Kluwer Law International

Posts Tagged ‘Arbitration Institutions and Rules’

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.

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

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

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

The Chinese University of Hong Kong – Law Faculty

Shanghai’s Recent Reaction

As a recent development of the ongoing conflicts within the China International Economic and Trade Arbitration (CIETAC), the CIETAC Shanghai Sub-Commission has now officially been renamed Shanghai International Economic and Trade Arbitration Commission; it will also use Shanghai International Arbitration Center (“SHIAC”) concurrently as official name. (See official announcement of the SHIAC). On 11 April 2013, SHIAC and Council for the Promotion of International Trade Shanghai jointly held a press conference and unveiling ceremony.

The Shanghai Municipal Government approved the name change, clarifying the status of the new commission. During the ceremony, Mr. Cen Furong, Chairman of CCPIT Shanghai and SHIAC, stated that that this ceremony was not just about changing names but marked the starting point of a new era.

The SHIAC has promulgated new versions of Arbitration Rules and Panel of Arbitrators, which will be effective as of 1 May 2013. For parties wishing to choose the Shanghai International Economic and Trade Arbitration Commission/SHIAC, the following model clauses are proposed:

Model Arbitration Clause I: ‘Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Economic and Trade Arbitration Commission for arbitration.’
Model Arbitration Clause II: ‘Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Arbitration Center for arbitration.’

SHIAC started using new logo and website, while the address and contact were kept unchanged. The SHIAC also announces that it accepts cases upon agreement between parties to arbitrate by Shanghai International Economic and Trade Arbitration Commission, SHIAC, and continue to accept cases upon agreements between parties to arbitrate by China International Economic and Trade Arbitration Commission Shanghai Commission/ Shanghai Sub-Commission/Shanghai Branch.

A Chronology of Events

The conflict was triggered by the introduction of the CIETAC Arbitration Rules 2012 (the CIETAC Rules 2012), which was promulgated in January 2012, approved by China Council for the Promotion of International Trade/CCPIT (China Chamber of International Commerce/CCOIC) in February 2012, and came into force on 1 May 2012. On 24 April 2012, the CIETAC made an announcement that ‘the CIETAC and its sub-commissions form an integrated arbitration commission that uses a uniform set of Arbitration Rules and Panel of Arbitrators’, and that ‘as from 1 May 2012, the CIETAC Arbitration Rules (2012) shall uniformly apply to the CIETAC and its sub-commissions.

One of the changes in the CIETAC Rules 2012 is to provide default provision for administration by CIETAC Beijing. In the past, many arbitration clauses did not explicitly state the name of the sub-commission, but simply stated that the CIETAC Rules shall apply. The common practice was that the party commencing proceedings was entitled to choose one of the sub-commissions, and the other party had the right to object, which may cause delays. Article 2(6) of the CIETAC Rules 2012 provides that ‘where the sub-commission/center agreed upon by the parties does not exist, or where the agreement is ambiguous, the Secretariat of CIETAC shall accept the arbitration application and administer the case. In the event of any dispute, a decision shall be made by CIETAC.’ As a result, if the arbitration clause did not explicitly state the name of the sub-commission, even if they have chosen the hearing should take place in Shanghai, for example, the arbitration proceedings will be administered by the CIETAC headquarters in Beijing.

Unsatisfied with the new rules, two of CIETAC’s sub-commissions, namely CIETAC’s Shanghai Sub-Commission (CIETAC Shanghai Sub-commission) and CIETAC’s South China Sub-Commission based in Shenzhen (CIETAC South China Sub-commission) declared themselves as independent arbitral institutions. CIETAC South China Sub-commission stated that it would retain the CIETAC Rules 2005, while CIETAC Shanghai Sub-commission published its own Arbitration Rules, based on the CIETAC rules 2005.

On 1 May 2012, the CIETAC issued an Open Letter to all arbitrators, making the following statements:

• the conduct of setting up its own commission by the sub-commission is null and void;
• the arbitration rules formulated by the sub-commission are null and void;
• the conduct of recruiting arbitrators by the sub-commission is null and void;
• as from 1 May 2012, where parties submit their dispute to a sub-commission of CIETAC for arbitration in accordance with an arbitration clause that provides for arbitration by that sub-commission, the said sub-commission must apply CIETAC Arbitration Rules (2012) to the case; and
• pursuant to the relevant provisions of CIETAC Rules 2012, in cases administered by CIETAC and its sub-commissions, the decisions on jurisdiction and on a party’s standing to participate in the arbitration shall be made by CIETAC or the arbitral tribunals with its authorization; the arbitrators shall be appointed by the Chairman of CIETAC (unless appointed by the parties); the challenge of arbitrators shall be decided by the Chairman of CIETAC; and any document concluding a case, such as an arbitral award, a decision on dismissing a case and a conciliation statement, shall be affixed with the seal of CIETAC.

On 1 August 2012, CIETAC released the Announcement on the Administration of Cases Agreed to be Arbitrated by CIETAC Shanghai Commission and CIETAC South China Commission, suspending CIETAC’s authorization to the CIETAC Shanghai Commission and CIETAC South China Commission for accepting and administering arbitration cases. CIETAC’s Annoucement also states that ‘as from 1 August 2012, where parties have agreed to arbitrate their disputes by the CIETAC Shanghai Commission or the CIETAC South China Commission, the parties shall submit their applications for arbitration to CIETAC and the CIETAC Secretariat shall accept such arbitration applications and administer such cases. Without CIETAC’s authorization, no institutions shall have the right to accept and administer the afore-mentioned arbitration cases’.

In response, CIETAC Shanghai Sub-Commission and CIETAC South China Sub-Commission made a Joint Statement on 4 August 2012, stating that CIETAC Shanghai Sub-Commission and CIETAC South China Sub-Commission are independent arbitration institutions, established following the approvals of Shanghai and Shenzhen Municipal Governments and that their jurisdiction ‘come from the agreement of the parties, rather than the “authorization” from any other institutions’. On 28 August 2012, another Joint Announcement was issued by the two sub-commissions, restating their position. Contrary to the Announcement of the CIETAC, the Joint Announcement declares that where an arbitration agreement refers to the disputes to CIETAC Shanghai or CIETAC South China, disputes shall be submitted to CIETAC Shanghai Sub-Commission or CIETAC South China Sub-Commission respectively.

On 22 October 2012, the South China Sub-commission changed its name to the South China International Economic and Trade Arbitration Commission (SCIA), which is also known as the Shenzhen Court of International Arbitration (SCIA). SCIA starts to adopt its own Arbitration Rules and Panel of Arbitrators as from 1 December 2012. The following model clauses are proposed on SCIA’s website, proposing the parties to choose specifically SCIA, SCIA, or SCIA under UNCITRAL Arbitration Rules.

Model Arbitration Clause 1: Any dispute arising from or in connection with this contract shall be submitted to South China International Economic and Trade Arbitration Commission (SCIA) for arbitration.

Model Arbitration Clause 2: Any dispute arising from or in connection with this contract shall be submitted to Shenzhen Court of International Arbitration (SCIA) for arbitration.

