded to the successful party (see e.g., Alberta Rules of Court, AR 124/2010, rule 10.29(1)). However, in the US, the general legal principle is that parties bear their own costs unless they have contracted otherwise. As such, in order for a prevailing party to obtain an award on costs in the US, it must carefully consider the applicable arbitration rules that actually provide for prevailing party fees (because some do not). On the other hand, a party can overcome the provision in the rules by agreeing to the costs allocation in the contract. Parties in Canada may also want to address costs in their dispute resolution provision if they want to be clear that the successful party shall be awarded costs (local laws or rules may not apply to an international arbitration), or if they would prefer that each party bear their own costs.

 

Takeaway Points

The guidance from the panelists’ insights on navigating international arbitration in the US and Canada can be summarized in the following points: first, always be mindful of the applicable statutes in either country, both federal and state/provincial; second, always be conscious of the above-mentioned differences especially when drafting arbitration clauses.  In particular, when drafting arbitration clauses, it is important to: (1) look for key items, such as a clause that provides for a binding submission of all disputes to arbitration, the applicable laws, a recognized seat and language; (2) determine whether an ad hoc arbitration or a specific institution are preferrable to you (as appointing authority or for the entire dispute), considering whether their applicable rules best fit the circumstances of your business relationship; (3) consider, when choosing a seat of arbitration, the applicable court system’s treatment of arbitration, as the court will have a supervisory role; and (4) in the US, be aware of including or excluding discovery procedures and, most importantly, the delegation of the power to rule on arbitrability to the arbitrator.

 

* The authors wish to thank Melika Mostowfi, student-at-law at Dentons, for her assistance in the preparation of this post.

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Paris Arbitration Week Recap: Metaverse-Related Sessions

Sun, 2022-04-24 01:38

As part of the 2022 Paris Arbitration Week, several sessions were held in (relation to) the metaverse. This post provides an overview of the discussions held by the third panel during the 6th ICC European Conference (“Debate on Metaverse: Will Arbitration be the Arena of Web 3.0 Conflict? A Dispute Resolution Minefield Coming from the Future”) and the “First-ever Virtual Reality Arbitration Conference” organised by MetaverseLegal.

 

6th ICC European Conference Panel on “Debate on Metaverse: Will Arbitration be the Arena of Web 3.0 Conflict? A Dispute Resolution Minefield Coming from the Future” (28 March 2022)

The panel was moderated by Professor Crenguta Leaua (Leaua Damcali Deaconu Paunescu – LDDP) and featured Sophie Goossens (Reed Smith), Elizabeth (Lizzie) Chan (Allen & Overy) and Yat Siu (Animoca Brands).

Professor Leaua described the relationship between the metaverse and ordinary reality as two of the layers of the world in Greek mythology: Olympus, the layer of the Greek gods, and Earth, the layer of humans created by these gods. Each layer is governed by a different legal order.

Sophie Goossens followed up the discussion by stressing that traditionally, ownership, as a legal concept, has been understood as a right against the State. This means that what can be owned or not owned is up to the discretion of elected or appointed legislators. As of today, digital data is considered by most legal systems as free-flowing information that is not susceptible of being appropriated, which explains why the idea of creating public and non-falsifiable certificates associated with digital data has emerged: the Non Fungible Tokens (NFTs). These tokens – or blockchain certificates – give rise to novel concepts of ownership which disrupts the traditional categories of Intellectual Property (IP) rights as we currently know them.

Yat Sui mentioned that due to the traceable nature of blockchain, it is quite easy to spot any irregularities such as theft. Recovering those stolen pieces is, however, not straightforward as one needs to form a consensus in blockchain to make any change.

On the issue of the law or laws applicable to metaverse-related disputes, Sophie Goossens noted that generally in IP disputes, the governing law is the law of the country where the harmful event took place. However, this approach may be difficult to apply in the virtual world, where the place of a harmful event can be hard to identify (e.g., it is not clear where the place of upload, server or access is).

Lastly, Lizzie Chan touched upon the jurisdictional and dispute resolution aspects of metaverse-related disputes. In most commercial contracts, the question of who has jurisdiction is usually a matter of parties’ choice and the same principle would apply in the metaverse. Lizzie explained that existing disputes include IP claims involving NFTs and alleged cybersecurity breaches. It is possible that we will see a growing number of small-scale transnational disputes. Users are likely to expect dispute resolution processes to be speedy, efficient and affordable, and to achieve these goals may be willing to sacrifice high standards of due process. Against this background, Lizzie considered at least three possible dispute resolution tools for resolving digital disputes: (i) “traditional” dispute resolution in the courts or through arbitration, (ii) “modified” international arbitration, where the rules of “traditional” arbitration are modified for digital disputes, and (iii) decentralised justice systems, which combine blockchain, crowdsourcing and game theory in online dispute resolution.

 

First-ever Virtual Reality Arbitration Conference (30 March 2022)

Paris Arbitration Week 2022 was proud to host the first-ever arbitration conference in the metaverse.  To understand the issues arising out of the disputes that will emerge from the activities in the metaverse, it was necessary to situate that conversation in the metaverse itself. Without experiencing it, without the emotion that comes from high-fiving another person virtually, the conversation would be too abstract.

 

Introduction to the Metaverse, Web 3.0 and their Key Features

Lizzie Chan introduced the metaverse as a persistent digital world in which we each have a presence. It is at the heart of web 3.0, the third generation of the Internet, defined by (among other factors) decentralisation, i.e., the idea that the Internet is owned by many and no one actor can own or control it.

The metaverse must be seen in the context of the digital economy. Already today, seven of the world’s ten largest companies by market-capitalisation offer either a window to the digital world like Apple and Microsoft; monetise our attention in the digital world like Facebook, Alphabet and Amazon; or produce the semiconductors which enable the digital world like Nvidia and TSMC.  As we spend more time in the digital world, the digital economy will grow with it.

Some of the key features of the metaverse include: users participating as avatars, the use of immersive technologies such as virtual reality; the use of digital assets; the existence of centralised and decentralised metaverse platforms; and the ability to enjoy a wide range of experiences.

 

Disputes that Can Arise in the Metaverse

Juliette Asso-Richard then presented examples of disputes that can arise in the metaverse, which include (i) disputes between users and metaverse platforms and (ii) disputes amongst users only.

Regarding the first category, disputes concerning the violation of users’ personal data are to be expected, as it is virtually impossible for platforms to indefinitely guarantee to their users the absence of hacking attacks.

Disputes concerning virtual real estate are also to be expected, as volumes of transactions have recently skyrocketed (USD 500 million in 2021, expected to double in 2022). What increases the value of a specific plot of land is not only its location but also its scarcity (as most metaverse platforms guarantee a limited number of available plots). But what if the metaverse platform decides to change the surroundings of a user’s expensive parcel, for example, by removing the sea in front of what he or she bought as an expensive waterfront land? Or what if it decides to increase the number of plots available? In either case, the platform’s actions would adversely affect the value of the user’s virtual real estate investment, which may lead to a dispute. This would be even worse if the metaverse platform goes bankrupt or shuts down its servers.

As for disputes amongst users, in addition to the usual crime and tort disputes replicated from the physical world (e.g., theft of a digital asset or sexual harassment between avatars), one will also see disputes regarding transactions between users. This is because in the metaverse, users can, without any control of the platform: (i) offer services to other users (e.g., gaming experiences, concerts, life or sports coaching sessions); (ii) create digital assets (e.g., wearable items, accessories, art) and sell them to other users; and (iii) rent or resell parcels of virtual land to other users. These transactions will undoubtedly give rise to many disputes, especially as their volume and value increase.

 

Status Quo of Dispute Resolution in the Metaverse

Emily Hay followed up with a summary of how matters stand in relation to dispute resolution in the metaverse, in terms of disputes between a user and a metaverse platform, and disputes among metaverse users.

