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Herbert Smith Freehills LLP

The recent Rompetrol Group NV v Romania award provides rare guidance as to the requirements to be satisfied for a successful treaty claim arising from State conduct against individual company officers rather than the claimant investor itself. The investor claimed, inter alia, that the arrest, detention, criminal investigations and wire-tapping of its directors constituted State-sponsored harassment that breached BIT guarantees enjoyed by its investment. The Tribunal held that the State conduct directed against the company officers had to have a sufficiently close link to the investment or investor to fall within the zone of the treaty’s protection. The requisite connection was found in relation to certain elements of Romania’s conduct which amounted to a “pattern of disregard” for the rights of Rompetrol’s employees and constituted a breach of Rompetrol’s right to fair and equitable treatment. Rompetrol, however, failed to prove damages.

The award raises interesting questions regarding the balance between a State’s legitimate interests in tackling crime and the investor’s treaty rights. It also notes future tribunals’ likely sensitivity to allegations that the arbitration itself is being brought to deter a State from legitimate pursuit of criminal investigations.

Background

Rompetrol claimed that Romania had breached its obligations under Article 3(1) and 3(5) of the Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of The Netherlands and Romania (the “BIT”) to provide its investment in Rompetrol Rafinare SA (“RRC”) fair and equitable treatment, full protection and security and non-impairment. The claims arose from measures taken by Romanian anti-corruption and criminal prosecution authorities against two individuals, Mr Patriciu and Mr Stephenson, who directed the affairs of RRC, a company born through the privatisation of the State oil-refining industry after the fall of Ceausescu in 1989. Rompetrol alleged that the investigations, which included the arrest, detention, travel-ban and wire-tapping of Mr Patriciu, were politically and commercially motivated and breached the guarantees in the BIT. Romania’s response was that the investigations were a legitimate part of its implementation of the National Anti-Corruption Strategy that it had pursued in order to gain access to the European Union.

A requisite link between State conduct against individuals and the investor

The Tribunal emphasised the “special character” of this case given that the claims arose from measures directed against individuals linked to the investor rather than against the investor itself, noting that these cases were rare amongst reported awards. The individuals were not claimants under the BIT and their rights were personal and distinct from those of Rompetrol. As such, even if the alleged State-sponsored harassment of the individuals through an unlawful criminal investigation had breached the individuals’ personal rights, Rompetrol had to show that there was a connection between the State’s conduct against the individuals and State conduct against the investment itself in order for that conduct to qualify as a violation of the BIT protections. Rompetrol’s case would “[stand or fall] by whether it is able to make out its claim that the criminal investigations have breached the rights of [Rompetrol] itself” [para 151].

The Tribunal concluded that three kinds of actions could fall within the area of protection under the BIT: “(a) actions against the investor itself (or its investment); (b) action against the investor’s executives for their activity on behalf of the investor; and (c) action against the executives personally but with the intent to harm the investor” [para 200].

No co-ordinated campaign of harassment

The Tribunal recognised that its role was not “to pronounce on the rightness or wrongness of the pending criminal charges…” [para 174] but to determine whether the authorities’ conduct constituted a breach of the BIT guarantees. In so doing, the Tribunal examined whether the requisite link to the investment was present. The Tribunal did find that there had been “animus and hostility” towards Mr Patriciu on behalf of the prosecutorial officials and that this may have affected the authorities’ tactical approach [para 245 and 248]. As regards the detention and attempted imprisonment, the Tribunal accepted that there had been procedural irregularities but that it could not find “anything wrongful” in the prosecutor’s execution of its rights to apply for pre-trial detention [para 251].

In perhaps the clearest example of conduct that lacked sufficient connection to the investment, the Tribunal found that whilst the wire-tapping by the Romanian Intelligence Service had been devoid of the necessary threat to national security and that Mr Patriciu’s personal rights of privacy had been affected, there had been no harm to his business activities [para 260 – 261]. Overall there had been no co-ordinated campaign of harassment [para 276].

A legitimate expectation during criminal proceedings

Nevertheless, the Tribunal recognised that “a State may incur international responsibility for breaching its obligations under an investment treaty to accord fair and equitable treatment to a protected investor by a pattern of wrongful conduct during the course of a criminal investigation or prosecution, even where the investigation and prosecution are not themselves wrongful.” It asserted further provisos: (1) the pattern must be sufficiently serious and persistent that the interests of the investor must be affected; and (2) there must be a failure by the State to pay adequate regard to how those interests ought to be duly protected. In the Tribunal’s view, the legitimate expectations of a protected investor include the expectation that the State authorities will seek means to avoid unnecessary damage or at least to minimise or mitigate the adverse effects on the investment if the investor’s interests become entangled in the criminal process directly or indirectly [para 278].

It was on this point that Rompetrol obtained partial success. The Tribunal found that there had been a “pattern of disregard by the [prosecutorial and investigation agencies] for the procedural rights of [Rompetrol's] executives, and in particular for the likely and foreseeable effects on the interests of [Rompetrol] itself as a protected foreign investor”, as demonstrated by, inter alia, the procedural irregularities during the criminal investigation, the conduct of the prosecutors, and the arrest and attempted imprisonment of the executives.

A crucial element in establishing the State’s failure to pay adequate regard to the investment was the documentary evidence showing that the authorities “knew that the interests of [Rompetrol] stood directly or indirectly in the line of fire.” Indeed the prosecution’s request for Mr Patriciu’s detention referred directly to the investment arbitration and “the Dutch investor” i.e. Rompetrol.

Rompetrol however failed to show that Romania’s breach of the BIT guarantees had caused any actual economic loss and failed on in its claim for moral damages.

Conclusion

This award provides useful guidance on the treatment of a company’s officers that will likely be influential in other treaty cases. As noted by the Tribunal, “association with the management of a foreign investor or a foreign investment cannot serve to immunize individuals from the normal operation of the criminal law” [para 152]. However, in situations where political and commercial motives may be at play, investors would be wise to ensure that the State authorities are on notice regarding the investment and their duty to mitigate the adverse effects that might result from their enforcement activities.

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DJ Arbitraje

When the UNCITRAL Model Law on International Commercial Arbitration was approved by the United Nations General Assembly in 1985, “uniformity of the law of arbitral procedures” was a stated purpose. The uncertainty produced by the disparity among the national laws was one of the drafters’ concerns. The other was the inadequacy of domestic laws to govern arbitration for international disputes. In the Explanatory Note (Section A), national laws were described as “outdated”, “fragmentary” and/or “too domestic”, making them inappropriate for arbitration of international commercial disputes.

In 2006, the Model Law was modified on two substantive aspects: the form of the arbitration agreement under article 7 and provisional measures under article 17. All other provisions of the Model Law were left intact, save for a provision on the interpretation of the law. Did that reform go far enough?

This post is an attempt to spark a debate on whether the time has come for a more general reform of the Model Law or whether, to the contrary, the international arbitration community has evolved beyond the need for a pattern to follow.

As reported by GAR recently, since 2010 there have been legislative reforms in Australia, Hong Kong, Spain, France, Portugal, and Singapore. Within the same time frame, Costa Rica, Mexico, and Colombia have also modernized their international arbitration regimes, and The Netherlands is currently revising theirs. If we add legal reforms since the year 2000, there are more than 30 modern international arbitration legal regimes.

