Jurisdiction, Admissibility and Choice of Law in International Arbitration: Liber Amicorum Michael Pryles 9041186263, 9789041186263

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Jurisdiction, Admissibility and Choice of Law in International Arbitration

Jurisdiction, Admissibility and Choice of Law in International Arbitration Liber Amicorum Michael Pryles

Edited by Neil Kaplan CBE QC SBS Michael Moser

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Editors

Neil Kaplan CBE QC SBS has been a full-time practising arbitrator since 1995. He has been involved in several hundred arbitrations as arbitrator. Called to the Bar of England in 1965, Mr Kaplan has practiced as a barrister, Principal Crown Counsel at the Hong Kong Attorney General’s Chambers, and served as a Judge of the Supreme Court of Hong Kong in charge of the Arbitration List. He was Chair of HKIAC for thirteen years and President of the Chartered Institute of Arbitrators in 1999/2000. Since 2017 he has been the President of the Court of the Mauritius Chamber of Commerce and Industry Arbitration and Mediation Centre. Michael Moser is an international arbitrator with 20 Essex Street Chambers. He is Honorary Past Chairman of the Hong Kong International Arbitration Centre, a Governing Board Member of ICCA, and a board member of the Singapore International Arbitration Centre and the Vienna International Arbitral Centre. He is the author or editor of many books and articles, including A Guide to the HKIAC Arbitration Rules (Oxford, 2017, with Chiann Bao) and The Asia Arbitration Handbook (Oxford, 2011) and former General Editor of the Journal of International Arbitration. Mr Moser works from offices in Hong Kong, Singapore, and London.

v

Contributors

Tan Sri Dato’ Cecil Abraham, Senior Partner with Cecil Abraham & Partners, is a Barrister-at-Law of the Middle Temple and is a Bencher of the Inn. He is a graduate of Queen Mary College, University of London. He is a Chartered Arbitrator and a Fellow of the Chartered Institute of Arbitrators U.K., Malaysian Institute of Arbitrators, Singapore Institute of Arbitrators and the Australian Centre for International Commercial Arbitration Limited. He is an Advisory Member of the International Court of Commercial Arbitration (ICCA). He is also a Member of the Permanent Court of Arbitration. He is Malaysia’s representative to the ICC Court of Arbitration. He was a former Member of the LCIA Court. Aniz Ahmad Amirudin, Partner with Cecil Abraham & Partners, is a Barrister-at-Law of Lincoln’s Inn. He is a graduate of Middlesex University and postgraduate of University of Nottingham. He is a Committee Member of the ICC Malaysia Arbitration Committee and a Committee Member of the Arbitration & Construction Law Committee of the Bar Council of Malaysia. He has appeared as counsel in international and domestic arbitrations held under the auspices of the KLRCA, SIAC, ICC, and LCIA rules. Lawrence G.S. Boo, LLB, LLM, Head of Chambers, The Arbitration Chambers, Singapore is a full-time arbitrator and mediator. He teaches international arbitration at the National University of Singapore and Bond University, Australia. Gary Born is Chair of the International Arbitration Practice Group at Wilmer Cutler Pickering Hale and Dorr LLP and President of the Singapore International Arbitration Centre Court of Arbitration. He is the author of a number of leading works on international dispute resolution and is an Honorary Professor of Law at the University of St. Gallen in Switzerland and Tsinghua University, Beijing. Cavinder Bull SC is CEO of Drew & Napier. Cavinder appears as counsel and as arbitrator in both investor-state and commercial arbitrations. Cavinder obtained first class honours in Law from Oxford University, an LLM from Harvard and is called to the Bar in New York, Singapore and England and Wales.

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Contributors Eunice Chan practises commercial litigation and international arbitration at Drew & Napier. Before joining Drew & Napier, Eunice worked with a leading international arbitrator, serving as tribunal secretary in commercial and investor-state arbitrations. Eunice holds an LLB from Singapore Management University and an LLM from Columbia University. Lim Si Cheng graduated from Durham University with First Class Honours in 2015. He is an Associate at Michael Hwang Chambers in Singapore. Emily Choo is a Practice Fellow at the Centre for International Law. She is involved in various international investment and international commercial arbitration proceedings as assistant to Mr Christopher Thomas QC and as a tribunal secretary. Daniel Chua Wei Chuen, Associate with Cecil Abraham & Partners, is an Advocate and Solicitor of the High Court of Malaya. He is a first class honours graduate from University of London and a postgraduate from University College London. He is a Member of the Chartered Institute of Arbitrators UK. He is involved in a number of investment treaty disputes under the auspices of ICSID and UNCITRAL. The Honourable Justice Clyde Croft (BEc LLM (Monash) PhD (Cambridge)) practised extensively in property and commercial law and was an arbitrator and mediator in property, construction and commercial disputes, domestically and internationally. He is a Fellow of the Australian Academy of Law and also a Life Fellow of IAMA, a Life Fellow of ACICA, a Judicial Fellow of AMINZ and a Fellow of the Chartered Institute of Arbitrators. He is the author, or co-author, of leading texts in the international (and domestic) arbitration, property, equity, leasing, securities, and commercial law fields and of numerous articles and conference papers. Justice Croft is the Judge in charge of the Arbitration List in the Commercial Court of the Supreme Court of Victoria. Donald Francis Donovan is Co-Head of the International Disputes and Public International Law Groups at Debevoise & Plimpton LLP. He serves as the President of the International Council for Commercial Arbitration (ICCA) and previously served as President of the American Society of International Law (ASIL). He teaches International Investment Law and Arbitration at the New York University School of Law. Friederike Maria Fronius is a senior associate at CMS Hasche Sigle. She received her law degree in Germany and obtained an LLM at the New York University. She is admitted to the bar in Germany and in New York. Friederike Fronius specialises in intellectual property law and related litigation and arbitration. Ian Glick QC is a Queen’s Counsel at One Essex Court and practises principally as an international commercial arbitrator. He is a former Chairman of the (English) Commercial Bar Association and his work has included ICC, LCIA, SCC, SIAC, HKIAC, ICSID, and ad hoc arbitrations and expert determinations.

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Contributors Lord (Peter) Goldsmith QC, PC is the Co-Managing Partner and Chair of European and Asian Litigation at the London office of Debevoise & Plimpton LLP. He served as the UK’s Attorney General (2001–2007), prior to which he was one of the leading barristers in London. He acts for clients in arbitration and litigation around the world. Nelson Goh is an Associate at Boies Schiller Flexner (London). His practice focuses on international commercial arbitration, investment arbitration and public international law matters. He is qualified to practise in the UK and Singapore, and holds degrees from the National University of Singapore, New York University, and the University of Cambridge. Nelson Goh is an international arbitration specialist, Global Associate at Centre for International Law, National University of Singapore and adjunct lecturer at Centre for Commercial Law Studies, Queen Mary University of London. Simon Greenberg is a Partner with Clifford Chance’s international arbitration group in Paris, representing clients as counsel and acting as arbitrator. His experience covers all major arbitral institutions and a range of sectors, particularly including aviation, technology and telecommunications, mining and energy, post-acquisition, and shareholders’ disputes. Simon spent four years as Deputy Secretary General of the ICC International Court of Arbitration between 2008 and 2012. He has authored or co-authored over thirty articles and two books on international arbitration. Simon lectures on international arbitration at Sciences Po in Paris since 2008 and is a Visiting Professor of International Arbitration at Hong Kong University since 2011. He is a Court Member (Australia) of the ICC Court and an Australian Government delegate to UNCITRAL. Gavan Griffith QC, for twenty years, since ending office as Solicitor-General of Australia for 14 years at the end of 2017, has practised as an international commercial and investments disputes arbitrator based at Essex Court Chambers, London. Bernard Hanotiau is a member of the Brussels and Paris Bars. Since 1978, he has been actively involved in more than 500 international arbitration cases as party-appointed arbitrator, chairman, sole arbitrator, counsel, and expert in all parts of the world, according to the rules of most arbitral institutions and the UNCITRAL Rules. In March 2011, Mr Hanotiau received the GAR ‘Arbitrator of the Year’ award. In April 2016, he also received the Who’s Who Legal ‘Lawyer of the Year’ for Arbitration award. Paula F. Henin is an Associate in the international litigation and arbitration group of Skadden, Arps, Slate, Meagher & Flom LLP, based in New York. She was previously based in the Firm’s London office. Prior to joining Skadden, Ms. Henin served as a Private International Arbitration Law Clerk to The Honorable Charles N. Brower of 20 Essex Street Chambers, London. Michael Hwang SC is the Chief Justice of the Dubai International Financial Centre Courts. He has also served as an arbitrator and mediator in disputes in over forty countries. He holds a BCL and MA from Oxford University and an Honorary Doctor of Laws degree from the University of Sydney.