Model Arbitration Clause 3: Any dispute arising from or in connection with this contract shall be submitted to South China International Economic and Trade Arbitration Commission (SCIA) for arbitration which shall be conducted in accordance with the UNCITRAL Arbitration Rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon the parties.

On 31 December 2012, CIETAC issued an Announcement On Issues Concerning CIETAC Shanghai Sub-Commission and CIETAC South China Sub-Commission, announcing the following decisions:

• The conduct of changing its name and its institutional status of a sub-commission of CIETAC by the CIETAC South China Sub-Commission without lawful procedure is null and void by law. The arbitration rules and panel of arbitrators made by the CIETAC South China Sub-Commission in the name of South China International Economic and Trade Arbitration Commission without authorization are null and void by law.
• The CIETAC Shanghai Sub-Commission and the CIETAC South China Sub-Commission are hereby forbidden to continue in any way and any form the use of the name, brand and relevant logo of “CIETAC”, either in Chinese or English, and to conduct any further arbitration activities in the names of CIETAC Shanghai sub-commission and CIETAC South China Sub-Commission.
• Authorization to the CIETAC Shanghai Sub-Commission and the CIETAC South China Sub-Commission for accepting and administering arbitration cases is hereby terminated.
• Where parties have agreed to arbitrate their disputes by the CIETAC Shanghai Sub-Commission or the CIETAC South China Sub-Commission, the parties shall submit their requests for arbitration to CIETAC and the CIETAC Secretariat shall accept such requests and administer such cases. Without CIETAC’s authorization, no institutions shall have the right to accept or administer the afore-mentioned arbitration cases.
• When the CIETAC Secretariat accepts and administers the above-mentioned cases, unless otherwise agreed by the parties, for cases agreed to be arbitrated by the CIETAC Shanghai Sub-Commission, the place of arbitration and the place of oral hearing shall be Shanghai; for cases agreed to be arbitrated by the CIETAC South China Sub-Commission, the place of arbitration and the place of oral hearing shall be Shenzhen.
• Cases accepted and administered by the CIETAC Shanghai Sub-Commission and the CIETAC South China Sub-Commission before 1 August 2012 may be concluded in accordance with the CIETAC Arbitration Rules and under the uniform leadership of CIETAC in respect of case administration as provided in the Rules.
• Separate arrangement will be made with regard to the business operation of CIETAC’s branch offices in Shenzhen and Shanghai.

Practical Implications for Parties

In light of the uncertainty caused by CIETAC’s internal disputes, parties wishing to choose CIETAC arbitration need to act with extreme caution.

In case of negotiating new arbitration clauses, if parties wish to submit the disputes to arbitration administered by CIETAC, it will be prudent for them to stipulate explicitly CIETAC Beijing as the arbitration institution. With the arbitration administered by CIETAC Beijing, parties may still choose Shanghai or Shenzhen as the place of arbitration and venue of oral hearing. If parties wish to submit the disputes to another arbitration institution, they need to specify the name of the arbitration institution without ambiguity.

In case of existing arbitration clauses, which provide for arbitration administered by CIETAC Shanghai Sub-Commission or CIETAC South China Sub-commission, parties would be prudent to revise the clause to refer the dispute to CIETAC Beijing, or to refer to another arbitration institution without ambiguity.

Note that in Shanghai, apart from the SHIAC (which is now separated from the CIETAC), there is another independent arbitration institution named Shanghai Arbitration Commission. In Shenzhen, apart from the SCIA (which is now separated from the CIETAC), there is also an independent body named Shenzhen Arbitration Commission. Caveat! Where an arbitration agreement provides for arbitration to be submitted with an arbitration institution at a fixed locality, and there are two or more arbitration institutions at that locality, the parties may agree on the selection of one of the arbitration institutions; where the parties concerned are unable to agree on the choice of the arbitration institution, the arbitration agreement shall be invalid. (Article 6 of the Interpretation of SPC on Certain Issues Relating to the Application of the Arbitration Law of the People’s Republic of China 2006).

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	Yearbook Commercial Arbitration Volume XXXVII 2012 by Albert Jan Van Den Berg (ed.) € 215
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The Chinese University of Hong Kong – Law Faculty

Shanghai’s Recent Reaction

As a recent development of the ongoing conflicts within the China International Economic and Trade Arbitration (CIETAC), the CIETAC Shanghai Sub-Commission has now officially been renamed Shanghai International Economic and Trade Arbitration Commission; it will also use Shanghai International Arbitration Center (“SHIAC”) concurrently as official name. (See official announcement of the SHIAC). On 11 April 2013, SHIAC and Council for the Promotion of International Trade Shanghai jointly held a press conference and unveiling ceremony.

The Shanghai Municipal Government approved the name change, clarifying the status of the new commission. During the ceremony, Mr. Cen Furong, Chairman of CCPIT Shanghai and SHIAC, stated that that this ceremony was not just about changing names but marked the starting point of a new era.

The SHIAC has promulgated new versions of Arbitration Rules and Panel of Arbitrators, which will be effective as of 1 May 2013. For parties wishing to choose the Shanghai International Economic and Trade Arbitration Commission/SHIAC, the following model clauses are proposed:

Model Arbitration Clause I: ‘Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Economic and Trade Arbitration Commission for arbitration.’
Model Arbitration Clause II: ‘Any dispute arising from or in connection with this Contract shall be submitted to Shanghai International Arbitration Center for arbitration.’

SHIAC started using new logo and website, while the address and contact were kept unchanged. The SHIAC also announces that it accepts cases upon agreement between parties to arbitrate by Shanghai International Economic and Trade Arbitration Commission, SHIAC, and continue to accept cases upon agreements between parties to arbitrate by China International Economic and Trade Arbitration Commission Shanghai Commission/ Shanghai Sub-Commission/Shanghai Branch.

A Chronology of Events

The conflict was triggered by the introduction of the CIETAC Arbitration Rules 2012 (the CIETAC Rules 2012), which was promulgated in January 2012, approved by China Council for the Promotion of International Trade/CCPIT (China Chamber of International Commerce/CCOIC) in February 2012, and came into force on 1 May 2012. On 24 April 2012, the CIETAC made an announcement that ‘the CIETAC and its sub-commissions form an integrated arbitration commission that uses a uniform set of Arbitration Rules and Panel of Arbitrators’, and that ‘as from 1 May 2012, the CIETAC Arbitration Rules (2012) shall uniformly apply to the CIETAC and its sub-commissions.

One of the changes in the CIETAC Rules 2012 is to provide default provision for administration by CIETAC Beijing. In the past, many arbitration clauses did not explicitly state the name of the sub-commission, but simply stated that the CIETAC Rules shall apply. The common practice was that the party commencing proceedings was entitled to choose one of the sub-commissions, and the other party had the right to object, which may cause delays. Article 2(6) of the CIETAC Rules 2012 provides that ‘where the sub-commission/center agreed upon by the parties does not exist, or where the agreement is ambiguous, the Secretariat of CIETAC shall accept the arbitration application and administer the case. In the event of any dispute, a decision shall be made by CIETAC.’ As a result, if the arbitration clause did not explicitly state the name of the sub-commission, even if they have chosen the hearing should take place in Shanghai, for example, the arbitration proceedings will be administered by the CIETAC headquarters in Beijing.

