Key Changes in the LCIA’s new Arbitration Rules

by Khaled Moyeed and Clare Montgomery

Clyde & Co. LLP,
for Clyde & Co.

The London Court of International Arbitration (LCIA) has recently adopted a new set of arbitration rules, which will come into effect on 1 October 2014.The new rules aim to ensure an effective, efficient and fair process. The LCIA reports that its new Director General, Dr Jacomijn van Haersolte-van Hof, thanked those who contributed to ‘the meticulous and thoughtful drafting process, which has led to a balanced set of Rules.’ This piece will discuss some of the main changes introduced by the new rules.

Emergency Arbitrator

The new rules provide that in case of emergency, a party can apply for the appointment of a temporary sole arbitrator in advance of the formation of the tribunal. Specific grounds for requiring the emergency appointment must be set out, and, if the party’s application is successful, the LCIA Court will appoint the emergency arbitrator within three days from receipt of the application.

The emergency arbitrator will then decide the claim as soon as possible, but no later than 14 days after his appointment. He is not required to hold a hearing and can decide the claim on the basis of the documents available if he deems this appropriate. The new rules have reinforced the procedures for the expedited formation of the tribunal and a replacement arbitrator.

Emergency arbitrator provisions bring the LCIA into line with many other arbitral institutions, which have introduced similar provisions in recent years. LCIA users no longer need to resort to local courts for emergency relief before the formation of the tribunal.

Counsel and Party Conduct

An explicit provision has been added to the new rules that from the tribunal’s formation onwards, no party shall initiate contact relating to the arbitration or the parties’ dispute with any member of the tribunal or the LCIA Court (excluding the Registrar), unless this has been disclosed in writing to all other parties, all members of the tribunal and, where appropriate, the Registrar.

Under the new rules, where a party wishes to change or add to its counsel after formation of the tribunal, the approval of the tribunal is required. This approval may be withheld where the change or addition could compromise the composition of the tribunal, or the finality of any award. Factors such as the stage the arbitration has reached, and the likely wasted costs or loss of time resulting from the change will be considered.

General guidelines for the parties’ legal representatives have been added to the new rules as an annex. Counsel must comply with the guidelines as a condition of appearing by name before the tribunal. If a legal representative is found to have breached the guidelines, the tribunal can issue a written reprimand; a written caution as to future conduct in the arbitration; or take any other measure necessary to maintain the general duties of the tribunal.

Given the often international scope of LCIA arbitrations, these guidelines will serve as a common denominator in circumstances where the parties originate from countries that do not have similar obligations in an applicable professional code. The International Bar Association’s Guidelines on Party Representation were published in May 2013, but the LCIA is the first arbitral institution to propose a set of guidelines for party representatives. A comparison of the both sets of guidelines shows how this aspect of international arbitration is developing.

Powers of the Tribunal

Whereas previously, parties were permitted to agree on the conduct of their arbitral proceedings, wider powers have now been granted to the tribunal, and the parties can now only agree on ‘joint proposals’ for consideration by the tribunal.

In other areas, the tribunal’s power has been reinforced. The new rules provide that the parties can agree in writing the seat of the arbitration at any point prior to the formation of the tribunal, however after this point, the prior written consent of the tribunal is needed.

Costs

The tribunal has the power to decide that all or part of the legal or other expenses incurred by a party be paid by another party. The parties can no longer agree otherwise, unless they agree before the dispute arises that one or more parties shall pay the whole or any part of the costs, in which case the agreement must be confirmed in writing by the parties after the commencement date (i.e. the date when the tribunal received the Request for Arbitration).

The tribunal will base its costs decision on the parties’ relative success and failure in the arbitration – the parties can no longer agree otherwise – and may also take into account the parties’ conduct. The latter provision was implicit in the old rules; however, by making the conduct consideration explicit, the LCIA may improve the efficient conduct of its arbitrations, as parties will seek to avoid being penalised on costs.

Procedural Rules

Several procedural changes have been made to modernise the rules, for example, allowing the Request and Response to be submitted to the Registrar in electronic form, and to ensure that arbitrations are dealt with in a more time and cost efficient manner. The LCIA Court can now proceed with the arbitration notwithstanding that the Request is incomplete or the Response is missing, and the parties and the tribunal are encouraged to make contact as soon as practicable but no later than 21 days from receipt of the Registrar’s written notification of the formation of the tribunal.

Many time periods have been shortened, for instance from 30 to 28 days, however the parties retain the flexibility of agreeing in writing alternative deadlines for the written stage of the arbitration and its procedural timetable.

Further improving efficiency, arbitrations can be consolidated into a single arbitration under the new rules, and inactive arbitrations can be discontinued if they have been abandoned by the parties or where all claims have been withdrawn, provided that no party objects within a given period of time.

Conclusion

The new rules seek to improve efficiency in the conduct of the arbitration, to be achieved both through new provisions such as the appointment of an emergency arbitrator, and through other changes to the rules such as the tightening of time limits or allowing documents to be served electronically. While a number of arbitral institutions have revised their rules in recent years, the LCIA is the first to include mandatory provisions on party representation and conduct – perhaps setting a trend, which others will follow in years to come.


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Women in Arbitration in Brazil

by Ana Carolina Weber

Carvalhosa e Eizirik Advogados,
for ArbitralWomen

By Ana Carolina Weber 1 and Eleonora Coelho 2

The views expressed in this article are those of the authors alone and should not be regarded as representative of, or binding upon ArbitralWomen and/or the authors’ respective law firms.

The development of arbitration in Brazil has been accelerated in recent years. In fact, although the Brazilian Arbitration Act was enacted in 1996, only five years later the Brazilian Constitutional Court (the “Supremo Tribunal Federal”) recognized the constitutionality of the law and ratified the understanding that any disposable right could be the object of arbitration.

But it was not until 2002 that Brazil ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards. Thus, it was only in 2002 that the arbitration system – with regards both to internal and international awards – was duly regulated in Brazil.

With a proper arbitration system established, the use of this alternative method of dispute resolution has increased significantly over the past years. For example, in 2013, 147 arbitral proceedings were administered by the five most important Brazilian arbitration chambers, in comparison to 2005, when these chambers only administered 21 proceedings. In addition, the number of proceedings conducted under the ICC Rules involving at least one Brazilian party is also evidence of the development of arbitration in Brazil: in 2012, 82 disputes were arbitrated under the ICC Rules, placing Brazil as a country with the fourth largest number of arbitral proceedings in the world, and the country with the most such references in Latin America.

One aspect on which scholars and practitioners have not focused is gender diversity in Brazil’s arbitration field. In view of that, we have conducted research to analyze the present situation regarding women in arbitration in Brazil and we found the current panorama not as promising as desired.

In order to understand the role of women in arbitration, it is important to first analyze the current situation of women in the legal field generally. Law schools were created in Brazil in 1827, but women were only allowed almost 80 years later, after the enactment of Decree n. 3.903, in 1901.

Regarding the presence of women in law school, in 2012, from the 2442 students who were enrolled at the University of São Paulo, one of Brazil’s most prestigious universities, women represented only 37% (968 students). If we turn our attention to women graduates and analyze their presence in the legal field, women represent 45% of all lawyers regularly registered with the Brazilian Bar Association, in contrast to men that represent the other 55%.

Although the proportion of men and women in the law market is higher than women attending law schools, it is not enough to demonstrate the real scenario of women in Brazil. In fact, we were able to verify that many women start their careers as lawyers; however, few of them reach the top of their careers. This phenomenon is called “pipeline leak” where identified causes are: (i) a sexist working environment; (ii) difficulties in juggling more than one career, such as working both as a lawyer and as a mother or manager of the household; (iii) shortage of women as role models or mentors; and (iv) absence of flexibility at work or, even where there is some, women are not encouraged by their employers or other employees to achieve leading positions. (See Lucy Greenwood & Mark Baker “Getting a Better Balance on International Arbitration Tribunals” 28(4) Arb. Int’l (2012) 653, 657.)

Focusing our attention specifically on the arbitration field, it is important first to consider the international scenario. In 1995, the ICC appointed or confirmed 766 arbitrators: 22 women (3%) and 744 men (97%). Three years later, this proportion had not significantly changed: the London Court of International Arbitration (LCIA), for example, nominated 66 arbitrators, only one of whom was a woman (1.5%). (Lucy Greenwood & Mark Baker, op. cit., at 663-664). Although the situation is changing, there is still a lot to do: in 2011, from the 318 arbitrators appointed by the ICC Court, 36 were women, i.e. 11.32%. (This number was kindly provided by Mirèze Philippe, Special Counsel, ICC International Court of Arbitration.)

The lack of women acting as arbitrators is not just a problem in international commercial arbitrations. Investment arbitrations also tend to have fewer women than men as members of arbitral tribunals. From the 254 proceedings concluded by the Centre for Settlement of Investment Disputes (ICSID) between 1972 and 2012, of the 746 arbitrators who served, only 42 were women (6%), while 704 were men (94%).

