Kluwer Law International

Posts Tagged ‘ICC Arbitration’

The ICC Institute of World Business Law has launched the 2013 edition of the Institute Prize for dissertations and essays on international commercial law, including arbitration, for anyone under the age of 40. The Prize of 10,000 Euro is awarded by a jury consisting of members of the ICC Institute Council. Essays and doctoral dissertations on international commercial law, including arbitration, written in one of the official languages of the Institute – English or French, must be submitted to the Secretariat of the Institute by 1 April 2013. Further details about the competition can be accessed here.

The 2011 Institute Prize was won by Claire Debourg for her doctoral thesis on “Les contrariétés de décisions dans l’arbitrage international”.

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

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.

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

Norton Rose LLP

by Kah Cheong Lye (Partner) and Chuan Tat Yeo (Associate), Norton Rose (Asia) LLP

Like computer programs, the length of time between updates for institutional rules seems to get shorter and shorter. New editions of institutional arbitral rules were introduced by the SIAC in 2010, the ICC in 2012, and the HKIAC’s revised Administered Arbitration Rules (Draft HKIAC Rules) are expected in the first quarter of 2013. A general theme in recent revisions is the desire of institutions to “brand” their arbitrations, and to move away from institutions being a mere postbox and appointing authority. Institutions now want the power to shape the arbitral process.

An expression of this theme is the inclusion of provisions which empower arbitral institutions to override parties’ agreement on composition of the tribunal, even where such agreement is expressly set out in the arbitration clause. Let us call these the Overriding Provisions.

Have arbitral institutions overreached themselves? Do Overriding Provisions contravene party autonomy?

A party’s right to nominate an arbitrator – Draft HKIAC Rules: Once the Draft HKIAC Rules apply, the HKIAC has the power to order the joinder of an additional party into an arbitration, and also to order a consolidation of two or more arbitrations. It appears this can happen even if one or more parties object.

Where an additional party is joined to an existing arbitration, Article 8.3 of the Draft HKIAC Rules states that

“all parties to the arbitration shall be deemed to have waived their right to designate an arbitrator, and the HKIAC may revoke the appointment of any arbitrators already designated or confirmed”.

In those circumstances, the HKIAC shall appoint the arbitral tribunal. Similarly, where there is consolidation of two or more arbitrations, Article 8.4 of the Draft HKIAC Rules states that parties will be deemed to have waived their right to make appointments and the HKIAC may revoke existing appointments.

So it seems that even when an arbitration clause expressly allows each party the right to nominate an arbitrator, this right may be disregarded in the event there is a consolidation of arbitrations, or joinder of an additional party. Even further, where an arbitrator has already been appointed pursuant to a party’s nomination, consolidation may have the effect of revoking the appointment. This revocation takes place in spite of the parties’ express right to nominate their own arbitrators and the fact that these arbitrator(s) had already been appointed.

2012 ICC Rules: A more conservative approach is seen in Article 10 of the 2012 ICC Rules, which also allows for the consolidation of arbitrations. Unlike the Draft HKIAC Rules, there is no express provision in the ICC Rules which waives parties’ right to nominate an arbitrator or which explicitly empowers the ICC Court of Arbitration (the ICC Court) to revoke existing arbitrator appointments. Indeed, there does not appear to be a specific provision detailing how the arbitrator(s) are to be appointed in the event there is consolidation. Article 10 of the ICC Rules does state that,

“When arbitrations are consolidated, they shall be consolidated into the arbitration that commenced first, unless otherwise agreed by all parties”.

It is possible that separate arbitrations (which are consolidated), which each arise out of an agreement with its own distinct mechanism for the appointment of the arbitrator(s), and which are different from the appointment mechanism in the arbitration that had commenced first in time or any applicable mechanism set out in the ICC Rules. The consolidation of these separate arbitrations will therefore deny effect to parties’ agreed mechanisms for the appointment of arbitrator(s).

Having said that, it appears that the ICC Court will adopt a cautious approach in determining whether to consolidate arbitrations. For example, Article 10(c) of the ICC Rules states that, where the arbitrations are made under more than a single arbitration agreement, one condition for consolidation is that the arbitration agreements must be “compatible”. While not defined, it is stated in the ICC Secretariat’s Guide to ICC Arbitration (2012) that the clauses must be “substantively compatible”, e.g. the different arbitration agreements must not provide for a different number of arbitrators. Similar provisions on the “compatibility” of arbitration clauses are also found in the Draft HKIAC Rules, but (as noted above) that set of rules expressly states that parties have waived their right to appoint arbitrators and also empowers the HKIAC to revoke existing arbitrator appointments. In addition, it is also noted in the Secretariat’s Guide that the ICC Court will not be able to consolidate arbitrations if arbitrators had been confirmed in more than one of the arbitrations.

Number of Arbitrators – SIAC Rules: Overriding Provisions are also present in the 2010 SIAC Rules. The 2010 SIAC Rules state that any case under the Expedited Procedure

“shall be referred to a sole arbitrator, unless the Chairman [of the SIAC] determines otherwise>” (Rule 5.2(b)).

We are aware of a case where the SIAC had appointed a sole arbitrator for an arbitration conducted pursuant to the SIAC Expedited Procedure (which was successfully invoked in that case), notwithstanding the parties’ express agreement on a three-member tribunal in their arbitration agreement.

The SIAC’s approach in that case contrasts with the Singapore High Court’s decision in NCC International AB v Land Transport Authority of Singapore [2008] SGHC 186 (NCC). NCC also concerned the number of arbitrators to be appointed for an arbitration. In the arbitration clause, the parties expressly agreed for any dispute to be referred to “an Arbitrator”. However, the plaintiff wanted three arbitrators to hear the case. The plaintiff relied on Rule 5.1 of the 2007 SIAC Rules, which provided the Registrar of the SIAC with discretion to order for three arbitrators if that was warranted by the circumstances of the particular case. One argument raised by the plaintiff was that the Registrar had the discretion to order for a tribunal of three arbitrators, even if the parties had expressly agreed on the number of arbitrators in their arbitration clause. In rejecting this argument, Justice Tay held that, where parties have expressly agreed on the number of arbitrators and also adopted a set of institutional rules, the better interpretation ought to be that parties have adopted the institutional rules subject to the number of arbitrators expressly agreed between the parties (unless parties have expressly assented to the institutional rules taking precedence).