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Contributors Stuart Isaacs QC is a Barrister and a Partner in King & Spalding International LLP, practising in London and Singapore. He has extensive experience as counsel in commercial litigation in London, Asia and the Caribbean and as both counsel and arbitrator in international commercial arbitration. He is a Deputy Judge of the High Court of England and Wales. Doug Jones AO is a leading international commercial and investor-State arbitrator with over forty years’ prior experience as an international transactional and disputes projects lawyer. He has experience as an arbitrator in both ad hoc and institutional arbitrations of values up to some billions of USD, spanning over thirty jurisdictions. Kap-You (Kevin) Kim is the Head and Founder of Bae, Kim & Lee’s International Arbitration & Litigation Practice Group; Vice President, ICC Court; Governing Board Member & Co-Chair of Audit Committee, ICCA; Panel of Arbitrators, ICSID; President, ICC Korea Arbitration Committee; President, KCAB International Arbitration Committee; Adjunct Professor, Yonsei University, Sungkyunkwan University; past Secretary General, ICCA; past Member, LCIA Court. Meg Kinnear is currently the Secretary-General of the International Centre for Settlement of Investment Disputes (ICSID) at the World Bank. She was formerly the Senior General Counsel and Director General of the Trade Law Bureau of Canada, where she was responsible for the conduct of all international investment and trade litigation involving Canada, and participated in the negotiation of bilateral investment agreements. In November 2002, Ms Kinnear was also named Chair of the Negotiating Group on Dispute Settlement for the Free Trade of the Americas Agreement. From October 1996 to April 1999, Ms. Kinnear was Executive Assistant to the Deputy Minister of Justice of Canada. Prior to this, she was Counsel at the Civil Litigation Section of the Canadian Department of Justice (from June 1984 to October 1996) where she appeared before federal and provincial courts as well as domestic arbitration panels. Ms. Kinnear was called to the Bar of Ontario in 1984 and the Bar of the District of Columbia in 1982. She received a Bachelor of Arts (BA) from Queen’s University in 1978; a Bachelor of Laws (LLB) from McGill University in 1981; and a Master of Laws (LLM) from the University of Virginia in 1982. Ms Kinnear has published numerous articles on international investment law and procedure and is a frequent speaker on these topics. She is a co-author of Investment Disputes under NAFTA (published in 2006 and updated in 2008 & 2009). She also co-authored texts on Canadian legal procedure including Federal Court Practice (1988-1990, 1991-1992, and 1993-2009 annually) and 1995 Crown Liability and Proceedings Act Annotated (1994). Anna Kirk is a Member of Bankside Chambers (Auckland and Singapore), specialising in arbitration. She often works with Sir David Williams QC on large international arbitrations, both commercial and investment treaty cases. She has a PhD in Public International Law from the University of Cambridge and spent a number of years practising international arbitration at Herbert Smith LLP in London. Anna co-lectures

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Contributors on International Arbitration LLM course at the University of Auckland and is a contributing author to Williams and Kawharu on Arbitration. Christopher Lau SC is a Singapore Senior Counsel and Chartered Arbitrator and is a full-time arbitrator and mediator. He is also a member of the ICC International Court of Arbitration, LCIA Court, KCAB’s International Arbitration Committee, ICC Commission on Arbitration, MCIA Council, and the Board of Advisors of the New York International Arbitration Centre. Christopher Thomas QC practises in the field of trade and investment regulation, commercial disputes, and international dispute settlement. He is the Head of the International Dispute Resolution (Practice Skills) programme at the National University of Singapore’s Centre for International Law. Julian Lew QC has been involved with international arbitration for more than forty years as academic, counsel and an arbitrator. He is now a full-time arbitrator in international commercial and investment disputes. He has been appointed as a sole, presiding and co-arbitrator in arbitrations under the all the major arbitration systems, including International Chamber of Commerce, International Centre for the Settlement of Investment Disputes, London Court of International Arbitration, Stockholm Arbitration Institute, World Intellectual Property Organisation. Cairo Regional Centre for International Commercial Arbitration, the Singapore International Arbitration Centre, Hong Kong International Arbitration Centre, China International Economic Trade Commission, the Arbitration Court attached to the Economic Chamber of the Czech Republic, and ad hoc arbitrations under UNCITRAL Arbitration Rules, the Permanent Court of Arbitration, and the Swiss Arbitration Rules. Professor Lew has been Head of the School of International Arbitration, Centre for Commercial Law Studies, Queen Mary University of London since its creation in 1985. He has written extensively on many different aspects of international arbitration and trade law, and has authored and edited numerous books, and has written innumerable articles, on international arbitration. Sarah Lim assists Mr John Christopher Thomas QC in his international investment law arbitrations and research. She previously worked as a Senior Counsel in a large Singapore dispute resolution practice. Jonathan Lim has experience with commercial and investment arbitrations under all major arbitration rules in disputes across Africa, Asia, Europe, and South America. He has also advised governments in Africa and Asia on public international law and WTO issues, as well as international arbitration law reform. In addition to his practice as counsel, Jonathan has a developing practice as arbitrator and has received appointments as sole and party-appointed arbitrator in proceedings seated in Europe and Asia. He teaches an international arbitration course at the National University of Singapore. He is listed by Who’s Who Legal 2018 as a Future Leader in International Arbitration,

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Contributors and is described as ‘a very smart all-round lawyer with a strong work ethic’, and ‘able to digest and master a large amount of material very quickly’. Chrysoula Mavromati is a Legal Adviser at the UK Department for International Trade, where she advises on trade and investment disputes. Prior to joining the UK Government Legal Department, she served as Legal Counsel to the International Centre for Settlement of Investment Disputes (ICSID) at the World Bank in Washington, DC. She was a former Fellow with the Operations Policy Unit of the World Bank’s Legal Vice Presidency, and she has clerked with the International Trade and Investment Group of Hogan Lovells in Brussels and the Legal Unit of the General Directorate for Trade of the European Commission. She is admitted to practice law in the state of New York and Greece. Wendy J. Miles QC is a Partner in the London office of Debevoise & Plimpton LLP. She is a leading lawyer in the fields of arbitration and public international law. With over twenty years’ experience, Ms Miles has advised a wide range of multinationals, sovereign states, and state entities. Karyl Nairn QC is a Queen’s Counsel in London. She is a partner in the firm Skadden, Arps, Slate, Meagher & Flom (UK) LLP and is co-head of the global international arbitration practice. She served on the ICC International Court of Arbitration for fifteen years and is currently a Member of the LCIA Court of Arbitration. She is also chair of the Development Board of the law reform and human rights charity JUSTICE. Timothy G. Nelson, a Partner in Skadden, Arps, Slate, Meagher & Flom LLP, specialises in international litigation and arbitration. Mr Nelson has extensive experience representing clients in a variety of cross-border disputes, including investor-state arbitration, international commercial arbitration, and litigation before the US Courts. His clients cover a wide range of industries and activities including banking and finance, M&A/private equity, sports/motor racing, telecommunications/satellite, and oil and gas/LNG. Mr Nelson has significant arbitration experience with claims against governments under bilateral investment treaties and multilateral investments treaties such as the Energy Charter Treaty, and is frequently published and quoted on the topic of international investment law and damages. V. Niranjan is a Barrister at One Essex Court and has a broad commercial practice. Before coming to the Bar, he read and taught law at Oxford, where he was a Vinerian, Eldon, and Rhodes scholar. He is also qualified to practise in India. Klaus Reichert SC is a Barrister at Brick Court Chambers in London. He was called to the Bar of Ireland in 1992, the Bar of England in 1996, and became a senior counsel in Ireland in 2010. He has been an ICCA Governing Board Member since 2012 and is a Fellow of the College of Commercial Arbitrators. David W. Rivkin is Co-Chair of Debevoise & Plimpton’s International Dispute Resolution Group and Immediate Past President of the International Bar Association (IBA).

