Kluwer Law International

Posts Tagged ‘Arbitrators’

Wilmer Cutler Pickering Hale and Dorr LLP,
for WilmerHale

The U.S. Federal Arbitration Act (FAA) provides that a federal district court may vacate an arbitration award, among other reasons, “where there was evident partiality or corruption in the arbitrators.” 9 U.S.C. §10(a). However, as illustrated by a recently decided case in the Southern District of New York, U.S. district courts apply different standards of “evident partiality,” depending on the circuit in which they are located.

In Ometto v. ASA Bioenergy Holding A.G., decided this past January, the petitioners (collectively “Ometto”) brought a motion to vacate two arbitration awards against them totaling almost $120 million. Ometto’s motion was based on the fact that after the underlying arbitration began, the presiding arbitrator’s law firm had advised clients regarding corporate transactions involving one of Ometto’s opposing parties in the arbitration or an affiliate. Ometto argued that the presiding arbitrator “was rendered evidently partial” due to these conflict of interests and the arbitrator’s failure to disclose them as required by the ICC rules. Ometto v. ASA Bioenergy Holding A.G., 2013 WL 174259 at *2 (S.D.N.Y. 2013). Relying principally on the Ninth Circuit case Schmitz v. Zilveti, 20 F.3d 1043 (9th Cir. 1994), Ometto argued that the presiding arbitrator, even if he had not actually been aware of the conflicts, should be charged with “constructive knowledge” of his firm’s engagements. Id.

The district court ordered an evidentiary hearing to help it ascertain the facts with regard to the presiding arbitrator’s knowledge of the conflicts; at the hearing, both the court and the parties’ counsel were given the opportunity to question the arbitrator. Ometto, 2013 WL 174259 at *3. In its decision, the court found that there was “no material evidence refuting [the presiding arbitrator’s] sworn assertion that he was, in fact, completely unaware of the conflicts … when he authored the awards.” Id. at *4. The court further found that the arbitrator’s “lack of awareness was largely the product of his own administrative carelessness in the manner he undertook a conflicts check at the advent of the arbitration.” Id.

Whether or not Ometto would have prevailed in its arguments in the Ninth Circuit is debatable, but given the presiding arbitrator’s lack of knowledge of the conflicts it was easy for the New York district court to reject the imputation of “constructive knowledge” and to find that the “evident partiality” standard had not been met under the law of the Second Circuit, under which a court “may only find evident partiality sufficient to vacate an award when a reasonable person, considering all of the circumstances, would have to conclude the arbitrator was partial to one side.” Ometto, 2013 WL 174259 at *4 (internal quotation marks omitted) (emphasis in the original). The court noted that under the Second Circuit standard “the arbitrator is quite unlike a judge, who can be disqualified in any proceeding in which his impartiality might be reasonably questioned.” Id. (internal quotation marks omitted).

The court then contrasted the Second Circuit’s standard against that of the Ninth Circuit, which only requires “an impression of possible bias,” and found that “the petitioner’s reliance on [Ninth Circuit caselaw] to invite this Court to impute constructive knowledge [on the presiding arbitrator] invokes precedent that is both non-binding on this Court and countermanded by the more circumspect view of ‘evident partiality’ adopted by this Circuit.” Id.

The U.S. federal circuit courts are split as to which is the correct standard of “evident partiality.” The Fifth, Eighth, Tenth and Eleventh circuits have adopted standards akin to that of the Ninth Circuit—that there exists a “reasonable impression” of bias. The First, Third, Fourth, Sixth and Seventh circuits have adopted standards akin to that of the Second Circuit—that a “reasonable person would have to conclude” there was bias. In an opinion issued this month, the Third Circuit, “[i]n response to the parties’ confusion” reaffirmed the “would have to conclude” standard, which it had previously “embraced … in a footnote” in the 1994 case Kaplan v. First Options. See Freeman v. Pittsburgh Glass Works, LLC, 2013 WL 811884 at *8-9 (3rd Cir. 2013). The D.C. Circuit has not clearly articulated either standard, but would appear to lean toward the standard of the Second Circuit. See Thian Lok Tio v. Washington Hosp. Center, 753 F.Supp2d 9, 17 (2010) (a party alleging “evident partiality bears a heavy burden to establish specific facts that indicate improper motives on the part of an arbitrator.”) (internal quotations omitted).

Suffice to say that in U.S. caselaw there is an “absence of consensus on the meaning of ‘evident partiality’” under the FAA. Montez v. Prudential Securities, Inc., 260 F.3d 980 (8th Cir. 2001). Not only are the circuit courts almost evenly split regarding whether the standard is that of “reasonable impression” of bias or something closer to actual bias, but even circuits within the same general camp apply the standard differently. For example, the notion in the Ninth Circuit caselaw relied on by Ometto that an arbitrator’s “constructive knowledge” of a conflict can lead to a “reasonable impression” of bias satisfying the “evident partiality” standard has been expressly rejected by the Eleventh Circuit, which also applies a “reasonable impression” of bias test. See Gianelli Money Purchase Plan and Trust v ADM Inv. Services, Inc., 146 F3d 1309 (11th Cir. 1998). The Fifth Circuit, in an en banc decision, opined that the Ninth Circuit Schmitz case was an “outlier” and found that “nondisclosure by an arbitrator” would not lead to vacatur of an award “unless it creates a concrete, not speculative impression of bias.” Positive Software Solutions, Inc. v. New Century Mortg. Corp., 476 F.3d 278, 283, 286 (5th Cir. 2007). The dissent in that case accused the majority of “substitut[ing] actual bias, or the reasonable impression of bias, or concrete impression of bias for the Supreme Court’s ruling that dealings that might create only an impression of possible bias must be disclosed.” Positive Software Solutions, at 287 (dissenting opinion).

The confusion in the U.S. courts about the meaning of “evident partiality” stems from the U.S. Supreme Court case Commonwealth Coatings Corp. v. Cont’l Cas. Co., 393 U.S. 145 (1968). In that case, the Court’s 6-3 plurality decision vacated an award based on the presiding arbitrator’s undisclosed business relationship with one of the parties, related to the subject matter of the arbitration. However, the Court was unable to articulate a standard for “evident partiality” that garnered the majority of votes. Justice Black’s opinion of the court, which was joined by three other justices, stated that arbitral tribunals “should avoid even the appearance of bias,” that arbitrators should be held to higher standards than judges since they “have completely free rein to decide the law as well as the facts and are not subject to appellate review,” and that an arbitrators should “disclose to the parties any dealings that might create an impression of possible bias.” Commonwealth Coatings, 395 U.S. at 149. Justice White’s concurring opinion, which was joined by Justice Marshall, took a different view, finding that arbitrators are not necessarily to be held to the “standards of judicial decorum of [U.S. federal] judges, or indeed of any judges.” Id. at 150. See also G. Born, International Commercial Arbitration 1466-1470 (2009) (discussing Commonwealth Coatings and its progeny). The Second Circuit and like-minded circuits have found that they should follow the tenor of Justice White’s opinion since it was the narrowest ground upon which the Commonwealth Coatings Court ruled. See e.g. Morelite Const. Corp. v New York City Dist. Council Carpenters Ben. Funds, 748 F2d 79, 83 (2d Cir. 1984) (finding that in light of Justice White’s opinion “much of Justice Black’s opinion must be read as dicta”).

Given the clear differences among the federal circuit courts—a reason for granting a petition for certiorari under U.S. Supreme Court jurisprudence—it would appear that the time is ripe for the U.S. Supreme Court to remedy its previous lack of clear guidance regarding the meaning of “evident partiality.” We note that the “reasonable impression” of bias test used in the Ninth Circuit—and perhaps only the Ninth Circuit—is somewhat similar to the generally accepted standard for challenges to an arbitrator for lack of independence or impartiality in international arbitration. A recent ICSID decision, for example, found that “[a]n appearance of … bias from a reasonable and informed third person’s point of view is sufficient to justify doubts about an arbitrator’s independence or impartiality.” Urbaser SA v. Argentine Republic, Decision on Claimants’ Proposal to Disqualify Professor Campbell McLachlan, Arbitrator, ICSID Case No. ARB/07/26 (12 August 2010), ¶43. However, it should be remembered that the context of the FAA’s “evident partiality” standard is that of vacatur of an arbitral award, and clearly there should be a higher standard for vacating an award once the arbitral proceedings have ended than there is for accepting a challenge to an arbitrator during the course of the proceedings. In addition, the plain meaning of the text of the FAA, and specifically the word “evident,” connotes something more than just an “impression” of bias. Thus, in our opinion, the U.S. Supreme Court should clarify the meaning of “evident partiality” by adopting the standard of the Second Circuit.

Gary B. Born & Claudio Salas

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

Pepperdine University School of Law

A new study of dispute resolution practices in Fortune 1,000 corporations shows that many large companies are using binding arbitration less often and relying more on mediated negotiation and other approaches aimed at resolving disputes informally, quickly and inexpensively. The 2011 survey of corporate counsel developed by researchers at Cornell University’s Scheinman Institute on Conflict Resolution, the Straus Institute for Dispute Resolution at Pepperdine University School of Law, and the International Institute for Conflict Prevention & Resolution (CPR) produced results that appear to be strongly reflective of U.S. practices and trends, but thoughtful practitioners and scholars will ponder its implications for the future of international practice.