Where lies Party Autonomy? – It is a basic question. Where the Overriding Provisions are used to defeat what parties have expressly said in the arbitration clause, where lies party autonomy? Do we say what the parties have chosen is what they have expressly provided in the arbitration clause, or do we say what the parties have chosen is to follow the institutional rules designated in the arbitration clause?

It is a question of some practical importance. There are potentially two serious consequences.

First, the use of such Overriding Provisions may lead to the setting aside of an eventual award, on the ground that

“the composition of the arbitral tribunal or arbitral procedure was not in accordance with the agreement of the parties” (Article 34(2)(a)(iv) of the 2006 UNCITRAL Model Law).

Recognition and enforcement of the award may also be refused on similar grounds (Article 36(1)(a)(iv) of the 2006 UNCITRAL Model Law, and Article V(1)(d) of the New York Convention).

Second, it raises the question whether overriding what the parties’ have expressly agreed concerning composition of the tribunal could, in certain circumstances, result in there no longer being an agreement to arbitrate. In other words, it may be that the parties’ express agreement concerning tribunal composition is so integral to their agreement to arbitrate, such that the agreement to arbitrate would not subsist at all if that express choice were replaced by alternatives set out in the institutional rules, i.e. the agreement to arbitrate is premised on what the parties’ have expressly agreed concerning composition of the tribunal being given effect. Such a concern is reflected in the English Court of Appeal’s holding in the Jivraj case (Jivraj v Hashwani [2010] EWCA Civ 712), albeit in a different context. There, the parties had expressly agreed to arbitrate before an arbitrator of the Ismaili faith. The English Court of Appeal held that the requirement for an Ismaili arbitrator was unlawful, and that this requirement could not be severed from the rest of the arbitration clause, as this would render the remaining clause substantially different from that which the parties originally intended. The arbitration clause had to stand or fall as a whole. As the Ismaili requirement was void, the remainder of the clause could not be upheld.

There are provisions in the Draft HKIAC Rules which attempt to address these validity and enforceability issues with awards where such Overriding Provisions have been used to override what the parties’ have expressly agreed concerning composition of the tribunal. For example, Article 27.6 of the Draft HKIAC Rules states that the parties

“waive any objection, on the basis of HKIAC’s decision to consolidate, to the validity and/or enforcement of any award made by the arbitral tribunal in the consolidated proceedings”.

This provision may not prevent a successful challenge to the eventual award – first, different jurisdictions adopt varying positions on the ability of parties to contract out of a challenge to an award; second, the provision may be read narrowly to only preclude challenges based on the decision to consolidate the existing arbitrations, and not on the grounds set out above.

The counter argument is that such “overriding” of parties’ express agreement pursuant to the Overriding Provisions does not run counter to the principle of party autonomy: The parties have agreed to the institutional arbitral rules, so they have agreed to these Overriding Provisions. The parties have therefore consented to what the parties’ have expressly agreed concerning composition of the tribunal to be overridden by the relevant institutional arbitral rule. In effect, the parties have agreed that their express agreement is subject to institutional discretion. There is therefore no derogation from the principle of party autonomy.

We have reservations with such an argument. In the first place, parties (and even counsel) often do not consider in detail the interplay between the institutional rules and the parties’ express agreement as set out in the arbitration clause. This is not surprising, given that (i) parties often focus less on the dispute resolution clause in their agreements; and (ii) there are many potential areas of interplay between the express agreement and institutional rules that the issues are often only recognized when they arise. Furthermore, one can sensibly suppose that commercial parties generally expect their express agreement in the arbitration clause to govern and to trump the institutional rules.

It seems to us that the best way forward is to adopt a tailored and case-specific approach. Depending on a multitude of factors (the importance of the clause to the parties, the institutional rule in question, whether parties had knowledge of the institutional rule at the time of executing the agreement etc.), it may be that institutional rules could be construed as “trumping” parties’ express agreement in certain cases but not others. There should not be a single rule which applies to all potential conflicts between Overriding Provisions and parties’ express agreement, whereby the Overriding Provisions or the parties’ express agreement will always prevail. A concern with the case-specific approach is that it could potentially lead to considerable uncertainty.

In carrying out the above analysis, one should certainly place significant weight on the fact that the parties have expressly agreed on a particular issue in the arbitration clause. This case-specific approach makes sense doctrinally, as the reconciliation of the parties’ express agreement and the institutional rules is ultimately a matter of contractual interpretation, which will (in the legal systems we are aware of) depend on the factual matrix of each individual case.

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

Conway & Partners

There are many clients who are often engaged in industrious works that result in disputes. Typically, the applicable arbitral agreements requirement submitting claims to international arbitration and, in this author’s opinion, appropriately so. However, these same clients may also be subject to frequent claim assertions that lack any true merit. Despite this, there is not truly a mechanism in place to protect such clients against having to fully defend themselves against such frivolous claims.

Under the ICSID rules the situation is different. Originating in the 2006 Amendments, Rule 41(5) allows a party to object to a claim that is “manifestly without legal merit.” This rule has, over the years, been tested and utilized by ICSID investment treaty claims. As the ICSID framework operates independently, however, it is not subject to a review under the terms of the New York Convention.

Could and should such a process be extended to international commercial claims under the auspices of international arbitration institutions? Many arbitral rules have recently undergone rigorous review and changes from appointed committees, such as the ICC Arbitration Rules. However, no such rule as found in the ICSID Rules exists. Why? There are, perhaps, many cultural reasons but the most obvious issue stems from the New York Convention, which may allow a party to claim under Article V that it was not given a proper opportunity to be heard and make its case. Clearly, protecting one’s right to assert its full claim is legitimate, it can also lead to abuse of the system – ultimately, hassling companies by making them carry-on a full defense on what can be determined early-on as a claim “manifestly without legal merit.”

Other commentators have considered models found in the common law system, such as that often referred to summary judgment or in the civil law system, such as the “kort geding” in the Netherlands which captures elements of both the common law summary judgment style motions and interim measure reviews.