Of these, most are based on the Model Law, but how harmonious are they really? Generally, one can say that the Model Law brought about harmonization regarding two crucial aspects: a) enforcement of arbitration agreements and b) setting aside as the only recourse against the award, with limited grounds. As regards adequacy, it is not far-fetched to affirm that the Model Law introduced two hallmarks of modern arbitration: a) limited court intervention and b) respect for party autonomy. Indeed, the majority of modern international arbitration regimes, even those that are not based on the Model Law, such as the French and the Brazilian laws, share these characteristics.

However, besides sharing those characteristics — admittedly very important ones—, legal regimes in different jurisdictions may be quite diverse. Thus, when drafting arbitration clauses, diligent parties usually dedicate significant time and thought to the selection of the seat of the arbitration in order to minimize the risk of facing undesired of unexpected results.

Several questions are begged. Does the difference among the legal regimes of the XXIst century reflect a sophisticated arbitration culture, where each seat has its own brand and reputation and competes against the others? Does the post-modernism of arbitration laws also mean that there is no need for the Model Law, since practitioners are expected to be sensitive to these differences? Is the sign of times: “Let the jurisdictions (and practitioners) compete!”? In other words, Are we beyond the Model Law?

Or should we ask, rather, While “improvement” of domestic laws has been achieved, is not “harmonization” still a valid desire? Surely, the more harmonized the local regimes, the more effective and secure arbitration is in the international sphere. Is the disparity due, not to evolution alone, but to evolution without a model framework that reflects current best practices? In other words, Do we need to revise the Model Law?

Nathalie Voser recently commented on the need to reform the Model Law. I agree with her, because harmonization is part of the reason why arbitration as a neutral means is so appropriate to settle international commercial disputes. The final beneficiaries of arbitration are the users, not the practitioners, academics, or arbitrators, and the less uniform the legal regimes are, the higher the “transactional costs” are likely to be for those users.

What follows is a list of some of the issues that I submit must be tackled in a new, complete revision of the Model Law, together with an invitation to comment thereon.

1. Scope of application: the Model Law should include two options: a) monist regime for all arbitrations, or b) dualist system, whereby the law is only applicable to international arbitration. In my view, international arbitration practices are being adopted and welcome in domestic arbitrations in many countries, so they will eventually prefer a sole regime applicable to both, without any difference. In a truly monist regime, the nationality of arbitrators, for example, should not be an issue, as well as the grounds for setting aside of awards.

Further, in the dualist system option, the definition of “international arbitration” should be revised. A possibility is to define international arbitration as an arbitration which object involves more than one state. The current definition is based on the contract, not on the arbitration, and a contract can evolve: one that starts as domestic can become international, and vice versa, if there is a change in the composition of the parties for example. In addition, the Model Law leaves the parties the option for them to expressly agree if the subject matter relates to more than one country, which is indirect. Article 3(c) should be modified to allow parties in an otherwise domestic arbitration to expressly choose to be governed by the international arbitration law (a sort of waiver of dualism).

2. There should be no formal requirements to the arbitration agreement (this should be a matter of evidence only) but substantive requirements for the validity of the agreement should be spelled out, such as consent and arbitrability of the dispute. For clarity and finality, these requirements should be governed by the law of the seat only. Capacity of the parties may be included as an additional requirement, in order to mirror the ground for setting aside of Art. 34 –and the New York Convention–, keeping in mind that it is generally governed by the personal law of the relevant party.

3. The negative effect of the principle of kompetenz-kompetenz should be recognized, so that judges refer parties to arbitration upon a prima facie verification of an arbitration agreement when the defendant so requests. With that, arbitral tribunals should decide on their own competence as a preliminary matter whenever possible, and local judges should be able to revise the relevant decision within a short time frame (as provided in the second sentence of Article 16(3) of the Model Law). Such judge should ideally be the same as the judge for the setting aside procedure.

4. Judicial support regarding evidence (Art. 27 of the Model Law) should also apply when the place of arbitration is not in the same jurisdiction, so it should be included under the exceptions of Art.1(2).

5. The provisions on the constitution of the arbitral tribunal should be revised to include a) an odd (or “uneven”) number requirement, b) the possibility of having the Permanent Court of Arbitration act as appointing authority (as an alternative to local courts), and c) a mechanism for multi-party situations. Also, the obligation of arbitrators to be and remain independent and impartial should be stated out clearly.

6. Where parties have not agreed on the applicable law, the voie directe practice should be reflected in Article 28(2), so reference to the conflict of laws should be deleted.

7. It might be useful to include a definition of “award”, so as to define the situation of partial awards and awards that decide on provisional measures (which should be considered awards, in my view; otherwise, for the sake of consistency, arbitral tribunals should not be free to decide the form of their decisions regarding provisional measures).

8. Consider adding the sécret du déliberé and the requirement that all awards be reasoned, save for awards on agreed terms.

9. Setting aside should be considered waived if the bases on which it is raised were not raised timely, such as party capacity, validity of the arbitration agreement, and improper constitution of the arbitral tribunal. Further, if a party has applied to recourse under Article 16(3), it should not have a second shot at setting aside the award on the same grounds.

10. The provisions on recognition and enforcement of awards should be revised to a) clarify whether “recognition” is one step and “enforcement” is another and, if so (I read the Model Law as giving de jure recognition to arbitral awards but practice has proven me wrong), whether international awards rendered in the seat of the law need to be recognized (I submit they should not, since they can be set aside in the same jurisdiction), and b) to designate the competent court/s.

11. Change the “public policy” ground for setting aside and denial of enforcement to “international public policy”.

12. Consider adding provisions on confidentiality of the arbitral proceedings.

An updated Model Law will surely further the development of international commercial arbitration.

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Universidad Monteávila (Caracas)

On April 22, 2013, representatives of Members States of the Bolivarian Alliance for the Americas (“ALBA” for its acronym in Spanish) met in Guayaquil, Ecuador. The purpose of the meeting was to discuss the manner in which their interests are affected by the activities carried out by transnational companies, under a reunion known as the First Ministerial Conference of Latin American States affected by Transnational Interests.

Founded in 2004, ALBA is an international cooperation organization which is mainly associated with socialist and social democratic governments, being its main purpose to achieve regional economic integration based on a vision of social welfare. Its current members are Bolivia, Cuba, Ecuador, Nicaragua, Dominica, Saint Vincent and the Grenadines and Venezuela. However, this particular conference also counted with representatives from Argentina, Guatemala, El Salvador, Honduras and Mexico.

The important result of the discussion was the subscription of a Declaration which “supports the establishment and implementation of regional bodies for the solution of investment disputes,” with the caveat that such bodies will have to ensure fair and balanced rules for the settlement of conflict between transnational corporations and States. This desire to create an alternate instance is somehow explained in the preamble of the above mentioned Declaration, where it is stated that “recent developments in various Latin American countries, concerning disputes between States and transnational corporations, have shown that decisions that violate international law and the sovereignty of States persist, due to the economic power of certain companies”.