Unsatisfied with the new rules, two of CIETAC’s sub-commissions, namely CIETAC’s Shanghai Sub-Commission (CIETAC Shanghai Sub-commission) and CIETAC’s South China Sub-Commission based in Shenzhen (CIETAC South China Sub-commission) declared themselves as independent arbitral institutions. CIETAC South China Sub-commission stated that it would retain the CIETAC Rules 2005, while CIETAC Shanghai Sub-commission published its own Arbitration Rules, based on the CIETAC rules 2005.

On 1 May 2012, the CIETAC issued an Open Letter to all arbitrators, making the following statements:

• the conduct of setting up its own commission by the sub-commission is null and void;
• the arbitration rules formulated by the sub-commission are null and void;
• the conduct of recruiting arbitrators by the sub-commission is null and void;
• as from 1 May 2012, where parties submit their dispute to a sub-commission of CIETAC for arbitration in accordance with an arbitration clause that provides for arbitration by that sub-commission, the said sub-commission must apply CIETAC Arbitration Rules (2012) to the case; and
• pursuant to the relevant provisions of CIETAC Rules 2012, in cases administered by CIETAC and its sub-commissions, the decisions on jurisdiction and on a party’s standing to participate in the arbitration shall be made by CIETAC or the arbitral tribunals with its authorization; the arbitrators shall be appointed by the Chairman of CIETAC (unless appointed by the parties); the challenge of arbitrators shall be decided by the Chairman of CIETAC; and any document concluding a case, such as an arbitral award, a decision on dismissing a case and a conciliation statement, shall be affixed with the seal of CIETAC.

On 1 August 2012, CIETAC released the Announcement on the Administration of Cases Agreed to be Arbitrated by CIETAC Shanghai Commission and CIETAC South China Commission, suspending CIETAC’s authorization to the CIETAC Shanghai Commission and CIETAC South China Commission for accepting and administering arbitration cases. CIETAC’s Annoucement also states that ‘as from 1 August 2012, where parties have agreed to arbitrate their disputes by the CIETAC Shanghai Commission or the CIETAC South China Commission, the parties shall submit their applications for arbitration to CIETAC and the CIETAC Secretariat shall accept such arbitration applications and administer such cases. Without CIETAC’s authorization, no institutions shall have the right to accept and administer the afore-mentioned arbitration cases’.

In response, CIETAC Shanghai Sub-Commission and CIETAC South China Sub-Commission made a Joint Statement on 4 August 2012, stating that CIETAC Shanghai Sub-Commission and CIETAC South China Sub-Commission are independent arbitration institutions, established following the approvals of Shanghai and Shenzhen Municipal Governments and that their jurisdiction ‘come from the agreement of the parties, rather than the “authorization” from any other institutions’. On 28 August 2012, another Joint Announcement was issued by the two sub-commissions, restating their position. Contrary to the Announcement of the CIETAC, the Joint Announcement declares that where an arbitration agreement refers to the disputes to CIETAC Shanghai or CIETAC South China, disputes shall be submitted to CIETAC Shanghai Sub-Commission or CIETAC South China Sub-Commission respectively.

On 22 October 2012, the South China Sub-commission changed its name to the South China International Economic and Trade Arbitration Commission (SCIA), which is also known as the Shenzhen Court of International Arbitration (SCIA). SCIA starts to adopt its own Arbitration Rules and Panel of Arbitrators as from 1 December 2012. The following model clauses are proposed on SCIA’s website, proposing the parties to choose specifically SCIA, SCIA, or SCIA under UNCITRAL Arbitration Rules.

Model Arbitration Clause 1: Any dispute arising from or in connection with this contract shall be submitted to South China International Economic and Trade Arbitration Commission (SCIA) for arbitration.

Model Arbitration Clause 2: Any dispute arising from or in connection with this contract shall be submitted to Shenzhen Court of International Arbitration (SCIA) for arbitration.

Model Arbitration Clause 3: Any dispute arising from or in connection with this contract shall be submitted to South China International Economic and Trade Arbitration Commission (SCIA) for arbitration which shall be conducted in accordance with the UNCITRAL Arbitration Rules in effect at the time of applying for arbitration. The arbitral award is final and binding upon the parties.

On 31 December 2012, CIETAC issued an Announcement On Issues Concerning CIETAC Shanghai Sub-Commission and CIETAC South China Sub-Commission, announcing the following decisions:

• The conduct of changing its name and its institutional status of a sub-commission of CIETAC by the CIETAC South China Sub-Commission without lawful procedure is null and void by law. The arbitration rules and panel of arbitrators made by the CIETAC South China Sub-Commission in the name of South China International Economic and Trade Arbitration Commission without authorization are null and void by law.
• The CIETAC Shanghai Sub-Commission and the CIETAC South China Sub-Commission are hereby forbidden to continue in any way and any form the use of the name, brand and relevant logo of “CIETAC”, either in Chinese or English, and to conduct any further arbitration activities in the names of CIETAC Shanghai sub-commission and CIETAC South China Sub-Commission.
• Authorization to the CIETAC Shanghai Sub-Commission and the CIETAC South China Sub-Commission for accepting and administering arbitration cases is hereby terminated.
• Where parties have agreed to arbitrate their disputes by the CIETAC Shanghai Sub-Commission or the CIETAC South China Sub-Commission, the parties shall submit their requests for arbitration to CIETAC and the CIETAC Secretariat shall accept such requests and administer such cases. Without CIETAC’s authorization, no institutions shall have the right to accept or administer the afore-mentioned arbitration cases.
• When the CIETAC Secretariat accepts and administers the above-mentioned cases, unless otherwise agreed by the parties, for cases agreed to be arbitrated by the CIETAC Shanghai Sub-Commission, the place of arbitration and the place of oral hearing shall be Shanghai; for cases agreed to be arbitrated by the CIETAC South China Sub-Commission, the place of arbitration and the place of oral hearing shall be Shenzhen.
• Cases accepted and administered by the CIETAC Shanghai Sub-Commission and the CIETAC South China Sub-Commission before 1 August 2012 may be concluded in accordance with the CIETAC Arbitration Rules and under the uniform leadership of CIETAC in respect of case administration as provided in the Rules.
• Separate arrangement will be made with regard to the business operation of CIETAC’s branch offices in Shenzhen and Shanghai.

Practical Implications for Parties

In light of the uncertainty caused by CIETAC’s internal disputes, parties wishing to choose CIETAC arbitration need to act with extreme caution.

In case of negotiating new arbitration clauses, if parties wish to submit the disputes to arbitration administered by CIETAC, it will be prudent for them to stipulate explicitly CIETAC Beijing as the arbitration institution. With the arbitration administered by CIETAC Beijing, parties may still choose Shanghai or Shenzhen as the place of arbitration and venue of oral hearing. If parties wish to submit the disputes to another arbitration institution, they need to specify the name of the arbitration institution without ambiguity.

In case of existing arbitration clauses, which provide for arbitration administered by CIETAC Shanghai Sub-Commission or CIETAC South China Sub-commission, parties would be prudent to revise the clause to refer the dispute to CIETAC Beijing, or to refer to another arbitration institution without ambiguity.