The question raised is whether it could possibly hold up against a claim under the New York Convention when seeking recognition or enforcement of an arbitral award. Published in the Arbitration International (the Journal of the London Court of International Arbitration) in 2010, myself along with two co-authors (Ned Beale and Matthijs Nieuwveld) considered some preliminary motion options in practice in the United Kingdom and The Netherlands. In the article, entitled Summary Arbitration Proceedings: A Comparison Between the English and Dutch Regimes, “The authors recognize that the Dutch kort geding procedures should be distinguished from the English summary judgment procedure, having a requirement of urgency, as opposed to a strong case on the merits, and producing, at least technically, only interim remedies. However, given that interim awards resulting from arbitration kort geding procedures are often not challenged in subsequent main proceedings, in reality such an interim award often amounts to a final, summary, disposition of the claim. Specific provision for arbitration kort geding procedures make such ‘summary’ dispositions fairly frequent in the Netherlands, and also on the authors’ analysis protect against risk of being refused recognition and enforcement under the New York Convention.

Given that arbitral summary judgment is relatively rare in England, and that on the authors’ analysis there is a risk of such awards being appealed to the English court or refused recognition and enforcement under the New York Convention, the authors conclude that there is a good argument for specifically providing for summary judgment in the 1996 Act and/or the LCIA Rules. Obviously, whether a tribunal would exercise such a power would remain in the tribunal’s discretion, but in the authors’ opinion an express statement of the tribunal’s powers in this regard would be a useful clarification of the law.” (Ned Beale, Lisa Bench Nieuwveld, and Matthijs Nieuwveld, 26/1 Arbitration International 159 (2010)).

Furthermore, there is no precedent – looking to the ICSID examples can give arbitrators something to rely on when considering using a rule that would allow early-on review of the merits. What is crucial is finding a way to satisfy the NY Convention Article V(b) wherein the party may seek setting aside the arbitral award because the party was “unable to present his case.”

Surely, this can be worked around? The parties can “adequately” present their case while clearly demonstrating early on whether there are sufficient merits to press forward with a full-blown arbitration? I have no doubt this sparks controversy arising from all of our legal system biases, etc., but thoughts would be interesting to hear – is it ever possible to follow the ICSID example when constrained by the NY Convention? If so, how?

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

Conway & Partners

Last Monday I was honored with the opportunity to serve as one of the speakers for the annual ICC New York Conference. With an overflowing turnout and impressive list of panelists, it was a successful event. One interesting event of note was that the ICC took this opportunity to release the ICC Commission Report on States, State Entities and ICC Arbitration. We were privileged with the attendance of the co-Chairman of the ICC Commission on Arbitration’s Task Force on Arbitration Involving States or State Entities, who addressed some of the key portions of the report, Mr. Eduardo Silva Romero.

The ICC Commission Report explains its own purpose as explaining “how ICC arbitration works in relation to disputes involving states and state entities.” As I already mentioned in a previous post back in July, (and according to this report) around 10% of ICC arbitrations involve a state or state entity. This figure mostly comprises commercial arbitrations, but it also comprises investor-state arbitrations as well. For more background details, I kindly refer the readers to the ICC website where the report has been made publically available.

What I found the most useful about the report are, what I will describe as, the practitioner recommendations. Essentially, the report goes through some key areas notably of concern to states when they are parties to arbitration and either (a) explains new provisions in the ICC Arbitration Rules 2012 which now addresses these concerns, or (b) give recommendations for drafting clauses in such a way to ensure certain concerns are addressed (or with respect to treaties, it goes through suggested language as well).

Now it is time to hear from the clients – would the state entities find this information useful? Will it entice those who may be hesitant to more openly consider the ICC when drafting the arbitration clause in commercial agreements or including it as an option when drafting treaties. Although I failed to write down the exact number, it was reported during the conference that there are already a handful of BITs which provide the ICC as a dispute resolution option.

It was also intriguing to hear some of the inside scoop from government representatives. A representative from Canada’s trade department spoke on how they go about negotiating investment treaties with other countries. We also heard from a former representation of the US government who had been involved in negotiations with drafting US BITs, including one with Korea. Hearing the insights made it clear that similar to contract negotiations it is not always very clear to follow the reasoning as to why certain language is accepted – when it is finally concluded late into the evening. Several parties are involved internally before the respective negotiators from each country can even begin to work through the proposed language together. This may make gleaning the states’ and state entities’ reactions to the ICC’s efforts in becoming more appealing to states and state entities more difficult. But it would indeed be interesting to know.

More from our authors:

	Arbitration Law and Practice in China - 3rd Edition by Jingzhou Tao € 125
	Arbitration - The Next Fifty Years by Albert Jan Van Den Berg € 110
	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

Arnold & Porter LLP

Monday’s New York conference on “Arbitration with States and State Entities under the ICC Rules” got me thinking about the possibility of amicus submissions in investment cases before the ICC or other institutions beyond ICSID. A few musings:

Are amicus debates likely to arise in the ICC context? The answer is yes. Although most ICC cases involving States or State entities have arisen from contracts, a number already have alleged breach of investment treaties, and more presumably are to come. A recent ICC task force suggested that roughly 20% of BITs allow some possibility of using the ICC Rules, either by expressly providing that option or by allowing the parties to agree on an institution and rules beyond those specified in the treaty. Treaty cases frequently present issues of broader public interest. Indeed, such issues can arise even in contract cases involving States; the ICC Court reportedly twice has considered amicus issues in contract cases, one involving the European Commission and another a U.N. agency. The fact that ICC filings are not publicly posted, the way ICSID registrations customarily are, does not mean that civil society groups will not learn of their pendency and ask to be heard. The parties may quietly notify supportive groups and encourage their participation.

Would an ICC tribunal have authority to accept amicus submissions? The powers of the arbitrators fundamentally stem from the terms of consent. In investment cases, unless the claimant has a contract with the State providing for arbitration, the consent generally arises from treaty. But most treaties, with the exception of a few based on recent U.S. Model BITs, do not contain advance consent to nonparty submissions. Even in the NAFTA context, which has involved several amicus submissions, the consent stems not from the treaty but from a 2003 joint Statement of the Free Trade Commission.

If treaties are silent, the next potential source of consent are the procedural rules the State offered and the investor accepted. The ICSID Rules expressly address nonparty submissions, and place the issue squarely within the arbitrators’ discretion to decide. But the ICC Rules, like the current version of the UNCITRAL Rules, are silent. The UNCITRAL working group is currently considering a rules revision to parallel the ICSID approach. The task force behind the recent ICC Rules revision similarly considered adding a provision on amici but ultimately declined, reportedly worrying that it might complicate proceedings and discourage parties from choosing the ICC, perhaps over ICSID.