Therefore, the States gathered in Guayaquil decided to call to action the Union of South American Nations (“UNASUR”), another international organization existing in the region composed by Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Guyana, Paraguay, Peru, Suriname, Uruguay and Venezuela. Such encouragement specifically refers to the creation of a regional dispute resolution mechanism which apparently is under negotiation.

In this sense, it must be highlighted that recent reports have confirmed that UNASUR has announced that it is very probable that its own investment arbitration center will open this year, if its establishment is approved in the July meeting of the Foreign Ministers of the organization. Obviously, this is an effort to limit the reach of ICSID which is currently administering a considerable amount of disputes involving Latin American countries. According to the Uruguayan expert Cecilia Olivet, Latin America is the region with the largest number of arbitration proceedings, with Argentina, Venezuela, Ecuador, Mexico and Bolivia “monopolizing” 27% of all the investment disputes in the world.

Although the main functioning conditions of this centre are not yet entirely clear, some reports seem to suggest that under UNASUR’s arbitration centre rules, greater deference will be given to the sovereign and regulatory needs of States, and an appeal and precedent scheme will be implemented. Furthermore, it is possible that such novel centre will also have jurisdiction in relation to commercial disputes in the region, as well as to regional and international trade matters.

Until such option is implemented, it is important to be aware that under the Declaration, the States congregated in Guayaquil decided to create an Executive Committee responsible, among other things, of “coordinating the joint defense and exercise of legal actions through international legal teams of experts and professional lawyers,” and designing communication strategies, as a counterweight to the global campaigns allegedly undertaken by transnational companies, with the objective of disseminating the legal, technical and political aspects of the different cases. Also, the conformation of an International Observatory is expected for the purposes of auditing and monitoring international arbitral tribunals’ actions in relation to worldwide investment disputes.

All these actions reveal how some States that have several pending ICSID cases are already paving their way in order to confront possible adverse awards. For example, since 2012, Venezuela is expecting decisions of arbitral tribunals in the cases brought by ExxonMobil and ConocoPhillips after the expropriation of their projects in the Orinoco Oil Belt, which could eventually order the payment of compensation to such companies for a staggering amount of forty billion dollars.

Will all this fuss lead anywhere? Or better yet, will this mean the end of ICSID at least in Latin America? In principle, it is obvious that the main promoters of all these radical ideas are States which are not very glad with some decisions taken by arbitral tribunals under ICSID facilities or fear future decisions which could seriously affect their economic interests. However, the proposed creation of an alternative investment dispute resolution forum which promotes sovereignty over transnational standards is doomed to fail, because as with the large majority of national courts of Latin American States, investors will not consider such a forum to be an impartial venue to resolve an eventual dispute.

Precisely, the key feature of ICSID and more specifically of the vast majority of BITs currently in effect, is that they recognize that the international investment regime must grant certain minimal conditions to investors, in order to promote their investment in a foreign territory. Changing such status quo will simply bring a decrease or the disappearance of international investment in the region. And that, for the sake of the Latin American future, is something that should not happen.

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University of Arizona James E. Rogers College of Law,
for ITA

“America’s important security alliances across the Pacific need an economic underpinning.”  Ambassador Robert Zoellick, May 1, 2013

To use one of the Obama Administration’s favorite terms, the entry of Japan in April 2013 into the three-year-old Trans-Pacific Partnership (TPP) negotiations later this year is a “game-changer.”  Prior to Japan’s commitment as the 12^th TPP partner, U.S. participation in the TPP negotiations could be seen as an important piece of the nation’s “pivot” toward Asia, part of a new emphasis on economic, political and security relationships in Asia and an element of various initiatives to counterbalance China’s growing, not always benign, influence in its own backyard.  But for the United States at least, the economic rationale was weak.  The United States already has adequate free trade agreements with six of the other TPP partners, Australia, Canada, Chile, Mexico, Peru and Singapore.  While improving trade relations with emerging trade heavyweight Vietnam and perhaps Malaysia would be a significant benefit for some U.S. importers and exporters, it was difficult to make an economic case for closer trade relations with Brunei and New Zealand.

All this is now changed.  Major uncertainties regarding Japan’s intentions were resolved in March 2013, when Prime Minister Abe, in announcing on national television Japan’s plans to join the negotiations described the TPP as “Japan’s last chance to remain an economic power in Asia and shape the region’s future.”  A month later Japan was approved for entry into the TPP negotiations by the other 11 negotiating partners, with all welcoming “Japan’s commitment to achieving the shared goal of a comprehensive, high-ambition, next-generation agreement as rapidly as possible….”  The United States agreed only after a series of bilateral negotiations with Japan resulting in a series of “actions and agreements” focusing on automobiles, insurance and other non-tariff measures.  Two sets of parallel talks will continue between Japan and the United States, one addressing automotive trade (including special safeguards and dispute settlement) and the other non-tariff barriers.

According to Department of Commerce data, Japan’s GDP (2011) of approximately $5.9 trillion exceeds the aggregate GDP of the other ten non-U.S. TPP partners ($5.6 trillion).  The TPP countries without Japan represented about 7.5% of U.S. trade in goods; with Japan TPP represents 32.6% of U.S. goods trade.  Although trade volumes are important, what TPP signifies to the United States and the other TPP partners is that Japan after two decades of stagnation finally seems willing to make the structural reforms necessary to get the Japanese economy moving again.  As Ambassador Zoellick has observed, both “Prime Minister Abe and Finance Minister Aso seem to recognize the need for Japan to make serious economic reforms,” something the United States has been advocating in bilateral discussions with Japan as the “Structural Impediments Initiative” (SII) on and off for more than 20 years.

The challenges to completing the TPP negotiations remain daunting, complicated inter alia by the entry of Mexico and Canada late in 2012 and now Japan.  But the TPP has always been an extraordinary ambitious undertaking.  The TPP’s 29 chapters would cover the full range of the existing “wide and deep” U.S. FTAs beginning with NAFTA, including not only trade in goods (including agriculture), trade in services, government procurement, services, investor protection, TRIPs-Plus, labor, environment and mandatory dispute settlement.  TPP also addresses e-commerce and areas of importance for increasingly globalized manufacturing, disciplines for state-owned industries (SOEs) along with supply chain management, regulatory coherence and trade facilitation.  Many of these raise concerns with individual TPP partners, who may oppose certain U.S. proposals as a matter of principle (e.g., enforceability of labor and environmental obligations) or simply have different ideas about scope and coverage, as with SOE disciplines.  Added to the mix are some of the more traditional aspects of U.S. protectionism, such as tariff-quotas on sugar, high footwear tariffs and the insistence on strict rules of origin (“yarn forward”) for apparel imports (primarily affecting Vietnam).  Should the Obama Administration decide to preserve such protection for stagnant or dying U.S. industries in the TPP there will likely be a cost in terms of losing out on increased market access and other potential benefits for U.S. exporters.