For disputes between a user and a metaverse platform, the starting point is to check the terms of use that the user agreed to. Almost all platforms will set out a law applicable to the terms, and a dispute resolution method. Some specify arbitration, such as Decentraland (ICC arbitration, seated in Panama City) and Oculus (AAA Consumer Arbitration Rules). Several terms contain references to small claims courts that may have jurisdiction in addition to other options, and carve-outs specific to IP disputes. It may also be necessary to consider other mandatory laws such as data protection and consumer protection affecting the validity of these terms. In sum, it is a complex exercise even to determine the rules of the game.

As for disputes between two users in the metaverse, these could arise in different contexts that may affect the resolution of a dispute, i.e., whether it is a C2C, B2C or B2B dispute.

Some challenges include: (i) determination of applicable law, since the terms of use do not generally cover user-to-user disputes; (ii) how to determine the parties to the dispute, when the avatar of the counterparty is not identifiable, or may even be programmed by Artificial Intelligence (AI) technology; (iii) determining the jurisdiction of a decision-maker, where concepts such as the place of business and targeting of specific markets might be meaningless; and (iv) enforcement of outcomes, especially in relation to digital assets.

Using experience in web 2.0 disputes, existing dispute resolution tools can be tailored to the metaverse, especially if there is a separate dispute resolution clause in place between users. However, the metaverse both amplifies existing challenges and creates new ones.

 

Decentralised Dispute Resolution

Ekaterina Oger Grivnova then presented one of the alternatives to traditional dispute resolution – decentralised justice, which is an online dispute resolution service supported by blockchain technology. The offer differs from one platform to another but the key innovations include three things:

  • Randomly-selected jurors: once a dispute arises and a party refers the dispute to arbitration, the decision-makers are automatically drawn from the pool, pre-constituted by the platform. Sometimes, the jurors can preserve their anonymity in the exercise of their role. This can be a solution to the well-known issues of bias and conflict of interests;
  • On-chain enforcement: this type of enforcement involves smart contracts. Smart contracts are programmes stored on a blockchain that run when predetermined conditions are met.  Smart contracts can be guaranteed by cryptocurrency or digital assets. It means that when the parties conclude a smart contract, they can deposit into that smart contract a certain amount of cryptocurrency or NFT, allowing automatic transfer of the staked assets when the debtor meets its contractual obligations or, in case of a dispute, when the decision-makers rule that the contractual obligations are met;
  • Anonymity: with decentralised justice, users can connect to the digital court with their cryptocurrency wallets, which guarantees – to a certain extent – anonymity of the wallet holder.

Those innovations are supposed to make justice more efficient, affordable and suitable for the digital economy.

 

Conclusion

The discussion in the virtual reality conference was very much like a real-life conference. The technology is still glitchy and the headsets are quite heavy so the conference could not last very long so the speakers only really had the time to scratch the surface on the various issues. Much thought still needs to be given to the existing and upcoming opportunities and challenges that the metaverse will present.

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Paris Arbitration Week Recap: Belt and Road Initiative – Recent Evolutions, Western Reactions, and Dispute Resolution

Sat, 2022-04-23 01:37

Ever since the Chinese government officially adopted it in 2013, the Belt and Road Initiative (BRI) has evolved restlessly. Yet, ten years later, its exact delineations are still somewhat blurry: the global infrastructure project encapsulates all at once a vision, a strategy and a policy.

One certainty, however, remains constant. The BRI is and will remain a highly ambitious and influential undertaking. With estimated investments of USD 900 billion, the BRI’s implications range across economic, geopolitical and legal dimensions.

On the last day of the 2022 Paris Arbitration Week, as they strived to address these dimensions altogether rather than focus on arbitration in vacuo, Pinsent Masons and Africarb offered participants and attendees a highly enlightening discussion on the BRI’s past and future developments. The panel included Greg Jones (Pinsent Masons), Florian Quintard (Pinsent Masons), Kanyi Lui (Pinsent Masons), John Picarel (Pinset Masons), Ismail Selim (CRCICA), Sybille Dubois-Fontaine (Comité France-Chine), Hazel Tang (ICC) and Cheng-Yee Khong (Omni Bridgeway).

 

Current State-of-play and Latest Developments

The BRI, formerly known as “One Belt One Road”, is indeed an extremely ambitious project. It is, to start with, thematically ambitious. Infrastructure represents the BRI’s most iconic component. The “Belt” being an overland route spanning from Xian to Venice and the “Road” being a maritime route connecting Fuzhou to Venice. In addition, the BRI also comprises vivid initiatives on trade, investments, financial services and academia.

It is also geographically ambitious: 146 countries accounting for 2/3 of world population as well as 32 international organizations have signed in.1)The BRI’s official website states that ‘the initiative has won support from 100 countries and international organizations’. Regrettably, the seminar did not expand on what ‘signing in’ to the BRI specifically entails. According to external sources, countries and organizations can join the BRI by signing a bilateral Memorandum of Understanding (MoU) with China. jQuery('#footnote_plugin_tooltip_41314_30_1').tooltip({ tip: '#footnote_plugin_tooltip_text_41314_30_1', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Central Asian, South-East Asian, African and even Latin American countries have done so.2)See note 1. jQuery('#footnote_plugin_tooltip_41314_30_2').tooltip({ tip: '#footnote_plugin_tooltip_text_41314_30_2', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); Hence, the BRI involves many more countries than those directly hosting the Belt and Road A quality that certainly contributes to the perceived absence of clear delineations described above.

As a result, BRI transactions and projects are extremely varied. They can range from simple one-off transactions to complex large-scale projects. According to panelists, most of these are cross-border, involving at least a Chinese partner and a non-Chinese partner.

 

General History and Evolution

Although it officially begun in 2013, the BRI can be seen as having started long beforehand. Arguably, its roots trace back China’s 1999 Going Out Policy, if not before. Hence, contemplating the BRI’s evolution since then provides further insight into Chinese policy evolution.

Reportedly, while China has been investing intensively in new infrastructure all throughout this period, a new phase of the BRI may have begun, with a special focus on the integration of financial systems.

Delving deeper into this rising aspect of the BRI, Mr Lui classified Chinese outward investment along three main categories.

First, comes foreign aid. Issued by the Chinese Ministry of Economy, typically, it is intergovernmental, bears no interest, includes technical assistance, and can be forgiven. Second, the panel referred to concessional loans. These loans are issued by the Chinese Central Bank, are also intergovernmental, bear low interest rates, and cover much larger scale and scope than foreign aid. The panel noted that this category represents a large part of Chinese FDI toward Latin America and Africa. Lastly, commercial loans. Issued by Chinese banks, typically, they are akin to regular commercial loans. Notwithstanding, had time allowed, it would have been worthwhile to examine this last category in much further detail.

In the near future, these three silos are set to greatly contribute to financial integration – and thus presumably local development – across and within the Belt and Road.

 

Main Reactions from the West

In light of the above, which reactions are observed in Western countries? According to the panelists, it took the West a long time to understand what China wanted to do with the BRI, and a certain level of uncertainty still remains to this day.

In the first place, the panel suggested that Western critiques may perceive the BRI as an addition of bilateral agreements rather than a truly multilateral initiative. Moreover, the panel outlined the following 3 main Western initiatives, each of which may be seen as reacting – in some part at least – to the BRI. To begin with, the panel referenced the Blue Dot Network, a US-Japan-Australia program set to promote projects that meet specific standards including inclusivity and sustainability. The panel then hinted that the World Bank3)See the World Bank’s major report on the BRI jQuery('#footnote_plugin_tooltip_41314_30_3').tooltip({ tip: '#footnote_plugin_tooltip_text_41314_30_3', tipClass: 'footnote_tooltip', effect: 'fade', predelay: 0, fadeInSpeed: 200, delay: 400, fadeOutSpeed: 200, position: 'top right', relative: true, offset: [10, 10], }); and multilateral central banks were starting to launch programs as well – alas without elaborating any further. Finally, panelists discussed the European Union’s Global Gateway, an ambitious program with high level of investments across infrastructure, research and sustainability. Curiously, these initiatives do not seem to have received nearly as wide a coverage as the BRI.