Although the approaches of large corporations to managing conflict vary widely, their strategies typically boil down to how best to control cost and risk in dispute resolution processes and outcomes. As the U.S. experienced what some have called a “quiet revolution” in dispute resolution in the 1980s, corporate counsel played a critical role. They were in the forefront of efforts to avoid the expense and risk of hardball litigation. They began using settlement-oriented approaches like mini-trial, and, more significantly, negotiation with the help of mediators. They banded together to form the Center for Public Resources (now CPR), which actively promoted corporate and law firm pledges to seek out-of-court solutions before resorting to litigation.

Around the same time, corporate counsel also participated in efforts to address what they perceived to be the limitations or inadequacies of binding arbitration as a substitute for litigation. Although forms of arbitration had been a mainstay of business dispute resolution throughout much of the latter half of the Twentieth Century, arbitration was thrust into an even more prominent role as a substitute for public trial thanks to a series of U.S. Supreme Court decisions strongly promoting the enforcement of arbitration agreements.

When in 1997 Cornell conducted the first survey of Fortune 1,000 corporate counsel on their attitudes and practices regarding dispute resolution, mediation and arbitration were both prominently and positively portrayed. Corporate counsel expressed positive views of many perceived benefits of these options, including savings of time and cost and more satisfactory, durable results. A majority of respondents predicted that their companies would make use of both mediation and arbitration in the future.

The 2011 survey, reflecting the responses of more than 300 Fortune 1,000 corporate counsel, presents a very different, decidedly mixed picture. The respondents, almost half of whom are general counsel, assert that their companies are less likely to employ hardball litigation as a primary strategy, and instead broadly embrace mediation as a tool for resolution of all kinds of disputes now and in the future. They are also becoming more proactive in managing conflict in the early stages of litigation and employing third parties to evaluate and assess different dimensions of a legal dispute. Around two-thirds of responding counsel said their company employ some form of “early case assessment”—an approach that in companies like DuPont is a formalized and systematic method of analyzing all aspects of a dispute in the early stages in order to plot the appropriate course for its resolution.

At the same time, however, corporate counsel tend to be markedly less assured of the potential benefits of “alternative dispute resolution,” perhaps reflecting a more realistic (or more cynical) view borne of long experience. As a group, they are less certain that these processes will be deemed satisfactory, or that they will produce satisfactory settlements or durable results. These data may mirror anecdotal evidence that mediation is often subject to manipulation by attorneys seeking to prolong or frustrate the dispute resolution process or “spin” mediators.

When it comes to adjudication, more companies seem to be turning back to litigation in court. Binding arbitration usage has dropped for most kinds of disputes (including commercial, employment, environmental, intellectual property, real estate and construction disputes), and corporate counsel are now evenly divided on the question of their company’s future use of arbitration. Notable exceptions to this marked downward trend are consumer and products liability cases, as some companies appear to be taking advantage of U.S. Supreme Court’s decisions supporting the use of binding arbitration clauses in standardized consumer contracts, including provisions waiving the right to participate in class actions.

The common theme in these changing patterns appears to be a desire for maximal control of the dispute resolution process. Corporate attorneys logically prefer to manage outcomes, so mediation and other approaches that aim at achieving a mutually acceptable settlement are strongly favored. The evidence suggests that in the U.S. the models they currently embrace are heavily lawyered, with the emphasis on third party predictions or evaluations of a case’s chances in adjudication. The great majority of cases are resolved prior to hearings on the merits; thus, the incidence of court trial has fallen dramatically, and there are also fewer cases going to arbitration hearings.

Where settlement cannot be achieved, some large companies—perhaps as many as half the Fortune 1,000—then want to try their commercial cases in court despite the well-known costs and risks, if only because of the traditional “second chance”—the opportunity to overturn a faulty verdict or judgment on appeal. For many corporate counsel, concerns about the inability to overturn arbitration awards that do not comport with applicable law or proven fact, coupled with suspicions about the abilities or motivations of arbitrators, are paramount.

But many other corporate attorneys continue to view the preference for litigation as ironic, since the alternative—binding arbitration—is a choice-based process that affords countervailing advantages such as options for enhanced confidentiality, speed and efficiency, expertise . . . and even, potentially, private appeal to another tier of arbitration! All too often, however, it seems that corporate counsel fail to recognize or take advantage of such options, and instead complain about the shortcomings of arbitration. To make active choices regarding arbitration means overcoming formidable barriers such as the prevalent caution among corporate counsel about leaving traditional comfort zones, and the low priority assigned to dispute resolution in the negotiation and drafting of business agreements. These are the source of great inertia. As one expert on corporate deal-making recently explained when asked why the companies he advises had not rushed to employ a particular new program for dispute resolution, “My clients prefer to cross the street in a group.”

What do trends among Fortune 1,000 corporations portend for international arbitration and dispute resolution practice? First off, it must be said that because of the unique and critical role played by binding arbitration in the resolution of international commercial disputes, both as an alternative to national courts and as a framework for worldwide enforcement of adjudicated results, one cannot imagine in the international arena the kind of market competition between arbitration and litigation observable in the U.S. and reflected in the 2011 Fortune 1,000 survey. In other words, arbitration will undoubtedly remain the preferred mechanism for adjudication of international business disputes.

But there remains the important question of the future evolution and impact of mediated negotiation and other strategies that afford parties at least the possibility of earlier, quicker, less expensive, less formal, more private, and more appropriately tailored solutions to business conflict. It would be a mistake to assume the U.S. experience with mediation, so reflective of our culture and our system of justice, will be fully replicated internationally. On the other hand, it is reasonable to expect that over time international businesses will increasingly probe the opportunities to enhance their control and active management of conflict, including intervention strategies that help to promote greater cross-cultural and cross-border communication and which reduce the need for arbitration hearings. Such developments are likely to be stimulated to the extent that businesses perceive international arbitration is becoming more costly and less efficient—a perception that has factored significantly in recent years on the American scene.

What are your perspectives on the future of international commercial arbitration and dispute resolution? What questions or concerns, if any, are raised by observed trends among Fortune 1,000 corporations? The complete study, “Living with ADR: Evolving Perceptions and Use of Mediation, Arbitration and Conflict Management in Fortune 1,000 Corporations” by Thomas J. Stipanowich and J. Ryan Lamare may be found at http://ssrn.com/abstract=2221471.

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

Lazareff Le Bars

Over the past decade, Africa has emerged as a leading center of economic growth. From mining and manufacturing, to banking and telecoms, nearly every industry is witnessing rapid expansion in Africa, driven by both African enterprises and businesses from around the world. Naturally, an increase in international commerce has resulted in an attendant increase in international arbitration, renewing the interest of arbitrators and practitioners in the region.

Parties seeking to arbitrate in Africa have the choice among several well-known regional African arbitration centers, including the Cairo Arbitration Center (CIRICA) in the north, the Arbitration Foundation of Southern Africa (AFSA) in the south, and more recently the London Court of International Arbitration in Mauritius (LCIA-MIAC) in the east. In Western and Central Africa, which is largely francophone, the leading arbitral institution is the Common Court of Justice and Arbitration (CCJA) based in Abidjan, Côte d’Ivoire, which was established by the Organization for the Harmonization of Business Law in Africa (“OHADA,” with its French acronym). (For a comprehensive and detailed analysis of the organization, see Benoit Le Bars, Droit des sociétés et de l’arbitrage international: Pratique en droit de l’Ohada, Joly Éditions 2011 (in French, forthcoming in English this year).)

OHADA’s origins lie in a series of meetings among francophone African leaders in Ouagadougou, Burkina Faso, and Paris, France, in 1991. These meetings resulted in a proposal from Senegalese legal scholar Kéba M’Baye for what would ultimately become OHADA: a supranational organization aimed at harmonizing commercial law among its members and increasing both foreign and domestic investment in the West and Central African economic zone. Following M’Baye’s proposal, seven African Ministers of Finance, along with M’Baye and French jurists Martin Kirsch of the Cour de cassation and Michel Gentot of the Conseil d’état, drafted the treaty establishing OHADA. The final treaty was signed by seven francophone African countries on October 17, 1993, in Port Louis, Mauritius, and came into force upon its ratification in 1995.  (See Alhousseini Mouloul, Understanding OHADA, 2d ed. June 2009.)

The OHADA community, membership in which is available to all African nations, now comprises seventeen countries, not all of which are francophone (languages include French, Spanish, English and Portuguese). Still, as one would expect from its intellectual origins, OHADA owes much to French civil law.

French law is by no means the only influence on francophone African law, and much legal diversity exists among these nations. This diversity, many have argued, has resulted in a level of legal unpredictability—particularly in the context of business law—that, coupled with the negative foreign perception of certain of Sub-Saharan Africa’s domestic court systems, has inhibited foreign investment and economic growth in the area. (See Jonathan Bashi Rudahindwa, From Port Louis to Panama and Washington DC, 2012.)  Accordingly, OHADA aims not only to harmonize commercial law but also to increase confidence in international arbitration as a means for the resolution of commercial disputes across the OHADA zone.