Additional complexities result from the potential conflicts between the TPP and earlier regional trade agreements among the participants, including but not limited to the United States.  It is estimated that the twelve TPP partners have at least forty bilateral or multiple party FTAs among them.  Avoiding further exacerbation of Professor Jagwash Bhagwati’s “spaghetti bowl” in the region will be one of ongoing challenges.  Nor is other FTA activity among the partners being deferred pending the conclusion of the TPP.  Among the most potentially significant competing FTA negotiations is the “Regional Comprehensive Economic Partnership” (RCEP) among the 10 ASEAN nations plus Australia, China, India, Japan, Korea and New Zealand.

While the TPP currently appears to enjoy a relatively high level of bipartisan support in the U.S. Congress, the Administration and USTR’s negotiators are facing the usual range of important interest groups.  These include but are not limited to various agricultural producers, including those representing dairy products, beef and sugar; the textile and apparel and footwear industries; advocates for stronger, enforceable labor and environmental provisions; those supporting or opposing “TRIPS-Plus” protections for pharmaceutical and agricultural chemical producers; and differing groups seeking greater or reduced protection for foreign investors.

Many of these differences are likely to surface after a bill seeking renewal of Trade Promotion Authority (TPA or “fast-track”) is ultimately introduced, probably in June or July.  The Administration to date has avoided formally seeking TPA but has been careful to follow most of the expired TPA procedural requirements relating to consultation with Congress, including holding off the initiation of formal negotiations with Japan only after the requisite 90-day notice to Congress.  Some TPP supporters, including retiring Senator Baucus (D-Montana), have grown impatient with the Administration’s reluctance to move forward with TPA, fearing that without TPA’s guarantee that Congress will not seek to modify the TPP agreement after the fact or indefinitely delay its passage the other negotiating partners will be unwilling to close the deal.  Others fear that USTR will suffer from the absence of detailed negotiating guidance that only a new TPA can provide, and that a long debate over TPA in Congress could delay completing the negotiations.

Consequently, Senator Baucus has promised to introduce a bipartisan TPA bill in June, with or without the formal support of the Obama Administration, although he and other proponents of TPA obviously would prefer to work with the White House on the draft legislation and on a strategy for obtaining passage of the bill in the House and Senate.  Such legislation is likely to apply not only to the TPP but to the soon to be initiated “Transatlantic Trade and Investment Partnership” (TTIP) between the United States and the European Union.

While the Obama Administration has expressed the hope that the TPP negotiations could be concluded by the time of the October 2013 APEC meeting in Indonesia, such a tentative deadline seems more that a little optimistic.  Only three TPP negotiating sessions have been planned in 2013 prior to October; to date there has been some progress but no apparent breakthroughs on key issues.  With the absence of TPA at least through the end of the summer and the entry of Japan, which will not be able to participate meaningfully in the negotiations scheduled for July 15-24 because the 90-day notice period expires only on July 23, a more realistic time frame for conclusion of the negotiations would be the second or third quarter of 2014.  The only alternative would be for the Obama Administration to accelerate the negotiations by scheduling additional sessions during the next 6-8 months, a step which it was apparently not contemplating even before the plethora of recent domestic crises erupted.

With the inclusion of Japan both the rewards of success and the risks of failure for the United States have escalated.  The potential trade and other economic benefits of a free trade agreement encompassing 12 nations with an aggregate GDP of in excess of $26 trillion are staggering. It might also convince some of the more recalcitrant WTO Members (e.g., Brazil, China, India and South Africa) to become more serious about salvaging some elements of the defunct Doha Development Round in Geneva and in any event is likely to encourage additional TPP participation in the Pacific Rim, likely including Costa Rica, Korea and Thailand.

Conversely, a failure to close the deal would do severe damage to United States’ economic, political and security interests in Asia, at a level far beyond the failure of the Free Trade Area of the Americas in the Western Hemisphere a decade ago.  Among consequences would almost certainly be an acceleration of the RCEP negotiations and other regional trade initiatives in Asia that include China but exclude the United States, and the reluctant conclusion on the part of many Asian nations, possibly including Japan, that the United States is not really serious about reinforcing its economic presence in the region. This suggests that serious efforts to reach a successful conclusion to the negotiations must continue, even if the United States is required to make more compromises than it has in earlier FTAs, even if another year or more is required for conclusion of the negotiations and even if President Obama is required to expend significant political capital to assure the negotiations reach a successful conclusion and the agreement is approved by Congress. Whether the United States has both the negotiating skills and the political will, and whether the other Parties are willing to cooperate to bring the negotiations to a successful end, remains to be determined.

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Notre Dame Law School

As reported yesterday, the recent tragedies in Bangladesh factories have resulted in a major breakthrough with the signing of the Accord on Fire and Building Safety in Bangladesh. Thus far, leading retailers such as H&M, Marks & Spencer, Tesco, Sainsbury’s, Benetton, and Calvin Klein are on board. Notably absent from the list are leading U.S. retailers such as Wal-Mart and Gap.

As noted in my previous post, I have been arguing for years that international arbitration could serve as an important procedural tool for promoting human rights in global supply chains. I applaud the commitment of these retailers to join with leading labor rights groups and enter into a binding agreement to improve working conditions in Bangladesh factories.

I do take issue with the drafting of the arbitration agreement, which clearly could have benefited from a quick review by a lawyer with international arbitration experience. Here’s the relevant language:

Any dispute between the parties to, and arising under, the terms of this Agreement shall first be presented to and decided by the SC [seven-member Steering Committee], which shall decide the dispute by majority vote of the SC within a maximum of 21 days of a petition being filed by one of the parties. Upon request of either party, the decision of the SC may be appealed to a final and binding arbitration process. Any arbitration award shall be enforceable in a court of law of the domicile of the signatory against whom enforcement is sought and shall be subject to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention), where applicable. The process for binding arbitration, including, but not limited to, the allocation of costs relating to any arbitration and the process for selection of the Arbitrator, shall be governed by the UNCITRAL Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006).

Note the peculiarities. There is no governing law clause, no arbitration seat, and no arbitration rules. If a party refuses to arbitrate, there will be no obvious court for the petitioner to file a motion to compel arbitration. Instead the arbitration proceedings are to be governed by the UNCITRAL Model Law on International Commercial Arbitration as a sort of free-floating “anational” governing clause. I suppose that makes the UNCITRAL Model Law the chosen arbitration rules, but I’ve never seen the Model Law function in this fashion. If that’s what the clause does, then any court where an action is brought can compel arbitration and the arbitral panel will be empowered to fill in most of the gaps, including determining the arbitration seat, the governing law, and the scope of its jurisdiction (See Articles 8, 16, 20, 28). Not ideal, but it may do the trick.

Second, the arbitration clause has a peculiar scope. Only disputes “arising under” the Agreement are subject to arbitration, apparently limiting the scope to breach of contract and excluding disputes relating to third-party injuries that relate to the agreement. The scope appears to be further limited by the fact that arbitration is an appellate function only, which may mean that the arbitral tribunal is limited to reviewing legal or factual errors of the Steering Committee.

Third, there is a question as to whether decisions of the Steering Committee are subject to enforcement pursuant to the New York Convention. It appears that only the arbitration awards rendered following an appeal of the Steering Committee decision are subject to such enforcement. This may mean that an appeal is necessary simply to create a binding mechanism for enforcing the parties’ obligations.