Brazil, unfortunately, follows the same scenario. The percentage of women listed as arbitrators the most prominent Brazilian chambers is very low, and this underrepresentation has not changed very much in recent years. From 2013 to 2014, for example, not only was the average female presence on these lists between 8% and 26%, but in some chambers the number of women decreased during the same period.

Even if women are represented on the arbitration chambers’ lists, very few are effectively nominated to act as arbitrators. In March 2014, for example, from 129 arbitral proceedings, the Center for Arbitration and Mediation from the Chamber of Commerce Brazil-Canada (CCBC) had 48 women acting as arbitrators, which represented 37% of the total nominated arbitrators. From a total of 23 arbitrations administered by the Arbitration Chamber of the Stock Exchange (CAM), a chamber that administers arbitral proceedings related primarily to corporate and capital market disputes, only 3 women participated as arbitrators; that represented only 17% of the total number of nominated arbitrators. It is important to note that, although the presence of female arbitrators in CCBC proceedings is higher than that in CAM arbitrations, the 48 CCBC proceedings mentioned above do not involve 48 different women acting as arbitrators. The universe of women that are chosen to act as arbitrators is in fact small, some women benefitting from repeat appointments.

Some possible reasons for the obstacles that women have to face when pursuing arbitration careers in Brazil were identified by the authors in the process of conducting research for this article. First, as few women reach the top of their careers, the younger generation of women arbitration lawyers has few role models to follow. The lack of successful women in the field, with few exceptions, also discourages younger women to follow this path. Moreover, there is still unequal treatment when men analyze women doing their jobs: in fact, men tend to presume competence and attribute a higher level of skills to other men. Thus, women usually feel that it is necessary for them to prove their competence and skills on a day-to-day basis.

Furthermore, as in international scenarios, in Brazil, the parties typically agree that the co-arbitrators will choose the president of the tribunal. In the appointment process, it is possible to verify that male co-arbitrators are not concerned with appointing women, preferring the nomination of the so-called “usual male suspects”. (See also, Lucy Greenwood & Mark Baker, op. cit., at 661). Additionally, even if arbitration is increasing exponentially in general, based on the current practice, we were able to conclude that this area is still restricted to few practitioners – “repeat players” –, which is also a reason why it is difficult for women to insert themselves into the equation.

From the above, we can to conclude that at a first glance women might be discouraged to pursue and achieve higher accomplishments in the arbitration field. This should instead represent a departure point for every young woman lawyer interested in arbitration. If now there are few women working and representing women in arbitration, the future generations should act together with the successful female arbitrators, to benefit from their experience and their desire to enlarge women’s presence in this law field. In this context, it is worthwhile mentioning that some organizations offer mentorship programs to achieve this purpose, such as for example ArbitralWomen.

Also, young generations may also wish to look for institutional assistance on access of women to arbitration and generally in the legal field that many law firms and non-governmental organizations provide. Education on how skilled women can lead or contribute to the work of arbitral tribunals should also encourage parties and co-arbitrators to designate them as arbitrators or presidents of tribunals, in order to avoid the “pipeline leak” of talented women in the field.


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The “Anti-ISDS Bill” before the Australian Senate

by Luke Nottage

Sydney Law School

Indonesia is not the only Asia-Pacific nation that is reassessing investment treaties containing provisions on Investor-State Dispute Settlement (ISDS, especially arbitration). India announced a review in 2013, partly in the wake of the successful claim from an Australian mining investor, although the impact in practice is hard to discern or predict – especially under the new Modi government. In both countries, the reviews may also have been linked to domestic politics during election years.

More surprisingly, public debate over ISDS has resurfaced in Australia. For the political left, it really began when Philip Morris Asia announced in 2010 that it would claim under a 1992 treaty with Hong Kong if Australia went on to enact tobacco plain packaging legislation – which it did nonetheless. ISDS was also questioned from the economic right, by the Productivity Commission’s 2010 report generally critical of preferential Free Trade Agreements (preferring unilateral or multilateral liberalisation measures). In April 2011, the (Labor) Gillard Government Trade Policy Statement declared that it would no longer agree to ISDS in future treaties, even with developed countries. After the (Liberal) Abbott Government won the general election on 7 September 2013, it quietly reverted to including ISDS on a case-by-case assessment. ISDS was included in Australia’s FTA with Korea (KAFTA, signed on 8 April 2014) but not Japan (8 July 2014).

Remarkably, however, a (minority Greens Party) Senator from Tasmania introduced in on 3 March a private Member’s Bill, The Trade and Foreign Investment (Protecting the Public Interest) Bill 2014, which simply states: “The Commonwealth must not, on or after the commencement of this Act, enter into an agreement (however described) with one or more foreign countries that includes an investor-state dispute settlement provision.” (The Senate referred the Bill to the Committee on 6 March 2014. The reporting date was 11 April 2014, but on 16 June the Senate extended this until 27 August 2014.)

After a slow start followed by an internet campaign, the Bill attracted 141 Submissions and the Foreign Affairs, Defence and Trade Legislation Committee also received “over 11,000 emails from individuals using an online tool asking people to express their opposition” to ISDS. I was invited with eight others to give evidence in public hearings that were held (and recorded) on 6 August, and the Committee is due to report on 27 August. Although the Bill is unlikely to pass the Senate and certain not to pass the lower House of Representatives (where the Abbott Government retains a majority), this debate may also impact on Australia’s ratification of KAFTA, which must first be reviewed by the Joint Parliamentary Standing Committee on Treaties (JSCOT).

Procedurally, the Anti-ISDS Bill is trying to have the Parliament set in advance specific parameters for treaty negotiations conducted by the executive branch of government. Yet s 61 of the Constitution states that treaty-making is the formal responsibility of the executive. This starting point, differing say from the US system, has limited the scope for longstanding calls for greater prior Parliamentary scrutiny of treaty-making. Those date back to at least 1983, resulting in establishment of JSCOT in 1996, but the rejection of the Treaties Ratification Bill 2012.

Substantively, the Anti-ISDS Bill also faces an uphill battle in that no other developed country has decided that all forms of ISDS – in conjunction with substantive protections offered by investment treaties – are so flawed as to justify excluding them altogether. The benefits of ISDS are admittedly more obvious when treaty partners are developing countries or those where domestic courts provide processes and substantive rights for all investors that fall below widely-accepted international standards. The risks are also lower for a developed country agreeing to ISDS with such countries, which are likely to be sources of inbound investment and eventual arbitration claims against the developed country. Yet Australia’s Bill would preclude ISDS even in such situations, including negotiating a plurilateral arrangement in a regional treaty such as the Trans-Pacific Partnership Agreement or (“ASEAN+6”) Regional Comprehensive Partnership Agreement, with an ISDS carve-out between developed countries (as between Australia and New Zealand, in their FTA with ASEAN signed in 2009).

Even between developed countries, it may be worth including some form of ISDS. No domestic legal system is perfect, especially when judged against evolving international standards, as Canadian investors found in the Loewen proceedings brought against the US (ultimately unsuccessfully, in 2004) or US investors are alleging at present against Korea. International arbitrators may be able to resolve disputes with greater expertise and even expedition, compared to domestic court judges with multiple levels of appeals. If treaty partners want additional scope for review, they can agree to an appellate mechanism (even one staffed with permanent appointees, like the WTO Appellate Body for trade disputes). Several treaties now provide for further negotiations to establish such a mechanism, including now KAFTA, although interestingly no states have chosen to actually set one up. ISDS can be brought even closer to domestic court proceedings by first requiring (time-limited) “exhaustion of local remedies” by foreign investors, as suggested recently by the Chief Justice of Australia. Transparency of proceedings can also be enhanced, as under KAFTA which adopts detailed provisions as well as a side agreement on the new UNCITRAL Transparency Rules. The risks of excessive claims or “regulatory chill” for host states, namely not introducing measures for good public health reasons, should be less anyway for developed countries (with generally higher standards of good governance) and can also be managed through drafting general and specific exceptions.

For similar reasons, both the European Commission and US government have proposed the inclusion of appropriate provisions on ISDS and substantive rights in the Trans-Atlantic Trade and Investment Partnership presently under negotiation. The Commission has initiated a public consultation, given concerns by those mostly unfamiliar with the rationales and current operation of the treaty-based international investment law system, but a recent comprehensive Report for the Dutch Government recommends the retention of ISDS even in the TTIP. Admittedly, the net benefits of ISDS are reduced in treaties among developed countries. But a broader advantage of such an approach is that it should also then make it easier to negotiate such protections in treaties with developing countries.