The ICC task force believed that if both parties agreed, a tribunal could admit amicus submissions under the general procedural discretion provided by Article 19(1). This surely is right: parties by consent generally may frame the arbitral process. But this general discretion probably could not be stretched to allow a tribunal to accept amicus submissions over the objections of a party, as may now occur in ICSID cases. The issue might be considered analogous to arbitrators’ relying on independent research, beyond the facts or law presented by the parties; doing so could well expose their award to challenge for exceeding their authority.

If a tribunal has discretion, what standards should it apply? ICSID Rule 37 provides useful guidance. It identifies as relevant the extent to which the nonparty submission “would assist the Tribunal in the determination of a factual or legal issue — by bringing a perspective, particular knowledge or insight that is different from that of the disputing parties,” “would address a matter within the scope of the dispute,” and would reflect “a significant interest in the proceeding” by the nonparty itself. The Tribunal should also consider whether the submission would “disrupt the proceeding or unduly burden or unfairly prejudice either party,” and ensure that the parties can present observations on the submission.

The track record of amicus applications in investment cases been mixed, depending on who the amicus is and whether it is considered to offer any special knowledge that could usefully guide the tribunal’s decision. The European Commission was granted permission in AES v. Hungary and Electrabel v. Hungary (full disclosure: I represented the respondent); the tribunals essentially accepted that it offered a distinct perspective. It was the enforcer in first instance of EU law, which Hungary invoked to defend its actions; the disputes involved claims by European companies against a European State; and the European Communities themselves were signatory to the Energy Charter Treaty, which governed the claims. By contrast, amicus applications by NGOs have had mixed success. Some have been granted, as in Biwater v. Tanzania, Suez v. Argentina and Glamis v. United States; others were rejected, as in Chevron v. Ecuador and in two parallel cases against Zimbabwe.

The Glamis case is interesting because it reminds us that amicus applications can be in favor of either side. Although environmental and labor groups arguably have been most vocal in arguing for transparency and nonparty submission rights, presumably to defend vigorous State regulation, business promotion groups also may have an interest in being heard on the side of aggrieved investors. In Glamis, the tribunal accepted briefs from both the Quechan Indian Nation, arguing for government’s duty to preserve sacred lands, and from the National Mining Association, arguing that regulation should not undermine protected interests of the mining sector.

What parameters should tribunals consider to maximize the utility of nonparty submissions while ensuring fairness to the parties? Here there are many factors to consider. To pose just three of the tougher ones:

1. Should a tribunal allow amici access to the parties’ submissions? The tribunals in AES and Electrabel came to opposite conclusions: the first denied the Commission’s request for access and the second granted it, subject to possible redactions. What is the argument? On one side, granting access allows an amicus to more meaningfully join issue; if the rationale for accepting its submission is that the tribunal believes the amicus has special knowledge or insight, wouldn’t the tribunal benefit from helping that amicus target its submissions to the precise questions presented for determination? That reasoning led the Foresti v. South Africa tribunal to allow several NGOs access to the parties’ submissions. But doing this raises questions about confidentiality. What if the amicus is a commercial actor in the same market sector as one of the parties, or an NGO with its own vested interest in the sector? The Biwater and Suez tribunals denied amici access to the parties’ filings, in part because of confidentiality concerns. That result seems even more logical outside the ICSID rules, which at least grant tribunals procedural discretion over the amicus process. ICC arbitrators, like arbitrators under most rules, are subject to obligations of confidentiality. Absent exceptions arguably flowing from discretion granted in the rules, how could arbitrators ethically release the parties’ submissions to a nonparty over their express objection?

2. Could a tribunal ever require the amicus to be available for cross-examination? Generally the parties oppose amicus participation at the hearing, and generally tribunals deny these requests. But to date the issue has been addressed mostly before the parties see the written submissions themselves. In principle a party may feel differently if the submission makes important assertions of fact. If the very reason for allowing the submission is that the non-party arguably offers some special factual knowledge or technical expertise, shouldn’t the parties have an opportunity to test its assertions through cross-examination? Why should all other presenters of fact or expertise be subject to questioning, so the tribunal can evaluate the persuasive value, but not the amici?

3. Finally, could a tribunal ever invite amicus contributions to costs? Nonparty submissions clearly add to the cost of a proceeding. The parties have to prepare observations in response, perhaps of significant length (some past cases have involved submissions from five different amici, each presenting its own perspective). This results in extra argument at the hearing and extra time by the arbitrators to consider the arguments and possible address them in their decision. Should the parties alone bear the attendant costs? Would it ever be proper for a tribunal to ask a nonparty to contribute to those extra costs? That could chill the involvement of civil society on issues of broader public interest. But if public interest is the appropriate consideration, why should the cost of subsidizing the broadening of the dispute, into a form of public notice-and-comment proceeding, fall entirely on the parties?

There are no easy answers. Fundamentally, these questions devolve into one basic one (“whose arbitration is this anyway?”), with a subsidiary one (“should the answer be different for investment disputes?). Are investment disputes still basically disputes between two distinct parties, or are they a forum for resolving issues of public interest?

The question leaves ample room for debate. As the ICC and other institutions try to move into the investment arbitration sphere largely dominated by ICSID, they too will have to grapple with these issues — with even less guidance in their procedural rules than the ICSID Rules now provide.

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Conway & Partners

On September 10, 2012, The International Chamber of Commerce (“ICC”) in New York will be hosting the seventh annual conference. Located in New York City, the ICC Conference will be looking at investor-state arbitration, specifically under the rules of the ICC.

The ICC has been working hard to build up its profile in the international arbitration niche, investor-state arbitration. Unfortunately, they have only been able to handle a very few cases (According to a GAR article published on March 15, 2010, stated that at the time there were 9 investor-state arbitrations currently being administered by the ICC) (see ICC Task Force Considers State-Related Arbitrations by Allison Ross at www.globalarbitrationreview.com). But what does add to their credibility is both (1) their handling of a significant amount of international arbitrations (even if commercial) annually, and (2) that since the 1998 ICC Rules were implemented, about 10% of the parties involved in these international “commercial” arbitrations involved states parties (see the same GAR article). This gives the ICC, arguably, some experience handling cases with political sensitive issues and parties.