 

Implications for Dispute Resolution: Mediation

Moving to dispute resolution, the panel shared agreed observation: BRI projects foster the surge of non-arbitral processes. Indeed, while Western parties tend to resort to adjudicative and contentious processes, Chinese parties appear to prefer processes that are more consultative and preserve long-term relationships. For a deeper account of investor-State mediation’s cultural dimension, see this prior post.

In the panel’s experience, when BRI parties cannot solve the whole dispute through mediation, they still aim to solve at least the most important aspects through mediation and revert to arbitration for smaller remaining issues. As a result, mediation processes in the context of BRI projects display high success rates. It is not uncommon to see parties contract a new partnership after having resolved a previous dispute through mediation.

What’s more, in parallel to the BRI, other institutional developments – such as that of the Singapore Convention on Mediation, the Singapore Infrastructure Dispute-Management Protocol or the China International Commercial Court – are also reinforcing a more general trend toward mediation.

 

Implications for Dispute Resolution: Dispute Boards

Along with mediation, the BRI stimulates a rise in interest in dispute boards. The panel generally agreed that BRI projects, as well as World Bank projects, increasingly include dispute boards from the outset.

As it is well known, dispute boards can issue recommendations or decisions, depending on the will of the parties. In the latter case, the decisions are binding, at least until an arbitral tribunal eventually reviews it. In this sense, the dispute board is in-between mediation and arbitration: unlike mediation, the solution is provided by a third party. However, this solution is not exactly binding-and-final as an arbitral award would be.

While dispute boards offer several advantages such as technical opinions and lower costs, in the context of the BRI their main benefit consists in dispute prevention, when halting an infrastructure project can quickly skyrocket expenditures and considerably harm parties’ long-term relationship.

 

Implications for Dispute Resolution: Arbitration

Turning to arbitration, the panel first observed that Chinese companies and lawyers now pay much more attention to dispute resolution provisions. Not only is the BRI relying on mediation and dispute boards as discussed above,  but the Chinese State itself is showing deeper interest in investor-State arbitration. Indeed, Mr Quintard depicted the government’s approach to investor-State arbitration through the following 3 generations of BITs.

In the early 1980s, the 1st generation of Chinese BITs showcased firm reluctance toward investor-State as they only included State-to-State arbitration. It follows that starting in the mid-80s, the 2nd generation of Chinese BITs allowed for foreign investors to bring claims against the State, however only for “disputes regarding the amount of compensation resulting from expropriation”, a formulation upon which some tribunals accepted jurisdiction over both merits and quantum while others restricted themselves to quantum only. Interestingly, in recent years, a 3rd generation of Chinese BITs set to grant companies full access to investor-State arbitration may be emerging, given China’s new status as an FDI exporting country.

In light of the above, panelists took a moment to present their own institutional initiatives, namely with regard to the ICC Belt and Road Commission, the Singapore International Arbitration Center, the Hong Kong International Arbitration Center and the Cairo Regional Center for International Commercial Arbitration. They agreed that the recent mutual assistance arrangement between Mainland China and Hong Kong – according to which parties to a Hong Kong-seated arbitration can now apply to the Mainland courts for interim measures – may well be a game-changer for foreign companies. This led the panel to reflect on means to secure assets from defendants, whether in China or abroad.

Nevertheless, for now Singapore and London continue to benefit from the lion share of BRI cases. This is, however, an element to keep under close scrutiny in the coming years – along with the BRI’s aforementioned implications on the settlement of international commercial and investment disputes.

 

Conclusion

The definite repercussions of the BRI among and beyond participating countries remain to be unraveled. Yet one outcome is already salient: the BRI is shifting dispute resolution practices toward consultative processes. Namely, the BRI relies significantly on mediation and dispute boards. However, the legal dimension of the BRI will greatly depend on how its economic, geopolitical and cultural dimensions continue to unfold. With other pieces of the puzzle still moving, legal practitioners are in a position to guide, rather than trail, future developments.

References[+]

References ↑1 The BRI’s official website states that ‘the initiative has won support from 100 countries and international organizations’. Regrettably, the seminar did not expand on what ‘signing in’ to the BRI specifically entails. According to external sources, countries and organizations can join the BRI by signing a bilateral Memorandum of Understanding (MoU) with China. ↑2 See note 1. ↑3 See the World Bank’s major report on the BRI function footnote_expand_reference_container_41314_30() { jQuery('#footnote_references_container_41314_30').show(); jQuery('#footnote_reference_container_collapse_button_41314_30').text('−'); } function footnote_collapse_reference_container_41314_30() { jQuery('#footnote_references_container_41314_30').hide(); jQuery('#footnote_reference_container_collapse_button_41314_30').text('+'); } function footnote_expand_collapse_reference_container_41314_30() { if (jQuery('#footnote_references_container_41314_30').is(':hidden')) { footnote_expand_reference_container_41314_30(); } else { footnote_collapse_reference_container_41314_30(); } } function footnote_moveToReference_41314_30(p_str_TargetID) { footnote_expand_reference_container_41314_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_41314_30(p_str_TargetID) { footnote_expand_reference_container_41314_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 Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
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A Peek Under the Hood: Unwrapping the 2019 Moroccan Model BIT

Fri, 2022-04-22 01:28

The 2019 Moroccan Model BIT (the ‘2019 Model BIT’) is a good example of the growing body of ‘new generation’ Model BITs fuelling the ISDS reform conversation. Broadly speaking, the drafters of these agreements (including the 2019 Dutch Model BIT, 2017 Colombian Model BIT, and 2016 Pan-African Investment Code) have attempted to rethink means of dispute resolution and traditional investment protection standards while adding detailed investor obligations and standards of conduct for investors. In this post we look at some of the key provisions of the 2019 Moroccan Model BIT in light of other ‘new generation’ investment agreements.

 

Fair and Equitable Treatment

Driven by the apprehension that fair and equitable treatment (‘FET’) clauses threaten the policymaking autonomy of host States, some States have removed the clause from their ‘new-generation’ model BITs (see for example, 2015 Brazilian Model BIT, the 2015 Indian Model BIT and the 2016 Pan-African Investment Code). The 2019 Moroccan Model BIT takes a different approach by enumerating measures that constitute an FET breach, including (1) denial of justice; (2) violations of due process; (3) manifestly unjustified discrimination; and (4) abusive treatment and coercion of the investor. While this is an attempt to bring greater certainty to FET interpretation, questions remain about how effective this is in practice, given that the terms in the exhaustive list are inevitably open textured. Other attempts at limiting the scope of FET include a provision specifying that a change in the legislative framework shall not per se amount to a breach of the FET obligation, while specifically excluding ‘legitimate expectations’ as an investor protection. This position perhaps overlooks the importance of regulatory stability for investors. A preferable approach would entail viewing both legitimate expectations of the investor and the State’s right to regulate in the public interest as competing constituent factors of the FET obligation. Similar reasoning is found in Saluka Investments v Czech Republic, where the tribunal held that it was unreasonable for an investor to expect regulatory circumstances to remain entirely unchanged, and the right to regulate in public interest was a factor in assessing the reasonability of investor expectations (para. 305).

It is noteworthy that treaties signed by Morocco, subsequent to the 2019 Model BIT, do not contain this explicit omission, supporting the view that in practice recourse to legitimate expectations is significant for investors and difficult to omit. One such example is the Japan-Morocco BIT 2020, which under ‘Article 4: General Treatment’ does not follow the 2019 Model BIT.