Accordingly, the Anti-ISDS Bill represents an over-reaction. Australia should continue down the path of carefully negotiating and drafting both procedural and substantive rights in future investment treaties, joining with counterparts in other parts of the world (including indeed Indonesia and India), instead of simply opting out of the ISDS system altogether (as in a few South American countries). It would be useful to initiate a public consultation to develop a Model Investment Treaty or standard provisions. Australia should also review its old treaties as they come up for renewal, and even consider approaching treaty partners to renegotiate provisions that do not meet its contemporary standards (albeit for future investments). Unfortunately, that approach may also be precluded by this Bill. Yet the Philip Morris Asia arbitration reveals problems for host states under the old treaty with Hong Kong, while the recent ICSID jurisdictional decision in Planet Mining v Indonesia has serious implications for investors claiming under oddly drafted provisions in many of Australia’s other treaties from the 1990s.

At least in Australia, the Parliamentary process and related media coverage have allowed some reasoned debate and a better understanding of the pros and cons of ISDS in the 21st century. Happily, too, the Australian Research Council agreed last year to fund a major joint research project related to this topic over 2014-6, including a focus on Asia.

Luke Nottage (BCA, LLM (Kyoto), PhD (VUW)) is Professor of Comparative and Transnational Business Law and Associate Dean (International) at the University of Sydney. He has consulted for leading law firms world-wide as well as ASEAN, the European Commission, OECD, UNDP and the Japanese Government

The author thanks the Australian Research Council for its support in undertaking research on investor-state arbitration.


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The Singapore Approach to Allegations of Awards Infra Petita – BLC and Ors v. BLB and Anor [2014] SGCA 40

by Emmanuel Chua

Herbert Smith Freehills LLP,
for Herbert Smith Freehills

In further nod to the non-interventionist and pro-arbitration stance of the Singapore courts, the Singapore Court of Appeal in BLC and ors v. BLB and anor [2014] SGCA 40 (“the BLC decision“) reversed the decision of the High Court to set aside part of an arbitration award (“Award“) on the ground of a breach of natural justice. The court also provided valuable guidance on Articles 33(3) and 34(4) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law“).

Background facts

The dispute arose out of an unsuccessful joint venture between the parties. The appellants commenced arbitration against the respondents alleging that they had breached several agreements, in particular clause 4.1 of a License Agreement by manufacturing goods which failed to meet the applicable standards, and claimed rectification costs. The respondents in turn counterclaimed for various amounts, including monies allegedly owing for goods delivered to the appellants (“Counterclaim“). In his Award, the arbitrator found in favour of some of the appellants’ claims, but dismissed the Counterclaim in its entirety.

The respondents applied to set aside the entire award on three primary bases, in particular that the arbitrator failed to deal with the Counterclaim because he had extensively adopted the appellants’ list of issues over the respondents’ list, and had thereby breached the rules of natural justice contrary to s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”).

The High Court accepted this argument. It found that the arbitrator had failed to appreciate that the Counterclaim was an independent and distinct claim (for payment over goods termed as Group B goods) instead of a relief premised on the outcome of the appellants’ claims (over a separate category termed as Group A goods), and had therefore failed to properly consider the Counterclaim. According to the court, this was due to the arbitrator extensively adopting the appellant’s list of issues over the respondents’ list. The court concluded that the failure of the arbitrator to deal with a discrete head of counterclaim which, if considered could have made a material difference in the award, constituted a breach of natural justice. On this basis, the court remitted the issue of the respondents’ Counterclaim to a new tribunal to be constituted.

Decision of the Court of Appeal

The High Court’s decision was reversed on appeal, on the following grounds:

(i) having regard to the Award and the pleadings, the arbitrator did in fact address his mind to the Counterclaim, and had rendered a decision on the same;

(ii) it was clear from the pleadings, lists of issues and written submissions that the respondents’ own case in the arbitration was that Counterclaim was directly linked to the outcome of the appellant’s claim. Accordingly, when the arbitrator found that the respondents had supplied goods that did not conform to the required standard, he had determined the Counterclaim on the respondents’ own case;

(iii) even if it were true that the arbitrator had erred in failing to deal with the Counterclaim as an independent and distinct claim, such error went merely to the substantive merits of the arbitrator’s decision, and did not amount to a breach of natural justice justifying the intervention of the court.

The Court also went on to consider whether parties ought to have requested, pursuant to Article 33(3) of the Model Law, that the arbitrator make an additional award on claims presented in proceedings but omitted from the Award before applying to court under Article 34. It held that whilst the language of Article 33(3) (and commentary from drafters of the Model Law) suggests that the provision is not mandatory, it would be consistent with the principle of minimal curial intervention to require that parties first seek relief from the tribunal before resorting to court proceedings. The court therefore suggested that a party who invokes Article 34 without first seeking recourse from the tribunal will bear the risk that the court would not exercise its discretion to set aside or remit any part of the award under Article 34(4). The reasons for failing to invoke Article 33(3) might also affect how the Court will approach an application to set aside an award.

Finally, the Court of Appeal disagreed with the decision to remit the Award to a newly constituted tribunal. It held that the only explicable basis for remission was Article 34(4) of the Model Law, which requires that the award be remitted to the original tribunal that had heard the matter.

Discussion

The Court of Appeal’s decision is notable in several respects.

Implicit in the Court of Appeal’s decision is the acceptance that a failure by the arbitrator to consider a specific claim or issue may constitute a breach of natural justice under section 24(b) of the IAA. Nevertheless, as enunciated by the High Court (at [91]), the claim in question must be one that ‘could have reasonably made a difference to the final result’ such that the applicant can be said to have suffered actual prejudice.

The decision also provides valuable guidance on how a court will approach the question of whether a tribunal had in fact failed to deal with an essential issue:

(i) as a starting point, the court will be wary of attempts by parties to recharacterise their respective cases in the arbitration for the purposes of challenging an award on the basis of an alleged breach of natural justice;

(ii) accordingly, the court will scrutinize how parties had approached their case in the arbitration, in particular the respective issues and arguments that they had put before the tribunal. In doing so, the court will not confine itself to parties’ list of issues or the characterization of the issues set out in the award, but will have regard to all the relevant documents in the proceedings, including the pleadings, and written submissions put forth by each party;

(iii) the court will then review the award with reference to the parties’ respective cases. In doing so, and consistent with the non-interventionist approach adopted by the Singapore courts, the court will apply a ‘generous approach’. This means that the court will adopt a reasonable and commercial reading of the award as a whole, instead of analysing isolated portions for errors. In the BLC Decision, the court declined to rely on a literal reading of certain paragraphs of the award that suggested that the decision to disallow the Counterclaim was independent from the arbitrators’ finding on whether defective goods were supplied. Instead, it determined, based on a reading of the entire award, that the arbitrator had decided the Counterclaim based on the respondents’ own case; and

(iv) where the analysis discloses errors (even serious errors) of law and/or fact by the tribunal, but no meaningful breach of natural justice, the court will not (and cannot) interfere with the award.

The threshold is therefore a high one to meet, and rightly so. By going beyond the face of the arbitral award to examine (in some detail) how parties’ respective cases were run in the arbitration, the court ensures that it is properly positioned to decide if the tribunal had in fact omitted to deal with an essential issue. The BLC Decision therefore illustrates and underlines the commitment of the Singapore courts to the principle of minimal intervention in practice, and provides further assurance to the business community that agreements by parties to have their disputes fully and finally determined by arbitration will be upheld, save where absolutely justified.

The court’s guidance on the operation of Article 33(3) of the Model Law is also welcome, and strikes a commendable balance between the non-mandatory language of Article 33 on the one hand, and the principle of minimal curial intervention on the other. The indication that the reasons for failing to first invoke Article 33(3) may impact upon the outcome of a setting aside application provides a powerful incentive for parties to first seek assistance from the tribunal before resorting to the courts, and reinforces the primacy of the arbitral process.

It is submitted that the courts can go even further to discourage unmeritorious challenges to arbitration awards. One option is the use of costs orders against the unsuccessful party. In Pacific China Holdings Ltd (In Liquidation) v. Grand Pacific Holdings Ltd [2012] HKCA 332, the Hong Kong Court of Appeal affirmed the general principle that the respondent to a failed setting aside application was entitled to costs on an indemnity basis from the applicant. In particular, the court agreed that ordering costs on a standard basis in such situations would in effect be ‘to subsidise the losing party’s abortive attempt to frustrate enforcement of a valid award’. Whilst the Singapore courts have thus far not adopted this as a general position for unsuccessful challenges, it is submitted that the courts should be willing to order costs on an indemnity basis where parties could have but did not first invoke Article 33, and subsequently failed to succeed in a setting aside application. Along with the guidance on Article 33(3), the prospect of a hefty costs order would further cement the commitment of the Singapore courts to minimal curial interference, and discourage resort to judicial intervention save in the most egregious circumstances.


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The Futility Exception to The Exhaustion Requirement: Apotex v. United States

by Julian Davis Mortenson

University of Michigan Law School,
for ITA

In its Award on Jurisdiction and Admissibility, a unanimous tribunal in Apotex, Inc. v. United States dismissed a Canadian manufacturer’s claims that the United States judiciary had violated NAFTA by mis-applying a regulatory time period.