To this end, OHADA Member States have adopted a variety of Uniform Acts pertaining to various aspects of business law, including securities regulation, bankruptcy procedures, and company law. OHADA has also created a unique, hybrid judicial body: the CCJA, a supranational court of seven judges that administers not only appeals of a commercial nature from national courts of OHADA Member States, but also dispute resolution proceedings under OHADA’s own rules of arbitration.

Arbitration under the CCJA is available for contractual disputes where any contractual party is domiciled or habitually resides in an OHADA Member State, or where the contract is to be executed at least partially in the OHADA zone. Naturally, then, parties seeking to arbitrate under OHADA need not be registered in OHADA Member States nor even in Africa, as is demonstrated by the diversity of nationalities present in CCJA case law. Arbitral awards rendered under OHADA also have the effect of res judicata among all Member States, giving them the same legal force as national court judgments across the OHADA zone.

CCJA arbitration may be engaged either by contractual clause or by subsequent agreement—even if a concurrent legal action in another court is taking place. The CCJA, which is comprised of seven OHADA nationals elected to renewable seven-year terms, does not arbitrate disputes itself. It does, however, have the power to confirm and, if necessary, appoint arbitrators, as well as to supervise the proceedings and ensure impartiality. The CCJA also reviews all awards before they are rendered, though the Court may only amend the form of an award and not its substance, as is the case under the ICC Rules.

In fact, parties and practitioners familiar with the ICC procedure will recognize many points of similarity. Both the CCJA and ICC provide, for example, for a similar system of provisional and conservatory measures, as well as terms of reference to be agreed upon by the parties at the outset of the proceedings.

In addition to institutional arbitration under the CCJA, however, OHADA also provides for ad hoc arbitration under the Uniform Act on Arbitration (UAA), as adopted in 1999. Consistent with other ad hoc practices, the ad hoc provisions of the UAA, which apply to any arbitration whose seat is in an OHADA Member State, are generally non-imperative and the parties are free to contract around them. Still, certain fundamental rules must be respected, including requirements of formalism in the arbitration agreement, requirements as to the number and impartiality of the arbitrators, and requirements for the drafting of awards.

Thus, parties seeking to arbitrate under OHADA have the choice between the predictability and structure of institutional arbitration, on the one hand, and the flexibility and freedom of ad hoc arbitration, on the other—all under the aegis of the supranational OHADA system. This presents parties with an important opportunity for arbitration in West and Central Africa (and soon, as seems likely, other African regions as well), which is certain to play an ever-increasing role in global dispute resolution as foreign investment in Africa continues to accelerate. Despite OHADA’s relative youth, a marked increase in foreign investment has already been witnessed in West and Central Africa, particularly from Chinese investors.  (See Zhu, OHADA: As a Base for Further Chinese Investment in Africa, and Dickerson, Harmonizing Business Law in Africa: OHADA Calls the Tune.)  Considering the region’s substantial capacity for additional growth and investor confidence engendered by the CCJA, this trend is likely to continue.

This post, which is the first of a series, will be followed by additional posts that will develop, in further detail, OHADA procedure concerning institutional and ad hoc arbitrations, the role of OHADA in the execution of awards in member States, as well as the dual role of the CCJA in this sui generis system.

The author thanks William Kirtley and Gretchen Oldham for their assistance on this article.

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

Co-authored by Christopher Boog and Benjamin Moss, Schellenberg Wittmer

An arbitral tribunal’s duty to render an enforceable award is frequently used by commentators and counsel alike in support of positions on myriad matters ranging from procedural fairness and jurisdiction to the application of mandatory foreign law. Its considerable malleability has indeed made it very attractive as conceptual support for practically any argument. However, there is little persuasive evidence that such a duty actually exists to the extent claimed. Furthermore, the supposed duty is at best a conceptual blob, appealing to the notion of enforceability as a broad objective in international arbitration while providing little in the way of helpful guidance to the arbitral tribunal. At worst, it can detract from the arbitral tribunal’s responsibility to conduct arbitral proceedings in an efficient manner.

Upon first impression, it is difficult to deny that the duty to render an enforceable award expresses a fundamental principle in international arbitration. This is in large part accomplished simply through its reference to the concept of enforceability. A core feature of international arbitration—and one that gives it teeth—is the ability of a winning party to have an award enforced if it is not voluntarily complied with. Julian Lew’s assessment that “[t]he ultimate purpose of an arbitration tribunal is to render an enforceable award” is in that regard uncontroversial.¹ As a result of this general purpose of arbitration, a duty of the arbitrators to render an enforceable award can be, and often is, easily and almost mindlessly thrown into any submission or commentary, where it would then serve as a (lazy) conceptual underpinning for a discussion or specific argument and would not itself be subject to analysis.

A dispute between two Serbian parties that recently made its way to the Swiss Supreme Court is a case in point. One party argued that the arbitral tribunal in the initial arbitral proceedings, which were seated in Switzerland, had breached its duty to render an enforceable award, as well as Swiss public order, in accepting jurisdiction and deciding on the dispute at hand despite the possibility that the award would be unenforceable in Serbia, as Serbian law does not permit agreements between Serbian parties to subject their disputes to foreign courts or tribunals.²

But while enforceability is an important feature of arbitration, it is a conceptual leap to then claim that the arbitral tribunal is under a legal duty to render an enforceable award. It is not evident that enforceability should serve as the arbitral tribunal’s (only) guiding light and thus become an ever-present source of concern.

An initial thought in that regard is that the “duty” does not appear to actually exist. As concrete evidence in support of the alleged duty, commentators often point to Article 40 of the ICC Rules, which specifies in part that “the arbitral tribunal shall act in the spirit of the Rules and shall make every effort to make sure that the award is enforceable at law”. Article 32.2 of the LCIA Rules is almost identical. However, several clues suggest that these provisions are not intended to establish a general duty: (i) the provisions are placed at the very end of the Rules among other “miscellaneous” provisions; (ii) their applicability is limited to “all matters not expressly provided for in the[se] Rules”; and (iii) they merely impose a “best efforts” duty on the arbitral tribunal, a qualifier that does not sit well with the supposedly fundamental nature of the duty. In the past, the provisions have mainly been relied upon to devise procedures in specific situations not provided for in the Rules (e.g., joinder or remission of an award to the arbitral tribunal). As the Rules themselves cover more ground with every revision (including in the case of the revised ICC Rules joinder and remission), these provisions have become even more marginal (a fact that the ICC Secretariat readily acknowledges).³ Based on the above, it is difficult to conclude that the provisions establish any type of general duty. Accordingly, in their textbook on ICC Arbitration, Yves Derains and Eric Schwartz warn against a broad reading of the ICC provision, claiming that it is “widely misunderstood as imposing a[n] … obligation on … the Arbitral Tribunal, in all circumstances.” They state in particular that it does not impact substantive decision-making.⁴

Moreover, a duty to render an enforceable award is in practice close to impossible to police. Determining what constitutes an “enforceable award” is an impossible task, as an arbitral tribunal cannot conceivably ensure universal enforceability. Nor can it anticipate all potential places in which enforcement may occur in practice, as now more than ever parties often have a presence or relevant assets in a number of jurisdictions and readily and easily move those assets around. The arbitral tribunal would not necessarily be aware of this.

As a final thought, the potential drawbacks of a duty to render an enforceable award can be considerable. The duty’s effect, if it is argued by counsel and has too much sway with the arbitral tribunal—unfortunately, arbitrators often appear to be quite fazed by the argument—is an almost debilitating prudence in the conduct of the proceedings. Arbitrators will be more timid and conventional, rejecting bold decisions that could reduce the time and cost of the proceedings or otherwise lead to a more effective resolution of the dispute. Arbitrators should instead be encouraged to seize the reins of the proceedings while maintaining faith in their ability to render sound, enforceable awards. The arbitral tribunal in our Swiss example did just that, applying the law as agreed among the parties; it was not paralyzed by the fear of rendering an award that may be unenforceable in Serbia, though it was aware of this possibility. The Swiss Supreme Court rightly acknowledged that this course of action was fully acceptable.

In conclusion, it is self-evident that the arbitral tribunal should make efforts, to the extent it can, to provide for enforceability of its award. But we do not need to, nor could we, capture every practical or common sense responsibility of the arbitral tribunal as a formal duty. In any event, ensuring enforceability is an almost impossible task now that the place of enforcement may often be changed at the click of a mouse. Against this backdrop, there is no reason for an arbitral tribunal to be overly concerned by the issue each time it is faced with a party referring to the concept.

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

Corporate Europe Observatory

By Pia Eberhardt, Corporate Europe Observatory, and Cecilia Olivet, Transnational Institute

At the end of November, Corporate Europe Observatory and the Transnational Institute published Profiting from Injustice, a report that looks at the role of law firms, arbitrators and third-party funders in investment treaty arbitration. In it, we argued that the arbitration industry has fuelled an investor-state dispute boom over the past two decades, promoting new cases and investor-friendly rulings, and lobbying against reform. We also argued that the current investment arbitration regime is neither fair nor independent, but biased towards the interests of investors.