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Contributors He is consistently ranked as one of the world’s top international dispute resolution practitioners and international lawyers, and he has acted as counsel and as arbitrator in international arbitrations throughout the world and in US courts. He has won some of the largest investment treaty and commercial arbitration awards. Mr Rivkin has served in leadership positions in arbitration institutions on five continents and has frequently worked to update their rules. In 2012, the American Lawyer’s Am Law Litigation Daily named Mr Rivkin one of the two ‘Global Lawyers of the Year’, and in 2011, the National Law Journal named him one of the country’s ‘Most Influential Attorneys’. Klaus Sachs is a Partner of the German law firm CMS Hasche Sigle. He has acted as arbitrator in more than two hundred international arbitrations, both commercial and investor-state disputes under various rules. He is a Member of the Governing Board of ICCA and a former Vice-President of the ICC Court. He is a co-publisher of the German Arbitration Journal and is a Professor of Arbitration Law at the University of Munich. Bhushan Satish is a Foreign Attorney with Bae, Kim & Lee’s International Arbitration & Litigation Practice Group. His practice focuses on disputes in the financial services, infrastructure, and construction sector, and he has experience representing clients in commercial and investment treaty arbitrations. Mr Satish frequently serves as tribunal secretary to arbitral tribunals. Isabella Seif is an Associate at Volterra Fietta. She has represented foreign investors and States in numerous investment disputes, and advises clients on public international law and international dispute resolution issues. Christopher K. Tahbaz is a Partner at Debevoise & Plimpton LLP and the Co-Chair of the Firm’s Asian Disputes Practice. A litigator and arbitrator with a broad range of US and international experience, he regularly represents clients in complex international commercial arbitrations and investment treaty arbitrations. Mr Tahbaz also regularly serves as arbitrator, and he is included in the Hong Kong International Arbitration Centre’s List of Arbitrators, the Singapore International Arbitration Centre Panel of Arbitrators, and the ICDR Roster of Neutrals. Adriana Uson Ong is a Dispute Resolution Lawyer at Norton Rose Fulbright in Singapore. Prior to joining Norton Rose, she was a Counsel at the Singapore International Arbitration Centre (SIAC) where she was involved in the drafting of the SIAC Commercial Arbitration Rules 2016 and SIAC Investment Arbitration Rules 2017. V.V. Veeder QC is an Arbitrator (practising from Essex Court Chambers, London); ICCA Governing Council Member; Visiting Professor on Investment Arbitration, Dickson School of Law, King’s College, London University; Member of the FIA Disputes Board and Member of the FIA Formula One Contract Recognition Board; United Kingdom Delegate and Adviser to the UNCITRAL Working Group on Arbitration 2000-2014; Editor and General Editor of ‘Arbitration International’ 1985-2005; former Vice-President of the LCIA; former President of the Milan Club of Arbitrators;

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Contributors former Chairman of ARIAS (AIDA); former Council Member of the ICC Institute of World Business Law; former board member of the Arbitration Institute of the Stockholm Chamber of Commerce; Assistant Recorder and Recorder 1986-2005; Deputy High Court Judge 1999-2008, Educated Paris, Bristol and Jesus College, Cambridge. Sir David A.R. Williams KNZM, QC is a Member of Bankside Chambers (Auckland and Singapore) and Essex Court Chambers, London and is widely regarded as New Zealand’s foremost international arbitrator. The Second Edition (2017) of his text Williams and Kawharu on Arbitration has been described as one of ‘the great New Zealand texts’. He sits part-time as the President of the Cook Islands Court of Appeal and is also Honorary Professor of Law at the University of Auckland. Boxun Yin is an Associate in the London office of Debevoise & Plimpton LLP. His practice focuses on high-value, complex international disputes, in both litigation and commercial and investor-State arbitration. Mr Yin has particular expertise in issues relating to jurisdiction and competence, and in the recognition and enforcement of arbitral awards.

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Summary of Contents

Editors

v

Contributors

vii

Preface

xxix

CHAPTER 1 The Law Governing Res Judicata in International Commercial Arbitration Gary Born, Cavinder Bull SC, Jonathan Lim & Eunice Chan

1

CHAPTER 2 Assignments ‘Mid-Arbitration’: Some Practical Considerations Christopher Lau SC

19

CHAPTER 3 Exploring the Interpretative and Jurisdictional Consequences of Including an Investment Chapter in a Free Trade Agreement Christopher Thomas QC, Sarah Lim & Emily Choo

31

CHAPTER 4 The Temptation of Domesticity: An Evolving Challenge in Arbitration The Hon. Justice Clyde Croft

57

CHAPTER 5 Interaction of Laws in International Arbitration: An Asian Perspective Tan Sri Dato’ Cecil Abraham, Aniz Ahmad Amirudin & Daniel Chua Wei Chuen

71

xv

Summary of Contents CHAPTER 6 Balancing Party Autonomy, Jurisdiction and the Integrity of Arbitration: Where to Draw the Line? Sir David A.R. Williams KNZM, QC & Anna Kirk

87

CHAPTER 7 Jurisdictional Findings on Provisional Measures Applications in International Arbitration Donald Francis Donovan, David W. Rivkin & Christopher K. Tahbaz

107

CHAPTER 8 Work in Progress: Res Judicata and Issue Estoppel in Investment Arbitration Gavan Griffith QC & Isabella Seif

119

CHAPTER 9 Choosing the Law Governing the Arbitration Agreement Ian Glick QC & V. Niranjan

131

CHAPTER 10 Evidentiary Inferences: Do Choice of Law and Seat Make a Difference? Karyl Nairn QC, Timothy G. Nelson & Paula F. Henin

151

CHAPTER 11 Legal Criteria for Granting Relief in Emergency Arbitrator Proceedings: Where Are We Now and Where Do We Go from Here? Kap-You (Kevin) Kim & Bhushan Satish

175

CHAPTER 12 Unintended Consequences Klaus Reichert SC

193

CHAPTER 13 Mandatory Laws: Getting the Right Law in the Right Place Lawrence G.S. Boo & Adriana Uson Ong

203

CHAPTER 14 Intra-EU BITs: Competence and Consequences Lord (Peter) Goldsmith QC, PC & Boxun Yin

217

CHAPTER 15 Consolidation of Cases at ICSID Chrysoula Mavromati & Meg Kinnear

243

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Summary of Contents CHAPTER 16 The Chimera of Admissibility in International Arbitration Michael Hwang SC & Lim Si Cheng

265

CHAPTER 17 Res Judicata and the “Could Have Been Claims” Bernard Hanotiau

289

CHAPTER 18 The Substantive Rights of Parties in Arbitration: Voie Directe and Voie Indirecte Doug Jones AO

303

CHAPTER 19 ICANN’s Dispute Resolution Mechanisms: With Great Power Comes Great Responsibility Klaus Sachs & Friederike Maria Fronius

315

CHAPTER 20 Practices, Arbitral Duties and Effects of Awards in Default Proceedings Julian Lew QC

331

CHAPTER 21 The Law Applicable to Non-contractual Claims in International Commercial Arbitration Simon Greenberg

345

CHAPTER 22 Life after Death: The Arbitral Tribunal’s Role Following Its Final Award Stuart Isaacs QC

357

CHAPTER 23 Jurisdiction, Admissibility and Choice of Law in International Arbitration V.V. Veeder QC

373

CHAPTER 24 A Principled Approach Towards the Law Governing Arbitration Agreements Wendy J. Miles QC & Nelson Goh

385

Index

395

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Table of Contents

Editors

v

Contributors

vii

Preface

xxix

CHAPTER 1 The Law Governing Res Judicata in International Commercial Arbitration Gary Born, Cavinder Bull SC, Jonathan Lim & Eunice Chan §1.01 Introduction §1.02 Background: The Doctrine of Res Judicata and International Commercial Arbitration [A] The Doctrine of Res Judicata [B] Res Judicata and International Commercial Arbitration §1.03 The Law Governing Res Judicata in International Commercial Arbitration [A] The Choice-of-Law Approach [1] Law of the Place Where a New Claim Is Brought [2] Law of the Place Where a Prior Award Was Made [3] Law of Some Other State [4] Critique of the Choice-of-Law Approach [B] International Approach [1] Rationale for Adopting International Standards [2] Sources of International Standards [a] Public International Law Jurisprudence [b] The New York Convention [c] ILA Recommendations on Res Judicata and Arbitration [3] Critique of the International Approach §1.04 Conclusion

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1 1 3 3 4 5 6 6 7 8 9 11 12 12 13 14 15 15 16