My hunch is that despite these errors, if a dispute arises from this agreement the parties will muddle through and find a way to make the dispute resolution clause work. Perhaps in the near term they can clarify these ambiguities when they develop the Implementation Plan mandated by the agreement.

So it’s probably not a pathological arbitration clause, but it could have benefited from a good scrubbing.

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Notre Dame Law School

As reported yesterday, the recent tragedies in Bangladesh factories have resulted in a major breakthrough with the signing of the Accord on Fire and Building Safety in Bangladesh. Thus far, leading retailers such as H&M, Marks & Spencer, Tesco, Sainsbury’s, Benetton, and Calvin Klein are on board. Notably absent from the list are leading U.S. retailers such as Wal-Mart and Gap.

As noted in my previous post, I have been arguing for years that international arbitration could serve as an important procedural tool for promoting human rights in global supply chains. I applaud the commitment of these retailers to join with leading labor rights groups and enter into a binding agreement to improve working conditions in Bangladesh factories.

I do take issue with the drafting of the arbitration agreement, which clearly could have benefited from a quick review by a lawyer with international arbitration experience. Here’s the relevant language:

Any dispute between the parties to, and arising under, the terms of this Agreement shall first be presented to and decided by the SC [seven-member Steering Committee], which shall decide the dispute by majority vote of the SC within a maximum of 21 days of a petition being filed by one of the parties. Upon request of either party, the decision of the SC may be appealed to a final and binding arbitration process. Any arbitration award shall be enforceable in a court of law of the domicile of the signatory against whom enforcement is sought and shall be subject to The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention), where applicable. The process for binding arbitration, including, but not limited to, the allocation of costs relating to any arbitration and the process for selection of the Arbitrator, shall be governed by the UNCITRAL Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006).

Note the peculiarities. There is no governing law clause, no arbitration seat, and no arbitration rules. If a party refuses to arbitrate, there will be no obvious court for the petitioner to file a motion to compel arbitration. Instead the arbitration proceedings are to be governed by the UNCITRAL Model Law on International Commercial Arbitration as a sort of free-floating “anational” governing clause. I suppose that makes the UNCITRAL Model Law the chosen arbitration rules, but I’ve never seen the Model Law function in this fashion. If that’s what the clause does, then any court where an action is brought can compel arbitration and the arbitral panel will be empowered to fill in most of the gaps, including determining the arbitration seat, the governing law, and the scope of its jurisdiction (See Articles 8, 16, 20, 28). Not ideal, but it may do the trick.

Second, the arbitration clause has a peculiar scope. Only disputes “arising under” the Agreement are subject to arbitration, apparently limiting the scope to breach of contract and excluding disputes relating to third-party injuries that relate to the agreement. The scope appears to be further limited by the fact that arbitration is an appellate function only, which may mean that the arbitral tribunal is limited to reviewing legal or factual errors of the Steering Committee.

Third, there is a question as to whether decisions of the Steering Committee are subject to enforcement pursuant to the New York Convention. It appears that only the arbitration awards rendered following an appeal of the Steering Committee decision are subject to such enforcement. This may mean that an appeal is necessary simply to create a binding mechanism for enforcing the parties’ obligations.

My hunch is that despite these errors, if a dispute arises from this agreement the parties will muddle through and find a way to make the dispute resolution clause work. Perhaps in the near term they can clarify these ambiguities when they develop the Implementation Plan mandated by the agreement.

So it’s probably not a pathological arbitration clause, but it could have benefited from a good scrubbing.

More from our authors:

	International Arbitration and Forum Selection Agreements: Drafting and Enforcing - 4th edition by Gary B. Born € 85
	International Arbitration in Switzerland - 2nd Revised Edition by Elliott Geisinger, Nathalie Voser, Angelina M. Petti (eds._ € 150
	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

Wilmer Cutler Pickering Hale and Dorr LLP,
for WilmerHale

The Singapore International Arbitration Centre (“SIAC”) has issued new rules that came into force on April 1, 2013. The rules changes are accompanied by new Practice Notes for cases administered by SIAC under its rules and the UNCITRAL rules that also came into force on the same date. While the changes do not reflect a significant overhaul of the prior version of the institution’s rules, they do contain important changes of which practitioners should be aware.

The 2013 rules are the fifth set of rules issued by SIAC, which promulgated previous versions in 1991, 1997, 2007, and 2010. The SIAC rules are one of several sets of arbitral rules to be updated in the last few years; other recent updates include the CIETAC rules (2012), the ICC rules (2012), the Swiss rules (2012), and the UNCITRAL rules (2010).

SIAC’s new rules are significant in part because of the institution’s substantial and growing caseload involving parties from around the world. According to its website, SIAC registered 235 cases during 2012 (the largest number of cases ever registered in a single year at SIAC) involving parties from 39 jurisdictions and was handling a total of 525 active cases at year’s end. The largest number of cases filed at SIAC in 2012 involved parties from Singapore, China, India, Indonesia, the United States, and Hong Kong. However, SIAC’s caseload extends well beyond the Asia-Pacific region, also including parties from Bermuda, the British Isles, the British Virgin Islands, Cayman Islands, Cyprus, Denmark, France, Germany, Liberia, Mauritius, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Arab Emirates, and the United Kingdom.

The most salient changes to the new rules are detailed below.

Court of Arbitration

The new SIAC rules establish a Court of Arbitration (“Court”) that takes over case administration functions from SIAC’s Board of Directors (“Board”), which will now focus on corporate and business development matters. The Court is comprised of 16 members from jurisdictions around the world with Dr. Michael Pryles serving as the Founder President of the Court.

The responsibilities of the Court under the new rules include rendering decisions on challenges to arbitrators (Rule 13) and jurisdictional challenges (Rule 25). The President of the Court will have responsibility for determining applications for expedited procedures (Rule 5) and appointment of arbitrators (Rules 6-10) and emergency arbitrators (Schedule 1). While the SIAC rules now use terminology similar to that of the ICC International Court of Arbitration, the SIAC Court does not exercise the more involved review function of its ICC counterpart.

Commencement of the Arbitration

The new rules give the SIAC Registrar the power to determine when an arbitration has commenced. Under Rule 3.3, the Registrar is now responsible for determining that a notice of arbitration is in “substantial compliance” with Rule 3.1, which sets out the requirements for notices of arbitration.

Time Limits

Changes in the new SIAC rules to time limits are minimal but important. A new Rule 2.5 has been added that permits the Registrar to “extend or shorten any time limits prescribed under” the rules. In addition, Rule 9 on multi-party appointment of arbitrators has been amended to give parties 28 days or a time period set by the Registrar to make a joint appointment (absent an agreement by the parties) calculated from the date on which the Registrar received the notice of arbitration rather than the date of the filing of the notice of arbitration as had been the standard in the previous version of the rules.

Investment Arbitration

In a nod to the growing number of investment arbitration cases being heard at arbitral institutions other than ICSID, Rule 3.1(d) of the new SIAC rules notes that the notice of arbitration must include a reference to the contract “or other instrument [e.g., investment treaty]” underlying the dispute.