Note that in Shanghai, apart from the SHIAC (which is now separated from the CIETAC), there is another independent arbitration institution named Shanghai Arbitration Commission. In Shenzhen, apart from the SCIA (which is now separated from the CIETAC), there is also an independent body named Shenzhen Arbitration Commission. Caveat! Where an arbitration agreement provides for arbitration to be submitted with an arbitration institution at a fixed locality, and there are two or more arbitration institutions at that locality, the parties may agree on the selection of one of the arbitration institutions; where the parties concerned are unable to agree on the choice of the arbitration institution, the arbitration agreement shall be invalid. (Article 6 of the Interpretation of SPC on Certain Issues Relating to the Application of the Arbitration Law of the People’s Republic of China 2006).

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	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

Orange, General Counsel, International Expertise & Conflict Resolution, Litigation, CSR & Real Estate and Chair of the Corporate Counsel International Arbitration Group (CCIAG)

and Thomas Baconin, Orange,  trainee in International Expertise & Conflict Resolution, Litigation, CSR & Real Estate

On the 15th of April in the prestigious venue of the Hotel de Ville in Paris, the non-profit organization Paris Place d’Arbitrage introduced its new ad hoc “Paris Arbitration Rules”, in front of 200 law practitioners from the arbitration community. These ad hoc rules present themselves as an alternative to the UNCITRAL rules, often considered as too heavy and as such, not satisfactory for the Parties. In light of the ever growing dissatisfaction of arbitration users with the cost and length of international arbitration proceedings, this initiative should be welcomed by the arbitration community as a positive effort to address the concerns of arbitration users.

The past few years have seen other major international arbitration institutions seeking to answer the needs of the users for faster and more efficient arbitration proceedings by introducing new sets of rules, sometimes as an alternative to their already existing ones. This new generation of rules tries to address the needs of the users, by rethinking the role of the actors of the procedure, giving more control over the procedure either to the institution, the tribunal or the Parties, fixing time limits, limiting submissions or allowing for emergency arbitrators: in its 2012 Rules, the ICC included the possibility for “emergency arbitrators”, a duty of efficiency and of disclosure of availability for the arbitrators as well as a duty of collaboration for the Parties; in 2012, the Swiss Rules also included a duty of efficiency for the Parties and amended its procedures for expedited arbitrations by focusing on the limited number of submissions; similarly, SIAC included in its 2013 Rules provisions for “expedited procedures”, while in 2010 the SCC drafted specific “expedited rules” – all expedited procedures being however designed for “small” claims.

If this diversification of rules reflects the undeniable success of international arbitration, it might also suggest that arbitration has become a product of mass consumption, further away from its original purpose of providing the Parties with a flexible, tailor-made dispute resolution method.

With the Paris Arbitration Rules, Paris Place d’Arbitrage takes a new turn, focused rather on the lightness of the Rules than the speed of the process. These Rules present themselves as a short set of rules addressed essentially to experienced international arbitration users, therefore relying on party autonomy and the trust in arbitrators empowered with a wide measure of discretion and authority. With efficiency in their center, the Paris Rules introduce a number of novel provisions.

Firstly, the Paris Rules require the Parties to evacuate from the debate all issues relative to the jurisdiction of the tribunal and the admissibility of the claim as early in the procedure as possible. Thus, the Parties are required to submit such objections in their Reply (articles 6.3, 6.4, and 8.2). Comparatively, neither institutional rules (ICC, SCC, SIAC or AAA) nor the UNCITRAL Rules segment the procedure as the Paris Arbitration Rules do.

By segmenting the proceedings, the Paris Rules prevent an ill-intentioned party from slowing down the process by submitting late objections and encourage the Parties to prepare their case upstream. The effect of provisions segmenting the procedure should be interpreted as a practical solution to a better organized resolution of the dispute, but also as a pedagogical tool towards efficiency as a common interest – if not, the premise of a new obligation to front load arguments [ie. as in the French doctrine of “concentration des moyens”] in international arbitration.

Secondly, the Paris Rules rely strongly on the authority of the Tribunal, more strongly it may seem, than any rule so far. In recent years, international Arbitration users have showed their concern with the lack of transparency when choosing arbitrators which has been weakening the already fragile trust between the average arbitration user and the well-established arbitrators. Hence, similarly to other recent Rules (ICC 2012, article 11.3; AAA 2009, article 7; SCC 2010 for expedited arbitration, article 14.3; or UNCITRAL 2010, article 11), the Paris Rules provide for a continuous duty of disclosure on the part of the arbitrators, one of the essential guarantees of the legitimacy of the arbitral process, especially in ad hoc proceedings where there is no institution overseeing it.

It is indeed the balance of powers between the Parties and the Arbitrators around which the Paris Rules are built, that make the originality of the Paris Rules. As they neither impose terms of references, nor do they set a stringent time limit for rendering an award (18 months), it is understandable that when the representatives of Paris Place d’Arbitrage underlined on April 15th that the Paris Rules were addressed to “refined” or “experienced” Parties, one should understand “to Parties able to remain in control of the procedure”.

These experienced Parties will need to keep in mind the provisions of article 1.2 which make the rules fully amendable, and always remember their ability – if not their obligation – to remain the masters of their fate. The Paris Rules expressly rely on the Parties ‘common purpose to reach an efficient and time effective solution while their very first article imposes on the Parties an express duty of cooperation – a goal which can only be achieved by shaping the dispute further upstream from the arbitration stage, by the claimant specifically.

As reminded on April 15th, the Rules suggest that Parties are invited to not simply rely on the “bare” rules, but use them to their advantage, and improve them according to their needs. This means, that Parties will necessarily have to address a number of questions prior to leaving them in the hands of the arbitrator(s).

In order to reach the objective of efficiency set in the Paris Rules, it would certainly be advisable for the Parties, like with any other set of Rules, to include an escalation clause in order to reach the contentious/arbitral stage with a precise definition of the then (hopefully) purely legal dispute; also, to include in the arbitration clause a number of preventive requirements such as the requirement to set up terms of references, the requirement from the arbitrator(s) to submit a statement of availability. Finally, efficiency of an arbitration procedure being contingent on the Tribunal’s responsiveness, and since the Paris Rules provide for a three members tribunal, Parties should consider opting for a sole arbitrator.

Notwithstanding the Appointing Authority’s power to remove or replace arbitrators when they fail to render a timely decision, trust in the Tribunal remains an essential condition of the success of the Paris Rules. The Paris Rules go so far as to allow truncated tribunals to proceed with the rendering of the award if an arbitrator from a panel of three were to fail to participate in the Tribunal’s deliberation (article 7.5); therefore avoiding the responsibility of building a trustful relationship with the arbitrator(s) would be a leap of faith no Party should be ready to make.

Thirdly, by simplifying the discovery process and limiting the content of the submissions of the Parties, the Paris Rules seem to characterize their duty of collaboration and efficiency. With the Paris Rules, the discovery process excludes metadata from the scope of discovery (article 6.8.h) and require that the submissions of the Parties be both “concise” and “focused” (article 6.7). Although the arbitrators are left with the discretion to appreciate this requirement, these provisions set a behavioral standard and a strong pedagogical message.