Table of Contents CHAPTER 2 Assignments ‘Mid-Arbitration’: Some Practical Considerations Christopher Lau SC §2.01 Introduction §2.02 Which Law Applies to What? §2.03 Determining the Law Applicable to the ‘Transfer’: The Importance of Qualification §2.04 The Requirement to Give Notice of an Assignment Mid-arbitration §2.05 Consent as a Proposed Requirement for an Assignment Mid-arbitration §2.06 Conclusion CHAPTER 3 Exploring the Interpretative and Jurisdictional Consequences of Including an Investment Chapter in a Free Trade Agreement Christopher Thomas QC, Sarah Lim & Emily Choo §3.01 Introduction §3.02 An Overview of the Investment Chapter and Its Place in the FTA [A] The Substantive Obligations [B] Chapter-Specific Qualifications of Substantive Obligations and Textual Directives to Tribunals [C] Extra-Chapter Eleven Qualifications of Substantive Obligations and Textual Directives to Tribunals §3.03 Interpretative Aspects and Mechanisms of Chapter Eleven [A] A Limited Jurisdictional Mandate Combined with the Duty to Apply the Agreement and ‘The Applicable Rules of International Law’ [B] The NAFTA Parties’ Reservation of Rights to Provide Interpretative Guidance to Tribunals [1] Interventions of Non-disputing NAFTA Parties [2] Binding Interpretations §3.04 Tribunal Encounters with Jurisdictional Limits [A] Limitations on Tribunal’s Subject-Matter Jurisdiction? [B] Tribunal Encounters with Unexpressed Territorial Limitations §3.05 Conclusion CHAPTER 4 The Temptation of Domesticity: An Evolving Challenge in Arbitration The Hon. Justice Clyde Croft §4.01 Introduction §4.02 The International Provenance of National Arbitration Legislation §4.03 Enforcing and Challenging Awards [A] The Cameron Case [B] The Sauber Case §4.04 Supporting Arbitral Processes [A] Stay and Referral to Arbitration

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19 19 19 23 26 28 28

31 32 34 34 37 39 42

42 44 44 45 48 48 51 55

57 57 58 60 61 62 64 64

Table of Contents

§4.05

§4.06

[B] Subpoenas The Gutnick Case [A] Residual Discretion to Enforce [B] Stay of Enforcement Judgment Conclusion

CHAPTER 5 Interaction of Laws in International Arbitration: An Asian Perspective Tan Sri Dato’ Cecil Abraham, Aniz Ahmad Amirudin & Daniel Chua Wei Chuen §5.01 Introduction §5.02 Interaction of Legal Issues Relating to the Agreement to Arbitrate §5.03 The Conflict of Law Method to Determining the Law Governing the Arbitration Agreement in the Absence of Choice §5.04 The Law Governing the Arbitration Agreement in the Absence of Choice of Law: Survey of Asian Jurisdictions [A] Malaysia [B] Singapore [C] Hong Kong [D] India §5.05 The Presumption of Separability §5.06 Practical Implications on Drafting Arbitration Agreements and Future Directions §5.07 Conclusion CHAPTER 6 Balancing Party Autonomy, Jurisdiction and the Integrity of Arbitration: Where to Draw the Line? Sir David A.R. Williams KNZM, QC & Anna Kirk §6.01 Introduction §6.02 Party Autonomy and Its Limits §6.03 Jurisdiction and Party Autonomy: The Arbitrability of Trust Disputes §6.04 Natural Justice and Party Autonomy: Should Parties Be Able to Consent to an Arbitrator Who Has a Clear Conflict of Interest? §6.05 Conclusion CHAPTER 7 Jurisdictional Findings on Provisional Measures Applications in International Arbitration Donald Francis Donovan, David W. Rivkin & Christopher K. Tahbaz §7.01 Antecedent Question: Are Any Issues Presented with Regard to Tribunals’ Specific Power to Award Provisional Measures? §7.02 Assuming that the Tribunal Has the Power to Order Provisional Measures, Why Is a Showing of Jurisdiction over the Underlying Dispute Necessary?

xxi

65 66 68 68 70

71 71 72 75 77 77 78 78 79 79 81 84

87 87 88 90 96 105

107 110

111

Table of Contents §7.03

Why Does a Tribunal Need to Be Able to Order Provisional Measures Prior to a Finding of Ultimate Jurisdiction? What Does Prima Facie Jurisdiction Mean? Conclusion

113 114 117

CHAPTER 8 Work in Progress: Res Judicata and Issue Estoppel in Investment Arbitration Gavan Griffith QC & Isabella Seif §8.01 Doctrine of Res Judicata §8.02 Doctrine of Issue Estoppel §8.03 Res Judicata and Issue Estoppel in Investment Arbitration §8.04 Expansion of the Persona Requirement by Issue Estoppel §8.05 Conclusions

119 119 120 122 126 128

CHAPTER 9 Choosing the Law Governing the Arbitration Agreement Ian Glick QC & V. Niranjan §9.01 Introduction §9.02 Summary §9.03 The Framework for the Analysis §9.04 The English Authorities §9.05 Separability and Choice of Law §9.06 Dépeçage §9.07 The Correct Analysis in Principle [A] No Choice-of-Law Clause: The Significance of the Seat [B] Express Choice of Law in the Matrix Contract [C] Two Qualifications §9.08 The Validation Principle §9.09 Conclusion

131 131 132 133 134 136 139 141 142 144 147 148 149

§7.04 §7.05

CHAPTER 10 Evidentiary Inferences: Do Choice of Law and Seat Make a Difference? Karyl Nairn QC, Timothy G. Nelson & Paula F. Henin §10.01 The Origin and Characterisation of Adverse Inferences §10.02 The Legal Framework for International Arbitration: The Importance of Choice of Law and Seat §10.03 The Law(s) Applicable to Evidentiary Inferences in International Arbitration [A] Adverse Inferences: Procedural or Substantive? [B] The Limited Guidance Provided by the Traditional Sources of Law §10.04 The Emergence of a Transnational Lex Evidentia of Adverse Inferences? [A] The Source of a Tribunal’s Power to Draw Adverse Inferences [B] Limits to Arbitral Discretion: The Role of the Law of the Seat

xxii

151 152 156 160 160 161 163 163 168

Table of Contents §10.05 §10.06

The Influence of Choice of Law on the Substantive Consequences of the Adverse Inference Conclusion

CHAPTER 11 Legal Criteria for Granting Relief in Emergency Arbitrator Proceedings: Where Are We Now and Where Do We Go from Here? Kap-You (Kevin) Kim & Bhushan Satish §11.01 Introduction and Scope §11.02 The Basic Framework of EA Proceedings §11.03 The Threefold Legal Criteria for Granting Emergency Relief in International Arbitration [A] Urgency [B] Prospect of Success [C] Risk of Substantial Harm §11.04 Towards a Differently Weighted Legal Criteria [A] The Why: Architectural Peculiarities of EA Proceedings [B] The How: Reconsidering the Second and Third Criteria §11.05 Conclusion

171 174

175 175 176 177 179 180 183 187 187 189 192

CHAPTER 12 Unintended Consequences Klaus Reichert SC §12.01 Introduction [A] An Important Provision of English Statute Law §12.02 Section 136(i) Generally §12.03 Section 136(i) in Practice: A Cautionary Tale [A] Some Preliminary Conclusions Arising from the English Case Law [B] What Does Any of This Matter for an International Arbitration?

199 200

CHAPTER 13 Mandatory Laws: Getting the Right Law in the Right Place Lawrence G.S. Boo & Adriana Uson Ong §13.01 Party Autonomy and Mandatory Rules of Law [A] Mandatory Rules of the Proper Law [B] Mandatory Rules of Law Outside the Proper Law [1] Laws of the Place of Arbitration [2] Law of the Place of Performance [3] Personal Laws of the Parties [4] Laws of the Place of Enforcement [5] Transnational Public Policy

203 204 205 207 207 208 209 210 211

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193 193 194 194 194

Table of Contents §13.02

§13.03

An Attempt to Get It Right [A] Party Autonomy [B] Justice [C] Consistency [D] Sovereign Support [E] State Legal Expansionism [F] Efficiency [G] Enforceability [H] Arbitrators’ Discretion/Self-Interest Still Getting There

CHAPTER 14 Intra-EU BITs: Competence and Consequences Lord (Peter) Goldsmith QC, PC & Boxun Yin §14.01 Introduction §14.02 Background §14.03 Competence and Applicable Law [A] Different Perspectives [B] The CJEU and Its Case Law [1] Opinion 1/91 – The EEA Court [2] Opinion 1/92 – The EFTA Court [3] Opinion 1/00 – The Joint Committee for the European Common Aviation Area [4] The MOX Plant Dispute [5] Kadi [6] Opinion 1/09 – Patents Court [7] Opinion 2/13 – European Court of Human Rights [8] Implications of CJEU Case Law [9] Implications for Brexit? §14.04 Consequences [A] To What Extent Should Tribunals Take into Account the CJEU’s Decision? [B] Set-Aside, Revision and Annulment [C] Enforcement §14.05 Conclusion CHAPTER 15 Consolidation of Cases at ICSID Chrysoula Mavromati & Meg Kinnear §15.01 Introduction §15.02 What Is Consolidation? §15.03 The Arguments for and Against Consolidation §15.04 The Basis for Consolidation at ICSID §15.05 Examples to Date

xxiv

211 212 213 213 213 214 214 215 215 216

217 217 218 220 220 225 225 226 226 227 228 230 232 234 236 238 238 239 240 242

243 243 245 246 248 249

Table of Contents §15.06 §15.07 §15.08 §15.09 §15.10

Mandatory Consolidation under Treaty Provisions Other Treaty Consolidation Provisions Consolidation under Commercial Arbitration Rules Considerations for Amendment of ICSID Rules Conclusion