Without having inside information, I cannot answer this question, but I am curious to know – after establishing the task force to consider state-related arbitrations- whether the number of state-investor arbitrations administered under the ICC have increased. The upcoming annual conference is entitled, “Arbitrations with States and State Entities under the ICC Rules.” Perhaps this will provide an invaluable forum to learn where the ICC currently stands and to get a better understanding of the ICC’s approach as an administrator of investor-state arbitrations versus the leading handler of such cases, ICSID.

Full disclaimer – I myself will be joining the conference as one of the speakers. The panels will include discussing a broad spectrum of sub-topics under state involved arbitrations. This includes going through the core basics of how it all works for those less acquainted with this more specialized field to discussing emerging trends and specific sub-issues for the more experienced practitioners, clients and arbitrators.

The ICC is no doubt an experienced arbitral institute in the international arbitration arena, but relatively young in terms of the investor-state arbitrations. Yet, with their recent efforts to increase their work load in this area coupled with their general administration know-how, perhaps they could become a contender one day. Or, are they forever labeled only with the commercial cases? It would be interesting to hear others’ thoughts.

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In a decision rendered on 2 November 2011, the Reims Court of Appeal annulled an ICC Award for failure to disclose conflict of interest during proceedings, irrespective of the ICC Rules on challenging arbitrators in the case Avax v. Technimont.¹ This post considers the latest instalment, the Reims Court of Appeal decision, and its two key findings: the inapplicability of the ICC Rules for challenging an arbitrator post-award, and the broad scope of an arbitrator’s continuing disclosure obligations.

For those who may have missed the previous blog posts,² these proceedings occurred further to an application to set aside a partial arbitral award rendered under the auspices of the International Chamber of Commerce, initiated by a Greek company J&P Avax SA against an Italian company Société Tecnimont SPA. Tecnimont had concluded a subcontract agreement with Avax for the construction of a propylene factory located in Greece. A dispute between the parties arose and Tecnimont instituted ICC proceedings in Paris pursuant to the arbitration clause contained in the subcontract agreement.

At the time of his appointment in 2002, the Chairman was ‘Of counsel’ at a global law firm with an office in Paris. In his declaration of independence, the Chairman disclosed that the Washington DC and Milan offices of his firm had previously worked with the parent company of Tecnimont in a concluded matter in which he had never been involved.

During the proceedings, Avax’s counsel became aware that the Chairman’s law firm was assisting a company that was later acquired by the parent company of Tecnimont. Avax then unsuccessfully challenged the Chairman’s appointment before the ICC Court of Arbitration in September 2007. The ICC dismissed the challenge for undisclosed reasons and Avax continued to participate in the arbitration while reserving its rights. A partial award on liability was rendered in favour of Tecnimont on 10 December 2007, with further information regarding the links between the Chairman’s law firm and Tecnimont’s affiliated companies coming to light thereafter.

Subsequently, Avax filed an application to set aside the award with the Paris Court of Appeal.

On 12 February 2009, the Paris Court of Appeal annulled the award and held that the arbitrator was under a continuing obligation to inform the parties of any matter that could cast reasonable doubts on his/her impartiality and independence. The Paris Court rejected Tecnimont’s argument that Avax’s application to set aside was inadmissible because it had already unsuccessfully challenged the Chairman before the ICC on the same grounds and that such challenge was in any event waived as it was made beyond the time limit of 30 days required by the ICC Rules on challenging arbitrators. The Paris Court of Appeal found that Avax had only been notified of relevant facts and circumstances after it challenged the award and after the partial award was delivered. They left open the questions of whether the ICC Rules bind the court and whether the party had waived its right to challenge the award by failing to adhere to the time limitation imposed by the ICC Rules.

The Cour de cassation³ reversed this decision, holding that almost all of the grounds for challenge were already included in the request for challenge filed with the ICC in September 2007. The Cour de cassation considered that the Paris Court modified the terms of the dispute by relying on facts that came to light after the partial award rather than relying on those submitted by the parties, a breach of Article 4 of the Code of Civil Procedure. Consequently, the Supreme Court remitted the case to the Reims Court of Appeal to decide on the validity of the award.

The Reims Court of Appeal first considered that the setting aside application was admissible because the failure to challenge the Chairman within the ICC time limitation did not prevent Avax from applying for the award to be set aside. The Reims Court of Appeal then annulled the award due to the Chairman’s failure to spontaneously and comprehensively disclose that his law firm had advised Tecnimont and related companies during the time of the proceedings.

This decision confirms: (I) the inapplicability of the ICC Rules at least for challenging arbitrators before French courts once an award is rendered and (II) the French courts’ attitude of broadening the scope of the arbitrator’s duty to update and disclose conflicts of interests.

I. The Inapplicability of the ICC Time Rules for Arbitrator’s Challenge

Article 11 of the ICC (1998) Rules provides that challenge of arbitrators must be brought within 30 days from when the party became aware of facts and circumstances giving rise to the challenge. The reasons for the ICC decisions on arbitrators’ challenges are not provided or published. That rule has not been modified by the recent revision of the ICC Rules, despite discussions on the benefits of publishing decisions concerning challenges of arbitrators.

As the Cour de cassation‘s decision that the Paris Court of Appeal modified the terms of the dispute was of a procedural nature, the Reims Court of Appeal’s view on the admissibility of the application to set aside was much anticipated.

Indeed, some commentators argued that the only motive that could justify the Cour de cassation putting forward this procedural flaw is that its correction would have an impact on the admissibility of Avax’s claim. The Cour de cassation therefore has ruled on a technical issue only to enable a future reversal of the Paris Court of Appeal’s decision. It is probably not by coincidence that the designated court is chaired by Dominique Hascher, former general counsel of the ICC Court of Arbitration and previous judge at the 1st Chamber of the Paris Court of Appeal.

On this occasion, the Reims Court of Appeal was expected to provide some explanations as to the consequences of not filing the application within the time limit set forth in the ICC Rules.

Both the Reims Court of Appeal and the Paris Court of Appeal accepted that some facts were revealed after the ICC decision on Avax’s challenge. Thus, the ratio decidendi of the case stands in its analysis of the consideration given by French courts to the ICC Rules.

The Reims Court of Appeal’s conclusions are straightforward: challenges before the ICC Court and review of an award by a judge are separate proceedings and do not serve the same purpose; the two applications are before different authorities; and the judge that deals with the award is not required to abide by the ICC time limit to challenge arbitrators. The ICC decision is of an administrative nature and does not have res judicata effect. Furthermore, the appellate judges found that the party has not waived its right to challenge the award as the party raised the issue and reserved its rights whenever possible during the arbitration proceeding. This decision means that, once an award is rendered and notwithstanding the ICC’s decision or the failure of the parties to comply with the ICC Rules on challenges during the proceeding, the judge has full liberty to decide whether arbitrators’ independence may be called into doubt provided the party shows that it did question the independence of the arbitrator and therefore did not waive its rights to challenge.