Some arbitrators and investment lawyers have rejected these allegations, claiming that the investment arbitration system is not pro-investor biased. They told the Vancouver Sun that “states win a significant number of cases” and have as much influence over the composition of the panel of arbitrators deciding the cases as the claimant. Due to the “staggering costs of launching a lawsuit”, investors have “a fair amount of money at risk”. Overall, they claimed, the system has “built up a fair amount of credibility”, facilitating “businesses operating abroad and help poor countries attract job-creating investment”.

This blog aims to respond to these points.

Is the investment arbitration system fair? Statistics on the known outcomes of investor-state claims could be interpreted that way. According to UNCTAD, around 40% of cases were decided in the state’s favour and 30% in favour of the investor. The rest were settled.

But these statistics are not the full story. First, investment arbitration is non-reciprocal. Investors cannot be sued, for example, when they violate human rights. They might not win every case, but only states can lose in the sense that only states have to pay compensation. How can anyone call such a system “fair” and deny that it is “pro-investor”? Frankly, that is a mystery to us.

Second, it is likely that many of the settled cases – 30% of known decisions – involve payments or other concessions for the investor. Germany, for example, settled the first dispute with Swedish energy company Vattenfall by agreeing to water down environmental standards imposed on one of Vattenfall’s coal-fired power plants. Paper maker Abitibi-Bowater’s case against Canada was settled when Canada paid US$130 million. When settlements contain something for the investor, the above statistics look very pro-investor.

Third, it is commonly held that the threats of claims against governments have become even more important and occur more frequently than actual claims. There is evidence that proposed and even adopted laws on public health and environmental protection have been abandoned or watered down because of the threat of corporate claims for damages. It is also likely that countries are currently postponing and/or weakening anti-smoking legislation because of the Philip Morris claims against Australia and Uruguay. Even if the tobacco company loses, these cases could have a chilling effect on anti-smoking laws across the world.

This underlines how investor-state arbitration provides investors with VIP treatment. They have the exclusive right to threaten and initiate claims at international tribunals that regularly order governments to pay large sums in compensation. This gives them a privileged position in policy-making and in the allocation of public funds which are used to pay compensation for laws that may benefit a wide range of constituencies. Domestic investors do not have this privilege, let alone citizens and communities. It is difficult to understand how such a system can be presented as “fair” and not “pro-investor”.

It is also important to recognise that investment arbitration is not just about the final awards. Research by Gus van Harten reveals that arbitral tribunals tend to resolve contested legal issues in investment treaty law with expansive interpretations. These enhance “the compensatory promise of the system for claimants and, in turn, the risk of liability for respondent states”, he writes, adding: “If the system is meant to provide an impartial and independent adjudicative process based on principles of rationality, fairness, and neutrality, then the interpretation and application of the law should reflect a degree of evenness between claimants and respondent states in the resolution of contentious legal issues arising from ambiguous treaty texts.” But van Harten’s evidence suggests that arbitrators in fact tend to favour the claimant.

A similar observation was recently made by Singaporean attorney general Sundaresh Menon who noted that it is “in the interest of the entrepreneurial arbitrator to rule expansively on his own jurisdiction and then in favour of the investor on the merits because this increases the prospect of future claims and is thereby business-generating.”

Finally, our report questions the alleged neutrality of many of those whom we called “an elite of 15 investment arbitrators”. Some have explicitly stated “they do not normally see themselves as guardians of the public interest”. Some sit or have sat on corporate boards, including in companies which have filed investor-state disputes. Some have worked or are working for law firms which encourage investors to claim against states and which also advise on picking the most investor-friendly treaties for their claims as well as on structuring their investments accordingly. Others have spoken out against investment treaty revisions which might allow governments greater freedom in policy making. One arbitrator has his own lobby firm advising corporations on how to avoid or counteract government regulations. Yet these elite arbitrators have decided the majority of all known investment-treaty disputes, weighing public interest against the interests of profit (see chapter 4 in our report). These close links with business, combined with their belief in a system we consider to be biased in favour of corporations, in our view, raise questions about the neutrality of international investment arbitration.

How does a possible pro-investor bias on the side of prominent investment arbitrators fit with the fact that states appoint one of the three members of an arbitration panel and ideally agree with the investor on the third? That is indeed an interesting question that merits further research. One aspect to bear in mind is that the choice of arbitrators for states hiring external counsel is likely to depend on the names put forward by their counsel, meaning that “undue importance is placed on arbitrator relationships with law firms” (as research by Queen Mary University and White & Case found for the claimant party).

According to one prominent investment lawyer who responded to our report, the staggering costs of launching a lawsuit mitigate against frivolous actions, with the investor putting “a fair amount of money at risk”.

No doubt the legal costs of investment arbitration are high, including for the claimant. But two trends reduce or even remove the financial risk of an expensive claim, making investment disputes more attractive for investors. First, contingency fee arrangements are becoming more and more common in investment arbitration. Second, third-party funders are also increasingly common, financing (parts of the) costs of investment disputes in the hope of sharing in the spoils if a payout is awarded.

While there is usually little incentive for funders to fund weak cases, bubbles in the legal claims market might incite exactly that. Mick Smith from litigation funder Calunius Capital has indicated that is the case: “The perception that you need strong merits is wrong – there’s a price for everything”. Eventually, frivolous, high-risk claims could inflate the value of funders’ portfolios. As the Burford Group, another litigation funder, noted: “If we shy away from risk for fear of loss, as some litigation investors do, we will not maximise the potential performance of this portfolio”.

So, what about the claim that investment treaties “help poor countries attract job-creating investment”? The evidence is ambiguous. While some econometric studies find that investment treaties do attract investment, others find no effect at all. Qualitative research suggests that the treaties are not a decisive factor in whether investors go abroad. Investment lawyers who think otherwise might want to read Lauge Poulsson’s review of the existing research.

Governments are also beginning to realise that the promise of foreign investment is not being fulfilled. During this year’s WTO Public Forum a South African government official said: “We do not receive significant inflows of FDI from many partners with whom we have BITs, and at the same time, we continue to receive investment from jurisdictions with which we have no BITs. In short, BITs are not decisive in attracting investment.” The official also underlined the severe risks that the investment arbitration system entails for government policy in times of major socio-economic and ecological challenges.

So, the alleged “fair amount of credibility” of the investment arbitration system appears to be very much in the eye of the beholder. It might be credible for investment lawyers whose livelihoods depend on it. But more and more governments appear to be looking for a way out.

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
	Arbitrating Under the 2012 ICC Rules. An Introductory User’s Guide by Jacob Grierson, Annet van Hooft € 140

University of Portsmouth,
for ITA

As its Council Member I attended the ICC Institute of World Business Law’s 32nd annual meeting on ‘Third-Party Funding in International Arbitration’ held in Paris on 26 November 2012. It was a grand success as it drew many professionals, arbitrators, experts, academic specialists and, above all, representatives from some major third-party funding bodies such as Burford Group Ltd., Calunius Capital LLP, Fulbrook Management LLC and others, and the discussion and debates generated a great deal of interest among the participants. The presented topics ranged from the concepts of litigation and arbitration financing to more complicated issues such as ethical issues of third-party funding (TPF), due diligence and decision making process in investing in claims by third parties, conflict of interests for arbitrators / counsel, arbitrator’s independence and impartiality, confidentiality and disclosure of TPF and the problems of TPF in investor-State arbitration. The purpose of this blog is to highlight some of the burning issues passionately debated in the meeting. Following the Chatham House Rule the views express herein will not be specifically attributed to any individual or organization.

One of the issues debated was the concept and nature of TPF itself. As the concept is ever evolving in recent years in the field of arbitration, the participants’ views did not seem to point to a consensus on a fixed definition of TPF. However, certain existing models in practice were articulated in the discussion. The notion of third-party litigation financing (in a broad sense) is not new as it has been in practice in the USA for more than a century now (i.e. contingency fee arrangement), though in Europe it is relatively a new phenomenon and fragmented in practice (e.g. conditional fee arrangement is permitted in England; pure contingency fee arrangement is permitted in Italy while it being prohibited in England and in many other countries in Europe such as France, Switzerland, Sweden and Spain). In the field of arbitration TPF is recently emerging as an attractive option facilitating access to justice to an impecunious party who may have a credible / meritorious claim. Arbitration finance is a specialty corporate finance focused on arbitration claims (i.e. the award proceeds) as assets being used as collateral to obtain such finance which is a non-recourse one. The reward or return of the third-party funder is said to be determined on a case-by-case basis. Normally, a percentage of the damages ranging from 20 percent to 40 percent or a cost multiple, usually running from two to four, or a combination of these is applied to determine the third-party funder’s return. Some participants expressed various ideas around the concept of TPF such as third-party funder’s buying equity interest in the claim or a share in the proceeds of a prospective arbitral award, or a joint venture (in the sense of equity joint venture, i.e. by monitizing the claim) arrangement between the client and the third-party funder. As opposed to the aforementioned narrow connotation to TPF, others tended to suggest a broad one encompassing also other contracts as “derivatives” such as contingency fees arrangements between a client and counsel and insurance contracts (e.g. for adverse costs), etc. Some third-party funders indicated that TPF, in time, might evolve into complex financial engineering (e.g. credit default swaps) involving other related financial products, but it remains to be seen as the market develops and demand grows in the years ahead. The third-party financing is an investment per se in arbitration (albeit a high-risk investment) to be described as a portfolio investment rather than direct. Both claimants and respondents can take the advantage of TPF at any stage during the arbitration proceedings and beyond, i.e. at the stage of the enforcement of the arbitral award.