Substitute Arbitrators

Rule 14.1 now allows a substitute arbitrator to be appointed in cases involving the “removal” of an arbitrator. Previously, the rules provided for the appointment of a substitute arbitrator only in the event of a “death” or “resignation” of an arbitrator.

Party Representatives

The new rules loosen the regulation of party representatives by SIAC and arbitral tribunals comprised under it. Whereas the former version of Rule 20 provided that “[a]ny party may be represented by legal practitioners or any other representatives, subject to such proof of authority as the Registrar or the Tribunal may require,” the new version of Rule 20 dispenses with the proof requirement and simply provides that “[a]ny party may be represented by legal practitioners or any other representatives.” This is an important change that reaffirms the fundamental principles of party autonomy and the freedom of a party to choose its own counsel in international arbitral proceedings.

Witness Interviews

In direct recognition of the various approaches taken by different jurisdictions to witness preparation, Rule 22.5 of the new SIAC rules expressly permits witness interviews. The former version of Rule 22.5 stated that “[s]ubject to the mandatory provisions of any applicable law, it shall be proper for any party or its representatives to interview any witness or potential witness prior to his appearance at any hearing.” The new rule has discarded the mandatory law exception and now states that “[i]t shall be permissible for any party or its representatives to interview any witness or potential witness (that may be represented by that party) prior to his appearance at any hearing.” While the new Rule 22.5 would not override applicable mandatory national law prohibiting witness interviews in an international arbitration (which, in any event, would arguably be inconsistent with the New York Convention), it nevertheless reflects the practice and expectations of parties and tribunals in international arbitration.

The change also brings the SIAC rules into line with other leading rules on arbitral procedure that expressly recognize the permissibility of interviewing witnesses prior to hearings, including Rule 25.2 of the Swiss Rules of International Arbitration, which provides that “[i]t is not improper for a party … to interview witnesses, potential witnesses, or expert witnesses,” and Rule 4.3 of the IBA Rules on the Taking of Evidence in International Arbitration, which similarly provides that “[i]t shall not be improper for a Party … to interview its witnesses or potential witnesses and to discuss their prospective testimony with them.”

Additional Powers of Tribunals

Rule 24 of the new SIAC rules broadens the powers of tribunals. The former version of Rule 24(e) provided that “the Tribunal shall have the power to … order the parties to make any property or item available, for inspection in the parties’ presence, by the Tribunal or any expert.” The presence requirement and the qualification that the tribunal or any expert must be able to perform the inspection have been eliminated. Rule 24(e) now broadly provides that “the Tribunal shall have the power to … order the parties to make any property or item available for inspection.”

Rule 24(n) is a completely new provision made in response to the Singapore Court of Appeal’s decision in PT Prima International Development v. Kempinski Hotels SA [2012] SGCA 35. Rule 24(n) provides that “the Tribunal shall have the power to … decide, where appropriate, any issue not expressly or impliedly raised in the submissions filed under Rule 17 [written submissions] provided such issue has been clearly brought to the notice of the other party and that other party has been given adequate opportunity to respond.” This provision thus empowers a tribunal to act in a situation where a new issue has arisen, for example, during document disclosure or at a hearing, so long as there is notice and an opportunity to be heard on the new issue.

Jurisdiction Challenges

Rule 25.1 has been amended to create a two-step procedure for addressing a challenge made to the jurisdiction of SIAC prior to the constitution of a tribunal. Under the new version of the rule, the challenge will go first to the Registrar, who will determine if the objection should be referred to the Court. If the Registrar refers the matter to the Court and the Court determines that “it is prima facie satisfied” that there is a valid arbitration agreement, then the case goes forward without prejudice to the tribunal’s competence to rule on its own jurisdiction. The previous rule had a one-step process, i.e., a Committee of the Board (the predecessor to today’s Court in terms of case-administration matters) decided the matter without having a preliminary decision made by the Registrar.

Further, the term “scope” has been deleted from Rule 25.1. As a result, a party cannot raise an objection (prior to the appointment of the tribunal) that the scope of an arbitration agreement does not cover a claim or counterclaim. Parties were able to do so under the previous version of the rules.

Rule 36.1, which is an entirely new addition to the rules, provides that “the decisions of the President, Court and Registrar with respect to all matters relating to an arbitration shall be conclusive and binding upon the parties and the Tribunal” and that they “shall not be required to provide reasons for such decisions.” Rule 36.2, which is also new, goes on to provide that “the parties shall be taken to have waived any right of appeal or review in respect of any decisions of the President, the Court and the Registrar to any state court or other judicial authority.”

Publication of Awards

Rule 28.10 is another entirely new provision providing that “SIAC may publish any award with the names of the parties and other identifying information redacted.” This provision will prove to be very helpful to practitioners and academics but, at the same time, potentially unappealing for parties.

Post-Award Interest

Under Rule 28.7, tribunals established under the SIAC rules are now permitted to award post-award interest. The earlier version of this rule permitted interest to be awarded “ending not later than the date of the award.” The change makes the SIAC rules consistent with amendments to §§ 12(5) and 20 of Singapore’s International Arbitration Act made in 2012.

Costs

A new addition to Rule 30.2 permits the Registrar to fix separate advances on arbitration costs for claims and counterclaims. In addition, the term “apart from the costs of arbitration” has been deleted in Rule 33, which relates to legal and other costs. This change was made because Rule 31 already permits tribunals to apportion the costs of arbitration among parties, making the term in Rule 33 redundant and unnecessary.

Gary B. Born, Michelle Glassman Bock, and Thomas R. Snider

More from our authors:

	International Arbitration and Forum Selection Agreements: Drafting and Enforcing - 4th edition by Gary B. Born € 85
	International Arbitration in Switzerland - 2nd Revised Edition by Elliott Geisinger, Nathalie Voser, Angelina M. Petti (eds._ € 150
	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

Wilmer Cutler Pickering Hale and Dorr LLP,
for WilmerHale

The Singapore International Arbitration Centre (“SIAC”) has issued new rules that came into force on April 1, 2013. The rules changes are accompanied by new Practice Notes for cases administered by SIAC under its rules and the UNCITRAL rules that also came into force on the same date. While the changes do not reflect a significant overhaul of the prior version of the institution’s rules, they do contain important changes of which practitioners should be aware.

The 2013 rules are the fifth set of rules issued by SIAC, which promulgated previous versions in 1991, 1997, 2007, and 2010. The SIAC rules are one of several sets of arbitral rules to be updated in the last few years; other recent updates include the CIETAC rules (2012), the ICC rules (2012), the Swiss rules (2012), and the UNCITRAL rules (2010).

SIAC’s new rules are significant in part because of the institution’s substantial and growing caseload involving parties from around the world. According to its website, SIAC registered 235 cases during 2012 (the largest number of cases ever registered in a single year at SIAC) involving parties from 39 jurisdictions and was handling a total of 525 active cases at year’s end. The largest number of cases filed at SIAC in 2012 involved parties from Singapore, China, India, Indonesia, the United States, and Hong Kong. However, SIAC’s caseload extends well beyond the Asia-Pacific region, also including parties from Bermuda, the British Isles, the British Virgin Islands, Cayman Islands, Cyprus, Denmark, France, Germany, Liberia, Mauritius, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Arab Emirates, and the United Kingdom.