Most of the reaction to Apotex has focused on the tribunal’s decision that the claimant’s activities in the United States—and in particular its submissions for regulatory approval—did not constitute an “investment” under NAFTA Article 1139. While the tribunal struggled with claimant’s assertion that the regulatory filings were actually treated as “property” as a technical matter, the Award essentially concluded that Apotex simply had not otherwise engaged in sufficiently investment-like behavior to trigger NAFTA protections. The decision thus offers a good—though very fact-specific—example of how tribunals can reasonably read even broad bi-/tri-lateral treaty definitions of “investment” to exclude categories of assets or activity that stray too close to the “sales contract” boogeyman that stalks discussions of this topic.

Less well recognized, however, is another aspect of the Award that may prove more significant, certainly given the smaller body of investment law on the relevant topic. And that is the tribunal’s separate conclusion that some of Apotex’s claims were also barred for the additional reason that Apotex had failed to exhaust its domestic remedies. In so deciding, the tribunal adopted a notably strict understanding of the futility exception to the exhaustion requirement that applies to international delicts committed by domestic judiciaries. Given the relative paucity of directly on-point precedent from judicial authorities (especially in comparison to the large quantities of ink spilled by commentators), a brief description of the Award’s decision on this point seems appropriate.

Even if its conceptual resting place is disputed, the existence of the exhaustion requirement is fairly uncontroversial. In Apotex, part of the tribunal’s reasoning was appropriately specific to NAFTA. Article 1101 permits challenges only to measures “adopted or maintained by a Party,” and both parties in Apotex adopted respondent’s argument from Loewen Group v. United States that “the terms of Article 1101 . . . require finality of action.” The Apotex tribunal went further, however, by additionally grounding its futility reasoning in customary international law—made applicable by NAFTA Article 1131, which provides that “a tribunal established under this section shall decide the issues in dispute in accordance with this agreement and applicable rules of international law.”

Under these sources of law, Apotex’s problem was that it had abandoned one of its domestic judicial actions after an appeals court refused to grant provisional relief. In Apotex’s view, since by that time there were barely two months left in the relevant regulatory time period, there was no serious possibility either of securing Supreme Court review or of securing a trial court ruling on the merits after a full trial. The question confronting the Apotex tribunal was whether abandonment under these circumstances forfeited the claimant’s right to pursue the matter further under international law.

While both parties “primarily invoked authorities concerning denial of justice claims,” they apparently agreed that “all causes of action premised upon judicial acts” require the victim to have exhausted local remedies. The logic was traditional:

Such claims depend upon the demonstration of the systemic failure in the judicial system. Hence, a claimant cannot raise a claim that a judicial act constitutes a breach of international law, without first proceeding through the judicial system that it purports to challenge, and thereby allowing the system an opportunity to correct itself.

Apotex’s failure to pursue certain formally available remedies thus brought the tribunal to the futility if exception, which renders a claimant’s failure to exhaust remedies irrelevant—if and only those remedies were “‘obviously futile.’” In the tribunal’s view, “the ‘obvious futility’ threshold is a high one”: it “requires an actual unavailability of recourse or recourse that is proven to be ‘manifestly ineffective’—which, in turn, requires more than one side simply proffering its best estimate or prediction as to its likely prospects of success, if available recourse had been pursued.” Citing Article 15 of the ILC Draft Articles on Diplomatic Protection, the tribunal emphasized that it is “not enough . . . to allege the ‘absence of a reasonable prospect of success or the improbability of success, which are both less strict tests.’”

The tribunal acknowledged a certain “sympathy for Apotex’s position” that neither U.S. Supreme Court relief nor trial proceedings on the merits offered any genuine prospect of relief given the time frame. It held, however, held that “the question whether the failure to obtain judicial finality may be excused for ‘obvious futility’ turns on the unavailability of relief by a higher judicial authority, not on measuring the likelihood that the higher judicial authority would have granted the desired relief.” The tribunal therefore concluded that Apotex’s abandonment of judicial proceedings was fatal to its arbitral claim. As it noted, “even if the chance of the U.S. Supreme Court agreeing to hear Apotex’s case was remote, the availability of a remedy was certain,” since “Apotex could have sought U.S. Supreme Court review on an expedited basis . . . .” The tribunal was uninterested in Apotex’s argument that “the chances of a successful outcome were ‘unrealistic’”; in response, it quoted Judge Lauterpacht’s assertion in Norwegian Loans that “however contingent and theoretical these remedies may be, an attempt ought to have been made to exhaust them.”

The tribunal’s strict and formalistic approach to the question of futility—and its indifference to the extreme improbability of success for further, presumably expensive, litigation—sets a high bar for futility, and will doubtless be cited by future respondents to that effect. This aspect of the award also stands as a warning to wise litigants that they should exhaust every technical avenue for relief prior to initiating a claim under an investment treaty. Less clear are the precedential implications for other doctrinal areas in which futility is relevant, in particular mandatory time periods contained in many BITs relating either to “prior recourse” to the local courts or to obligatory efforts to reach an amicable settlement.


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Law Commission’s Report to Revamp the Indian Arbitration Experience

by Ashutosh Ray

Law Assistant to Justice A.M. Ahmadi, Former Chief Justice of India

The Law Commission of India under the chairmanship of Justice AP Shah had constituted an expert committee to work on the 246th Report on “Amendment to the Arbitration and Conciliation Act, 1996” which was recently submitted to the Government of India. In this piece, Ashutosh Ray, who was a part of the expert committee, covers for the larger international audience, the important suggestions and amendments recommended by the Commission.

Tackling Delay in Courts

The most serious problem currently faced, especially by foreign parties, is the time taken once an arbitration matter reaches court. The Commission has made various proposals to address this issue including that of raising bar for judicial intervention at various stages of the arbitral process. The Commission has recommended dedicated benches across India akin to the Delhi model to deal with arbitration related cases expeditiously. The Government has been asked to request Chief Justices of High Courts to this effect. To further restrict cases being instituted as a dilatory tactic, there is a proposal to impose actual costs in frivolous and misconceived actions.

The appointment of arbitrator under Section 11 has been changed from the Chief Justice to the High Court(HC) and Supreme Court (SC), and it has been particularly clarified that delegation of power of appointment shall not be regarded as a judicial act. This is to substantially cut down the time taken at the threshold of the arbitration if one of the parties does not appoint an arbitrator.

An amendment has been proposed to make the decision of a HC non-appealable where an arbitrator has been appointed. Another proposed amendment in the same context requires the court to make an endeavor to dispose of the matter within sixty days from the service of notice.

As to the challenge to arbitral award under Section 34 and 48, a proposed amendment requires the matters to be mandatorily disposed in any event within one year from the date of service of notice.

To accelerate ongoing international commercial arbitration matters both in India and abroad, and to instill the confidence of foreign investors, the High Courts would have direct jurisdiction and a party need not approach the lower courts. This proposal also tranquilizes the effects introduced by the White Industries Investment Treaty Arbitration where the delay in the courts led to India being held responsible under a Bilateral Investment Treaty. (More on this case here)

As per the proposal, while there shall be no appeal on reference to arbitration under Section 8 or appointment of an arbitrator under Section 11, an appeal can be maintained under Section 37 only if the court refuses to refer to parties to arbitration.

Enforcement of Foreign Awards; Restrain in Setting Aside of Domestic Awards

Hitherto the criteria for setting aside an award seated in India under Section 34 and refusing enforcement of a foreign award under Section 48 has been identical, thus, making foreign awards subject to unreasonable judicial intervention and scrutiny. Under the proposal, while an award between two Indian parties may be set aside on the basis of Patent Illegality, “an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciating evidence.” Restriction has been given to the meaning of “public policy”. Hence, as per the proposal, an award can be set aside on public policy grounds only if it is opposed to the “fundamental policy of Indian law” or it is in conflict with “most basic notions of morality or justice”. It is clear from the proposal that the threshold for intervention in international arbitrations would be far higher than a purely domestic award. There has been explicit clarification that any contravention of a term of contract by the tribunal should not ipso jure result in the award being liable of setting aside.

Reinforcing BALCO Minus the Maladies

While the celebrated BALCO case [(2012) 9 SCC 552] was a revolutionary judgment which set the stage for positive sentiments in favour of India internationally, it gave rise to few glaring concerns. These concerns have been addressed by the Commission. The issue that a party in a foreign seated arbitration could not apply to the court for interim measures under Section 9 to secure the assets or for assistance in taking evidence has now been redressed as the parties may make express agreement to incorporate the relevant sections to avail of the benefits. The Commission’s proposal also addresses the concern of BALCO’s application only to future signed agreements.

Tackling Delay in Arbitral Tribunals

In many cases it is seen that there are several arbitrations under the same arbitration agreement thus creating multiplicity of proceedings and consequent delay in final adjudication of the dispute. To put an end to this practice, the Commission has proposed an explanation in the Act to ensure that counter claims and set off can be adjudicated upon by a tribunal without seeking a separate or new reference by the respondent, as long as it falls within the scope of the original arbitration agreement. That apart, the Commission has also suggested mandatory disclosure by prospective arbitrators to ensure their availability to expeditiously complete the proceedings in a time bound manner. This suggestion would be of tremendous help especially in ad-hoc arbitrations.