Although many commentators support efforts to ensure impartiality and independence, this case has already been criticised by some commentators for the court’s lack of consideration as to the ICC Rules with respect to time limits for challenges of arbitrators. Some view that ICC Rules should not have been so easily bypassed given that they represent contractual obligations that bind the parties and arbitrators. Another concern is that allowing the challenge to go forward means the party receives an opportunity to re-litigate the same issue before different bodies.

It is true that this case represents a rare disregard of the ICC Rules by the French courts. Nevertheless, it is the first time that the French courts deliberated the parties’ agreement to abide by the ICC Rules with respect to that specific issue. The party could have also challenged the arbitrator by virtue of Article 11 after the new information was disclosed but did not do so. However, the Article 11 time-limit is internal to the ICC procedure for arbitrators’ challenging and cannot be imposed on French courts once the award has been rendered. Moreover the party made clear that it reserved its right to challenge the arbitrator before the court. This does not imply that the Reims Court of Appeal has denied the will of the parties. Rather they deemed that failure to respect the ICC procedural time limit did not prevent recourse before national courts after the award is rendered.

II. The Broad Scope of the Arbitrators’ Disclosure Obligations

The appellate judges concluded that information concerning the links provided by the Chairman had developed throughout the course of the proceedings. The relationship between the Chairman’s law firm and one of parties to the arbitration went beyond the information disclosed in 2002 by the Chairman and was not revealed in due time.

In that respect, the Reims and Paris Courts of Appeal had similar interpretations. However, the Reims judges further elaborated on the meaning of the duty of disclosure. The Court found that arbitrators have a continuous obligation to disclose not only personal circumstances that may call their independence into question, but also factual circumstances involving the law firms to which they belong throughout the proceedings. Notwithstanding the arbitrator’s position in the firm, the obligation to disclose covers other files handled by other branches of the law firm irrespective of the subject matter of the dispute or the amount of fees invoiced for these other files. Thus, a certain degree of objectivity was required from the arbitrator, beyond his/her personal connections. After reviewing each specific link, the Court concluded that the failure to inform the parties of these facts or the incomplete information given to the parties created reasonable doubts as to the independence of the Chairman.

The Reims decision demonstrates the importance of continuous and strict conflicts checks by arbitrators, after their appointment and throughout the proceedings. This ruling is in line with the French case law on the continuation of the duty of disclosure.⁴ Indeed, under the new Article 1456 of the French Code of Civil Procedure, an arbitrator is under the duty to ‘disclose any circumstances that may affect his or her independence or impartiality’ and ‘also shall disclose promptly any such circumstance that may arise after accepting the mandate.’

This decision also confirms a current trend in French case law that broadens arbitrators’ duty of disclosure, e.g. with respect to the number of appointments of an arbitrator by one of the parties as well as to the existence of a business relationship between an arbitrator and a party’s counsel. However, this is the first time an award is annulled on the basis of connections with other offices of the arbitrator’s international law firm, rather than the arbitrator’s personal connections.

Arbitrators involved in proceedings seated in France are under a duty to continuously investigate potential conflicts and ensure that conflicts databases are regularly updated. As companies frequently change ownership and affiliates, clients should also be requested to clarify precisely their corporate structure and line of control and communicate any changes to their lawyers. Some commentators have criticised the lack of cost-efficiency of such refinement of conflict checks and updates system. The Reims Court of Appeal decision adds to the responsibilities of arbitrators but serves to ensure that arbitrators sitting in international arbitration tribunals in France remain independent and impartial throughout the proceedings. This development is crucial to maintain the credibility and quality of international arbitration.

The duty to disclose is also in harmony with the colour coded IBA Guidelines on Conflicts of Interest in International Arbitration, addresses the issue of an arbitrator’s law firm’s involvement with one of the parties. Arbitrators must disclose if their law firms are rendering services to one of the parties or affiliates without creating a significant commercial relationship and without the involvement of the arbitrator. While the rendering of services must be disclosed, it does not per se amount to a conflict of interest under the IBA Guidelines. The individual circumstance would have to be further examined.

The French courts’ approach on this matter does not differ, as the Court of Appeal specified that the facts that the matters dealt with by the law firm were unrelated to the dispute submitted to arbitration and that the amounts billed by the firm with respect to the other files was nominal and did not create an impact. Specifically, the Court stated: ‘Once a client relationship is established, that relationship is not only financial: the independence of an arbitrator is not judged depending on the scale of the fees received by his/her law firm from a party.’

Applying the IBA Guidelines, the arbitrator in the Tecnimont case would have been under the same duty to disclose his law firm’s representations of affiliates of one of the parties. However, the law firm’s representations may or may not lead to an annulment of the award as the facts would still have to be analysed under the IBA Guidelines to determine if they create a justifiable doubt as to the arbitrator’s impartiality and independence. Similarly, the Reims Court of Appeal would not automatically annul the award for failure to disclose all this information but will also analyse each specific link between the law firm and the parties to arrive at its conclusion. As the judges indicated: ‘(…) the review court’s responsibility is to assess the impact of the non-disclosure and to determine whether or not it could have caused a reasonable degree of doubt, in the minds of the parties, as to the alleged lack of impartiality.’

A pourvoi en cassation or recourse has been lodged against the Reims decision with the Cour de cassation and it is uncertain whether the Cour de Cassation will adopt the Reims Court of Appeal’s view of the ICC Rules.

By Laurence Franc-Menget and Vanina Sucharitkul, Herbert Smith LLP

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In an emergency, swift and effective action is required. Yet in international arbitration proceedings, it can take weeks or months to constitute an arbitral tribunal. What options, then, are open to a party in need of urgent interim relief before an arbitral tribunal has been formed? In many circumstances, applying to the national courts of the relevant jurisdiction will be an unattractive prospect – for all of the reasons the parties chose arbitration in the first instance.