The most salient changes to the new rules are detailed below.

Court of Arbitration

The new SIAC rules establish a Court of Arbitration (“Court”) that takes over case administration functions from SIAC’s Board of Directors (“Board”), which will now focus on corporate and business development matters. The Court is comprised of 16 members from jurisdictions around the world with Dr. Michael Pryles serving as the Founder President of the Court.

The responsibilities of the Court under the new rules include rendering decisions on challenges to arbitrators (Rule 13) and jurisdictional challenges (Rule 25). The President of the Court will have responsibility for determining applications for expedited procedures (Rule 5) and appointment of arbitrators (Rules 6-10) and emergency arbitrators (Schedule 1). While the SIAC rules now use terminology similar to that of the ICC International Court of Arbitration, the SIAC Court does not exercise the more involved review function of its ICC counterpart.

Commencement of the Arbitration

The new rules give the SIAC Registrar the power to determine when an arbitration has commenced. Under Rule 3.3, the Registrar is now responsible for determining that a notice of arbitration is in “substantial compliance” with Rule 3.1, which sets out the requirements for notices of arbitration.

Time Limits

Changes in the new SIAC rules to time limits are minimal but important. A new Rule 2.5 has been added that permits the Registrar to “extend or shorten any time limits prescribed under” the rules. In addition, Rule 9 on multi-party appointment of arbitrators has been amended to give parties 28 days or a time period set by the Registrar to make a joint appointment (absent an agreement by the parties) calculated from the date on which the Registrar received the notice of arbitration rather than the date of the filing of the notice of arbitration as had been the standard in the previous version of the rules.

Investment Arbitration

In a nod to the growing number of investment arbitration cases being heard at arbitral institutions other than ICSID, Rule 3.1(d) of the new SIAC rules notes that the notice of arbitration must include a reference to the contract “or other instrument [e.g., investment treaty]” underlying the dispute.

Substitute Arbitrators

Rule 14.1 now allows a substitute arbitrator to be appointed in cases involving the “removal” of an arbitrator. Previously, the rules provided for the appointment of a substitute arbitrator only in the event of a “death” or “resignation” of an arbitrator.

Party Representatives

The new rules loosen the regulation of party representatives by SIAC and arbitral tribunals comprised under it. Whereas the former version of Rule 20 provided that “[a]ny party may be represented by legal practitioners or any other representatives, subject to such proof of authority as the Registrar or the Tribunal may require,” the new version of Rule 20 dispenses with the proof requirement and simply provides that “[a]ny party may be represented by legal practitioners or any other representatives.” This is an important change that reaffirms the fundamental principles of party autonomy and the freedom of a party to choose its own counsel in international arbitral proceedings.

Witness Interviews

In direct recognition of the various approaches taken by different jurisdictions to witness preparation, Rule 22.5 of the new SIAC rules expressly permits witness interviews. The former version of Rule 22.5 stated that “[s]ubject to the mandatory provisions of any applicable law, it shall be proper for any party or its representatives to interview any witness or potential witness prior to his appearance at any hearing.” The new rule has discarded the mandatory law exception and now states that “[i]t shall be permissible for any party or its representatives to interview any witness or potential witness (that may be represented by that party) prior to his appearance at any hearing.” While the new Rule 22.5 would not override applicable mandatory national law prohibiting witness interviews in an international arbitration (which, in any event, would arguably be inconsistent with the New York Convention), it nevertheless reflects the practice and expectations of parties and tribunals in international arbitration.

The change also brings the SIAC rules into line with other leading rules on arbitral procedure that expressly recognize the permissibility of interviewing witnesses prior to hearings, including Rule 25.2 of the Swiss Rules of International Arbitration, which provides that “[i]t is not improper for a party … to interview witnesses, potential witnesses, or expert witnesses,” and Rule 4.3 of the IBA Rules on the Taking of Evidence in International Arbitration, which similarly provides that “[i]t shall not be improper for a Party … to interview its witnesses or potential witnesses and to discuss their prospective testimony with them.”

Additional Powers of Tribunals

Rule 24 of the new SIAC rules broadens the powers of tribunals. The former version of Rule 24(e) provided that “the Tribunal shall have the power to … order the parties to make any property or item available, for inspection in the parties’ presence, by the Tribunal or any expert.” The presence requirement and the qualification that the tribunal or any expert must be able to perform the inspection have been eliminated. Rule 24(e) now broadly provides that “the Tribunal shall have the power to … order the parties to make any property or item available for inspection.”

Rule 24(n) is a completely new provision made in response to the Singapore Court of Appeal’s decision in PT Prima International Development v. Kempinski Hotels SA [2012] SGCA 35. Rule 24(n) provides that “the Tribunal shall have the power to … decide, where appropriate, any issue not expressly or impliedly raised in the submissions filed under Rule 17 [written submissions] provided such issue has been clearly brought to the notice of the other party and that other party has been given adequate opportunity to respond.” This provision thus empowers a tribunal to act in a situation where a new issue has arisen, for example, during document disclosure or at a hearing, so long as there is notice and an opportunity to be heard on the new issue.

Jurisdiction Challenges

Rule 25.1 has been amended to create a two-step procedure for addressing a challenge made to the jurisdiction of SIAC prior to the constitution of a tribunal. Under the new version of the rule, the challenge will go first to the Registrar, who will determine if the objection should be referred to the Court. If the Registrar refers the matter to the Court and the Court determines that “it is prima facie satisfied” that there is a valid arbitration agreement, then the case goes forward without prejudice to the tribunal’s competence to rule on its own jurisdiction. The previous rule had a one-step process, i.e., a Committee of the Board (the predecessor to today’s Court in terms of case-administration matters) decided the matter without having a preliminary decision made by the Registrar.

Further, the term “scope” has been deleted from Rule 25.1. As a result, a party cannot raise an objection (prior to the appointment of the tribunal) that the scope of an arbitration agreement does not cover a claim or counterclaim. Parties were able to do so under the previous version of the rules.

Rule 36.1, which is an entirely new addition to the rules, provides that “the decisions of the President, Court and Registrar with respect to all matters relating to an arbitration shall be conclusive and binding upon the parties and the Tribunal” and that they “shall not be required to provide reasons for such decisions.” Rule 36.2, which is also new, goes on to provide that “the parties shall be taken to have waived any right of appeal or review in respect of any decisions of the President, the Court and the Registrar to any state court or other judicial authority.”

Publication of Awards

Rule 28.10 is another entirely new provision providing that “SIAC may publish any award with the names of the parties and other identifying information redacted.” This provision will prove to be very helpful to practitioners and academics but, at the same time, potentially unappealing for parties.

Post-Award Interest

Under Rule 28.7, tribunals established under the SIAC rules are now permitted to award post-award interest. The earlier version of this rule permitted interest to be awarded “ending not later than the date of the award.” The change makes the SIAC rules consistent with amendments to §§ 12(5) and 20 of Singapore’s International Arbitration Act made in 2012.