Encouraging Institutional Arbitration

The Commission has suggested promotion of institutional arbitration by recommending appropriate proposals which it hopes will be used by the SC and HCs to promote institutional arbitration. It further proposes to accord legislative sanction to the institutions such as ICC and SIAC which provide for “Emergency arbitrator” by broadening the definition of “arbitral tribunal”.

The Commission has encouraged establishment of able and efficient institutions across the nation while recommending support from the government in terms of initial funds and land for establishment of such institutions. It has discussed a novel idea of having an Arbitral Commission of India which would encourage the spreading of institutional arbitration in India.

Better Conduct of Arbitral Proceedings

The Commission has taken into cognizance that the conduct of the arbitrations has been unsatisfactory and has therefore indicated diligent usage of the existing provisions in Chapter V of the Arbitration and Conciliation Act, 1996 (the Act) by the arbitral tribunals. In the Report, the Commission has condemned the culture of frequent adjournments in arbitrations and has called for a cultural revolution within the arbitration community. It has recommended conscious use of technology to aid the process of arbitration. An amendment has been suggested to discourage the practice of frequent adjournments and to ensure continuous sittings of the tribunal. To further bolster this objective, the Commission has also proposed appropriate addition on this issue to the preamble of the Act.

No Automatic Stay of Enforcement of the Award upon Admission of Challenge

The Commission has proposed to rectify the mischief of automatic stay of enforcement of an award upon the admission of challenge in the court. The proposed amendment in this regard provides that an award will not become unenforceable merely upon filing an application under section 34.

Power of Tribunal to Order Interim Measures

The 2006 amendments to Article 17 of the UNCITRAL Model Law give wide powers to the arbitral tribunal to order interim measures. Although, the Report does not recommend it pari materia, it follows a similar line, hence, giving sufficient power to the orders of the arbitral tribunal under Section 17. These orders would be enforceable in the same manner as the orders of a court.

Fraud Issues: Now Arbitrable

The Commission has categorically recommended that issues of fraud be made arbitrable and has for this reason proposed appropriate amendment to that effect.

No More Employee Arbitrator in Government Contracts

As the situation has been, in most of the contracts between private parties and the government entities, appointment of an employee of the government as an arbitrator was permissible. However, the Commission attempts to stop that practice. For this reason, as per the proposal, while disclosure is required at the stage of possible appointment in terms of Red and Orange lists of the IBA guidelines as incorporated in the Fourth Schedule, a person would be ineligible to become an arbitrator and will be considered ineligible de jure even if appointed, as per the Fifth Schedule which is based on the Red List of the said IBA Guidelines.

However, the Commission understands it important to restore party autonomy and therefore in certain situations it allows the parties to waive even ineligibility. It is the proposal that in certain situations, subsequent to disputes having arisen between them, the parties may waive the applicability of the Fifth Schedule by an express agreement in writing.

Definition of “Party” Enlarged

The Commission has proposed a change in the definition of “party” to recognize the right of a “person claiming through or under [a party]” to apply to a judicial authority to refer the parties to arbitration. Although, this was decided by the SC in principle, the Commission thought it best to propose it in the definition clause of the Act explicitly for avoidance of any further ambiguity.

Liberty on the Tribunal to Award Compound Interest

The question of future interest being payable not only on the principal sum but also on the interest accrued till the date of the award remains contentious and has been referred to a three judge bench. The Commission in this context has proposed appropriate amendment to clarify the ambit of powers of the arbitral tribunal to award compound interest. Along with that it has proposed to rationalize the rate of default interest of existing 18% to a market based determination.

Courts and Tribunals Empowered to Impose Costs

An amendment has been proposed to bring comprehensive reforms to the prevailing costs regime applicable to arbitrators as well as related litigation in court. The provision allows the arbitral tribunal as well as the courts to award costs based on rational and realistic criterion. The Commission hopes that judges and the arbitrators would explain the “rules of the game” to the parties well in advance to as to avoid frivolous litigation and arbitration.

Controlling Arbitrators’ Fees

The Commission has recommended a model schedule of fees while empowering the HC to frame appropriate rules for fixation of fees and revise it at suitable intervals. This recommendation is however strictly restricted to domestic arbitrations which are ad-hoc in nature. This recommendation is to allay the fear of high costs related to arbitration and to promote usage of arbitration as a mode of settlement of disputes between Indian parties.

The Commission has strived to address the various concerns and red flags in the functioning of the existing Act while being sensitive to the Indian idiosyncrasy, to prepare this report. The new Government has promised early introduction of the amendments bill in the parliament. While these events appear to be omen of good times to come, the international community can only wait for early incorporation of the Commission’s recommendations.


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The Birth of a New UAE Federal Arbitration Law: A Long and Difficult Labour

by Jessika Stadwick

Clyde & Co.,
for Clyde & Co.

Enactment of a federal arbitration law has been ‘imminent’ since the United Arab Emirates acceded to the New York Convention in 2006 (the ‘Convention’). Once enacted, it is expected that the federal law will repeal Articles 203 to 218 of Federal Law (11) of 1992, the Civil Procedure Code (‘CPC’), which currently govern arbitration in the state.

Several drafts of a proposed federal arbitration law have been released over the years by the Ministry of Economy, the most recent of which was in 2013 (the ‘Draft Law’). This version (as with the majority, but not all, of its predecessors) is based on the UNCITRAL Model Law, but retains some provisions of the CPC.

Whilst enactment of a federal arbitration law is regarded as necessary, the Draft Law has not been well received by some practitioners. Dissenters consider that the continued inclusion of certain provisions of the CPC in the Draft Law does not accord with international best practice, which is detrimental to ongoing efforts to change the general perception that the UAE is an unpredictable jurisdiction for the enforcement of arbitral awards.

This article considers where the Draft Law appears to have got it right, and provisions which may warrant further thought.

ARBITRATION AWARDS IN THE UAE

Foreign Arbitral Awards

Book III, Part I, Chapter 4 of the CPC provides for execution of foreign judgments and orders, and applies to foreign arbitration awards pursuant to Article 236. By Article 238 the rules enacted in Chapter 4 are without prejudice to the provisions of treaties between the UAE and other countries.

The Convention is not expressly identified in CPC Article 238 because the CPC came into force before the UAE became a signatory. However, although not expressly identified, the Convention, now in force in the UAE, is to be applied to the enforcement of foreign arbitral awards as a treaty obligation of the UAE to the exclusion of local laws. Despite this there have been difficulties with enforcement of foreign awards in the state in some cases, although the Courts1 have applied the Convention in others. These difficulties arise primarily from the Courts’ willingness to entertain arguments to set aside foreign awards on grounds that they do not meet the (non-Convention) requirements of the CPC.

Recent Court of Cassation judgments have made clear that the provisions of the CPC should have no application in the enforcement of foreign arbitral awards in the UAE and that only the relevant international convention is to apply. There have been, however, occasional setbacks, as recently demonstrated in the case of CCI v Sudan.2 In this case the Dubai Court of Cassation held that enforcement of Convention awards may be refused for lack of jurisdiction where the award debtor does not have a domicile or place of residence in the UAE or where the case is not related to an obligation carried out in the jurisdiction. Though this case is generally considered an outlier by practitioners, there is no doctrine of binding precedent in the UAE and the Courts may, therefore, in some instances continue to apply the CPC to refuse recognition or enforcement of a foreign arbitral award.

The Draft Law seeks to eliminate any lingering uncertainty. Article 52 of the Draft Law incorporates Article V of the Convention, stipulating that it is to be applied to both foreign and domestic awards in the state. It aims to leave no doubt as to the applicable regime for enforcement of foreign arbitral awards.

Domestic Arbitration Awards

In assessing whether to ratify or annul a domestic arbitral award, the CPC does not permit the Courts to reconsider the merits of a tribunal’s findings, but rather directs that decisions be taken on procedural grounds. Procedural irregularities, however trivial, have therefore always been used and continue to be used by award debtors as a basis for resisting domestic arbitral awards.

To combat this trend, the Draft Law attempts to limit parties’ ability to raise procedural irregularities at the enforcement stage. Two prominent examples of technicalities cured by the Draft Law are excluding the need for witnesses to swear a religious oath and for arbitrators to sign awards whilst being physically present in the UAE.

(i) Swearing of the Oath

Article 211 of the CPC requires that all witnesses swear an oath before the tribunal before giving evidence. In the now infamous Bechtel case,3 the Dubai Court of Cassation determined, in annulling a domestic award at the ratification stage, that the oath given must be religious, in the form prescribed for court hearings at article 41(2) of Federal Law (10) of 1992, the Evidence Law. The oath reads:4

‘I swear by Almighty God that I shall tell the whole truth and nothing but the truth’.