A significant amount of time was dedicated to the debate of ethics of TPF and thereby conflict of interests that might arise in that respect. The involvement of a third-party funder may raise the issue of impartiality or independence of an arbitrator in certain circumstances. For example, a situation could arise where a person acts as an arbitrator in a case in which the claimant is financed by the same third-party funder who had also financed a claimant in another case in which the same person (i.e. the arbitrator) acted as that claimant’s Counsel. So, the same third-party funder’s involvement in two cases with the same person acting in two different capacities, i.e. arbitrator and counsel, could raise issues of impartiality or / and independence of the latter, i.e. conflict of interests. Apart from that, the third-party funder’s influence or involvement, if any, in the choice of an arbitrator could also beg the question whether that might bring to bear on the determination of the eventual amount of damages in the prospective arbitral award. Among the other concerns expressed was the probability of a third-party funder’s abuse of its stronger bargaining leverage against a vulnerable impecunious party in any way. Furthermore, the involvement of a third-party funder could deter the prospect of a settlement of the dispute by the parties if it does not satisfy the funder’s requirements, though acceptable to the client, whilst, on the other hand, it was argued by some funders to the contrary that TPF could rather be used as a weapon for a satisfactory settlement, after all, for all the parties involved.

Since there is a possibility of conflict of interests or ethical issues arising in the presence of a third- party funder in an arbitration, it was felt by many participants that such presence should be disclosed. On this point various issues were raised as to the nature (i.e. whether mandatory or voluntary disclosure) and the extent of disclosure (i.e. whether of the mere existence of a third-party funding arrangement or of the actual funding agreement), to whom to disclose (whether to the arbitral tribunal and / or to all the parties and stakeholders involved) and the time to disclose (before or at the beginning of the arbitration, or at some point in the arbitral proceedings)[See on the issue of timing of TPF impacting ICSID jurisdiction in a most recent case: Teinver S.A., Transportes de Cercanías S.A. and Autobuses Urbanos del Sur S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1(Decision on Jurisdiction, December 21, 2012, paras. 239-259), including Dr Kamal Hossain’s Separate Opinion, paras. 34-37] It was felt that the representatives of the third-party funding companies present were not in favour of an extensive disclosure of the terms and conditions whatever might have been agreed between the third-party funder and its client as in many respects confidentiality rules apply for various reasons (including the sensitive nature of information, or matters involved may be concerned with the economics of the deal, etc.) and in their view no question of mandatory disclosure should arise, let alone the fact that there does not exist so far on the international level any established rules requiring such disclosure. Some participants felt that in some situations there may be a need for disclosure in good faith, otherwise it would lead to the breach of procedural good faith. When some participant questioned as to why third-party funders are ‘secretive about disclosure’ to which a funder representative retorted by saying that it is preferable to use the expression ‘cautious about disclosure’ to better reflect the state of affairs. According to third-party funders, if for any reason the conflict of interests, transparency, adverse costs, or security for costs is in issue, or a settlement is being discussed, only limited disclosure of third-party funding is tolerable.

One of the important issues discussed concerned TPF in the context of investor-State arbitration. Thus, as a recipient of TPF a State party may have its sovereign authority issues or political implications as a third-party funder may exercise control over the dispute strategy and management whilst the former may have little or no control as it may have to submit to the whims and considerations of the third-party, often contrary to the State’s public policy. There could also be the possibility of the state’s regulatory or nationalization measures being attributed to the interest of the third- party funder which might not be unusual though in the case of some corrupt governments. Thus, there could be issues of public policy, transparency and the State’s accountability to the public when the relationship between the State and the third-party funder may not be perceived as level playing because of the overbearing control exercised by the third-party funder. It has been warned by some participants that the disclosure of the presence of a third-party funder on the other side is essential to the State party in the public interest.

Last but not least, the serious question whether TPF should be regulated or not was debated passionately. If it is to be regulated, then how – by hard law or soft law? The issues such as the extent of regulation and its modus operandi were also discussed. The overall question of regulation of TPF centred on dealing with some ethical issues, i.e. to prevent the: (i) abuse of TPF arrangement for excessive and unreasonable profiteering (e.g.. 90% of the award proceeds) in some cases, (ii) unreasonable exertion of influence in arbitration strategy including selection of arbitrators defying the requirement of impartiality and independence of arbitrators, (iii) possible exploitation of attorney-client privilege and confidentiality and (iv) funding of frivolous cases intended to inflate the value of funders’ portfolios, and, above all, to avoid a subprime-mortgage-induced financial disaster like situation of the recent past in the field of arbitration that might cause irreparable reputational damage to arbitration as an institution itself. The soft-law, i.e. non-binding, instrument such as the Code of Conduct for Litigation Funders (November 2011) issued by the Association of Litigation Funders of England and Wales was not considered robust enough to deal with the concerns expressed, let alone the question of its applicability to international arbitration. One participant reminded the International Chamber of Commerce of its duty to serve the international business community in this respect by taking timely measures to develop principles and rules to regulate TPF. Some other participants also called for initiatives by other international professional bodies such as IBA and ICCA, etc., in this respect.

These were just some of the concerns expressed in respect of TPF. It was, however, felt by the majority of the participants that whilst TPF is a welcome option and not a bad idea at all as it allows a financially distressed party, either claimant or respondent, to have access to justice otherwise denied, it needs to be regulated for the welfare of the arbitrating parties (and not in the least for the protection of the reputation of third-party arbitration funders) and the stability and the longevity of arbitration as an institution itself (perhaps a reminder in the wake of some states’ renouncing of investment treaty arbitration lately!).

One thus needs hardly reminding:

‘Fire can burn down the earth, but if its use is regulated it can contribute to the welfare of all on the planet’.

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
	Arbitrating Under the 2012 ICC Rules. An Introductory User’s Guide by Jacob Grierson, Annet van Hooft € 140

International Moot Court Competition Association (IMCCA)

“Research is formalized curiosity…” – Z. Hurston

In what follows I have tried to gather information from publicly available sources regarding some of the questions which have troubled my mind lately. It is hoped that the results would be of interest to the readers. For me, this proved to be one of my most exciting projects so far. The idea was conceived during my work in the IMCCA – Bulgaria (International Moot Court Competition Association) which unites past and present Ph. C. Jessup Moot Court participants (as well as participants from other moot courts) who share their love for International Law in a country where it is not lectured in-depth in universities. IMCCA and America for Bulgaria Foundation provide us with the necessary stimuli to learn more and to achieve more.

The information presented is subject to the caveat that not all ICSID awards are public or may have otherwise escaped my acquisition efforts. In this and any other regard, I would appreciate further supplement or corrections.

Which arbitrators have sat the most in ICSID cases?
(in alphabetical order, including cases which have been settled)

Alexandrov, Stanimir A.
Álvarez, Henri C.
Berg, Albert Jan van den
Berman, Franklin
Bernardini, Piero
Böckstiegel, Karl-Heinz
Brower, Charles N.
Crawford, James R.
Cremades, Bernardo M.
El-Kosheri, Ahmed Sadek
Fernández-Armesto, Juan
Fortier, L. Yves
Gaillard, Emmanuel
Griffith, Gavan
Guillaume, Gilbert
Hanotiau, Bernard
Kaufmann-Kohler, Gabrielle
Lalonde, Marc
Lowe, Vaughan
McLachlan, Campbell
McRae, Donald M.
Naón, Horacio A. Grigera
Oreamuno, Rodrigo
Paulsson, Jan
Stern, Brigitte
Tercier, Pierre
Thomas, J. Christopher
Veeder, V.V.
Vicuña, Francisco Orrego
Williams, David A.R.
Wobeser, Claus von

Who is the first woman to sit as an arbitrator in an ICSID case?

Mme Rosalyn Higgins in 1987, in the resubmitted Amco case.
It is noticeable that international arbitration remains a man-dominated profession.

Which is the Claimant which has filed the most applications?

Impregilo, S.p.A has appeared as Claimant in 5 cases so far (most of them discontinued):
Impregilo S.p.A and Rizzani De Eccher S.p.A. v. United Arab Emirates (ICSID Case No. ARB/01/1)
Impregilo S.p.A. v. Islamic Republic of Pakistan (ICSID Case No. ARB/02/2)
Impregilo S.p.A. v. Islamic Republic of Pakistan (ICSID Case No. ARB/03/3)
Impregilo S.p.A. v. Argentine Republic (ICSID Case No. ARB/07/17)
Impregilo S.p.A. v. Argentine Republic (ICSID Case No. ARB/08/14)

Which is the State appearing the most times as a Respondent?
(includes cases which have been settled or discontinued)

Argentina 49
Venezuela 36
Egypt 17
Ecuador 12
Congo 12
Peru 11
Ukraine 10

Curious facts regarding the composition of some of the Tribunals

● All the initially appointed arbitrators in the cases MTD v. Chile (ICSID Case No. ARB/01/7), Vannessa Ventures v. Venezuela (ICSID Case No. ARB(AF)/04/6) and Víctor Pey Casado v. Chile (ICSID Case No. ARB/98/2) resigned.