Costs

A new addition to Rule 30.2 permits the Registrar to fix separate advances on arbitration costs for claims and counterclaims. In addition, the term “apart from the costs of arbitration” has been deleted in Rule 33, which relates to legal and other costs. This change was made because Rule 31 already permits tribunals to apportion the costs of arbitration among parties, making the term in Rule 33 redundant and unnecessary.

Gary B. Born, Michelle Glassman Bock, and Thomas R. Snider

More from our authors:

	Litigation in the Netherlands. Civil Procedure, Arbitration and Administrative Litigation - 2nd Edition by Marieke van Hooijdonk, Peter V. Eijsvoogel € 70
	Yearbook Commercial Arbitration Volume XXXVII 2012 by Albert Jan Van Den Berg (ed.) € 215
	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

And Anand Varu.

In Omnipharm Limited v Merial [2013] EWCA Civ 2, the Court of Appeal of England and Wales (CA) upheld a first instance decision to revoke one of Merial’s patents on grounds of insufficiency.  The CA also dismissed Merial’s appeal against an order to pay 40% of Omnipharm’s costs and awarded costs to Merial in relation to applications made for preserving Omnipharm’s security for costs.

The patents in question were EP 0,881,881 (the ‘881) and GB 2,317,564 (the ‘564), which related to “spot‑on” formulations of parasiticide fipronil for protecting animals against ticks and fleas.

Background

Prior to the action Omnipharm had requested acknowledgements of non‑infringement from Merial in relation to four fipronil spot‑on formulations. No acknowledgements were forthcoming and Omnipharm commenced proceedings to revoke the patents on grounds of obviousness and insufficiency and to secure declarations of non‑infringement.

At first instance, the ‘881 was upheld in an amended form, albeit that Merial had admitted in its defence that three of the four formulations did not infringe this patent.

The insufficiency attack against the ‘564 succeeded.  The judge noted that the examples provided in the specification did not disclose any formulation details save that there should be a crystallisation inhibitor, an organic solvent and an organic co‑solvent present.  As there was no teaching as to how these elements are to be selected or combined, the ‘564 was found to lack sufficiency.

Merial was ordered to pay 40% of Omnipharm’s costs.

The Appeal

On appeal, Merial argued that the judge had failed to recognise that there is no requirement for a patent to include specific examples.  The CA upheld the judge’s view that the absence of proper exemplification of the formulation rendered the patent’s teaching inadequate to guide the skilled person to success and provided no assistance beyond the teaching of the prior art and the common general knowledge.

Merial also submitted that the judge’s conclusions were inconsistent with the evidence of formulation experts, arguing that the experts considered that implementing the inventions would be routine.  The CA, however, agreed with the judge’s view that a relevant theory of “dermal distribution” would not form part of the common general knowledge. The CA was satisfied that the judge had a proper evidential basis upon which to find the ‘564 insufficient as there was disagreement between the parties’ experts on key points.

On the issue of costs, Merial argued that the result failed to fairly reflect who had won and lost. On one hand, Omnipharm were successful in receiving declarations for non‑infringement in respect of three formulations.  On the other hand Merial maintained the ‘881 which covered its commercial formulations.  The CA found that the judge had recognised that “giving too much weight to a decision about the overall winner might cause an unjust result” and had, therefore, appreciated the complexities involved when deciding the “overall winner”.  The appeal on costs was dismissed.

Comment

The CA confirmed the sufficiency of the ‘881 because the examples were worked through formulations, yet the ‘564 was held insufficient as it lacked such properly exemplified formulations.  One must therefore be careful to properly exemplify any such formulation in a patent specification and not merely provide lists and ranges without guidance on how to arrive at an end formulation.  This is especially warranted where the result of such a formulation is based on unclear science.

More from our authors:

	Litigation in the Netherlands. Civil Procedure, Arbitration and Administrative Litigation - 2nd Edition by Marieke van Hooijdonk, Peter V. Eijsvoogel € 70
	Yearbook Commercial Arbitration Volume XXXVII 2012 by Albert Jan Van Den Berg (ed.) € 215
	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

And Anand Varu.

In Omnipharm Limited v Merial [2013] EWCA Civ 2, the Court of Appeal of England and Wales (CA) upheld a first instance decision to revoke one of Merial’s patents on grounds of insufficiency.  The CA also dismissed Merial’s appeal against an order to pay 40% of Omnipharm’s costs and awarded costs to Merial in relation to applications made for preserving Omnipharm’s security for costs.

The patents in question were EP 0,881,881 (the ‘881) and GB 2,317,564 (the ‘564), which related to “spot‑on” formulations of parasiticide fipronil for protecting animals against ticks and fleas.

Background

Prior to the action Omnipharm had requested acknowledgements of non‑infringement from Merial in relation to four fipronil spot‑on formulations. No acknowledgements were forthcoming and Omnipharm commenced proceedings to revoke the patents on grounds of obviousness and insufficiency and to secure declarations of non‑infringement.

At first instance, the ‘881 was upheld in an amended form, albeit that Merial had admitted in its defence that three of the four formulations did not infringe this patent.

The insufficiency attack against the ‘564 succeeded.  The judge noted that the examples provided in the specification did not disclose any formulation details save that there should be a crystallisation inhibitor, an organic solvent and an organic co‑solvent present.  As there was no teaching as to how these elements are to be selected or combined, the ‘564 was found to lack sufficiency.

Merial was ordered to pay 40% of Omnipharm’s costs.

The Appeal

On appeal, Merial argued that the judge had failed to recognise that there is no requirement for a patent to include specific examples.  The CA upheld the judge’s view that the absence of proper exemplification of the formulation rendered the patent’s teaching inadequate to guide the skilled person to success and provided no assistance beyond the teaching of the prior art and the common general knowledge.

Merial also submitted that the judge’s conclusions were inconsistent with the evidence of formulation experts, arguing that the experts considered that implementing the inventions would be routine.  The CA, however, agreed with the judge’s view that a relevant theory of “dermal distribution” would not form part of the common general knowledge. The CA was satisfied that the judge had a proper evidential basis upon which to find the ‘564 insufficient as there was disagreement between the parties’ experts on key points.

On the issue of costs, Merial argued that the result failed to fairly reflect who had won and lost. On one hand, Omnipharm were successful in receiving declarations for non‑infringement in respect of three formulations.  On the other hand Merial maintained the ‘881 which covered its commercial formulations.  The CA found that the judge had recognised that “giving too much weight to a decision about the overall winner might cause an unjust result” and had, therefore, appreciated the complexities involved when deciding the “overall winner”.  The appeal on costs was dismissed.

Comment

The CA confirmed the sufficiency of the ‘881 because the examples were worked through formulations, yet the ‘564 was held insufficient as it lacked such properly exemplified formulations.  One must therefore be careful to properly exemplify any such formulation in a patent specification and not merely provide lists and ranges without guidance on how to arrive at an end formulation.  This is especially warranted where the result of such a formulation is based on unclear science.

More from our authors:

	International Arbitration and Forum Selection Agreements: Drafting and Enforcing - 4th edition by Gary B. Born € 85
	International Arbitration in Switzerland - 2nd Revised Edition by Elliott Geisinger, Nathalie Voser, Angelina M. Petti (eds._ € 150
	International Arbitration: Law and Practice by Gary B. Born € 30
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350