Fourthly, in order to add to the efficiency of the process, the Paris Rules allow for interim or emergency arbitrators, and for tribunals to grant ex parte relief. The growing trend for emergency arbitrators responds to the difficulties that may arise prior to the appointment of the Tribunal. Thus, the Paris Rules appear much more responsive to situations of emergency than the UNCITRAL Rules, therefore providing for a substantial innovation in the arbitration market. They appear to be the only ad hoc rules which provide with solutions usually found in institutional rules, making them competitive to institutional rules as well.

If one word were to characterize the Paris Rules, it would be the word “Responsibility”: these Rules should not be considered as solely addressed to so-called “refined” Parties, but equally, to “refined” Arbitrators.

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General Electric Company

Construction work at the Florence Chamber of Commerce has forced the city’s arbitration and mediation services to relocate to new offices the city was able to scrounge up.

View from new offices of Florence Chamber of Commerce

This is the view from the fourth-floor conference room assigned to a mediation I attended yesterday. Talk about coping well in the face of adversity…

Throughout many parts of Europe, municipal chambers of commerce have long helped businesses resolve their disputes. Historically, they have provided arbitration services; more recently, and more frequently, they are adding mediation.

In broad terms, the chambers are structured according to two models, at least in the way there are perceived by parties.

In a country of fierce individualists like Italy, the prevailing model seems to be every city equipped with its own rules and panel of arbitrators and mediators. This approach promotes local commerce by promoting prominent local professionals to resolve their disputes, but at the expense of non-locals who may justifiably fear being pitted against a formidable home-court advantage.

By contrast, the model adopted by the DIS, the German Arbitration Institute, is more disciplined, centralized and, well, let’s just say more… German.

The DIS provides the arbitration and mediation services for over a dozen municipal chambers of commerce of many large cities in Germany. It makes no difference, for example, if a party files a claim with the Frankfurt Chamber of Commerce or the Stuttgart Chamber. In both cases, the DIS will receive the request for arbitration and administer the proceedings.

The DIS model may sacrifice the interests of local professionals who would benefit from locally-made appointments, but it has the advantage of making the resolution process appear more neutral, consistent, and reliable in the eyes of those who hail from outside the city’s walls.

Given the growth in the DIS’s caseload over the last several years, it is also a successful model and the source of international ambitions. This much was confirmed last year when the DIS recruited Francesca Mazza, formerly a senior manager of the ICC, as the institution’s new secretary general.

In Italy, I am proud to say that my adopted home of Florence has embraced a similarly cooperative approach to international arbitration and mediation, bucking the national trend of fragmented individualism. The Florence Chamber has signed a pact with its northernly sister, the Milan Chamber of Commerce’s Court of Arbitration, one of the leaders in dispute resolution services in this part of Europe.

Under the cooperation agreement between the chambers, if a foreign party files an arbitration or a request for mediation with the Florence chamber, the rules applied to the dispute will be those of the Milan organization, which will also co-administer the proceedings.

It’s not surprising that Florence would be among the first of Italian cities to accept that surrendering local control is a path to becoming more attractive to foreign parties. After all, this is a city whose grandeur was built on the economic force of trade guilds dependent upon the power of cooperation and reciprocity, centuries before reliable judicial systems came into existence.

Perhaps Florence can now hope to add international dispute resolution to the list of reasons that so many choose to visit the city each year. And why not? While the DIS may be ahead in achieving broad multi-city cooperation and building an international reputation, there is one thing they do not have…

….our views.

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Herbert Smith Freehills LLP

In the case of HKL Group Co Ltd v Rizq International Holdings Pte Ltd the Singapore High Court (the “High Court”) has considered whether an arbitration clause in a contract which provided for disputes to be settled by arbitration in Singapore by a non-existent institution under the rules of the ICC was inoperable. The High Court found that the arbitration clause in question contained the necessary elements and was workable as long as the parties were able to secure the agreement of an arbitral institution in Singapore to conduct the arbitration.

The facts of the case are as follows. HKL Group Co Ltd (“HKL”) entered into an agreement with Rizq International Holdings Pte Ltd (“Rizq”) for the sale of sand which was to be shipped from Cambodia to Singapore (the “Agreement”).

HKL claimed that it had issued invoices to Rizq for amounts owed pursuant to the Agreement and that Rizq had failed to pay these amounts. HKL began court proceedings in Singapore to recover these amounts.

Under Section 6(2) of the Singapore International Arbitration Act (the “IAA”), the court can make an order, upon such terms or conditions as it may think fit, staying court proceedings so far as the proceedings relate to a matter which is the subject of an arbitration agreement, unless the court is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.

Rizq applied for the court proceedings to be stayed in favour of arbitration under s6(2) of the IAA on the basis of the arbitration clause contained in the Agreement which stated:

Any dispute shall be settled by amicable negotiation between [the] two Parties. In case both Parties fail to reach [an] amicable agreement, all dispute [sic] out of in connection with the contract shall be settled by the Arbitration Committee at Singapore under the rules of The International Chamber of Commerce [the ICC Rules] of which awards shall be final and binding [on] both parties . . .

HKL resisted Rizq’s application, saying that the arbitration clause was inoperable because there was no entity in Singapore named the “Arbitration Committee”. Rizq argued that although the arbitration clause was defective, it was clear that the parties’ intention was to arbitrate and the High Court should rely on the principle of effective interpretation to find that the “parties could still agree to arbitrate the matter in Singapore . . .”

Approach to pathological arbitration clauses in Singapore

The High Court gave interesting guidance on the general approach to be taken in considering pathological arbitration clauses, as well as considering the clause in question. The High Court started off by noting that in the majority of cases, when the contractual requirements for the validity of an arbitration clause are met and the meaning of the clause can be discerned by a court applying the general principles of contractual interpretation, the clause will be found to be operable as long as the conditions stipulated in the arbitration agreement have been complied with. If the court is unable to discern the meaning of the clause, either in part or entirely, then the clause will be considered inoperable, or pathological.

When faced with interpreting a potentially pathological arbitration clause, the High Court noted that the general approach is to give effect to the clause. The High Court cited the judgment of Insigma Technology Co Ltd v Alstom Technology Ltd in which the Court of Appeal of Singapore stated:

[W]here the parties have evinced a clear intention to settle any dispute by arbitration, the court should give effect to such intention, even if certain aspects of the agreement may be ambiguous, inconsistent, incomplete or lacking in certain particulars . . . so long as the arbitration can be carried out without prejudice to the rights of either party and so long as giving effect to such intention does not result in an arbitration that is not within the contemplation of either party . . .

The Court of Appeal in the Insigma case went on to note that this approach is similar to the principle of effective interpretation in international arbitration law; “where a clause may be interpreted in different ways, the interpretation which enables the clause to be effective should be adopted in preference to the others which lead to contrary effect.”

Nonetheless, the High Court found that the court will need to decide on a “case by case basis” whether arbitration clauses should be upheld or found to be pathological, but that the Singapore courts will “give primacy to the decision of the parties to arbitrate and will seek to resolve the various pathologies with the aid of the principle of effective interpretation.”