There is no scope for a secular affirmation or declaration, and failure of the arbitrator to follow the mandatory oath-taking procedure is a ground to set aside the arbitral award.

The Draft Law attempts to redress this issue at Article 34. Whilst witnesses are still to be placed under oath before presenting evidence, the oath is to be ‘in accordance with the formula prescribed by the tribunal’. Ostensibly, secular affirmation will be permitted with the tribunal’s consent and a party’s ability to rely on a deviation from the oath-taking procedure under the Evidence Law in order to resist an award should be eliminated.

(ii) Issuance of the Award at the Place of Arbitration

CPC Article 212(4) provides that arbitral awards must be ‘rendered in the UAE’. Courts have interpreted this provision to mean that domestic awards must be physically signed by tribunals in the state.

This means that tribunal members of a UAE seated arbitration who reside outside the jurisdiction must travel to the UAE to sign the award. Inevitably, additional costs will be incurred which the parties have to pay and awards can be delayed waiting for a busy tribunal to have availability to travel. If this requirement is overlooked, the award may be annulled under the current law.

In contrast, the Draft Law makes no reference to the place in which an award must be rendered, which suggests that awards may be valid if signed outside of the UAE.

IF YOU’RE GOING TO DO IT, DO IT RIGHT

The Draft Law maintains some provisions of the CPC which some practitioners regard as contravening efforts to enact a modern arbitral framework by allowing parties to continue to rely on procedural technicalities to seek annulment of awards. In particular, it appears under the Draft Law that an award debtor may still seek annulment on the basis that:

(i) the individual who signed the arbitration clause on behalf of a company lacked the special authorisation as required by CPC Article 58(2) to do so.

The Draft Law is silent on the authorisation required to enter into an arbitration agreement on behalf of a third party, save that under Article 5(1) the signatory must have the requisite ‘capacity to dispose of his rights’. This is similar to the current wording at Article 203(4) of the CPC, which the Courts have interpreted to mean that the signatory must possess a special power of attorney or be named in the articles of association as the person with the authority to bind the company to arbitration. In recent years it has become customary for an award debtor to resist enforcement of awards on the basis that the individual that signed the arbitration agreement on its behalf did not have the requisite special authority to do so, putting the onus on the enforcing party to try and prove authority of the award debtor’s signatory.5

(ii) the tribunal did not sign each page of the award.

Article 41(2) of the Draft Law states that ‘the arbitrators shall sign the award’.

Similar terms in the CPC have been interpreted by the Courts as requiring the arbitrators to sign each page of the award (including the reasoning), failing which the award may be annulled. This does not reflect international practice and should be clarified in the final version of the law.

(iii) the award was not rendered within the time prescribed for its issuance.

Article 43 of the Draft Law provides a long-stop date of eighteen months, calculated from the date of commencement of the proceedings, for a tribunal to issue an award unless otherwise agreed by the parties. Pursuant to Article 52(7), an award rendered after the long-stop date and without the parties’ agreement may be annulled. This reflects generally Article 210 of CPC which requires tribunals to render awards within six months from the ‘first arbitration session’, unless otherwise agreed, failing which the award may be annulled. Given the nature and complexities of some commercial arbitrations, even a turnaround period of eighteen months can be unrealistic and there can be no guarantee of proving the agreement of the parties. This article should be clarified in the final version of the law to ensure that in international arbitrations provisions of institutional rules or the like shall prevail.

CONCLUSION

The sentiment amongst most practitioners is that if a comprehensive federal arbitration law is to be enacted in the UAE, it should aim to conform to international standards and practice, and ought to address all deficiencies, particularly those highlighted in this article.

The welcome fact, however, is that progress is being made in the UAE to enact a modern arbitral framework that accords with international best practice. And, whilst the Draft Law may not address all concerns or eliminate outright parties’ ability to challenge enforcement on minor procedural irregularities, there is hope that the final draft might.


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  1. ‘Court(s)’ in this article refers to the Federal and local Emirate courts outside the Dubai International Financial Centre.
  2. Construction Company International v. Ministry of Irrigation of the Democratic Republic of the Sudan, Dubai Court of Cassation, Case No. 156/2013, judgment dated 18 August 2013.
  3. International Bechtel v. Department of Civil Aviation of the Government of Dubai, Dubai Court of Cassation, Case No. 503/2003, judgment dated 15 May 2005.
  4. All excerpts of UAE legislation are unofficial translations of the official Arabic text.
  5. The author (and probably most practitioners and arbitrators) considers that this is an issue in any event which ought to be dealt with as a jurisdictional point at an early stage of arbitration and that a failure to do so should at least amount to a waiver.

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Indonesia’s Termination of the Netherlands–Indonesia BIT: Broader Implications in the Asia-Pacific?

by Leon E. Trakman and Kunal Sharma

Faculty of Law, University of New South Wales,
for ITA

The value of investor-state dispute settlement (ISDS) procedures has lately been questioned by a number of countries. The Australian Government’s 2011 Trade Policy Statement – stating that Australia would not agree to ISDS in its treaties – caused much debate and controversy. In part, Australia’s policy was motivated by the Philip Morris claim, instituted in response to legislation requiring the plain packaging of cigarettes. Since then, a change of government in 2013 has meant that Australia has retracted considerably from its strict position. The current Government has indicated it will consider the inclusion of ISDS on a case-by-case basis. While the Government agreed to the inclusion of ISDS in the recent agreement with Korea, no such regime was included in the agreement with Japan.

More recently, Indonesia has indicated discontent with the current state of its investment agreements, and some in Indonesia have expressed an aversion to ISDS in particular. Earlier this year, the Netherlands embassy in Jakarta announced that the Indonesian Government had informed the Netherlands that it intended to terminate the Netherlands–Indonesia BIT, from 1 July 2015, which is when the BIT expires. The Netherlands embassy also stated that the Indonesian Government had mentioned it intended to terminate all of its 67 BITs.

Since then, there has since been widespread discussion around the intentions of the Indonesian Government and what may have motivated its decision to cancel the Netherlands BIT. It has been proposed that, in part at least, the Churchill Mining PLC and Planet Mining Pty Ltd v Republic of Indonesia cases may have motivated the Indonesian Government to review its current treaty portfolio. The Churchill claim, which has caused some concern in Indonesia, is for over $1 billion, not including interest. Indeed there have been emphatic calls for Indonesia to immediately withdraw from the ICSID and continue to treat BITs with caution. The reasons for this caution include the need to treat foreign and domestic investors equally and the restraints placed on the Government as result of having international claims lodged against it. More particularly, there is a view that, in light of the economic power it now has, Indonesia no longer needs to forsake its regulatory autonomy to attract foreign investment.

Termination of its BITs by Indonesia would not mean a complete withdrawal from all investment protection obligations and mechanisms. Existing investors would continue to be protected by the “survival clauses” that have been included in many of the BITs. For example, under the Netherlands–Indonesia BIT, the investments under the BIT will be protected by a sunset period of 15 years after the BIT’s termination. Further, even if all of its BITs were terminated, Indonesia would still be subject to its obligations under the ASEAN Comprehensive Investment Agreement and the ASEAN-Australia-New Zealand Free Trade Agreement.

In any case, the debate has given rise to a premature view that Indonesia’s actions indicate a wholesale rejection of ISDS. There is, as yet, no basis for this. The authoritative view is that Indonesia does not intend to withdraw from its regime of investment agreements entirely. The Indonesian Ambassador to Belgium has stated that Indonesia is seeking to “update, modernize and balance its BITs”. It is allowing its BITs to “discontinue” so that it can renegotiate them. Indonesia is now economically stable and powerful enough to assert its regulatory autonomy. It has been suggested that Indonesia intends to renegotiate its BITs to provide greater capacity to regulate in the “public interest for health, the environment or financial reasons”.

This view indicates that Indonesia has not lost faith in investment agreements generally, nor particularly in ISDS. Clearly, however, Indonesia does view the current arrangements as being unsatisfactory. This space is therefore one to watch.

To an extent, Indonesia’s motivations are somewhat analogous to Australia’s position enunciated in its 2011 Policy Statement. The Australian Government at the time made it clear that it did not intend to confer additional benefits on foreign investors, and would not limit its ability to legislate in the public interest. The current Australian Government has retracted considerably from this policy, but continues to assert that it will not compromise its ability to legislate in the public interest. Recently, it included an ISDS regime in the free trade agreement with Korea. This regime, however, does include carve-outs to allow state parties some freedom to regulate in the public interest.

The discourse around ISDS has become more heated than could have been anticipated only a few years ago. Certainly, high profile arbitration claims have led many to believe that the mechanism of enforcing protections is to blame. However, neither Australia’s current position nor what we know of Indonesia’s stance can be said to indicate abandonment of ISDS by either country. The ISDS process, though subject to much debate, remains very much on the table.

Leon E Trakman (LLM, SJD (Harvard)) is Professor of Law and past dean of law at the University of New South Wales. He has acted as an international commercial arbitrator in many high profile disputes.