 

Non-discrimination Clauses

The 2019 Model BIT provides both a national treatment and an MFN treatment clause, circumscribed to investors in ‘like circumstances’. The Model BIT enumerates factors that determine ‘like circumstances’, including (1) the objective of the measure; (2) the environmental and social impact of the investment; (3) the economic sector of the investment; and (4) the investment’s public or private origin. By detailing the test, the Model BIT limits the scope for tribunals to interpret ‘like circumstances’ in disparate ways.

The national treatment obligation also permits the State to treat domestic investors differently from foreign investors in some cases. For example, when the national economic policy requires protecting new domestic industries during their infancy, differential treatment is permitted for such purposes.

To protect the regulatory autonomy of the host State, the Model BIT clarifies that substantive obligations contained in other international investment treaties and trade agreements do not constitute ‘treatment’ protected by MFN. Further, similar to the 2021 Canadian Foreign Investment Promotion and Protection Agreement Model, the Model BIT prohibits the importation of procedural provisions across treaties.

 

Expropriation

While the Model BIT protects investors from both direct and indirect expropriation, it appears to take two contrasting approaches to expropriation. Article 10.1 reflects a very narrow police powers approach under which a measure that is (1) in the public interest; (2) non-discriminatory; and (3) compliant with due process, does not amount to expropriation. This approach would hold only ‘illegal regulatory takings’ as expropriation. Article 10.1 further states that where a measure satisfies the above three conditions, the State is required to compensate the investor without undue delay by paying the fair market value of their investment. This provision applies equally to direct and indirect expropriations.

However, by contrast, Article 10.8 details a proportionality approach, which tests the effect of the measure on investors’ property rights, in cases of indirect expropriation. The relevant factors for this test include the value of the investment, the duration of the measure, whether the measure was contrary to the investors’ legitimate expectations, and whether the measure was disproportionate to the public interest it protected.

Including both approaches in the Model BIT suggests a lack of clarity. While the Model BIT clearly seeks to make room for legitimate public policy measures, its provisions may invite disparate approaches and conclusions by arbitral tribunals.

 

Investor Obligations

The 2019 Model BIT provides an entire chapter dealing with investor obligations, which include adherence to internationally recognised principles against money laundering, the requirement to contribute to the sustainable development of the host State, and compliance with non-binding international standards such as the International Labour Organization’s Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy and the OECD’s Guidelines for Multinational Enterprises. This replicates the approach of several contemporary model BITs (such as, the 2019 Dutch Model BIT, the 2017 Colombian Model BIT, and the 2012 SADC Model BIT), which refer to various ILO instruments and the OECD Guidelines as voluntary standards for investors. In any event, this is an improvement on the approach of the 2015 Indian Model BIT which requires investors to voluntarily incorporate internationally recognized standards of corporate social responsibility, without referring to any specific instruments.

In relation to enforcing compliance with these international standards, Art. 20.5 of the Model BIT requires an arbitral tribunal to consider any breaches of investor obligations while determining the amount of compensation awarded to the investor. A very similar approach is taken by the 2019 Dutch Model BIT, which requires a tribunal to consider derogations from the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises while deciding the amount of compensation that investors are awarded.

While, in practice, arbitrators have given regard to human rights violations when determining compensation, even in the absence of specific treaty provisions (see e.g. Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Partial Dissenting Opinion of Professor Philippe Sands). Notwithstanding this, clear language to this effect ensures that tribunals are empowered to penalise non-compliant investors. However, the difficulty with this approach is that breaches of investor obligations can only be used as mitigating factors while awarding compensation when a claim is filed against the host State. An alternative formulation, found in Art. 17 of the 2012 SADC Model BIT, subjects investors to civil action in the host State for damage or significant loss of life. A more stringent mechanism is found in the denial of benefits clause of the 2017 Colombian Model BIT, which states that investors, who have been found to have committed serious human rights violations or environmental damage, shall be denied protection under the investment treaty.

 

Dispute Resolution Provisions

The Model BIT’s dispute resolution provisions require a multi-tiered process of negotiation, mediation and exhaustion of local remedies before a treaty claim can be brought by an investor. Notably, Art. 31.3 precludes the commencement of arbitration proceedings where a competent court renders a judgement within 30 months. Further, the Model BIT is unusual in requiring both a notice of dispute as well as a detailed memorandum to be submitted at the commencement of arbitral proceedings (Art. 29).

The Model BIT’s dispute resolution provisions also demonstrate several innovative proposals aligned with broader trends in the ISDS reform. A good example of this is the prohibition of double hatting under Art. 35.4. This is in line with other new-generation Model BITs including the Dutch Model BIT and Colombian Model BITs.

Surprisingly, in contrast to the ‘pro-disclosure’ direction ISDS-reform is taking regarding third-party funding, the Model BIT makes no reference to third party funding and disclosure. Other Model BITs, such as the 2019 Dutch Model BIT (Article 19.8), the Argentina-Chile FTA, CETA (Art. 8.26) or institutional rules now expressly oblige the disputing parties to disclose if a third party is funding the arbitration on their behalf. Recent efforts at ICSID have also seen proposals to promote greater transparency in the third-party funding of investment disputes.

 

Conclusion

As a part of the ISDS reform narrative, several States have sought to modernise their Model BITs to balance investment protection with sovereign regulatory imperatives. As previously discussed on the blog, Africa has played a leading role in highlighting the importance of investors obligations in investment law. Morocco itself, in a 2016 BIT entered into with Nigeria, adopts various ‘public interest provisions’ which reaffirms the right of States to regulate and introduce new measures relating to investments. With its emphasis on sustainable development and investor obligations, the 2019 Model BIT builds on this trend. Notably, the 2019 Model BIT makes several attempts to provide precisely worded clauses to ensure uniform interpretation. However, it is unclear to what extent the 2019 Model BIT achieves these objectives. For example, as we note above, there are concerns regarding the limited FET clause, and the dichotomous approaches to indirect expropriation displayed by the expropriation clause. Ultimately, the true test will be the extent to which Morocco is able to retain these provisions in subsequent BITs – in which we have already seen mixed results. However, as a progressive instrument, which acknowledges the obligations of both investors and States towards sustainable development, the 2019 Moroccan Model BIT is a welcome addition to international investment law.

 

For interested readers, the authors discuss the 2019 Moroccan Model BIT further in this article.

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When Perception Meets Reality: What Do We Know About Arbitrators?

Thu, 2022-04-21 01:07

In the absence of concrete publicly available information about arbitrators, arbitration practitioners often resort to cognitive shortcuts and just plain guesswork in the arbitrator selection process. As explored in a previous post, parties and counsel frequently rely on arbitrators’ common-law or civil-law education and practice as indicators for how they might approach key case management issues. With the increasing complexity of international business transactions and the practice of international arbitration, such proxy indicators are no longer a reliable point of reference.

Given the need to access arbitrators’ approaches on various issues, Arbitrator Intelligence recently launched the Arbitrator Perspectives Survey (the Survey). The Survey invites arbitrators to answer many of the questions parties and counsel wish they could ask in an interview (and try to find out through indirect research with people who know the arbitrator). Systematic collection of this information directly from arbitrators reduces the risk that parties will have to roll the dice in arbitrator selection—now they can learn about arbitrators’ approaches directly from the arbitrators.

The questions in the Survey are carefully framed to make clear that arbitrators are not promising any particular ruling or stating an intransigent commitment to a particular view. The Survey confirms that any views are subject to the conditions and law applicable in a particular case. Finally, arbitrator responses are free on Arbitrator Intelligence’s website, but its use policies preclude use of Survey responses to challenge arbitrators.

Since the Survey’s launch in January 2022, Arbitrator Intelligence has collected perspectives from arbitrators with various levels of experience from 39 nationalities and based in 31 jurisdictions.

On 24 March 2022, Arbitrator Intelligence invited KAB readers to predict how arbitrators responded to various questions in the Survey. This post analyses how well KAB readers were able to foresee the Survey Responses collected from arbitrators as of 24 March 2022 (Surveyed Arbitrators). We also comment on some surprises we found among arbitrators’ responses.