Arbitral institutions have devised a range of different solutions to this problem – from summary arbitral proceedings for interim relief (e.g. NAI) to expedited formation of the arbitral tribunal (e.g. LCIA) – but many have alighted on the use of “emergency arbitrators” to determine applications for interim relief before the arbitral tribunal is constituted (e.g. SCC Rules, SIAC Rules, new ICC Rules). In this blog, we examine some of the practical issues raised by the use of emergency arbitrators, as an increasingly popular tool of (pre-)arbitral procedure.

The first of these is: who to call in an emergency? In order to determine whether a party is entitled to rely on emergency arbitrator procedures, it is necessary to look at how those procedures are incorporated into the applicable arbitral rules and when they are to be invoked.

In contrast to the approach of previous regimes, most modern provisions for emergency arbitrators apply to a dispute automatically, by virtue of the parties selecting the relevant arbitral rules (indeed, the “opt in” nature of the ICC’s 1990 Rules for a Pre-Arbitral Referee Procedure is often cited as a reason for their limited use). Typically, where arbitral rules offer emergency arbitrator procedures, parties must therefore expressly “opt out” of those provisions if they do not wish them to apply. The SCC Rules go one step further, by applying the opt out feature in respect of the emergency arbitrator provisions retroactively (i.e. parties arbitrating under the SCC Rules can use the emergency arbitrator procedures even if their arbitration agreement was concluded before those procedures came into effect, on 1 January 2010). By contrast, and in recognition of the dramatic change introduced by the new provisions, the new ICC Rules contain ‘transitional provisions’ exempting the application of the new Emergency Arbitrator Provisions where the arbitration agreement was concluded before the new Rules come into force (i.e. on 1 January 2012) (Article 29(6)(a) of the new ICC Rules). It is anticipated that this automatic inclusion / opt out formulation will encourage the uptake of emergency arbitrator procedures under the arbitral regimes in which they appear.

A divergence may be seen, however, in the approach of arbitral institutions at the stage at which parties may seek to invoke emergency arbitrator provisions. For example, under the rules of certain institutions, parties are required to submit a Notice of Arbitration before (or concurrently with) a request for emergency relief (e.g. Schedule 1(1) of the SIAC Rules). Others, in contrast, offer even greater flexibility, allowing a party to apply for interim relief before a Request for Arbitration has been filed (e.g. Appendix V, Article 1(6) of the new ICC Rules). However, in those instances, the party seeking interim relief is typically required to submit a Request for Arbitration within a certain time period after their application for relief, failing which the emergency arbitrator proceedings will be terminated.

Another issue of interest is the impact of emergency proceedings on the concurrent jurisdiction of a competent court or the arbitral tribunal. As for court proceedings, emergency arbitrator procedures are not envisaged to represent an exclusive remedy and, in general, the option of (or indeed submission to) those proceedings does not operate as a waiver of judicial authority over the matter. Indeed, certain arbitral rules expressly recognise the preservation of judicial remedies despite the availability of emergency arbitrator procedures (e.g. Article 29(7) of the new ICC Rules; Article 32(5) of the SCC Rules). However, the provisions of mandatory local law may curtail recourse to the courts where parties have an option to seek relief from another source (such as an emergency arbitrator). For example, under the English Arbitration Act (1996), the English courts will grant orders in support of arbitration “if or to the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively” (section 44(5) of the English Arbitration Act). (It is noted, however, that the qualification of “unable…to act effectively” may dilute the restrictive effect of this provision on the English courts’ jurisdiction as a consequence of emergency arbitrator procedures.)

In respect of the arbitral tribunal, jurisdiction is entirely protected. Arbitral rules are clear that orders or awards of emergency arbitrators do not bind the subsequently-constituted arbitral tribunal, and that those tribunals are empowered to reconsider, modify, terminate or annul the order or award (e.g. Article 29(3) of the new ICC Rules; Schedule 1(7) of the SIAC Rules).

There are, however, important limitations on the interim relief emergency arbitrators are able to grant. For example, since the same principles of jurisdiction apply to emergency arbitrators as to the arbitral tribunal, they are not able to grant interim orders over third parties to the (eventual) arbitral proceedings. This rule is expressly recognised in the new ICC Rules, which state that the Emergency Arbitrator Provisions apply only to signatories to the arbitration agreement or their successors (Article 29(5) of the new ICC Rules). (It is noted that this particular provision also precludes the use of ICC emergency arbitrators in investor-state disputes.) In addition, ex parte applications – where the element of surprise is vital to their success – are not suitable for submission to emergency arbitrators (e.g. Mareva or freezing injunctions). This important limitation on the powers of emergency arbitrators partly reflects the centrality to arbitration of the opportunity for each party to present its case, but also the draconian nature of ex parte orders, such that they ought to be reserved solely for the national courts.

As a side note, one concern that has been voiced in relation the powers of emergency arbitrators to grant interim relief in arbitral proceedings is the potential damage their orders may cause if wrongly granted against innocent parties. However, arbitral institutions go some way to addressing this concern by giving emergency arbitrators the power to require the applicant to provide “appropriate security” as a pre-condition for the granting of relief (e.g. Appendix V, Article 6(7) of the new ICC Rules).

Assuming that the basic threshold requirements have been met (e.g. standing, urgency, prima facie entitlement to the relief sought, threat of irreparable loss), and a party is awarded the relief it seeks, the next key issue that arises is enforcement: how may provisional measures ordered by an emergency arbitrator be enforced and what are the sanctions for non-compliance? The form of the relief granted by an emergency arbitrator varies across arbitral institutions: some require provisional measures to be granted as “orders” (e.g. Article 29(2) of the new ICC Rules), whilst others permit interim “awards” to be rendered (e.g. Schedule 1(6) of the SIAC Rules; Article 32(3) of the SCC Rules). However, questions remain regarding the applicability of national arbitration laws to pre-arbitral procedures and the extent to which courts will enforce orders or awards made by emergency arbitrators. Ultimately, this is likely to turn upon whether emergency arbitrators are deemed to be “arbitrators”, for the purposes of arbitration legislation, granting relief in the course of “proceedings”. Unfortunately, there is a paucity of case law with which to illuminate this question. However, a purposive approach – which recognises that the primary purpose of arbitration legislation is to respect the parties’ agreement to arbitrate their disputes – would appear to lend support in favour of the enforcement of emergency arbitrators’ orders and awards.