256 259 261 262 263

CHAPTER 16 The Chimera of Admissibility in International Arbitration Michael Hwang SC & Lim Si Cheng §16.01 Introduction §16.02 ICSID Arbitration [A] The Legal Framework [B] The Experience of ICSID Tribunals: Overview [C] The Experience of ICSID Tribunals: The BIT Precondition Objection [1] The Story of the Swamp [2] The Moral of the Story §16.03 ICJ Proceedings [A] The Legal Framework [B] The ICJ’s Understanding of Admissibility §16.04 Conclusion

273 273 277 281 282 282 287

CHAPTER 17 Res Judicata and the “Could Have Been Claims” Bernard Hanotiau §17.01 Res Judicata in General §17.02 The Law Applicable to the Res Judicata Issue §17.03 Toward a Broad Conception of Res Judicata §17.04 Should Res Judicata Cover the “Could Have Been Claims”?

289 289 291 293 298

CHAPTER 18 The Substantive Rights of Parties in Arbitration: Voie Directe and Voie Indirecte Doug Jones AO §18.01 Introduction §18.02 Voie Directe and Voie Indirecte [A] Background and Prescription [B] The Need for Reasons §18.03 Voie Indirecte in Practice [A] Rules of the Seat [B] Most Closely Connected to the Dispute Test [C] Closest Connection Test

303 303 304 304 306 307 307 307 308

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265 265 269 269 271

Table of Contents [D]

§18.04

§18.05

The Domicile of the Person Exercising Characteristic Performance [E] Cumulative Method [F] International Conflict of Laws Rules Voie Directe in Practice [A] General Principles of Private International Law [B] Validity and Party Autonomy [C] Parties’ Expectations and Intentions Conclusion

308 309 310 310 311 312 312 314

CHAPTER 19 ICANN’s Dispute Resolution Mechanisms: With Great Power Comes Great Responsibility Klaus Sachs & Friederike Maria Fronius §19.01 Introduction §19.02 What Is ICANN? [A] History of ICANN and Internet Governance [B] ICANN’s Tasks and Technical Background [C] ICANN’s Core Values §19.03 ICANN’s ADR Mechanisms [A] Second-Level Domain Disputes [B] Top-Level Domain Disputes [1] ADR Mechanisms Prior to the Delegation of a New gTLD [2] ADR Mechanisms after the Delegation of a New gTLD [C] Protection Against Actions by ICANN [1] Internal Reconsideration Process [2] Independent Review Process §19.04 Compatibility of ICANN’s Dispute Resolution Mechanisms with “Relevant Principles of International Law”? [A] ICANN and Human Rights [B] Due Process [C] Further Human Rights §19.05 Conclusion

324 324 325 327 329

CHAPTER 20 Practices, Arbitral Duties and Effects of Awards in Default Proceedings Julian Lew QC §20.01 Arbitration Rules for Default Proceedings §20.02 Arbitral Duties in Default Proceedings §20.03 Due Process and the Unrepresented Party §20.04 Enforcement of Default Judgments: Vizcaya Case §20.05 Communications in Default Proceedings §20.06 Default Proceedings in National Systems §20.07 Conclusion

331 332 335 338 339 340 341 343

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315 315 316 316 317 317 318 318 319 320 321 322 322 323

Table of Contents CHAPTER 21 The Law Applicable to Non-contractual Claims in International Commercial Arbitration Simon Greenberg §21.01 Introduction [A] Example from Practice: A Lesson from One of Asia’s Top International Arbitrators [B] Characterisation: The Determination of Whether a Claim Is Contractual or Not [C] Arbitrability: Non-contractual Claims and the Scope of the Arbitration Clause §21.02 Parties’ Choice of the Law Applicable to Non-contractual Claims in Arbitration [A] Can Arbitrating Parties Choose the Law to Govern Their Non-contractual Claims? [B] Have the Parties Chosen the Law to Govern Their Non-contractual Claims? §21.03 Law Applicable to Tort Claims in the Absence of Party Choice §21.04 Concluding Remarks

345 345 346 348 349 350 350 352 353 355

CHAPTER 22 Life after Death: The Arbitral Tribunal’s Role Following Its Final Award Stuart Isaacs QC §22.01 Introduction [A] The Functus Officio Doctrine §22.02 Correction and Interpretation of an Award and Additional Awards §22.03 Time Limits §22.04 Notification and Publication of an Award

357 357 358 360 368 370

CHAPTER 23 Jurisdiction, Admissibility and Choice of Law in International Arbitration V.V. Veeder QC §23.01 Introduction [A] Costs [B] Interest

373 373 374 377

CHAPTER 24 A Principled Approach Towards the Law Governing Arbitration Agreements Wendy J. Miles QC & Nelson Goh §24.01 Introduction §24.02 Two Opposing Views: The Law of the Main Contract or the Law of the Seat? [A] A Presumption in Favour of the Governing Law of the Contract [B] A Presumption in Favour of the Law of the Seat

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385 385 387 387 389

Table of Contents §24.03 §24.04 §24.05

A Pro-validation Approach? A Principled Canon for Choice of Law Conclusion

Index

391 393 394 395

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Preface

The editors of this book are privileged to have enjoyed a long and felicitous professional collaboration and personal friendship with Michael Pryles. Neil first met Michael in Darwin in 1990 where both were attending an arbitration conference. Michael had not long before retired as the distinguished Henry Bourne Higgins Professor of Law at Monash University and had joined Minter Ellison in Melbourne. He was just beginning to embark on a career as an arbitrator. Michael M first encountered Michael P not long after that at the Foreign Correspondent’s Club in Hong Kong, where the Australian professor-turned-arbitrator gave a presentation on conflicts of law in international arbitration. Michael’s subsequent arbitral career has been meteoric. Not only did he establish a reputation as a fair, efficient and disciplined arbitrator but he also helped to promote arbitration in Australia and elsewhere. He also undertook a substantial task as a Commissioner of the United Nations Compensation Commission which saw him making monthly trips from Melbourne to Geneva for a number of years. Michael’s appointment as Chair of SIAC to coincide with the opening of Maxwell Chambers was inspired. He led SIAC to new heights for which Singapore owes him a debt of gratitude. His involvement with ACICA and founding of APRAG ensures that he has left his market in Australasia. His recent appointment as Treasurer of ICCA is an indication that his abilities are recognised worldwide. Michael is a brilliant international lawyer who has taught and written on conflicts of law and other topics for many years. He has published either alone or with others no less than ten books. His articles alone would fill several books. It is thus no surprise that so many of his distinguished friends have taken the time to contribute to this special book to mark his great achievements in the law. We recognize that books such as this are usually published to mark significant birthdays or retirement. Unfortunately Michael’s youthful appearance tricked us into missing his 70th birthday. But we are in time for his 75th with a little time to spare.