 

What considerations are most important to co-arbitrators when selecting a chairperson?

Whatever considerations parties and counsel apply to the selection of party-appointed arbitrators, their selection of the chairperson can be even more complicated and consequential. Importantly, this decision is no longer exclusively in the hands of a single party, and often it is in the hands of the party-appointed arbitrators. In such circumstances, different considerations come into play.

Critics of international arbitration have suggested that co-arbitrators are most focused on appointing someone they know personally. Surveyed Arbitrators, however, most frequently identified seeking someone with a reputation for being efficient and being collaborative (or good at managing conflicts on the tribunal) as their key consideration. Most KAB Readers correctly anticipated that a reputation for being collaborative and/or good at managing conflicts within the tribunal was the key consideration for the selection of the chairperson. We found it surprising that—contrary to frequent critiques—arbitrators did not list personal familiarity with a prospective chair as one of the most important considerations.

 

Do arbitrators consider it inappropriate for tribunal secretaries to draft the factual background section of an award?

In recent years, there has been increasing scrutiny of the role of tribunal secretaries in arbitral proceedings, with a special focus on the extent to which they should be involved in the drafting of awards. Critics are particularly concerned that arbitrators may be over-delegating and giving a decision-making role to tribunal secretaries. There are a few prominent examples of awards being challenged due to allegedly improper use of tribunal secretaries.

The expectation of the KAB Readers was that less than 25% of Surveyed Arbitrators would consider it inappropriate to allow tribunal secretaries to draft the factual background of the award. However, the reality is that 41% of the Surveyed Arbitrators considered such a practice inappropriate (31% of all civil law-trained and 55% of all common law trained arbitrators surveyed), 47% considered it appropriate in some cases and 13% considered it always appropriate.

Are arbitrators with a civil law or common law background more likely to consider it appropriate for arbitral tribunals to encourage and/or facilitate amicable settlement?

The question of whether arbitrators should encourage or facilitate amicable settlement between disputing parties is hotly contested, with strong views on both sides. Most KAB Readers expressed the view that civil law arbitrators are more likely to consider it appropriate to encourage and/or facilitate amicable settlement. However, when asked if it is generally appropriate for arbitrators to encourage and/or facilitate amicable settlement, 10% said no, 30% said yes, but 40% indicated it is appropriate only if the parties agree. There was not a significant difference in the positions of civil law and common law arbitrators in this regard.

If you are looking for an arbitrator who is inclined to facilitate settlement, you can look up individual arbitrators’ approaches in their own Survey Responses by going to our website.

 

What are the three most popular techniques for maintaining efficiency in arbitral proceedings?

In recent years there has been a proliferation of innovative rules (both institutional and others) that are aimed at reducing inefficiencies and streamlining the arbitral process. Many of them empower arbitrators to take more control over the proceedings to avoid unnecessary delays, while ensuring that the parties’ due process rights are respected. As this is a difficult balance to maintain, the Surveyed Arbitrators highlighted myriad case management tools they use to ensure efficiency in arbitral proceedings.

A reasonable expectation, and the primary expectation of KAB Readers, is that the most frequently used mechanisms would include limiting the number or scope of party submissions and requiring the early resolution of certain issues. However, the top three mechanisms selected by the Surveyed Arbitrators are: 1) case management hearings, 2) online hearings when appropriate, and 3) establishing and sticking to strict timetables.

Given the popularity of online hearings, the Survey also asks about arbitrators’ views regarding online hearings.

If you are focused on efficient proceedings, it can be important to understand an arbitrator’s view about online hearings before appointing them. In addition to arbitrators’ Survey responses, Arbitrator Intelligence Reports also provide numerous examples of procedural rulings and parties’ and counsel’s assessments of tribunal efficiency in specific past cases. For example, wouldn’t you like to know which arbitrator uses a chess clock to keep hearings running smoothly?

 

What percentage of surveyed arbitrators would be inclined, when otherwise appropriate, to order online hearings despite one party’s objection?

Online or remote hearings have become a daily reality in international arbitration, and they are recognized as a viable option under the national arbitration laws of most jurisdictions worldwide. However, there are still open questions about the extent to which arbitrators can order and conduct online hearings against the objection of one of the parties. Although arbitrators enjoy broad discretion to design and conduct arbitral proceedings in the interest of efficiency and effectiveness, concerns about the ability of both parties to present their case and the enforceability of arbitral awards abound. The perception of most KAB Readers was that less than 20% of arbitrators would hold online hearings, when otherwise appropriate, over the objection of one of the parties. Instead, 37% of all Surveyed Arbitrators consider such practices appropriate.

Although not displayed in the above table, there was also a significant difference in the perspectives of arbitrators from different backgrounds. Arbitrators with common law backgrounds are considerably more inclined to hold online hearings over party objection than arbitrators with civil law backgrounds (52% versus 35% respectively).

Even more interesting than the numbers were differences in some of the arbitrators’ stated views on the subject based on their past experiences. One arbitrator stated that “Online hearings cut the human side of the process, on all sides (parties, arbitrators); their overuse are therefore dangerous.” Another arbitrator instead believes that “The covid era has proved beyond doubt that online hearings can be effective even with live witnesses.”

Many expressed the need for individual case-by-case assessment, with several expressing what they have learned from experiences with online hearings, such as the need for breaks and coordination of different time zones. One arbitrator offered an interesting view about their value: “The adequacy [of an] online hearing does not depend on the value of the case, but on the complexity of the evidence to be produced.”

 

Do arbitrators with civil law backgrounds have views about e-discovery that differ from arbitrators with common law backgrounds?

The issue of document production in international arbitration, and e-discovery in particular, is widely perceived as the paradigmatic distinction between arbitrators with common law and civil law backgrounds. The traditional view is that arbitrators with civil law backgrounds are much less likely to order e-discovery than their common law counterparts.

Contrary to this traditional view, KAB readers estimated that 50% of arbitrators would be willing to grant e-discovery, with slightly more support from common law arbitrators. However, only 38% of Surveyed Arbitrators overall considered e-discovery generally appropriate in relevant cases. Perhaps more surprisingly, there was not a significant divergence of positions between civil law and common law trained arbitrators.

 

Do arbitrators with civil-law backgrounds ever consider production of broad categories of documents based on general statements of materiality and relevance to be appropriate?

Closely related to the previous question, there are also deeply rooted perceptions that civil law trained arbitrators are very conservative when it comes to the scope of document production (when ordered) and that they would almost never grant broad discovery based on general statements of materiality. KAB Readers estimated that less than 10% of civil law arbitrators would be in favor of such document production.

This question is where perhaps the biggest surprise comes in data received so far from Surveyed Arbitrators: 45% of the Surveyed Arbitrators who have a civil-law background indicated that such document production could be appropriate in some circumstances, while 33% of them consider it “often appropriate.” Coming from a group of arbitrators of diverse nationalities, these responses show that generally held assumptions about civil law trained arbitrators are not necessarily accurate and that if you are looking either to find or avoid an arbitrator who will grant broad document production, you need to look further than their legal background.

Arbitrator Intelligence Reports, which are based on information from parties and counsel (not arbitrators), also provide details about the hows and whens of document production in prior cases, as well as specific assessments from the participants. Putting together specific past examples and arbitrators’ expressed views is the best way to understand what to expect when appointing an arbitrator.

 

What do arbitrators think about asking questions in hearings and interrupting parties with those questions?

The common perception is that whether arbitrators are inclined to ask questions in hearings is largely associated with their legal training and background. Civil law trained arbitrators are traditionally considered to be more restrained at hearings, while common law arbitrators are considered more likely to intervene with questions. KAB Readers estimated that as much as 30% of civil law trained arbitrators held the view that arbitrators should generally refrain from asking questions at the hearings.