Separately, claims may lie in breach of contract where parties are required by the governing arbitral rules to give an undertaking to comply with the orders of emergency arbitrators (e.g. Article 29(2) of the new ICC Rules; Schedule 1(9) of the SIAC Rules; Appendix II, Article 9(3) of the SCC Rules). Accordingly, arbitral tribunals are empowered to reflect non-compliance with the orders of emergency arbitrators in the final Award of damages (e.g. Article 29(4) of the new ICC Rules). (Added incentives derive from provisions which allow arbitral tribunals to revisit an emergency arbitrator’s decision about the costs of the emergency proceedings.)

In addition (and of greater practical effect than might, at first, be imagined), orders granted by emergency arbitrators are “morally binding” on the parties. Whilst it may be true that parties are less incentivised to comply with the orders of emergency arbitrators (on the basis that those arbitrators are usually prevented from sitting on the arbitral tribunal, and consequently the risk of adverse inferences from non-compliance may be perceived to be lessened), in practice, arbitral institutions report very high levels of voluntary compliance with those orders.

As the rules of arbitral institutions evolve to reflect modern practice and respond to commercial pressures, there appears to be an increasing convergence in approaches to the provision of pre-arbitral emergency relief. Although there may be certain practical limitations on the operation and enforcement of these provisions, the ultimate aim of emergency arbitrator procedures is the same: to increase party autonomy and reduce the role of the courts in arbitral proceedings, taking arbitration one step further to becoming a one-stop shop for the comprehensive and effective resolution of disputes. The proven track record of parties who have deployed these procedures successfully to date is an encouraging sign of the utility of emergency arbitrators and a likely indicator of future trends. Those institutions whose rules are currently silent on the use of emergency arbitrators are bound to follow suit.

Justin D’Agostino and Ula Cartwright-Finch
Herbert Smith

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In this post, we will first deal briefly with the facts in the case of Jivraj v Hashwani and the findings of the first instance judge and the Court of Appeal, which by now would be very familiar to anyone reading this blog. We will then look at the Supreme Court’s judgment ([2011] UKSC 40), in particular its observations on the “genuine occupational requirement” (GOR) issue (discussed below) which robustly support the broad autonomy of the parties inherent in consensual arbitration to appoint decision makers with an understanding of their legal systems, social traditions and commercial background.

The dispute arose out of an arbitration clause in a joint venture agreement which provided for disputes to be resolved by three arbitrators who “shall be respected members of the Ismaili community and holders of high office within the community”. Mr Hashwani challenged the validity of this requirement on the basis that it was caught by the anti-discrimination provisions contained in the Employment Equality (Religion and Belief) Regulations 2003 (the Regulations).

At first instance, David Steel J rejected this challenge on the ground that arbitrators were not “employees” within the scope of the Regulations (which defined “employment” as “employment under…a contract personally to do any work”). He held that even if the Regulations did apply, the case fell within the GOR exception in the Regulations which applies in cases where an employer has an ethos based on religion or belief and being of a particular religion is a GOR for the position in question.

The Court of Appeal overturned this decision on the basis that an arbitrator was an employee of the appointing parties, providing services under a “contract personally to do any work”. The Court of Appeal also held that the GOR exception could not save the arbitration clause because no particular religious requirements were necessary for the discharge of the function of an English seated tribunal determining the dispute in accordance with English law.

The Supreme Court unanimously overruled the Court of Appeal decision, holding that an arbitrator’s role is not “naturally described as one of employment at all” and he is in effect a “quasi-judicial adjudicator”. The Court explained that although an arbitrator may provide services on a personal basis he “does not perform those services or earn his fees for and under the direction of the parties”; rather an arbitrator is an “independent provider of services who is not in a relationship of subordination with the parties who receives his services”.

Although the Court’s conclusion on the first issue that arbitrators are not employees was dispositive of the matter, the majority considered the GOR issue as it had been fully argued (Lord Mance, who delivered a separate judgment concurring with the majority on the employment issue, preferred not to deal with it).

The issue before the Supreme Court was whether the requirement that arbitrators be of a particular religion or belief (and by extension, other cultural or personal characteristics) can constitute a genuine, legitimate and justified requirement. Observing that this was on objective question for the Court, the majority rejected the reasoning of the Court of Appeal that an English law dispute in London under English curial law does not require an Ismaili arbitrator, as “too legalistic and technical”. The majority quoted with approval the observations of the first instance judge citing ethos of Ismaili community for dispute resolution contained within the Ismaili community, and observed that an arbitrator of the Ismaili community would bring with him or her an understanding of the parties’ conduct and moral and ethical codes which would assure the parties of an acceptable arbitration procedure in which they could have particular confidence.

The Court’s decision demonstrates an understanding that, besides the functional component in terms of application of a given national law to the dispute, arbitration has a very significant process-based dimension which is largely left to the discretion of the arbitrators by most national arbitration legislations, major institutional rules and other international codes (such as the UNCITRAL Model Law), subject only to certain safeguards necessary in the public interest. The exercise of this discretion and an arbitrator’s approach to the resolution of the dispute are bound to be influenced by a number of characteristics linked to his/her nationality, cultural background, ethos, legal training and experience. Indeed, even if, in fact, an arbitrator is not so influenced, the objective perception of the parties would always be otherwise. This point is well illustrated by the different attitudes and practices of arbitrators from diverse legal, cultural and regional backgrounds, which might manifest themselves in a predisposition towards adversarial or inquisitorial or conciliatory approach, or attitude towards confidentiality, written or oral procedures, disclosure, interpretation of contracts, treatment of witnesses and promotion of settlement etc. For instance, it has been observed that in East Asia and Middle East, social norms and values may have a greater role in shaping resolution of disputes and tendency may be to structure arbitration in a conciliatory fashion, in contrast with the Western approach which generally gives primacy to legal formality, set procedures and written agreements.

In practice, and in light of these considerations, it is a common trend for parties to incorporate requirements in their arbitration agreements which decisively influence the choice of a prospective arbitrator, ranging from nationality and language to expert knowledge or training in a specific industry, legal discipline or applicable law. By upholding the arbitration clause in Jivraj, the Supreme Court has acknowledged this practice and thereby strongly endorsed the ethos of consent and choice on which dispute settlement through arbitration is premised.

Matthew Gearing
Partner, Allen & Overy LLP

Manish Aggarwal
Associate, Allen & Overy LLP

(Allen & Overy LLP acted for the International Chamber of Commerce (the ICC) as intervener in the appeal, arguing for the Court of Appeal’s ruling to be overturned)

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