The High Court’s view of the clause in question

Readers of the Kluwer Blog will already have noticed that the defect in the arbitration clause related to the reference to the non-existent “Arbitral Committee at Singapore”.

The High Court noted that in general “an incorrect reference to the arbitral institution has not prevented the courts from referring the matter to arbitration.”

The High Court found that the arbitration clause was operable for various reasons:

1. It clearly demonstrated the intention of the parties to resolve disputes by arbitration;
2. It required the mandatory consequence of a matter being referred to arbitration if a dispute arose;
3. It provided for the place of arbitration (Singapore); and
4. It provided that the arbitration was to be governed by a particular set of rules (the ICC Rules).

However, the issue arose as to whether the reference to the ICC Rules in the arbitration agreement rendered the agreement inoperable as there was no National Committee of the ICC to administer the ICC arbitration in Singapore. The High Court found that although the arbitration clause was uncertain in relation to the arbitral institution, it was open to the parties to approach any arbitral institution in Singapore to administer the arbitration while applying the ICC Rules. The High Court specifically mentioned the Insigma case in which the Court of Appeal noted that the Singapore International Arbitration Centre (SIAC) “was able and willing, for that particular case, to conduct a hybrid arbitration, applying the ICC rules.”

Therefore, the High Court stayed the court proceedings in favour of arbitration but imposed “the condition that parties obtain the agreement of the SIAC or any other arbitral institution in Singapore to conduct a hybrid arbitration applying the ICC rules, with liberty to apply should they fail to secure any such agreement.”

Comment

This decision is interesting for two reasons. First, it provides further evidence of the strong support given to arbitration in the Singapore courts and the willingness to abide by parties’ agreement to arbitrate.

The second interesting point is the interplay between the court’s decision and the 2012 ICC Rules. In the Insigma case, cited by the High Court, the Court of Appeal upheld an arbitration clause that provided for the SIAC to administer a case under the ICC Rules.

However, after the Insigma ruling the ICC adopted a new set of rules (the “2012 ICC Rules”). The 2012 ICC Rules include Rules 1(2) and 6(2) which state:

The [International] Court [of Arbitration] is made the only body authorised to administer arbitrations under the ICC Rules

and

By agreeing to arbitration under the [ICC] Rules, the parties have accepted that the arbitration shall be administered by the Court.

In short, the 2012 ICC Rules are drafted to expressly exclude another institution from administering an ICC arbitration. However, the Singapore court did not discuss these provisions in the new ICC Rules or their implications as regards the possibility of the case being administered by another institution. Thus there was no discussion of whether the parties, by choosing Rules with these express requirements for administration by the ICC Court, had impliedly excluded the possibility of case administration by any other institution.

Conceivably, the Singapore court could have chosen another option, namely that ‘the Arbitration Committee’ was not intended as a reference to an arbitral institution at all but was merely a terminologically inaccurate reference to the tribunal that would decide the case in Singapore. That would have avoided any need to re-engage in the Insigma debate but the court may not have been presented with this option. In any event, the court did not adopt that interpretation but determined instead that the reference to ‘the Arbitration Committee’ was to be treated as the designation of an unspecified administering institution, and therefore that it would be for the SIAC (or any other arbitral institution in Singapore approached to administer the arbitration) to determine if it can and will administer the arbitration under the ICC Rules.

Although the SIAC agreed to administer the arbitration relevant to the Insigma case, it is unclear whether the SIAC, or another arbitral institution, will now agree to administer a “hybrid” arbitration under the ICC Rules given the introduction of Rules 1(2) and 6(2) in the 2012 ICC Rules, and the controversy that followed the earlier decision. It will also be interesting to see whether the court’s decision is appealed and whether the judgment stands. On any basis, it appears that the recent amendments to the ICC Rules have not yet fully doused the flames of the debate that was sparked by Insigma in 2009.

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International Moot Court Competition Association (IMCCA)

An earlier post examined the general limitations on arbitral discretion. This part will look into the question of actions taken proprio motu and the limits thereto.

Functions exercisable proprio motu are perceived as a special case of application of the discretionary powers enjoyed by a tribunal. Actions taken proprio motu must be distinguished from functions exercised ex officio. The latter imply obligation, duty to act, while the former – a margin of appreciation. (See Legality of Use of Force (Serbia and Montenegro v. Belgium), Preliminary Objections, Judgment, I.C.J. Reports 2004, Separate Opinion of Judge Kreća at p. 401)

To understand the importance of this issue consider the following example. In the controversial Patrick Mitchell v. Democratic Republic of the Congo annulment decision the following passage appears:

“[T]he Arbitral Tribunal would have been welcome to address ex proprio motu the other provisions of the Treaty, which might potentially excuse taking such measures against the Claimant. A comparable approach would have been along the lines of the adage jura novit curia – on which the DRC leaned heavily during the Annulment Proceeding – but this could not truly be required of the Arbitral Tribunal, as it is not, strictly speaking, subject to any obligation to apply a rule of law that has not been adduced; this is but an option – and the parties should have been given the opportunity to be heard in this respect – for which reason it is not possible to draw any conclusions from the fact that the Arbitral Tribunal did not exercise it.” (ICSID Case no. ARB/99/7, Decision on the application for annulment of the award of November 6, 2006, para. 57; emphasis added)

One could well read into this passage an option for the tribunal to substitute itself for one of the parties and deal with circumstances precluding wrongfulness which have not been raised by the party concerned. This would seriously impede the equality of the parties. A tribunal may not supplement sua sponte the parties’ claims and defences as little would be left of the adversarial nature of the proceedings. (Newcombe & Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International: 2009) at p. 90)

Which actions may be taken proprio motu?

According to Rule 41(2) of the ICSID Rules of Procedure for Arbitration Proceedings (“Arbitration Rules”) “The Tribunal may on its own initiative consider, at any stage of the proceeding, whether the dispute or any ancillary claim before it is within the jurisdiction of the Centre and within its own competence.” This right of initiative on the part of the tribunal is explained by the cardinal importance of the question of jurisdiction and the principle of compétence de la compétence. By the same token, in the salient Mihaly International Corp. v. Sri Lanka award the tribunal found that:

“[T]he question of jurisdiction of an international instance involving consent of a sovereign State deserves a special attention at the outset of any proceeding against a State Party to an international convention creating the jurisdiction. As a preliminary matter, the question of the existence of jurisdiction based on consent must be examined proprio motu, i.e., without objection being raised by the Party.” (ICSID Case no. ARB/00/2, Award of March 15, 2002, para. 56)

Since Arbitration Rule 41 mentions “at any stage of the proceeding” it may be questioned whether and which objections to jurisdiction may be deemed precluded by virtue of Arbitration Rule 27. As pointed out by Prof. Schreuer a party may not be permitted to “keep it in store as ammunition against a possible unfavourable award in annulment proceedings.” (Schreuer, Commentary, supra at p. 995) Prof. Schreuer explains that the jurisdiction of an ICSID tribunal depends on a number of requirements enumerated in Article 25 of the Convention some of which are objective and some – depend on the disposition of the parties. Similarly, the existence of an investment (which is an objective fact) cannot be subject to waiver, while the consent of the respondent can. In the latter case, this would amount to a prorogation of the tribunal’s jurisdiction (forum prorogatum). (See Schreuer, C., Belated Jurisdictional Objections in ICSID Arbitration in Liber Amicorum Bernardo Cremades (W. Á. Fernández-Ballesteros, D. Arias eds.) 1081 (2010) at p. 1095)