It turns out, however, that hardly any arbitrators hold this view—only about 1% of all Surveyed Arbitrators believed that arbitrators should generally refrain from asking questions at hearings. Perhaps even more surprising, 68% of all Surveyed Arbitrators considered it appropriate for arbitrators to interrupt counsel presentations or witness testimony with questions.

 

Allocation of costs and fees

Like any other arbitration practitioners, arbitrators may come to the table with a particular view on the allocation of costs and fees between the parties. Debate continues over whether “costs follow the event” or each party should bear its own costs. As a result, arbitrators of all backgrounds are facing situations in which they must make adjustments to costs allocated based on a variety of factors.

When asked what may lead them to change from their ordinary approach to the allocation of costs and fees, Surveyed Arbitrators selected “compelling arguments based on party agreement” and (somewhat surprisingly) the approach in the seat of arbitration as the most likely factors to influence such decisions. KAB Readers rightly guessed the first reason, but like us, did not expect the approach of the seat to carry such weight.

If recovery of costs and fees is important in your next case, it would be helpful to know an arbitrator’s views on these topics. Information about individual arbitrators’ past rulings on issues of costs and fees in their past cases is also available in Arbitrator Intelligence Reports.

Given that alleged counsel misconduct can also be a basis for shifting costs, we asked arbitrators about that too. Most arbitrators identified consideration in allocating costs and fees to be an appropriate response, along with oral admonitions and negative inferences about the evidence. Interestingly, however, 10% were open to sanctions and nearly 20% to referral to national bar associations.

 

Arbitrators, Share YOUR Perspectives Today

The analysis of the data collected through the Arbitrator Perspectives Survey reflects the increasing diversity of backgrounds, affinities, and mindsets of international arbitrators. When juxtaposed against assumptions in the arbitration community, as expressed in the responses to the Arbitrator Perspectives Quiz, generalizations about arbitrators’ approaches to procedural issues and case management are often inaccurate.

Direct, independent, and systematic data collection and analysis is essential for parties and counsel to make informed decisions in the arbitrator selection process. The feedback about arbitrators from parties and counsel provided in Arbitrator Intelligence Reports and the arbitrators’ own views expressed in the Arbitrator Perspectives Survey offer unparalleled clarity and unique insights.

We would like to thank the KAB readers who took the Arbitrator Perspectives Quiz, providing the basis for this analysis of the perception of the arbitration community about international arbitrators. Arbitrators can continue to submit their Survey responses here, and their Responses will be made available for free on Arbitrator Intelligence’s website.

We hope to further expand the scope of available information that will provide meaningful insights for the all-important decision about which arbitrators to appoint.

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French Supreme Court, Arbitration Agreements and Jurisdictional Challenges: Parties Cannot Have Their Cake and Eat It

Wed, 2022-04-20 01:00

On 9 February 2022, the French Supreme Court (‘Cour de cassation’) held that a respondent party in arbitration cannot sabotage proceedings by refusing to pay its share of the advance on costs, then subsequently challenge the jurisdiction of national courts in favour of arbitration. Such behaviour, according to the French Supreme Court, constitutes a breach of the parties’ duty of procedural loyalty, and will prevent a successful jurisdictional challenge in favour of arbitration (Cour de cassation, n° 21-11.253).

While in line with the French Supreme Court’s previous approach to this question, this decision – when compared with the approach taken across the channel – raises some important questions about not only the limit of dilatory tactics often adopted by respondent parties, but also the wider issue of harmonisation of interpretation of widely adopted institutional rules.

 

Background

In 2011, Pastificio entered into a franchise agreement with Taglia’Apau. After a few years, Taglia’Apau requested (i) a revision of the contract and (ii) compensation for losses suffered due to a lower margin than anticipated. In 2016, Taglia’Apau became subject of insolvency proceedings and commenced ICC arbitration proceedings (under the 2012 ICC Rules). Due to Pastificio’s refusal to pay its share of the advance on costs pursuant to Article 36 of the 2012 ICC Rules (and Taglia’ Apau’s inability to cover Pastificio’s share), the ICC brought an end to the arbitration proceedings in accordance with Article 36.6 of the 2012 ICC Rules.

In 2018, Pastificio terminated the franchise agreement with Taglia’Apau. The same year, Taglia’Apau went into liquidation and its administrator commenced proceedings before the local commercial court in the southern French town of Pau.

Before the commercial court, Pastificio challenged the jurisdiction of the national courts; claiming that the existence of an arbitration agreement prevented Taglia’Apau  from initiating proceedings before national courts. Taglia’Apau replied that Pastificio could not (by refusing to pay its share of the advance on costs) actively prevent arbitration proceedings from taking place and subsequently claim the dispute could only be settled in arbitration proceedings.

Pastificio argued that Taglia’apau had grossly inflated its claims, leading to a high advance on costs, which justified its refusal to pay. Pastificio said it would accept to pay the advance on costs, should Taglia’apau reduce its claim or pay the full advance.

The commercial court declined jurisdiction over the dispute due to the presence of the arbitration agreement and considered that Pastificio had not waived its consent to the arbitration agreement. It concluded that Taglia’apau could commence new arbitration proceedings to pursue its claims.

Taglia’Apau filed an appeal against the decision of the commercial court and claimed that Pastificio had breached its obligation not to contradict itself (a type of French procedural estoppel).

The Pau Court of Appeal dismissed this argument, holding that the obligation not to contradict oneself was only applicable to claims within the same proceedings.

The Court of Appeal also addressed the Kompetenz-Kompetenz argument raised by Pastificio and decided that, absent any manifest invalidity of the arbitration agreement, only an arbitral tribunal could decide on its own jurisdiction.

The Court of Appeal dismissed Taglia’Apau’s argument that dismissing the proceedings would amount to a denial of justice, due to the fact that Taglia’Apau had no funds left to commence new proceedings. It held that the advance on costs was set by the ICC in consideration of the amount of Taglia’Apau’s claims which can act as a sanction for a party inflating its claims.

The Pau Court of Appeal therefore decided that it did not have jurisdiction to hear the dispute. Taglia’Apau raised the case before the French Supreme Court.

 

Decision

Unsurprisingly, the French Supreme Court quashed the Court of Appeal’s decision and referred the case to a differently constituted Court of Appeal in Bordeaux.

This is not the first time that the French Supreme Court has sanctioned an inconsistent respondent who refused to pay its share of the advance on costs. In a case dated 19 November 1991 (n° 90-14.869), the French Supreme Court held that a party could not derail arbitration proceedings by refusing to pay its share of the advance on costs and subsequently try to rely on the arbitration agreement to challenge the jurisdiction of national courts.

In its more recent decision, the French Supreme Court reviewed several of the arguments raised before the Court of Appeal.

Regarding the advance on costs, the French Supreme Court disagreed with the Court of Appeal’s interpretation of Article 36 of the 2012 ICC Rules. The French Supreme Court held that, pursuant to the terms of Article 36, Pastificio had a clear obligation to pay its share of the advance on costs. By failing to do so, Pastificio breached the ICC Rules it had accepted when entering into the contract containing the arbitration agreement, which provided for arbitration proceedings under the ICC Rules.

In quashing the Court of Appeal’s decision, the French Supreme Court based its decision on the duty of procedural loyalty (“devoir de loyauté procédurale”). It decided that a party cannot cause arbitration proceedings to be brought to an end due to its failure to pay its share of the advance on costs and subsequently invoke the arbitration agreement to challenge the national courts’ jurisdiction.

 

Key Takeaways: A Clear Lack of Harmonisation and a Word of Warning to Respondent Parties

This decision is a strong shot across the bow to respondents who, as a delaying tactic, refuse to pay their share of the advance on costs in the hopes of paralysing (or even sabotaging entirely) the arbitration proceedings.