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Preface We are sure that Michael, however brilliant, would never have reached these heights without the support and love of the wonderful Doris who has kept him rooted in reality. It is with pleasure that we, and all the contributors, present this volume to Michael in recognition of all his services to the law in general and dispute resolution in particular. Neil Kaplan CBE QC SBS & Michael Moser Hong Kong, 2018

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CHAPTER 1

The Law Governing Res Judicata in International Commercial Arbitration Gary Born, Cavinder Bull SC, Jonathan Lim & Eunice Chan

§1.01

INTRODUCTION

The doctrine of res judicata is recognized, in some form or other, in virtually all legal systems,1 with a lineage traceable to antiquity.2 It is a settled rule of public international law, and has been held to be a “general principle of law recognized by civilized nations” within the meaning of Article 38 of the Statute of the International Court of Justice.3 The doctrine provides, in essence, that what has been finally decided in an

1. See, e.g., K. Hober, Res Judicata and Lis Pendens in International Arbitration, in Recueil Des Cours: Collected Courses of the Hague Academy of International Law, Vol. 366 (2014), at p. 257 (“[T]here is no doubt that the concept of res judicata is recognized and accepted in virtually all legal systems.”); P. Barnett, Res Judicata, Estoppel and Foreign Judgments (2001), at p. 8 (“The doctrine of res judicata encapsulates the principle inherent in all judicial systems which provides that an earlier adjudication is conclusive in a second suit involving the same subject-matter and same legal bases.”); B. Cheng, General Principles of Law as Applied by International Courts and Tribunals (2006), at pp. 336-372. 2. P. Barnett, Res Judicata, Estoppel and Foreign Judgments, at p. 8 (“[T]he importance of finality and conclusiveness in disputes is evident in ancient precedents: ‘in the spirit of the law as expounded by Hindu commentators’; in Greek custom; and amongst the principles of the Roman jurists.”). See also Sheoparson Singh v. Ramnandan Prasad Singh [1916] ILR XLIII Cal 694 (Indian Appeal Court). 3. B. Cheng, General Principles of Law as Applied by International Courts and Tribunals, at pp. 336-372; Trail Smelter (United States v. Canada), 3 RIAA 1905 (1941), at pp. 1950-1951, (“That the sanctity of res judicata attaches to a final decision of an international tribunal is an essential and settled rule of international law. If it is true that international relations based on law and

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Gary Born, Cavinder Bull SC, Jonathan Lim & Eunice Chan

earlier adjudication is binding (or res judicata, Latin for “a thing adjudicated”) and cannot be reopened in further proceedings between the same parties.4 The law governing res judicata in international commercial arbitration is a complex subject, and has received surprisingly little attention in the decisions of courts and tribunals. It can be practically significant, because different jurisdictions have materially different rules on the requirements for and scope of res judicata, as well as how those rules apply in the context of an arbitration, and the governing law can therefore be decisive. Moreover, res judicata issues can arise in a variety of different permutations, depending on whether the prior decision is a judgment or award and whether the latter decision-maker is a court or tribunal, and these raise more difficult choice-of-law issues than in a domestic setting. These issues can be especially important with the increase in complex multiparty and multi-contract disputes, which may involve multiple arbitral proceedings between the same or related parties arising out of the same transaction or legal relationship. As discussed in this chapter, courts and tribunals have not adopted a consistent or coherent approach to these choice-of-law issues. There are two main approaches: one is to identify and apply an applicable national law, and the other is to identify and apply international preclusion standards that are suited for international commercial arbitration and not grounded in a particular set of national laws. Under the former approach, which reflects prevailing practice, the res judicata effect of a prior award is governed by one of the several potentially applicable national laws, with different courts and tribunals having applied each of the following: the law of the place where a new claim is brought; the law of the place where the prior award (or judgment) was made, or the law of some other state, such as the law governing the merits of the dispute or some hybrid combination of various potentially applicable national laws. This state of affairs results in considerable legal uncertainty and is deeply unsatisfactory. The alternative approach of applying international preclusion standards has many advantages in principle. It is, however, challenging to determine the appropriate sources or precise content for the articulation of such standards, and to establish a legal basis for them to apply.

justice require arbitral or judicial adjudication of international disputes, it is equally true that such adjudication must, in principle, remain unchallenged, if it is to be effective to that end.”); Partial Award No. 601-A3/A8/A9/A14/B61-FT (17 July 2009), The Islamic Republic of Iran v. The United States of America, at para. 114 (“The doctrine of res judicata has been described as a general principle of law recognized by civilized nations. In addition to enjoying widespread recognition in national legal systems, the doctrine of res judicata is also a well-established and settled rule of international law.”). 4. See P. Barnett, The Prevention of Abusive Cross-Border Re-Litigation, 51 Int’l & Comp. L.Q. 943 (2002), at p. 943; N. Blackaby, C. Partasides, A. Redfern, and J.M. Hunter (eds.), Redfern and Hunter on International Arbitration, (2015), at para. 9.173.

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[A]

§1.02[A]

BACKGROUND: THE DOCTRINE OF RES JUDICATA AND INTERNATIONAL COMMERCIAL ARBITRATION The Doctrine of Res Judicata

The doctrine of res judicata, sometimes referred to as issue or claim preclusion,5 has both positive and negative aspects. It has conclusive effects, meaning that a final award or judgment is binding on the parties, as well as preclusive effects, meaning that the claims or issues decided cannot be relitigated.6 There are considerable differences among national legal systems regarding the scope of the res judicata doctrine. Generally, common law systems such as England, Singapore and the United States (U.S.) take a comparatively broad view of the doctrine. In these jurisdictions, res judicata covers both claim preclusion (also termed “cause of action estoppel”), meaning that a party is precluded from raising the same claim or cause of action which has previously been adjudicated in subsequent proceedings, and issue preclusion (also termed “issue estoppel”), meaning that a party is precluded from reopening in subsequent proceedings an issue which has already been decided.7 Moreover, the scope of res judicata in common law jurisdictions can encompass issues that were not, but should have been, determined by a previous court or tribunal. Under English law, this falls within the “extended doctrine” of res judicata (or the “abuse of process” doctrine),8 which has also been applied in Singapore and Australia.9 U.S. jurisprudence adopts a more expansive view toward claim preclusion that achieves a similar effect.10 By contrast, in civil law systems such as France, Germany and Switzerland, res judicata has a much more limited scope and generally covers only claim preclusion but not issue preclusion.11 This is also the case in jurisdictions such as China, Japan and

5. In this chapter, res judicata will be used interchangeably with issue or claim preclusion, except when the authors state otherwise. 6. See F. De Ly and A. Sheppard, ILA Recommendations on Lis Pendens and Res Judicata and Arbitration, 25 Arb. Int’l 83 (2009), at p. 85 (“To promote efficiency and finality of international commercial arbitration, arbitral awards should have conclusive and preclusive effects on further arbitral proceedings.”). 7. The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v. TT International Ltd (nTan Corporate Advisory Pte Ltd and others, other parties) and another appeal [2015] SGCA 50 (Singapore Court of Appeals), at para. 98. 8. Henderson v. Henderson (1843) 3 Hare 100 (English Court of Chancery), at para. 115; Virgin Atlantic Airways Ltd v. Zodiac Seats UK Ltd (formerly Contour Aerospace Ltd) [2013] UKSC 46 (Supreme Court of the United Kingdom), para. 17. 9. The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v. TT International Ltd (nTan Corporate Advisory Pte Ltd and others, other parties) and another appeal [2015] 5 SLR 1104 (Singapore Court of Appeals), at para. 98; Tomlinson v. Ramsey Food Processing Pty Limited [2015] HCA 28; (2016) 256 CLR 507 (High Court of Australia), at para. 22. 10. See (1982) Restatement (Second) Judgments, §§ 1, 24; Bank of New York v. First Millennium, Inc., 607 F.3d 905, 918 (2d Cir. 2010) (United States Court of Appeals); G. Born, International Commercial Arbitration (2014), at p. 3735. 11. See F. De Ly and A. Sheppard, ILA Interim Report on Res Judicata and Arbitration, 25 Arb. Int’l 35 (2009), at pp. 49-50; S. Brekoulakis, The Effect of an Arbitral Award and Third Parties in International Arbitration: Res Judicata Revisited, 16 Am. Rev. Int’l Arb. (2005), at p. 6 (“[I]n modern civil procedural systems, the codified res judicata is normally confined to the claims rather than the issues determined in a judgment.”); C. Söderlund, Lis Pendens, Res Judicata and

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Gary Born, Cavinder Bull SC, Jonathan Lim & Eunice Chan

Korea.12 Civil law systems also generally recognize no equivalent concept of “abuse of process” precluding a party from asserting issues that could have been raised in a prior proceeding,13 although some systems adopt a “principle of concentration” that achieves a comparable effect.14 Civil law jurisdictions also tend to apply res judicata only to the operative part of a prior decision, or the dispositif, and not the reasoning,15 although in practice this can be applied in a nuanced and less rigid fashion.16

[B]

Res Judicata and International Commercial Arbitration

Res judicata issues can arise in relation to an international commercial arbitration under a number of different scenarios. First, an arbitral tribunal may be asked to decide whether a prior national court judgment would give rise to res judicata in subsequent arbitral proceedings. Second, a tribunal may have to consider the res judicata effects of a prior arbitral award. This can occur within the same arbitration, for example where there has been bifurcation and new arguments are put forward only during the quantum phase that arguably should have been submitted in an earlier phase of the arbitration. It can also occur in separate arbitral proceedings, for example where there are multiple arbitrations between the same parties arising out of the same transaction

12.