Kunal Sharma (BA, LLB (UNSW)) is a research associate at the University of New South Wales. A Rhodes Scholar, he is a candidate for the Bachelor of Civil Law at the University of Oxford.

The authors thank the Australian Research Council for its support in undertaking research on investor-state arbitration.


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KRUPPA V BENEDETTI: WHEN IS AN AGREEMENT TO ARBITRATE NOT AN AGREEMENT TO ARBITRATE? WHEN IT’S AN AGREEMENT TO ENDEAVOUR TO ARBITRATE

by Nicholas Fletcher

Berwin Leighton Paisner LLP

By Nicholas Fletcher QC and Victoria Clark of Berwin Leighton Paisner LLP

In the recent decision of Christian Kruppa v Alessandro Benedetti and Bertrand des Pallières [2014] EWHC 1887 (Comm), Mr Justice Cooke sitting in the English Commercial Court was asked to decide whether or not or a governing law and jurisdiction clause constituted an “arbitration agreement” within the meaning of Section 6(1) of the Arbitration Act 1996 (“the Act”).

The relevant clause read as follows:

In the event of any dispute between the parties … the parties will endeavour first to resolve the matter through Swiss arbitration. Should a resolution not be forthcoming the courts of England shall have non-exclusive jurisdiction.”

Internally contradictory clauses that include an arbitration clause and a jurisdiction clause are not uncommon in practice and the courts generally adopt a pro-arbitration stance rather than decline to give effect to an arbitration provision. For example, when faced with the conjunction of an arbitration clause and an exclusive or non-exclusive jurisdiction agreement, the courts have tended to give priority to the arbitration clause and to restrict the jurisdiction clause to ancillary matters relating to the supervision or enforcement of the arbitration and awards.

Mr Justice Cooke himself adopted this approach in his decision in Sul America CIA Nacional de Seguros SA v Enessa Engenharia SA [2012] I Lloyd’s Rep 275. In a passage that was cited to him by both parties, he said:

The English courts, when faced with an exclusive jurisdiction clause and an arbitration agreement, look to the strong legal policy in favour of arbitration and the assumption that the parties, as rationale businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered to be decided by the same tribunal. … A liberal approach to the words chosen by the parties in their arbitration clause must now be accepted as part of our law.”

In this case, however, the dispute centred on whether the clause in question could be construed as a binding agreement to arbitrate. The defendants submitted that the word “arbitration” on its own was sufficient for the court to find a binding arbitration agreement. They argued that the court should give effect to the words “Swiss arbitration” and confine the jurisdictional provisions to ancillary matters, in line with the court’s policy in favour of arbitration. Mr Justice Cooke disagreed and his decision highlights some of the very real difficulties with badly drafted or “pathological” arbitration clauses.

Before examining the decision in more detail, it is helpful to consider section 6(1) of the Act, which is in very similar terms to section 7 of the UNCITRAL Model law, and defines an arbitration agreement. Section 6(1) provides as follows:

“6(1) In this part an “arbitration agreement” means an agreement to submit to arbitration present, or future disputes (whether they are contractual or not).”

The first difficulty that Mr Justice Cooke identified with the wording of the clause in this case was that the parties had not agreed to submit to arbitration. They had agreed to “endeavour to first resolve the matter through Swiss arbitration”. He took the view that an agreement that a party will “endeavour” to resolve a dispute through Swiss arbitration lacked the essential requirement that the parties must agree to submit to a binding arbitration.

In addition, the clause did not specify the number of arbitrators or how the arbitrators would be appointed and, because the clause failed to specify a cantonal seat, it was not clear to which cantonal court a request to appoint arbitrators would have to be made in the absence of agreement. The effect of this was that the parties would have to reach further agreement on these points before any reference could proceed. Mr Justice Cooke saw this as being further evidence that there was no binding agreement to arbitrate, only an agreement to attempt to resolve disputes by a process of arbitration.

The second difficulty was that the clause appeared to provide for a two stage dispute resolution process whereby the parties should first “endeavour to resolve” the matter through Swiss arbitration and, if unresolved, either party could refer the dispute to the English courts. Mr Justice Cooke held that it is logically not possible to have an effective multi-tiered clause consisting of one binding tier (arbitration) followed by another binding tier (litigation). His view was that the parties must have intended that there would be an attempt to agree a form of arbitration between them in Switzerland and, if they failed to do so, the English court would have non-exclusive jurisdiction.

Mr Justice Cooke concluded that the clause lacked the requirement to submit to a binding arbitration and that, in the light of the two-stage process envisaged by the clause, such a requirement would be inconsistent with the clause as a whole. On this basis, he held that the clause did not require the parties to refer any dispute to arbitration in the sense required by section 6(1) of the Act.

The decision provides a salutary lesson for those drafting arbitration clauses. Both parties accepted that English law required that the clause should be construed with the aim being to ascertain the intention of the parties and what a reasonable person would have understood the parties to have meant with all the relevant background knowledge that they had at the time. However, it is always going to be difficult to ascertain the intention of the parties from a badly drafted agreement. Did the professionals who drafted the clause in this case really intend that there should be an attempt to agree a form of arbitration in Switzerland or did they perhaps think that the words “Swiss arbitration” made it sufficiently clear that they intended to refer disputes to arbitration?

An effective arbitration agreement is an essential pre-condition to arbitration but, in spite of this, a significant percentage of arbitration clauses are pathological in some way. Whether this is due to a lack of expertise on the part of those drafting clauses, imperfect compromises over the negotiation of a clause, or overly complicating the language used, the net result is often a clause that defies construction, harmonious or otherwise.

Back in October 2010, the IBA Council approved Guidelines for Drafting International Arbitration Clauses that were specifically designed to assist parties and their counsel to achieve effective arbitration clauses which unambiguously embody the parties’ wishes. In spite of these and other guidelines, cases like Kruppa v Benedetti demonstrate that, for whatever reason, pathological arbitration clauses are no closer to extinction.


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Young ICCA Workshop at the Occasion of the ICCA Congress, Miami, 10th of April 2014: “The Art of Persuasion”

by Aysha Mutaywea, Neeti Sachdeva and Marike Paulsson

Young ICCA

The Young ICCA’s Workshop on “The Art of Persuasion” brought together, from all parts of the world, a future generation of arbitration lawyers and the reunited outgoing and incoming presidents of ICCA: Professors Jan Paulsson and Albert Jan van den Berg. Who else would be better to divulge on the subject of persuasive advocacy?

The faculty was complemented with practitioners from an array of nationalities including the Dutch/Bahraini Speaker Professor Marike Paulsson (Director International Arbitration Institute and Lecturer in Law, Miami School of Law), Ms. Neeti Sachdeva (Senior Associate, ELP) of India, and Mrs. Aysha Mutaywea (Acting Senior Case Manager BCDR-AAA) from the Kingdom of Bahrain.

The Session was kicked off by Professor Marike Paulsson, demonstrating the power of silence to the participants and giving a number of lessons. The Findings are related below:

Lessons Learned From Marike Paulsson

It is truly an amazing effect that a measly 30 seconds of silence can have on a room or a tribunal. It is easy for lawyers to hide behind words; in fact, they are the masters of this stealthy technique. The result of this can be that, for some, silence is immensely intimidating. Young lawyers tend to fear establishing a rapport with an arbitral tribunal and doubly have a great fear of silence.

Lesson One: Cross-over from written pleading to the oral argument

Firstly, consistency is key. Counsel must know their case file, i.e. all briefs, exhibits, etc. In some instances, a cross over from the written pleadings happen due to “progressive insight”, which requires counsel to abruptly change course and shift to oral pleadings. If well prepared, the lawyer should be able to manage this shift seamlessly.

Lesson Two: The magic is in the preparation

The one who is most likely to win is the one who knows the file best. Proper organization of the file is key to enabling the lead counsel to access every detail of it subconsciously within the blink of an eye. Useful tools to make large files easily accessible during the hearing are mini bundles, cross references, and chart-overview that set out the line of arguments within each brief.

Lesson Three: Dumbo’s stick  –  have it, use it

Just like the tale of Disney’s Dumbo, one can only fly with the aid of a stick. Sometimes one feels safe with presentation aids, power points, visual and audiovisual aids, or written aids. Whatever the “stick” is be comfortable to use it.

Lesson Four: Don’t go solo

Remember: you are always part of a team.

The team of lawyers usually consists of a partner, senior associates, mid-level associates, junior associates, paralegals, secretaries, and information technology (“IT”) experts. Each member of the team is a vertebrae in the counsel’s backbone when presenting oral arguments: “you are only as strong as your weakest link”. In the hearing room, only a well-oiled machine will succeed.

Lesson Five: Choose your battles

What is the most important message to get across to the tribunal? Rather than reproducing every single argument contained within the briefs during oral argument, counsel would more likely please the tribunal by simply highlighting the essentials and respecting the time slots that are allocated.