Questions of admissibility, on the other hand, cannot be examined by the tribunal motu proprio for the same reasons as those expressed above in relation to the Patrick Mitchell v. Democratic Republic of the Congo annulment decision. The tribunal in Hochtief AG v. Argentina usefully stated that:

“In the ICJ, for example, rules on admissibility include such matters as the rules on the nationality of claims and the exhaustion of local remedies. The ICJ may have jurisdiction to decide whether State A had injured corporation B in violation of international law; but it may be that the claim actually filed is inadmissible because it has been brought by the wrong State, or because local remedies have not yet been exhausted. But if no objection is raised on such grounds, the Court will not raise the matter proprio motu.” (ICSID Case no. ARB/07/31, Decision on Jurisdiction of October 24, 2011, para. 5)

Before reaching any conclusion, consider also the power of an ad hoc committee to stay the enforcement of the award pending disposition of the application for annulment. This power is found in Article 52(5) of the ICSID Convention. The word “may” as used in the text implies discretion, but the annulment committee cannot stay enforcement of the challenged award ex proprio vigore without a request by the applicant for annulment. To hold otherwise would threaten the balance of rights under the Convention.

From the above it may be concluded that there are two groups of actions which the tribunal may take on its own motion:
- actions which may be taken despite any objections of the parties – such as the question of jurisdiction;
- actions which depend on the objection/agreement of the parties – such as the question whether a hearing would be public. (See Arbitration Rule 32(2) which mentions “The Tribunal shall decide, with the consent of the parties…”)

Limitations on functions exercisable proprio motu

The conclusion that results from the above discussion is that the ICSID Convention and Rules are those which authorize actions to be taken proprio motu. In other words, there must be a permissive (enabling) norm, otherwise the adversarial character of the procedure would be impeded. The parties may not be ‘surprised’ by the tribunal. Any action taken proprio motu which is not based on such an enabling norm would be arbitrary in that it will be destructive of the equality of the parties.

Other instances in which the tribunal may act sua sponte are:
- it has broad discretion to order the production of evidence (See Article 43 of the ICSID Convention; Aguas del Tunari S.A. v. Bolivia, ICSID Case no. ARB/02/3, Decision on Jurisdiction of October 21, 2005, para. 25). Here it may be added that in order to safeguard itself from charges of bias, a tribunal shall exercise self-restraint in summoning evidence on its own motion independently of a request from one of the parties;
- indication of provisional measures. (See Article 47 of the ICSID Convention)

In case of default of appearance of the respondent the tribunal is rather obliged to satisfy itself that the submissions of the active party are well-founded in fact and in law. (See Article 42(4) of the Convention which uses the word “shall” rather than “may”. See also Liberian Eastern Timber Corporation (LETCO) v. Republic of Liberia, ICSID Case no. ARB/83/2, Award of March 31, 1986, paras. 356-357)

In place of conclusion

When it comes to that thin red line separating the arbitral from the arbitrary, one may recall a quote from Samuel Gompers:

“Do I believe in arbitration? I do. But not in arbitration between the lion and the lamb, in which the lamb is in the morning found inside the lion. I believe in arbitration between two lions or two lambs… There can be arbitration only between equals…” (February 10, 1888)

Before finding the proper limits of arbitral discretion – at which this post attempts by setting a first step – there is the risk that arbitration be one “between the lion and the lamb.”

The author wishes to thank Prof. Christoph Schreuer for his insightful comments on an earlier draft.

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International Moot Court Competition Association (IMCCA)

The problem of arbitral discretion has major implications on the rights of the parties. It is a concept foundational to international arbitration. Yet, it has proven to be so elusive as to escape any definition or treatment in literature.

Why is this topic important?

In order to answer this question, let us take pre-award interest as an example. The Wena v. Egypt ad hoc committee has prominently held that “international tribunals… dispose of a large margin of discretion when fixing interest.” (ICSID Case no. ARB/98/4, Decision on annulment of February 5, 2000, para. 96) Pre-award interest is part of the compensation for the damage resulting from the fact that the creditor is deprived of the use of the sum he was supposed to receive. (Vivendi v. Argentina, ICSID Case no. ARB/97/3, Award of August 20, 2007, para. 9.2.3.) In cases such as Compañía del Desarrollo de Santa Elena, S.A. v. Costa Rica where the breach occurred – and consequently the dies a quo was – 20 years before the date of the award the interest on the outstanding principal would exceed it several times. Thus, the Santa Elena tribunal awarded more than U.S.$ 11 million in interest on a claim of over U.S.$ 4 million. (ICSID Case no. ARB/96/1, Final award of February 17, 2000, para. 95) In this regard, a passage appearing in SGS Société Générale de Surveillance S.A. v. Philippines Order on further proceedings seems particularly troubling. There the tribunal noted in passim that:

“[C]ounsel for the Claimant formally abandoned its claim for contractual interest… Instead, he asserted a claim for interest at international law, i.e. extra-contractual interest. But whereas international tribunals do have the power to award interest on unpaid amounts, that is a discretionary power and depends on the circumstances. Guidance may be obtained from the decision of the Permanent Court of International Justice [in the Wimbledon case] where interest was awarded only from the date of judgment, that being ‘the moment when the amount of the sum due has been fixed and the obligation to pay has been established’.” (ICSID Case no. ARB/02/6, Order on further proceedings December 17, 2007, para. 16; emphasis added)

While determination of the applicable rate of interest deserves further research in its own name and may depend on the applicable law, nature of the breach of obligations, nature of the investment etc., the position of the tribunal is striking as one making a reversal to the state of the law back in the year 1923. The Wimbledon case (Case of the S.S. “Wimbledon”, Judgment, Permanent Court of International Justice Series A No. 01 (1923)) belongs to an time when interest was consistently denied for the so-called unliquidated claims (that is, claims in which the exact amount of the loss is fixed by the award itself) and does not any more reflect the current state of the law. (Second report on State responsibility, Special Rapporteur G. Arangio-Ruiz in Ybk ILC 1989 vol. II at p. 27) Consequently, it may be agreed that determination of the rate of interest falls within the discretion of the tribunal, however, it must be recognized that the claimant is entitled to pre-award interest as of right, i.e. in any case in which valuation is effected as of date preceding the award – most often the date of the breach, (See for e.g. Asian Agricultural Products Limited v. Sri Lanka, ICSID Case no. ARB/87/3, Award of 27 June 1990, para. 114; Southern Pacific Properties (Middle East) Limited v. Egypt, ICSID Case no. ARB/84/3, Award of May 20, 1992, para. 234) and should not depend on the discretion of the tribunal alone. Otherwise, the functions of pre-award interest will be hindered, namely, timely settlement of the dispute; reinstatement of the creditor in the position before the breach and denial of unjust enrichment of the respondent, especially with a view to the fact that during this time the latter has been able to earn interest on the withheld amounts.