Where the Court of Appeal had refused to apply the French principle of estoppel across separate proceedings, the French Supreme Court took a broader view, through the lens of the duty of procedural loyalty. The French Supreme Court did not provide much detail in its reasoning, except for the observation that Pastificio could not refuse to pay its share of the advance on costs and subsequently invoke the arbitration agreement to challenge the jurisdiction of French national courts.

It is unclear if the French Supreme Court’s aim was to sanction an inconsistent respondent or whether the purpose was to establish a new principle akin to repudiation of the arbitration agreement. As things stand, we are inclined to think it is the former rather than the letter. Nevertheless, it is clearly in line with the French Supreme Court’s previous approach to this question.

At this stage, we will have to wait to see what the Bordeaux Court of Appeal will decide, but the message is clear and should be heeded by respondent who adopt the all-too frequent tactic of refusing to pay their share of the advance on costs (either because they know the financial burden might lead the claimant to negotiate or because they know the claimant cannot afford to pay the entire advance on costs, which was the case at hand). Doing so could result in a national court finding that the respondent has repudiated the arbitration agreement and impliedly accepted that the dispute can be settled by national court instead of by an arbitral tribunal as originally contemplated in the contract.

It is interesting to note that on the other side of the channel, the question of a respondent not paying its share of the advance of costs under the ICC Rules has also been addressed by the English High Court, albeit with a markedly different result. In BDMS Ltd v Rafael Advanced Defence Systems ((2014) EWHC 451 (Comm)), a respondent party had refused to pay its share of the advance on costs until the claimant party provided a bank guarantee covering the respondent party’s costs.

The English High Court, contrary to the approach of the French Supreme Court, declined jurisdiction in considering that a failure to pay its share of the advance on costs by a respondent party does not constitute a repudiatory breach of the arbitration agreement, as it does not substantially deprive the claimant of the benefit of the arbitration agreement. In arriving at this conclusion, the English court stressed a number of workarounds, including but not limited to (i) challenging the application of Article 36.6, and (ii) having the arbitral tribunal determine the respondent party’s request for a bank guarantee before any application of Article 36.6.

The result is an approach that is almost diametrically opposed to that of the French courts, which raises a number of questions in terms of the harmonisation of interpretation of widely adopted institutional rules such as the ICC Rules.

Nevertheless, it is important to stress that these cases are influenced by their specific facts, and an interesting (and not insignificant) difference between the factual matrixes of these two cases, is the insolvency of the claimant party. Whether this would impact the reasoning of the English court’s approach remains to been seen. In any case, the lack of harmonisation, and varying approaches means that respondent parties seeking to employ dilatory tactics at arbitration should take considerable care.

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ISDS landscape in Latin America for 2022

Tue, 2022-04-19 01:27

For the last 20 years Latin America has been a fertile ground for ISDS. From the cases against Argentina in the early 2000s, to those against Venezuela, Ecuador, Mexico and Bolivia in subsequent years, and more recently Peru and Colombia, investment treaty disputes in the region have continued to arise. While the seeds of the backlash against the system were planted in this region too, for example with Venezuela, Ecuador and Bolivia’s denunciation of the ICSID Convention and some BITs, and Brazil still not adopting ISDS, none of this has had any major impact on the ISDS landscape.

Investment arbitrations against Latin American States represent the largest share of cases when comparing caseloads by region. For example, out of 66 cases registered by ICSID in 2021, 24 were against Latin American States, an increase from the 20 registered in 2020. Furthermore, some of the few successful intra-Latin American integration efforts like the Pacific Alliance between Chile, Colombia, Mexico and Peru have ratified the inclusion of the current arbitration system for ISDS. Even one of the Latin American States that led the regional backlash against ISDS, Ecuador, is now returning to the system and last year re-ratified the ICSID Convention, and recently saw an ICSID arbitration commenced against it (Corporación Nacional del Cobre de Chile and others v Ecuador).

In this post, we discuss some of the trends Latin American countries have experienced in the past years and which we might continue to see in the course of 2022. For instance, we deal with the impact of ‘environmental, social, and governance’ (“ESG”) related measures (including climate change related ones) on the energy industry.  We also refer to potential disputes triggered by States’ measures to reform pension funds regulations.  Finally, we refer to the rise of tech and telecom ISDS disputes.

 

Energy-sector disputes, ESG, counter-reform measures and tariff freezes

In some countries, mainly Europe, ISDS cases are arising in relation to ESG regulations enacted primarily in response to the energy transition (e.g., cases relating to the phase-out of coal in the Netherlands). This has not yet been the case in Latin America. However, similar disputes are likely to arise in the region as States continue to move forward with energy transition measures (e.g., Chile’s decision to phase out all coal-based power plants by 2025). Other disputes may arise from movements attempting to reverse reforms in the sector, for example in relation to the cancellation of incentives for renewable energy projects (e.g. Mexico). Recently, investors have started arbitrations in connection with hydroelectric powerplants (Energía y Renovación v Guatemala; ESSA2 and Enel v Costa Rica). Treaty claims may also be filed in relation to the endemic tariff freezes in the Argentine gas and electricity sector (Orazul International España Holdings S.L. v Argentina; AES Corporation v Argentina).

 

COVID-related disputes

Despite predictions of a landslide of cases, up to now there has been a limited amount of investment arbitrations concerning COVID-related measures. However, investment disputes require time to mature, so it could be that cases are still brewing. Cases are unlikely to challenge the measures put in place by States to stem the spread of the pandemic, but will rather focus on the little or lack of accompanying State measures providing relief to affected business (eg ADP International S.A. and Vinci Airports S.A.S. v Chile). The next few months will provide insight on whether such claims are likely to pile up.

 

Financial and pension services disputes

Financial institutions are increasingly structuring (or restructuring) their cross-border investments in Latin America to take advantage of investment treaties. This is already leading to the start of investment-treaty claims in the region (HSBC Latin American Holdings v El Salvador). We expect this trend to continue as States still grapple with the continued pandemic and the disruption in global supply chains by changing regulations affecting financial institutions. For example, by suspending or limiting their ability to collect on debt, including mortgages, or prohibiting the collection of fees on public projects, with a detrimental impact on the project financing for those projects.

A particular financial sector that has seen treaty cases is that of the administration of pension funds. The cases have arisen from the decision by States to reverse the privatization of pension services and create a public entity to take over from the private administrators (MetLife v Argentina; BBVA v Bolivia; Zurich v Bolivia). We expect more such disputes as similar measures are planned in other States, like Chile where the reform is being discussed by the Constitutional Convention that will propose a new constitution later this year. The role and remuneration of private pension funds is also under scrutiny in Colombia, El Salvador, Mexico, Peru and Uruguay, which might lead to further investment disputes if changes are adopted.

Coupled with the above, COVID-19 has also led States (eg Chile, Peru) to allow contributors to extraordinarily withdraw a certain amount of funds from their private insurance pension schemes, thus directly interfering with insurance contracts. This led last year to two notices of dispute against Chile submitted by the local subsidiaries of pension insurance companies (Ohio National Financial Services and Zurich Insurance Company under the Chile-USA Free Trade Agreement and the Chile-Switzerland BIT, respectively).

 

Tech disputes

Unlike energy and industrial sectors, tech companies have not relied traditionally on investment treaties to protect investments against interference by foreign governments. That is now changing. Tech companies are becoming more aware of investment treaty protection and are making use of it to face adverse government action, including in response to concession cancellations, unfair and discriminatory data laws, and the protectionist use of tax, antitrust and foreign investment regulation.

A high-profile example is Uber’s January 2020 threat to bring a claim against Colombia under the US-Colombia Trade Promotion Agreement. In response to a complaint filed by a local competitor, the Colombian competition authority imposed a nationwide ban on Uber’s ride-hailing app. The ban was overturned shortly after Uber threatened to commence investment treaty arbitration against Colombia. More recently, Canadian and US investors filed claims against Mexico under the NAFTA and the United States–Mexico–Canada Agreement (USMCA) following Mexico City’s cancellation of a concession to replace all analog taximeters with digital ones and develop an accompanying ride-hailing app (Espiritu Santo Holdings v Mexico and L1bre Holding v Mexico, now consolidated into one single case).