Lesson Six: A l’improviste: yes, if you must

Be prepared to face the unexpected and be ready to deal with issues such as the:

(i) opposing counsel pulling out a “smoking gun”;
(ii) arbitral tribunal asking you to waive a due process right with the phrase “all was fine?”
(iii) arbitral tribunal wanting to shorten the hearing; or
(iv) arbitral tribunal changing the sequence of witness examinations.

Lesson Seven: Establish a rapport with the tribunal

Make sure you have done all of the research concerning the tribunal. What is the arbitrator’s background? Does the arbitrator come from a civil law jurisdiction or a common law jurisdiction? Does the arbitrator act as counsel as well as an arbitrator? Is the arbitrator known for his or her mathematical skills, organizational skills, etc.?

During the hearing, counsel must never lose connection with the arbitral tribunal. Read the signs. Is the arbitrator asleep? Is the arbitrator checking his/her phone? Does the arbitrator push for questions in a certain direction?

The use of silence is a great tool should you lose the attention of the arbitral tribunal. Make sure to interact with the tribunal by guiding them through all of the exhibits and highlight the important parts therein.

Lesson Eight: Use your own style

It is easy to watch and learn from the senior partner; however, copying style is strongly discouraged. What works for one may not work for the other. One’s style must be tailored and should not be copied. Some can persuade arbitrators with a sense of humor, while others are comfortable with a more formal approach.

Lesson Nine: The art of persuasion is the art of communication

The future generation of arbitrators and current generation of counsel may have lost touch with personal communication. Emerging speech patterns brought about with cultural technology such as Twitter, Facebook, and texting, may be beyond the imagination and jargon of today’s pool of arbitrators.

Lawyers are encouraged to pay attention to the types of personalities and cultural backgrounds of arbitrators. Do not attempt to create an environment that levels out all cultural differences. Rather, embrace the cultural difference you will inevitably face in a hearing room.

Gesture with silence, posture, eye contact, and non-verbal communication. Keep the oral presentation simple by understating rather than overstating. Articulate your points clearly and firmly.

Lesson Ten: Believe

Believe in it, even if you do not. Even if your client has presented you with a complex, challenging case to argue, one that is hard to win or hard to defend, believe in it. For if you do not, surely the tribunal will not.

“How do we perceive ourselves in the hearing room” by Aysha Mutaywea

We see the world, not as it is, but as we are1

Mrs Aysha Mutaywea brought forward an array of illustrations and images and relied on their visual effects as a tool in demonstrating their power to influence and convince the relevant audience. Bringing forward the psychological perspective and theory into play, she argued:

“Advocacy means a number of things. Pleadings are one of the main components. When pleading your case, you are advised to take into consideration the following points:2

Theoretical points
(1) Start with jurisdiction issues;
(2) Know your audience, case and your adversary;
(3) Start by stating the main issue;
(4) Lead with strong arguments;
(5) Concentrate your fire – take time to select your best argument; and
(6) Present case law and evidence.

Practical Points
(1) Do not overstate your case;
(2) Occupy the defensible terrain;
(3) Yield indefensible terrain;
(4) Communicate clearly;
(5) Appeal not just to rules, but also to justice and common sense;
(6) Posture and tone; and
(7) Powerful close.”

It is not the speed of an answer, but the quality and substance of it

The adaptation of the general rules and guidelines of the profession may seem straightforward, but in fact there is an underlying variable which complicates the implementation of these guidelines.

Taking From Daniel Kahneman’s book Thinking Fast and Slow,3 psychologists have theorized that human beings operate using two mental systems. System One, which operates on effortless impressions, is an automatic and quick system. This system operates with little or no effort and without a sense of voluntary control. This system is responsible for quickly answering questions such as “What’s 2+2?” and “Complete the saying ‘bread and….’” System One is also able to detect hostility and ranges in tones. This system is otherwise known as “thinking fast.”

System Two operates conscious reasoning and decision making; allocating attention to the mental activities and deals with complex operations, choices, and concentration. This is otherwise known as “thinking slow.” This system kicks in when one is bracing for the starter gun in the race, looking for a face in the crowd, or when parking in a narrow parking spot.

An oral argument starts with System Two – planned and structured points in accordance with the professional guidelines. However, once the arbitrator interrupts counsel with questions, counsel risks to be thrown off his sequence and System One becomes dominant – the tendency to give quick and obvious answers. This is why it is not always easy to do as we were taught or to follow the guidelines.

This conflict between Systems One and Two creates problems with one’s conscious and unconscious decision making. “This is your system one talking, slow down, and let your system two take control”. The good news is that system two can change the ability of the way system one works with the aid of time and experience. Just remember that no one will judge you on the speed of your answer, but instead, the quality and substance of it.

Psychology plays a major role in mastering the art of persuasion. Two people can see the same thing, disagree and yet be right; it is not logical, it is psychological. This is called the “Paradigm Shift” . You can demonstrate this with a simple test, by using a single abstract image, you will see that different people see different things. Arbitrators looking at the same set of documents/evidence will not necessarily see one thing, and even if they do, what they see, will depend on their psychology. The phrase “the document speaks for its self” is not necessarily true.

So what are the main components that form the individual psyche? The psychological development of a person is determined not only by their own perceptions but also by complex social and cultural influences. Some of these major components are language, religion, gender, history, life experience, etc. For instance, what does the barrier of language do? If the arbitrator’s first language is French, and the proceedings and documents are in English, it is granted that this arbitrator is fully capable to hear the proceedings in English. However, the simple differences in reading text might mean something a bit different from what the arbitrators understand.

Perception is really an externally guided hallucination. Our brains not only process data but also make inferences from it. In conclusion, when we see the world, we see it as we are, not as it is.

The Zen of Persuasion according to Neeti Sachdeva

Neeti Sachdeva argued that in order to be heard one must first listen – that is the Zen of persuasion. Spoken words have the immense power to create or destroy. Hence, it is essential that one speaks only when one’s words have more meaning than the comparative silence. The choice of words is most critical to effective and persuasive argument.

Oral argument is an opportunity when counsel has the unique license to modulate her speech in order to emphasize and to use the power of words to reach a conclusion.

In order to be persuasive and convincing, it is essential to have empathy. In Harper Lee’s To Kill A Mockingbird, Atticus Finch poignantly says to Scout, “You never really understand a person … until you consider things from his point of view.” Especially in an international arbitration, with arbitrators from different jurisdictions, it is essential to be empathic of their diverse legal backgrounds in order to be able to make persuasive and convincing arguments. The motive must be to get into the mind of the audience (arbitrators) and get across to them what they really ought to hear.

Drawing on the famous Chinese proverb “spilled water cannot be retrieved”, the same applies to words. Once spoken, words cannot be retrieved. Unlike written arguments, where one would have more than one opportunity to review and rewrite before they are published, the same might not always be true for oral arguments.

That leads us to another important aspect of effective oral advocacy, which is preparation. Preparation and practice gives a more polished, provocative, and passionate delivery. Oral advocacy requires preparation before delivery. To be able to persuade is a virtue, which comes only with hard work. Being extempore is good, but being prepared is better. It leads one to think on their feet and handle unexpected questions and situations in a more effective manner. Being prepared also means leaving little to chance. Be prepared and think not only about how you would argue your case but rather how your opponent would argue theirs.

As the famous Sufi teacher Idries Shah once said in Caravan of Dreams, “Three things cannot be retrieved: The arrow once sped from the bow, the word spoken in haste, and the missed opportunity”. During the stage of oral arguments, a counsel should not speak in haste and must take every opportunity to put forth his case in a more coherent manner. It is also essential to hear arbitrators’ questions and take note to understand the mindset of the arbitrators and answer accordingly. A counsel should never jump to answering the Tribunals questions in a zest, but rather should put forth a prepared, credible, and persuasive argument.

One major misconception with regard to oral arguments is that that the oral arguments are a test of memory. It is not essential to remember your speech by heart; however, making notes and outlines is highly important. On the other hand, reading out a written speech is monotonous and it will make it hard to get the tribunal’s attention.

While delivering the oral arguments, it is essential to appear to be open and appear as ambiguous or equivocal. Be assured but not arrogant; commanding but not closed. Even a simple beginning that states “May it please the Court/Arbitral Tribunal” is an instinctive recognition that the most important key to persuade the audience is by pleasing it. And in order to please the arbitrator one of the tools that should be employed is a weaving of a story around the arguments. A common thread and theme needs to run within one’s arguments in order to give it credibility and recall value.

To conclude, given that arbitration offers procedural flexibility, the techniques of persuasion shall continue to be ever evolving and will be an important tool in the hands of counsels to obtain favorable awards.


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  1. To quote Stephan R. Covey.
  2. Antonin Scalia & Bryan A. Garner, Making Your Case: The Art of Persuading Judges (Thomson West, 2008)
  3. D. Kahneman, Thinking, Fast and Slow (Allen Lane, 2011)

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