● Two of the three arbitrators in the annulment proceedings in the cases of MTD v. Chile and CMS v. Argentina were the same which made the outcome of e.g. the later-in-time decision on stay of enforcement.

● The arbitrators in the Malaysian Historical Salvors v. Malaysia (ICSID Case No. ARB/05/10) annulment proceedings were all past and present Judges from the International Court of Justice.

● The arbitrators in the cases of Pioneer v. Argentina (ICSID Case No. ARB/03/12) and Pan American v. Argentina (ICSID Case No. ARB/03/13), and Alcoa Minerals v. Jamaica (ICSID Case No. ARB/74/2), Kaiser Bauxite Company v. Jamaica (ICSID Case No. ARB/74/3) and Reynolds v. Jamaica (ICSID Case No. ARB/74/4), respectively, were all the same.

Which law firms have served the most times in ICSID cases?
(in alphabetical order)

Arnold & Porter LLP
Freshfields Bruckhaus Deringer LLP
King & Spalding LLP
Latham & Watkins LLP
Shearman & Sterling LLP
Sidley Austin LLP
White & Case LLP

Which prominent scholars have served as party-representatives or counsels in ICSID cases?

Judge Stephen M. Schwebel
Prof. Dr. James R. Crawford
Prof. Christopher Greenwood
Prof. Alain Pellet
Prof. Philippe Sands, QC
Prof. Antonio Crivellaro

In which fields of economic activity most of the cases find their origin?

Hydrocarbon concessions, petroleum and oil exploration and production, gas supply and distribution 71
Electric power generation, distribution and sale 39
Mining concessions and mineral exploration 31
Construction contracts, including real estate, dams, etc. 21
Highway construction contracts 14
Telecommunications 13
Water services 12

Which is the first ICSID award?

The Award rendered on August 29, 1977 in the case of Adriano Gardella S.p.A. v. Côte d’Ivoire (ICSID Case No. ARB/74/1).

What is the highest award amount so far?

The highest award amount of US$ 1,769,625,000 was awarded in the case of Occidental v. Ecuador (ICSID Case No. ARB/06/11) Award of October 5, 2012.

What is the lowest award amount so far?

It seems that the lowest award amount of US$ 460,000 (as principal) was awarded in Asian Agricultural Products Ltd. v. Sri Lanka (ICSID Case No. ARB/87/3) Award of June 27, 1990.

How much does an ICSID case cost in terms of legal costs?

The information below was intended to bring light to the question how much does an ICSID case cost in terms of legal representation. The information provided must be retained with caution since legal costs depend, among others, on the duration and the complexity of the case. Moreover, many awards are not publicly available and most Tribunals order that each party bears its own costs of legal representation without mentioning the sums.

Here are some examples of the practice of ICSID Tribunals:

● In CDC v. Seychelles (ICSID Case No. ARB/02/14) Award of December 17, 2003, Seychelles were ordered to pay the Claimant the sum of £ 100,000 representing legal fees.

● In Pantechniki v. Albania (ICSID Case No. ARB/07/21) Award of July 30, 2009, the cost claims of the parties were among the lowest – EUR 154,523 and EUR 269,657, respectively.

● In Telenor Mobile v. Hungary (ICSID Case No. ARB/04/15) Award of September 13, 2006, the Counsel for Hungary demanded the reimbursement of US$ 1,249,340.29.

● In Siag v. Egypt (ICSID Case No.ARB/05/15) Award of June 1, 2009, Egypt was ordered to pay the the sum of USD 6,000,000 in legal costs.

● In Spyridon Roussalis v. Romania (ICSID Case No. ARB/06/1) Award of December 7, 2011, the Claimant had to pay 60% of the Respondent’s legal fees in the amount of EUR 6,053,443.78.

● The Tribunal in Cementownia Nowa Huta S.A. v. Turkey (ICSID Case No. ARB(AF)/06/2) Award of September 17, 2009 found that:

“the Respondent’s legal fees and expenses are not unreasonable having regard to the course of these proceedings and that, therefore, the Claimant is to bear such costs in the amount of USD 4,904,822.06.” (para. 178)

● In Kardassopoulos & Fuchs v. Georgia (ICSID Case Nos. ARB/05/18 and ARB/07/15) Award of March 3, 2010, the Respondent was liable to pay the Claimants their costs for the proceedings in the total amount of US$ 7,942,297.

● In ADC v. Hungary (ICSID Case No. ARB/03/16) Award of October 2, 2006, the Claimant demanded US$ 7,623,693 in respect of the Claimants’ costs and expenses. The Tribunal found

“no reason to depart from the starting point that the successful party should receive reimbursement from the unsuccessful party.” (para. 533)

See also Abaclat et al. v. Argentina (ICSID Case No. ARB/07/5) at para. 682.

● The Tribunal in Gemplus & Talsud v. United Mexican States (ICSID Cases Nos. ARB (AF)/04/3 & ARB (AF)/04/4)) Award of June 16, 2010 recognized that:

“It is well-known that legal costs incurred by respondent-state parties are usually much lower than costs incurred by claimant-private parties, partly because a claimant bears a greater burden in presenting and proving its case, partly because a state’s billing practices with its legal representatives are different and partly, as here, where there is more than one claimant bringing claims under more than one treaty.” (para. 17-25)

Which is the most invoked BIT?

From the information available it may be concluded that this is the Argentina – U.S. Bilateral Investment Treaty which was relied upon, inter alia, in the following cases:
CMS v. Argentina (ICSID Case No. ARB/01/8)
Azurix Corp. v. Argentina (ICSID Case No. ARB/01/12)
Continental Casualty Company v. Argentina (ICSID Case No. ARB/03/9)
Pan American Energy LLC and BP Argentina Exploration Company v. Argentina (ICSID Case No. ARB/03/13)
Enron v. Argentina (ICSID Case No. ARB/01/3)
LG&E v. Argentina (ICSID Case No. ARB/02/1)
Sempra v. Argentina (ICSID Case No. ARB/02/16)
AES Corporation v. Argentina (ICSID Case No. ARB/02/17)
El Paso Energy v. Argentina (ICSID Case No. ARB/03/15)

How long does an ICSID case take?

Approximately 3.6 years. See Sinclair, A., ICSID Arbitration: how long does it take?, 4:5 GAR J. (2009), available here .

Which is the shortest merits award (in terms of length)?

CDC v. Seychelles (ICSID Case No. ARB/02/14) Award of December 17, 2003 – 23 pages.

Which is the longest merits award (in terms of length)?

Gemplus & Talsud v. United Mexican States (ICSID Cases Nos. ARB (AF)/04/3 & ARB (AF)/04/4)) Award of June 16, 2010 – 382 pages

Are there claims filed by a State against an investor?

Gabon v. Société Serete S.A. (ICSID Case No. ARB/76/1)
The basis of jurisdiction was a contract. The case was eventually settled.

Romania’s counterclaim in Spyridon Roussalis v. Romania (ICSID Case No. ARB/06/1) was admitted on the basis of the umbrella clause found in Article Article 2(6) of the Romania-Greece BIT. (Award of December 7, 2011, para. 781)

Which cases may be called landmark cases?

While it may be said that every decision and award rendered by an ICSID Tribunal (or committee) contains interesting findings of law, among them the following may be mentioned as particularly interesting:

● Santa Elena v. Costa Rica (ICSID Case No. ARB/96/1) Final award of February 17, 2000, on the compound interest. Up until this point, most of the ICSID Tribunals denied awarding compound interest relying on a citation from Marjorie Whiteman in her book Damages in International Law vol. III (1943) at p. 1997:

“[t]here are few rules within the scope of the subject of damages in international law that are better settled than the one that compound interest is not allowable.”

This is, among other things, evidence of the influence a scholar can have on international law.

● Maffezini v. Spain (ICSID Case No. ARB/97/7) Award of November 9, 2000, as to attribution of State responsibility.

● Salini v. Morocco (ICSID Case No. ARB/00/4) Decision on Jurisdiction of July 23, 2001, regarding the so-called Salini test for the notion of investment.

● Vivendi v. Argentina (ICSID Case No. ARB/97/3) First Annulment, Decision on Annulment dated July 3, 2002, as to the relation between treaty and contract.

● SGS v. Pakistan (ICSID Case No. ARB/01/13) Decision of the Tribunal on objections to jurisdiction of August 6, 2003 and SGS v. Philippines (ICSID Case No. ARB/02/6) Decision of the Tribunal on objections to jurisdiction of January 29, 2004, with regard to the so-called umbrella clause.

● ADC v. Hungary (ICSID Case No. ARB/03/16) Award of October 2, 2006, in relation to valuation in cases of unlawful expropriation.