 

Telecoms disputes

“Spectrum” is being increasingly viewed as a scarce resource that should be allocated in accordance with public interest principles, with maximum value extracted for the benefit of State coffers. States are thus seeking to revoke spectrum previously allocated to investors or claw back some of the profits earned by investors who were allocated operating licenses and spectrum years ago when their potential value was not so apparent (eg Telefonica v Peru; Telefonica v Colombia). We foresee an increase in “spectrum value extraction” measures, reminiscent of the sorts of resource nationalism measures we have seen in the energy sector over the years, and an associated increase in investor-State disputes.

 

Conclusion

ISDS in Latin America is here to stay. While disputes in sectors such as pensions and telecoms are becoming more common in the region, we expect to see a ripening of COVID-related disputes, the consolidation of renewable energy disputes and the birth of new types of disputes in sectors like tech.

Further, the ongoing war in Ukraine has brought oil and gas prices to peaks not seen in recent years. Traditionally, in Latin America, high energy prices have led to government measures seeking to collect all or part of such price increases, from plain and simple expropriations to windfall taxes or contractual renegotiations. This, coupled with political changes such as the recent government change in Chile or the upcoming elections in major resource-rich economies like Brazil and Colombia, can bring a revival of traditional resource nationalism affecting foreign investors.

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Interviews with Our Editors: Speaking with Lucy Reed, the First Woman President of the SIAC Court

Mon, 2022-04-18 01:00

Ms Lucy Reed is a full-time arbitrator and a Visiting Professor at National University of Singapore.  Previously, she was the Co-Head of Freshfields Bruckhaus Deringer’s Global International Arbitration Group.  Her prior experience includes acting as the US Agent to the Iran-US Claims Tribunal and as General Counsel of the Korean Peninsula Energy Development Organization (“KEDO”).  On 1 October 2021, she was appointed as the President of the Court of Arbitration of the Singapore International Arbitration Centre(“SIAC”) and a member of the SIAC Board of Directors.  Thank you, Ms Reed, for joining us on the Kluwer Arbitration Blog and congratulations on your recent appointment!  We are grateful to have the opportunity to learn more about your journey in international arbitration and what the future has in store for SIAC.

 

  1. During your career you have worked in a number of varied and interesting roles from private practice, to international tribunals, government agencies and academia. What did you find to be the most challenging in all these roles?  Is there is a common skillset that has held you in good stead throughout your career?

I have had a varied career on purpose, as I like exploring and learning new things.  I think my most challenging role was as General Counsel of KEDO, the international organization set up by the Governments of the United States, South Korea and Japan (and later joined by the EU) to deal with North Korean nuclear energy (and nuclear weapons) issues in New York in the mid-1990s.  In that role, I led negotiations with North Korea and spent substantial time in the heart of the country where KEDO was beginning construction of Light Water Reactor nuclear energy plants in exchange for the North’s shuttering its Soviet-era Heavy Water Reactors.  At that time, very very few outsiders had been in North Korea – it was fascinating.

My most rewarding experience was serving as an arbitrator on the Eritrea-Ethiopia Claims Commission (“EECC”), which was the first – and, so far, the last – tribunal set up to resolve claims of violations of international humanitarian law, including the Geneva Conventions.   The EECC’s many awards are available on the website of the Permanent Court of Arbitration.  Among other things, our hearings on cases involving alleged mistreatment of Prisoners of War (“POWs”) led to the release of a large group of POWs who had been held too long.  I was also pleased to see that the International Court of Justice in its recent Judgment in Democratic Republic of Congo v Uganda referred heavily to the EECC’s damages awards.

 

  1. SIAC has gone from strength to strength since commencing operations in 1991. Today, it ranks among the top institutions in the world and is the most preferred arbitral institution in Asia.  In 2021, SIAC also achieved its highest caseload.  What do you think has contributed to SIAC’s success?  

In my view and experience, SIAC’s success is based on early and steadfast support from the Government of Singapore for international arbitration in general – first-rate legislation based on the UNCITRAL Model Law, a strong judiciary, creating Maxwell Chambers as the pioneer “all services” arbitration centre, open arms and tax support for arbitrators.  Having said that, it has been the strong leadership and skills of SIAC itself – both on the Court and the Board – that have made it possible to build on that early government support and foster creativity.  The positions of CEO, Registrar, counsel and all Secretariat staff have always been filled with first-rate professionals.

As I often do, I should point out that the caseload in 2021 – way over 1,000 cases – was an outlier.  Far more important is the steady number of SIAC cases throughout the pandemic and global economic challenges.

 

  1. In his keynote speech during the SIAC Congress 2021, Mr K Shanmugam SC, Minister for Home Affairs and Minister for Law, Singapore, predicted that the next 30 years may be challenging for SIAC as disputes are becoming more complex, new areas of disputes are emerging and new fora for dispute resolution are developing. How does SIAC plan to deal with these challenges? What are the main goals you want to achieve as the SIAC President?

Minister Shanmugam is absolutely correct that we face new challenges in international arbitration in the coming decades.  We can expect to see new categories of disputes arising from the Covid-19 pandemic, climate change, data protection and cryptocurrency.  On the administering end, we can expect to need  advances in technology, including for better virtual and hybrid hearings, growing familiarity with Artificial Intelligence tools, and management of the challenges that arise from the international application of complex economic sanctions regimes.

How to deal with the challenges?  That is what SIAC has shown it does best.   I view my most important role as President to be a leader in the charge.

 

  1. On our Blog, you have previously written about arbitrator availability in the past. Recently, you also spoke about the “David Caron Rule of X” which recommends that arbitrators set the “upper limit of cases that he or she is capable of responsibly sitting on at the same time”.  What role can arbitral institutions play in enforcing this rule?

First, the whole concept of David Caron’s Rule of X is that each arbitrator should take personal responsibility for his or her caseload, to ensure that it is not too large to allow full attention to cases and timely issuance of awards.  Even following the Rule of X, which I do, there are things arbitrators cannot control, for example, an urgent interim measures application on the eve of a hearing or in the middle of drafting an award in a different case.

The proper role of institutions is not to set their own Rules of (say) Z for arbitrators, for example by saying no SIAC arbitrator can carry more than five cases.  The proper role is to monitor progress in cases and try to spot impending trouble from excessive delay in hearings and issuance of awards.

 

  1. As a longtime vocal proponent of diversity in international arbitration, you famously came up with the equationCaution + Habit + Bias equals, or causes, low levels of diversity in international arbitration.” Today, many of the top international arbitral institutions are helmed by women.  In your view, (i) how has gender diversity progressed over the years; and (ii) what can be done to encourage more women at the top in international arbitration?

As I just said at a program during Paris Arbitration Week, I am pleased with the progress in gender diversity in international arbitration since I started in the area in the late 1970s.  The conversation about gender diversity is robust, in large part due to the ERA Pledge and self-organizing by Arbitral Women and others.  There is still a long way to go, but we are on the right path.  I measure the marked gains by women in international arbitration by looking around rooms – or, recently, on screens – and seeing so many talented women I have not yet met.

I am proud of SIAC’s status in this area.  As an institution, women now constitute 36% of our appointments.  I wish the same could be said of counsel and co-arbitrators.

It is time to put more focus on other categories of diversity, including nationality, ethnicity, regionality/geography, LGBTQ, and disabilities.  Those conversations are not yet sufficiently robust.

Thank you for your time and perspectives – we wish you the best!

 

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

More from our authors: International Investment Protection of Global Banking and Finance: Legal Principles and Arbitral Practice
by Arif H. Ali & David L. Attanasio
€ 202
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