Characteristics of arbitral discretion and a possible definition of the concept

The rationale behind the concept of arbitral discretion is effective case management. In addition to that, the arbitration rules cannot beforehand and in detail provide for every possible situation occurring in a dispute.

To give an example, consider the situation which presented itself in the Himpurna California Energy Ltd. v. Indonesia arbitration in which agents of the Republic of Indonesia intercepted Professor Priyatna Abdurrasyid, one of the co-arbitrators, at Schiphol Airport in Amsterdam in order to prevent him from further participating in the proceedings. The other two arbitrators had to interpret the provisions of the UNCITRAL Arbitration Rules and reached the conclusion that a truncated tribunal can proceed to render a valid award. (Final Award of October 16, 1999 in 15 Mealey’s Int’l Arb. Rep. A1 (2000), para. 67)

It results from the above that the tribunal’s discretion may be defined as the inherent power to preserve the integrity of the proceedings and to conduct them in an expeditious and effective manner so as to end the dispute between the parties by rendering a valid award. This is only a working definition subject to the usual caveat that any definition is dangerous (omnis definitio in jure periculosa est).

When does a tribunal have discretion?

This residual power finds its textual foothold in different provisions of the ICSID Convention containing the word “may” and, more generally, in Article 44 of the same instrument. Article 44 empowers a tribunal “to fill a specific gap regarding the conduct of specific proceedings.” (Abaclat et al. v. Argentina, ICSID Case no. ARB/07/5, Decision on Jurisdiction August 4, 2011, para. 527) As the tribunal is Abaclat et al. v. Argentina explained:

“Article 44 [is an] expression of the inherent power of any tribunal to resolve procedural questions in the event of lacunae.
As a matter of principle, the power of a tribunal is limited to the filling of gaps left by the ICSID Convention and the Arbitration Rules. In contrast, a modification of existing rules can only be effected subject to the parties’ agreement, in accordance with minimum standards of fair procedure and to the extent that the rules to be modified are not mandatory (in the sense that they restate mandatory provisions of the Convention).
A tribunal’s power is further limited to the filling of gaps left by the ICSID framework in the specific proceedings at hand, and a tribunal’s role is not to complete or improve the ICSID framework in general. As such, a tribunal’s power to fill gaps will usually be limited to the design of specific rules to deal with specific problems arising in the proceedings at hand.” (paras. 521-523; emphasis added)

Consequently, a tribunal may utilize its discretionary authority on two occasions:
- if there is a permissive rule which uses language such as “the tribunal may”;
- if the tribunal identifies a lacunae – according to Article 44.

Limits to arbitral discretion

It is said in the Phoenix Action v. Czech Republic case that “[t]here is nothing like a total discretion…” (ICSID Case no. ARB/06/5, Award of April 15, 2009, para. 82) But where do we find the limits of arbitral discretion? The only guidance coming from the ICSID practice is the case of Corn Products International, Inc. v. United Mexican States:

“The Tribunal considers that the two principles by which it should be guided in the exercise of its discretion are (a) the efficient conduct of the proceedings and (b) fairness to both disputing parties.” (ICSID Case no. ARB(AF)/04/01, Decision on responsibility 15 January 2008, para. 8)

Consequently, from Article 52(1)(d) of the ICSID Convention which relevantly mentions “serious departure from a fundamental rule of procedure” (a two-prong test) as a ground for annulment of awards the inference may be drawn that these fundamental rules are the outer limit of the tribunal’s discretion. Such core rules are impartiality of the tribunal; equality of the parties; right to be heard; other. (Schreuer, C. et al., The ICSID Convention: A Commentary (Cambridge University Press, 2nd edn: 2009) at pp. 979-996) It follows that an ICSID tribunal retains a broad margin of discretion in the conduct of the proceedings subject to the observance of fundamental rules of procedure. (See Article 17(1) UNCITRAL Arbitration Rules as revised in 2010; See also Born, G., Arbitral Tribunal’s Discretion to Determine Arbitral Procedure in Born, G., International Commercial Arbitration (Kluwer Law International: 2009) at p. 1762)

This is also confirmed by the Enron Creditors Recovery Corp. and Ponderosa Assets, L.P. v. Argentina annulment decision:

“It is not for an annulment committee to second guess how a Tribunal exercises its discretion, unless a particular exercise of discretion amounts to a serious departure from a fundamental rule of procedure.” (ICSID Case no. ARB/01/3, Decision on Annulment of July 30, 2010, para. 192)

Likewise, the committee in Vivendi v. Argentina second annulment recognized that “[procedural incidents may] be considered grounds for annulment. In the view of the ad hoc committee, they can but only if they rise to the exacting standards for annulment as expressed in Article 52(1)”. (ICSID Case no. ARB/97/3, Decision on annulment, 10 August 2010, para. 251) This shall not mean that a tribunal is otherwise permitted to make ‘trivial departures’ from fundamental rules of procedure, but only that such errors will not amount to annullable defects.

Aside from the above, an arbitral tribunal enjoys a wide margin of discretion on issues of quantum. (Rumeli Telekom v. Kazakhstan, ICSID Case no. ARB/05/16, Decision on Annulment March 25, 2010 at para. 146; Wena v. Egypt, supra, para. 91) As the tribunal in Rumeli Telekom v. Kazakhstan put it:

“The estimation of damages… is not an exact science. It is of the essence of such an exercise that the tribunal has a measure of discretion, since the final figure must of its nature be an approximation of the claimant’s loss.” (Decision on Annulment, para. 179(5); emphasis added)
“[T]he precise amount of this damage is a matter for the tribunal’s informed estimation in the light of all the evidence available to it.” (Id., para. 147)

A litigant’s dissatisfaction with such estimation provides no ground for annulment. An annulment committee “is not a court of appeal, and that it is not the function of the Committee to pass judgment upon the substance of the Tribunal’s decision with respect to the quantum of damages.” (Azurix Corp. v. Argentina, ICSID Case no. ARB/01/12, Decision on annulment September 1, 2009, para. 362) As long as the tribunal has applied the proper law and has stated the reasons for its decision, no annullable defect will exists. Scholars reported that in the past, “on a number of occasions, tribunals appear to have simply ‘split the baby’, by taking the mean between alternative valuations produced by the parties…” (Ripinsky, S., Assessing Damages in Investment Disputes: Practice in search of perfect in 10:1 J. of World Inv. & Trade 5 (2009) at p.8) This is, so to say, part of the game since it must be recognized that:

“When parties select arbitral rules, they incorporate by reference those rules and effectively grant arbitrators the discretion afforded under them. As a result, parties are generally precluded from later objecting to arbitrators’ exercise of that discretion.” (US Restatement of the Law Third, Council Draft No. 3, Reporters’ notes at p. 230)

This part sought to throw light on the thorny question concerning the limits of arbitral discretion. The topic is important since arbitration in which the tribunal enjoys unfettered discretion is akin to an expensive Old Master picture without a proper frame. It may threaten the credibility of the ICSID system. Part II of this post will examine the issue of which actions can an arbitral tribunal take proprio motu as a special case of discretionary authority.

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