● Phoenix Action v. the Czech Republic (ICSID Case No. ARB/06/5) Award of April 15, 2009, as to bona fide investments.

● Abaclat et al. v. Argentina (ICSID Case No. ARB/07/5) Decision on jurisdiction and admissibility August 4, 2011, regarding admissibility of mass claims of 60,000 Claimants (the total number of whom at the time of initiation of the arbitration exceeded 180,000) mostly natural persons of Italian nationality relating to bonds issued by Argentina.

Which States have refused to comply with ICSID awards or have considerably obstructed compliance?

Argentina is well known for its interpretation of Articles 53 and 54, i.e. that the successful Claimant’s recourse to enforcement in its national courts is a pre-condition for payment of the award (See for e.g. Enron v. Argentina (ICSID Case No. ARB/01/3) Decision on the Argentine Republic’s Request for a Continued Stay of Enforcement of the Award, 7 October 2008, available here).

Which States have withdrawn from the ICSID Convention?

Bolivia, Ecuador and Venezuela.

Which States are not parties to the ICSID Convention?

Brazil and India are not among the 158 Members to the ICSID Convention.

Other curious facts

● After the award in the RSM v. Grenada (ICSID Case No. ARB/05/14) was rendered, RSM tried to sue Freshfields Bruckhaus Deringer LLP counsel for Grenada alleging that Freshfields conspired to violate the Racketeer Influenced and Corrupt Organizations Act by, for e.g., Jan Paulsson and Brian King being part of the conspiracy to bribe Grenada officials and deny RSM its licensing rights. RSM claimed the excess of US$500 million in damages. The claim was dismissed. See US District Court for the District of Columbia, Civil Action No. 10-00457 available here.

● Both the Claimant and the Respondent in the Europe Cement Investment v. Turkey (ICSID Case No. ARB(AF)/07/2) Award of August 13, 2009, ended up claiming that the Tribunal lacked jurisdiction. This is one of the Uzan family-related cases against Turkey. The Claimant wanted to discontinue the proceedings but the Respondent State disagreed. (See para. 139 of the Award)

Funniest quote from an ICSID award

“[H]appiness is multiple pipelines”

Mentioned in the case of Kardassopoulos & Fuchs v. Georgia (ICSID Case Nos. ARB/05/18 and ARB/07/15) Award of March 3, 2010, para. 5, in relation to the Western Route which was of

“significant national and strategic importance for Georgia as a means of securing its sovereignty following the break up of the Soviet Union and deepening its ties to the West.” (para. 3)

Recommendations

The site of ICSID is informative and accessible. Still it may be improved by, for e.g., adding information as to the basis of the jurisdiction in the particular case, nationality of the Claimant, amount claimed, amount awarded, who represented the parties, which was the successful party, costs of the proceedings, etc.

More from our authors:

	International Arbitration: Law and Practice by Gary B. Born € 30
	Commercial Mediation in Europe. An Empirical Study of the User Experience by Ewald Filler € 140
	Arbitrating Under the 2012 ICC Rules. An Introductory User’s Guide by acob Grierson, Annet van Hooft € 140
	Procedure and Evidence in International Arbitration by Jeffrey Waincymer € 350

General Electric Company

The new international survey on arbitral practices has just been released.

Now in its fourth iteration, the survey has come a long way since its inception in 2006 at the School of International Arbitration of Queen Mary, University of London. While the first three surveys purported to measure in-house counsel attitudes about arbitration and the enforcement of arbitral awards, this year’s survey questioned a broader group of stakeholders and seeks to answer questions about preferred practices.

Not just about in-house counsel anymore

With the support of lawyers from White & Case, the 2012 survey captured data from 710 respondents, a much larger sample than the school’s past surveys. And this time in-house counsel are not the sole respondents. In fact, they account for only 10% of those who answered, with 53% being private practitioners, 26% arbitrators, and 11% consisting of employees of arbitral institutions, experts, and academics (a truly mixed bag).

The survey also attempted to measure the extent of the respondents’ experience in international arbitration. 71% stated that they had been involved in more than five arbitrations in the previous five years. Thus, the survey’s reported data can be said to include a fair degree of experience with the subject matter, although the survey did not give less weight to the 29% who said they had been involved in fewer than five arbitrations in five years.

Unsurprising consensus views

International arbitration practitioners will not find many surprises in the general consensus reported by the survey. Most of those responding said they believe that tribunals should award costs to the prevailing party (80%); that the IBA Rules on the Taking of Evidence are useful for the management of proceedings (85%); that pre-appointment interviews with arbitrators are appropriate (86%); and a whopping 87% said having tribunals identify issues to be determined soon after their constitution would move proceedings more quickly.

These are often referred to as accepted practice in international arbitration; the survey just purports to provide some data about how widely accepted.

Indeed, the survey hints at the existence of a stubborn but substantial minority view. For the same practices above: 20% do not think prevailing parties should recoup costs; 15% do not find the IBA Rules to be useful; 14% will not talk to a party-appointed arbitrator before appointing them; and 13% don’t think it’s more efficient for tribunals to identify issues to be decided early in the arbitration.

Seriously?

Rather than legitimate, considered views, the minority position may simply represent the third (29%) of respondents who have little experience with international arbitration. Perhaps they just did not understand or appreciate what was being asked. If so, the consensus view among experienced practitioners, the acceptance of preferred practices, is even stronger than what the raw percentages suggest.

He said/she said

The survey gets more interesting (and is unique) where it segments answers according to the categories of the respondents, providing interesting contrasts and potential sources of tension over the quality of arbitral proceedings.

For example, respondents indicated that arbitrators had “split the baby” in 17% of their arbitrations. That’s already a significant number of cases. But the segmented data underlying this statistic suggests a severe misalignment of perceptions.

In-house counsel and private practitioners roughly agreed on how frequently baby splitting occured, at 20% and 18% of their cases, respectively. That’s one in five arbitral awards decided on the basis of accommodation rather than the merits. One would think arbitrators would be especially sensitive to such a widespread problem.

Yet according to the survey, they barely acknowledge a problem exists. Arbitrators said that only one in twenty of their cases (5%) had produced a split baby.

If these statistics are genuinely representative of these constituencies, they show that arbitrators believe they halve the baby only 25% as often as parties and their advocates say they do.

The segmented data, therefore, indicates a huge gap in perceptions of the quality of arbitral awards, between those who write them and those who pay for the results. That’s a problem for arbitration generally.

And, honestly, we need to come up with a better metaphor for this type of decision.

The 2012 survey results can be downloaded at:

http://www.whitecase.com/files/Uploads/Documents/Arbitration/Queen-Mary-University-London-International-Arbitration-Survey-2012.pdf

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Herbert Smith LLP

In June 2010 the Court of Appeal’s decision in Jivraj v Hashwani caused dismay in the arbitration community. Does an arbitration agreement which provides criteria for the appointment of arbitrators risk falling foul of the Employment Equality (Religion or Belief) Regulations 2003 (the “Regulations”) or other UK anti-discrimination law? The Supreme Court judgment of 27 July 2011 restored certainty, confirming that arbitrators are not “employees” under the Regulations and that the inclusion of certain “discriminatory” criteria for appointment does not breach the Regulations (see here for an earlier blog post on this decision).

That was expected to be the final word on the matter. The Supreme Court refused to refer the point to the ECJ. But now the issue has been revived, in the form of a complaint to the European Commission under article 258 of the Treaty on the Functioning of the European Union (“TFEU”).

Mr Hashwani’s complaint is hinged upon the Supreme Court’s decision not to refer two questions for preliminary ruling by the Court of Justice of the EU (“CJEU”). The complaint avers that this breaches the UK’s obligations under article 267(a) TFEU, which provides that where “a question [as to treaty interpretation] is raised in a case pending before a court or tribunal of a Member State against whose decisions there is no judicial remedy under national law, that court or tribunal shall bring the matter before the Court”. Furthermore, it is said that the Supreme Court failed to adopt the proper interpretation of Council Framework Directive 2000/78/EC.

The complaint requests that the Commission bring infringement proceedings against the UK in the CJEU. Mr Hashwani seeks:-

• a declaration that the UK has breached article 267 by virtue of the Supreme Court’s failure to refer questions to the CJEU for preliminary ruling;
• a determination of those questions by the CJEU; and
• a declaration that the UK must take necessary measures to ensure that those determinations are applied in Jivraj v Hashwani.

What impact will Mr Hashwani’s complaint have in practice? Certainly, it (re)introduces a degree of uncertainty as to the enforceability of “discriminatory” arbitration agreements. However, it is unlikely that we will see a return to the pre-Supreme Court practice of advising clients to remove such clauses from their agreements.

First, it will be a long and difficult road for Mr Hashwani. The Commission and the CJEU are not courts of final appeal on the merits. Mr Hashwani must persuade the Commission to exercise its preliminary powers under Article 258 TFEU: “If the Commission considers that a Member State has failed to fulfil an obligation under the Treaties, it shall deliver a reasoned opinion on the matter after giving the State concerned the opportunity to submit its observations. If the State concerned does not comply with the opinion within the period laid down by the Commission, the latter may bring the matter before the Court of Justice of the European Union.” If the Commission opines that the UK has breached its treaty obligations, and if the UK does not remedy this, the Commission may bring infraction proceedings in the CJEU against the UK under Article 260.