13. 14. 15. 16.

the Issue of Parallel Judicial Proceedings, 22 J. Int’l Arb. 301 (2005), at pp. 301-302 (“There is no issue estoppel under continental legal systems.”); G. Born, International Commercial Arbitration (2014), at p. 3738. See also EOS Engineering Corporation v. California Oaks Road Unit, 10 Sup. People’s Ct. Gaz. 21 [2004], at para. 4; Yamada v. Sakakura, 9 MINSHU 1903 [1955] cited in W. Markel, Japanese Judgments and the Common Law of Preclusion (2014), Vol. 8, at p. 240. See EOS Engineering Corporation v. California Oaks Road Unit, 10 Sup. People’s Ct. Gaz. 21 [2004], at para. 4; Yamada v. Sakakura, 9 MINSHU 1903 [1955] cited in W. Markel, Japanese Judgments and the Common Law of Preclusion (2014), Vol. 8, at p. 240. See also S. Kwon, Comparison of Res Judicata in Korea and the U.S., 31 Korean J. Int’l & Comp. L. 67 (2003), at pp. 67-68, 71, 74-75, and 87-90; N. Liu, A Vulnerable Justice: Finality of Civil Judgements in China, 13 Colum. J. Asian L. 35 (1999), at pp. 53-54. See F. De Ly and A. Sheppard, ILA Interim Report on Res Judicata and Arbitration, at p. 50; S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals (2016), at para. 1.87. See B. Derains and Y. Derains, société G et A Distribution SARL v. société Prodim, société par actions simplifiée, (Cour de cassation) (2008); G. Born, International Commercial Arbitration, (2014), at p. 3738. See S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at paras. 1.100, 1.143; G. Born, International Commercial Arbitration, (2014), at p. 3738. A number of civil law jurisdictions have permitted res judicata to apply to the underlying reasoning, particularly when they are necessary in order to interpret the meaning of the dispositif. See F. De Ly and A. Sheppard, ILA Interim Report: “Res Judicata” and Arbitration, at p. 51; S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at paras. 1.102-103. Besides these differences in the content and scope of res judicata, jurisdictions also differ in terms of how they deal with several other issues. This includes what decisions are sufficiently final to qualify for res judicata, or which parties or privies can assert or are bound by res judicata. See S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at para. 1.164; G. Born, International Commercial Arbitration, (2014), at p. 3752; F. De Ly and A. Sheppard, ILA Interim Report on Res Judicata and Arbitration, at pp. 50-51.

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§1.03

or legal relationship. Third, a national court may be asked to consider the res judicata effect of a prior arbitral award. This chapter is focused on the latter two scenarios, which deal with the preclusive effects of a prior award.17 Each of these scenarios implicate choice-of-law issues because, unlike in a domestic setting, the res judicata effects are asserted across potentially two or more different legal orders and more than one set of legal rules can apply. The governing law matters because, while it is well established that arbitral awards have res judicata effect,18 there is no consensus or uniform approach with regard to how this principle is applied. Each jurisdiction has developed its own rules in the context of national court proceedings, and in general national courts apply that jurisdiction’s res judicata rules that have been developed for court judgments to arbitral awards,19 although this may vary depending on the circumstances.20

§1.03

THE LAW GOVERNING RES JUDICATA IN INTERNATIONAL COMMERCIAL ARBITRATION

The absence of any uniform rule of res judicata in different legal systems makes the question of the law governing res judicata issues particularly pertinent. This chapter examines two main approaches to determining the law governing res judicata issues in international commercial arbitration. One approach is to identify and apply, whether using some set of choice-of-law rules or otherwise, an applicable national law that deals with the issues. The other approach is to apply a set of international preclusion standards that would be developed specifically for international commercial arbitration.

17. The application of res judicata in the context of international commercial arbitration raises a number of other complex issues, on which different jurisdictions may come to different conclusions, including the characterization of orders or awards dealing with jurisdictional issues or interim relief, and whether such orders or awards by courts and tribunals qualify for res judicata. This chapter does not consider the law and practice on these still-developing areas, apart from any implications on the choice-of-law analysis. See S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at paras. 3.05-3.06; G. Born, International Commercial Arbitration (2014) at pp. 3778-3790; F. De Ly and A. Sheppard, ILA Final Report on Res Judicata and Arbitration, at pp. 70-71. 18. See F. De Ly and A. Sheppard, ILA Interim Report on Res Judicata and Arbitration, at pp. 45, 48 and 52; G. Born, International Commercial Arbitration (2014), at pp. 3739-3740; B. Hanotiau, Problems Raised by Complex Arbitrations Involving Multiple Contracts—Parties—Issues An Analysis, 18 Int’l Arb, Issue 3, 253-360 (2001), at p. 356. This is expressly provided for in the arbitration laws of several civil law jurisdictions, including Austria, Belgium, France and Spain, as well as the case law of common law jurisdictions, including Australia, India and the U.K. See S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at para. 4.16. 19. S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, para. 4.116. 20. For example, English and common law courts have not settled the issue of whether the “abuse of process” doctrine which applies to judgments would apply to awards. See M. Mustill and S. Boyd, Commercial Arbitration (1989), at pp. 412-413; D. Williams, The Application of the Henderson v. Henderson Rule in International Arbitration, 26 SAcLJ 1036 (2014), at paras. 4-36.

5

§1.03[A] [A]

Gary Born, Cavinder Bull SC, Jonathan Lim & Eunice Chan The Choice-of-Law Approach

There is a wide range of national laws that courts and tribunals might apply to determine res judicata issues in an international commercial arbitration. These may be broadly categorized as: (a) the law of the place where a new claim brought;21 (b) the law of the place where a prior award was made; and (c) the law of some other state, such as the law governing the merits of the dispute or the law of the arbitration agreement, or even some hybrid combination of various laws. As discussed below, these choice-of-law issues have been the subject of surprisingly sparse analysis by courts and tribunals, which have not provided detailed reasons for the choice-of-law analysis they adopt in determining the res judicata effects of arbitral awards. The case law and arbitral practice on the subject is inconsistent, and no settled consensus has emerged.

[1]

Law of the Place Where a New Claim Is Brought

In several cases, courts and tribunals have applied the law of the place where a new claim is brought—depending on the scenario in which the res judicata issues arise, this can be the law of the judicial enforcement forum or the law of the arbitral seat in a subsequent arbitration. This choice-of-law rule is often justified by classifying res judicata as an evidentiary or procedural rule, which is therefore subject to the law of the forum.22 This approach is also explained by reference to the notion that the new forum will bear most of the costs of relitigating a dispute that has been decided.23 Where national courts have considered the preclusive effects of prior awards, they have often applied their own res judicata rules, at times without much choice-oflaw analysis or reasoning. For example, the Svea Court of Appeal in CME v. Czech Republic, when considering the res judicata issues raised by a London award in a Stockholm arbitration, found that it was “unclear” whether English law applied and instead applied Swedish law.24 English and U.S. courts have also assumed in particular cases that English law, or U.S. federal or state law, governs the issue of res judicata over

21. See A. Sheppard, Res Judicata and Estoppel, in B. Cremades and J. Lew (eds.), Parallel State and Arbitral Procedures in International Arbitration (2005), at p. 230 (“the tribunal—as law and practice stand today—must apply the res judicata rules of the [second] place of arbitration”). 22. See F. De Ly and A. Sheppard, ILA Interim Report on Res Judicata and Arbitration, at p. 50 (“The defence of res judicata is generally characterized as procedural and belonging to the lex fori, and is thus not to be determined in accordance with the law applicable to the merits.”); Carl-Zeiss Stiftung v. Rayner & Keeler Ltd (No 2) [1966] 2 All ER 536 at 564 (Appellate Committee of The House of Lords); G. Born, International Commercial Arbitration (2014), at p. 3768. 23. G. Born, International Commercial Arbitration (2014), at p. 3768. 24. Czech Repub. v. CME Czech Repub. BV [2003], Case No. T 8735-01 (Svea Court of Appeal), at p. 95 (“The Republic has argued that English law might be applicable. However, the claim has not been based on any investigation which clarifies in detail the position under English law and the legal opinions that have been submitted do not contribute to a clarification of the legal situation. Taking the aforesaid into consideration, and since the issue whether English law is applicable to some extent is unclear, the Court of Appeal will disregard this matter for the time being … ”).