If the CJEU were to find that the UK has indeed breached its treaty obligations, the Commission and CJEU’s powers of enforcement would be limited to those available under article 260 TFEU. The CJEU has no power to determine the questions which Mr Hashwani poses by making a preliminary ruling on its own initiative. It is for the national court to refer a question to the CJEU within the context of a live case; not for the parties to use the mechanism as a method of appeal after judgment has been handed down. Under article 260, the CJEU may only require a state to “take the necessary measures to comply with the judgment”. Moreover, if a state does not comply, the Commission and the CJEU have no powers of enforcement. At most, the Commission may bring the case before the CJEU once again and the court may impose a lump sum or penalty payment. Although there may be political ramifications to a refusal to “take the necessary measures”, the European institutions cannot compel the Supreme Court to re-open the case or to refer any question back to the CJEU.

So much for the limited scope of the remedies available. It is in any event far from clear that the Commission will use its discretion to refer the complaint to the CJEU or, if it did, that the CJEU would find that the UK has breached its treaty obligations.

The Supreme Court handed down a very cogent judgment which explained in clear terms its decision not to make a preliminary reference to the CJEU. Its duty to refer a question of treaty interpretation to the CJEU is subject to the acte clair and acte eclaire exceptions: no reference need be made where the point is sufficiently clear so as not to require interpretation or where the question has already been interpreted by the CJEU. In relation to Mr Hashwani’s first question, the Court noted that the issues had been resolved by the CJEU in numerous cases and were considered acte clair. No preliminary reference was therefore required.

Against this, the fact that the Court of Appeal came to a different conclusion on the merits of the case invites the retort that the Regulations cannot be so clear that they do not require interpretation by the CJEU. Yet it is the Supreme Court’s prerogative to declare that the lower courts got it wrong – and the fact that the Supreme Court’s decision overturns the decision of a lower court does not, of itself, render its reasoning any less certain.

Mr Hashwani’s second question was moot because the Court found that the Regulations did not apply.

On the merits, the Supreme Court recognised that the role of an arbitrator is ‘different’. And it is. An arbitrator is not an employee and not a self-employed person: the role is of an “independent provider of services” who is “in effect a ‘quasi-judicial adjudicator’”. The parties do not control the arbitrator, once appointed; on the contrary, it is the arbitrator who runs the procedure and imposes his or her rulings, listening to the parties but independent of them.

Unless and until the UK acts upon an opinion of the Commission or a declaration of the CJEU, the Supreme Court judgment remains a binding precedent. It is not easy to see a scenario in which that will change.

The complaint may, however, prompt further debate upon discriminatory criteria in arbitration agreements. At first glance the Supreme Court decision clashes with values which the EU – and indeed the UK – hold dear. It permits discrimination on the grounds of religion in the appointment of an arbitrator.

Or, on another view, it promotes party autonomy in arbitration.
The legislation and the Supreme Court judgment recognise that there is a distinction between “acceptable” and “unacceptable” discrimination through the “genuine occupational requirement” exception. Such safety valves ensure that equality legislation does not have a negative impact beyond the intended scope of protection.

Regardless of the outcome of Hashwani’s complaint, party autonomy may come to be limited through other routes: see, for example, the draft Mediation and Arbitration Services (Equality) Bill. This draft private members bill, introduced to the House of Lords by Baroness Cox, aims to address the issue of gender discrimination in arbitration. The bill would amend the Equality Act 2010 to prohibit any term of an arbitration agreement or process which discriminates on the grounds of sex. Women continue to be under-represented on arbitral tribunals: 11% of partners in the GAR top ten international arbitration teams are women, but only 5% and 6% of all arbitrators appointed in ICSID and commercial arbitrations, respectively, are women.

The final (?) chapter in the Jivraj saga will take some time to be written, but in the meantime the discrimination vs. party autonomy argument will continue to be aired in other fora.

Craig Tevendale, Partner, Herbert Smith LLP, and Susan Field, Associate, Herbert Smith LLP

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Lalive

In the recent case of Itochu Corporation vs. Johann M.K. Blumenthal GMBH & Co KG & Anr [2012] EWCA Civ 996 (“Itochu vs. Blumenthal”), the English Court of Appeal decided obiter that – in the absence of an agreement on the number of arbitrators – a sole arbitrator should be appointed even when the arbitration clause suggested that the parties contemplated more than one arbitrator.

In this case, a dispute had arisen between the parties under a Letter of Guarantee containing an arbitration clause which provided as follows:

Any dispute arising out of this LETTER of GUARANTEE shall be submitted to arbitration held in London in accordance with English law, and the award given by the arbitrators shall be final and binding on both parties.

While Blumenthal argued that the clause provided for a sole arbitrator, Itochu argued that the tribunal should be composed of three arbitrators given the reference to “arbitrators” in the arbitration clause.

Blumenthal subsequently applied to the English Commercial Court for an order under section 18 (3)(d) of the English Arbitration Act 1996 (“the Act”) that a sole arbitrator be appointed. Itochu contested the application and argued that the Court should instead give directions under section 18(3)(a) of the Act for the appointment of a tribunal of three arbitrators.

The Commercial Court considered that the relevant issue to be decided in this case was whether section 15(3) of the Act – which provided that “[i]f there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator” – applied despite the fact that the parties contemplated a tribunal of more than one arbitrator. The answer, in short, was yes. The Court recognized that its decision represented an “apparent departure from the principle of parties’ autonomy generally adopted by the … Act” but laid emphasis on the purported aim of section 15 to ensure the efficiency of the arbitral proceedings as well as the unambiguous wording of section 15(3) of the Act.

Itochu appealed and argued before the Court of Appeal that effect ought to be given to the parties’ intention that the tribunal would be comprised of more than one arbitrator. Itochu contended that the arbitration clause envisaged three arbitrators, or if it contemplated two arbitrators, an additional arbitrator as Chairman would be required to be appointed in accordance with section 15(2) of the Act.

Although the Court of Appeal held that it did not have jurisdiction to hear the appeal, it nonetheless stated that it agreed with the conclusion reached by the Commercial Court. While the Court accepted that the parties had contemplated more than one arbitrator, it held that it was impossible to read into the clause an agreement as to the number of arbitrators and that absent such an agreement, section 15(3) of the Act provided unambiguously for the appointment of a sole arbitrator. The Court pointed out that the purpose of this rule was to prevent the stalling of an arbitration when there was a failure in the appointment procedure and was an example of Court support for arbitration and not an infringement on party autonomy.

The appointment of a sole arbitrator in this case sits uncomfortably with the parties’ clear intention in the arbitration clause to appoint more than one arbitrator. The Court of Appeal held that it was impossible to read into the arbitration clause an agreement as to the number of arbitrators. However, while there was indeed no agreement on the exact number of arbitrators, there was an agreement that there should be more than one arbitrator.

Section 15(3) of the Act sets out a presumption in favour of a sole arbitrator when the parties have not agreed on the number of arbitrators as the drafters did not want to impose on the parties the burden of paying for three arbitrators (see DAC Report on the Arbitration Bill, para. 79). However, in this case, the parties had clearly contemplated the possibility of more than one arbitrator and that they would have to pay for more than one arbitrator. As a result, such presumption should have been rebutted in favour of the only other choice in practice, which was three arbitrators.

Different national laws take different approaches with respect to the number of arbitrators to be appointed in the absence of an agreement between the parties. While common law jurisdictions generally tend to be in favour of sole arbitrators, civil law jurisdictions tend to lean towards the appointment of a three member tribunal. Hence, in the U.S., Hong Kong, India, and Singapore, a sole arbitrator is appointed by the court in the absence of an agreement (U.S. FAA §5, Hong Kong Arbitration Ordinance, Art.8; Indian Arbitration and Conciliation Act, Art. 10(2); Singapore International Arbitration Act, §9). Conversely, in Belgium, Austria, Japan and Denmark, three arbitrators are to be appointed in the absence of an agreement (Belgian Judicial Code, Art. 1681(3); Austrian ZPO, §580; Japanese Arbitration Law, Art. 16(2); Danish Arbitration Act, §10(2)). A third approach adopted by the courts in the Netherlands is to leave it up to the discretion of the judge to decide (Netherlands Code of Civil Procedure, Art. 1026(2)). A similar provision in the English Arbitration Act would most certainly have led to a different conclusion in Itochu vs. Blumenthal. While a reform of the English Arbitration Act 1996 is obviously not on the cards in the near future, a similar provision to the one adopted in Article 5(4) of the LCIA Rules would maintain the presumption that a sole arbitrator be appointed in the absence of an agreement on the number of arbitrators but nonetheless endow the court with discretion to appoint a three member tribunal when this is appropriate in the circumstances.

For now, in light of the obiter dicta of the Court of Appeal in this judgment, parties wishing to submit any dispute under their contract to ad hoc arbitration under English law would be well advised to expressly state the number of arbitrators to be appointed in their arbitration agreement.

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