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§1.03[A]

a prior judgment simply because that is the law of the enforcement forum,25 and are likely to take a similar approach with respect to arbitral awards. Likewise, this is also the approach of the Swiss courts.26 Some arbitral tribunals have adopted a similar approach and applied the procedural law of the arbitral seat to decide on the preclusive effects of prior awards. For example, an ICC tribunal seated in Paris applied French procedural law to res judicata questions arising from a previous ICC award rendered by a Geneva-seated tribunal, reasoning that res judicata is a question of procedure, and that although the tribunal did not strictly have a lex fori, French law applied because any recourse against the award would be filed in France.27 In another ICC arbitration, a tribunal seated in Geneva applied the law of the canton of Geneva, because it found that there were no res judicata rules provided for in the ICC Rules or the Swiss Concordat on arbitration.28 Likewise, in an UNCITRAL arbitration seated in Stockholm, the tribunal held that it was “bound to apply Swedish rather than international principles of res judicata applicable in international commercial arbitration.”29 The tribunal therefore followed the approach of the Svea Court of Appeal in CME v. Czech Republic and applied the Swedish Code of Judicial Procedure.30

[2]

Law of the Place Where a Prior Award Was Made

Another national law that might apply under a choice-of-law analysis is the law of the place where the prior decision was made—where the relevant decision is an arbitral award, this can be the procedural law of the arbitral seat in the prior arbitration. The justification for applying this law is that the preclusive effect of an award or judgment should be no greater than that allowed by the forum where the award or judgment was

25. See Fennoscandia v. Clarke [1999] 1 All E.R. (Comm) (Court of Appeal) 365; P. Barnett, The Prevention of Abusive Cross-Border Re-Litigation, 51 Int’l & Comp. L.Q. 943 (2002), at p. 953; G. Born, International Commercial Arbitration (2014), at p. 3760; Schattner v. Girard, Inc., 668 F.2d 1366, 1368 (D.C. Cir. 1981) (U.S. Court of Appeals, District of Columbia Circuit), (applying federal preclusion law without discussion); Overseas Motors, Inc. v. Import Motors, Ltd, 519 F.2d 119 (6th Cir. 1975) (U.S. Court of Appeals, Sixth Circuit), (applying federal preclusion law without discussion). Note that neither the Full Faith and the Credit Clause of the U.S. Constitution nor the federal Full Faith and Credit statute applies to arbitral awards, and therefore U.S. courts have developed rules of preclusion for prior awards as a matter of common law: see G. Born, International Commercial Arbitration, at pp. 3747-3750. 26. See N. Voser and J. Raneda, Recent Developments on the Doctrine of Res Judicata in International Arbitration from a Swiss Perspective: A Call for a Harmonized Solution, 33 ASA Bull (2015), at p. 764; Decision of the Swiss Federal Tribunal 127 III 279 (May 14, 2001), at para. 2b; Decision of the Swiss Federal Tribunal 4A_508/2013 (May 27, 2014), at para. 3.2. 27. See ICC Case No. 5901, Award (unpublished) (1989), cited in Horacio A. Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration (2001), 289 RCADI, at pp. 168-169. 28. See ICC Case No. 3540, Award (unpublished) (1988), cited in D. Hascher, L’Autorité de la Chose Jugée des Sentences Arbitrales (2004), Trav. Com. fr. DIP 2000-2002, at p. 18. 29. Unpublished award, discussed in K. Hober, Res Judicata and Lis Pendens in International Arbitration, at pp. 259-262. 30. Ibid.

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rendered, because relitigating the dispute implicates the finality or integrity of the prior forum’s adjudicative processes and entails a wastage of its resources.31 There is little case law where national courts have applied this choice-of-law rule, apart from in the U.S., where some courts have assumed or held that the preclusive effects of a prior award or judgment are governed by the law of the place where the prior decision was made.32 The Swiss Federal Tribunal adopted a variant of this approach in the recent South-Western Railways case, applying the lowest common denominator of the principles on res judicata in both the law of the place where the prior decision was made and the law of the place where the new claim was brought.33 Some arbitral tribunals have applied the law of the place where a prior arbitral award or court judgment was made. In these cases, however, the law of the place where the prior award or judgment was made was also simultaneously the procedural law of the seat of the subsequent arbitration or the law governing the substantive issues.34 It is thus difficult to discern in each of these cases what the decisive factor for the tribunal’s analysis was.35

[3]

Law of Some Other State

Another choice-of-law rule would provide for application of the law of some other state, such as the law governing the merits of the parties’ underlying dispute, to the res judicata issues. This approach might be justified on the basis that res judicata issues are of a substantive rather than procedural nature.36 A governing law clause may also be worded in such a way that the express choice of law encompasses res judicata issues.37

31. See G. Born, International Commercial Arbitration (2014), at p. 3768; A. Sheppard, Res Judicata and Estoppel, in B. Cremades and J. Lew (eds.), Parallel State and Arbitral Procedures in International Arbitration, at pp. 219-228 (“The place where the prior decision was made might place some constraint or limitation on the scope of res judicata. For example, under that law, only the dispositif might have res judicata effect. This should then be respected at the place of arbitration.”). 32. G. Born, International Commercial Arbitration (2014), at p. 3760; Exxon Mobil Corp. v. Saudi Basic Indus. Corp. [2005] 544 U.S. 280 (U.S. Supreme Court), at p. 283. See also Restatement (Third) U.S. Law of International Commercial Arbitration (2012), Reporters’ Note g, Tentative Draft No. 2, § 4-9 (“In the context of claim preclusion based on prior judgments, most courts have applied the law of the jurisdiction in which the prior judgment was rendered.”). 33. Decision of the Swiss Federal Tribunal 4A 508/2013 (May 27, 2014). 34. See ICC Case No. 7438, Award (1994), discussed in D. Hascher, L’Autorité de la Chose Jugée des Sentences Arbitrales, at p. 19; ICC Case Nos 2745 & 2762, Award (1977), in S. Jarvin and Y. Derains (eds.), Collection of ICC Arbitral Awards (1974-1985) (1990), at p. 331. 35. S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at para. 4.128. In ICC Case No. 8023 (1995), for instance, the law of the seat of arbitration (Paris), the law of the place of the prior judgment on the merits (Paris), and the law applicable to the merits (French law) all coincided (discussed in D. Hascher, L’Autorité de la Chose Jugée des Sentences Arbitrales, at p. 21). 36. N. Voser and J. Raneda, Recent Developments on the Doctrine of Res Judicata in International Arbitration from a Swiss Perspective: A Call for a Harmonized Solution, at p. 767; D. Williams and M. Tushingham, The Application of the Henderson v. Henderson Rule in International Arbitration, at paras. 43-50. 37. See D. Williams and M. Tushingham, The Application of the Henderson v. Henderson Rule in International Arbitration, at para. 50.

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A number of arbitral tribunals have applied the law governing the merits of the parties’ underlying dispute to the preclusive effects of a prior award or judgment. In one ICC arbitration, the tribunal applied New York law, which was the law governing the merits, and the only law relied upon by the parties, to the res judicata issues.38 In another ICC case, the tribunal acknowledged the parties’ agreement that the law governing res judicata issues was the law governing the merits, although it also observed that the law of the forum should apply because res judicata was a matter of procedure.39 Another choice-of-law approach is to apply a combination of several laws in a hybrid approach. In a number of cases, tribunals have applied a law which is not only the law governing the merits, but also the law of the prior or subsequent forum. For example, one ICC tribunal seated in Paris applied French law, which was the procedural law of the seat, the law governing the merits and the law relied upon by the parties.40 In another ICC arbitration seated in Paris, the arbitrators applied French law to the issue of res judicata, because the prior award, made in an arbitration that was also seated in Paris, “was part” of the French legal order, because Paris was the seat of the second arbitration, and because the parties had agreed that French law would apply.41 Similarly, in a CRCICA case, the tribunal applied Egyptian law, because it was the procedural law of the seat of both the prior and subsequent arbitrations, as well as the law governing the merits.42 It is difficult to determine, in any of these cases, what the decisive factor in the tribunal’s analysis was.

[4]

Critique of the Choice-of-Law Approach

Authority on the choice of law for res judicata is fragmented, and courts and tribunals have failed to develop a uniform approach to the issues. In the words of one commentator, “it is possible that … five legal systems could be applicable to different aspects of res judicata.”43 This is unnecessarily complex and creates uncertainty, which is unsatisfactory given that the applicable law can significantly impact the scope and requirements for res judicata. Moreover, each of the three alternatives presented above is problematic. The law of the place where a new claim is brought is the most common choice-of-law rule applied by courts and tribunals to issues of res judicata. Nonetheless, courts and tribunals applying this law to determine the res judicata effects of prior 38. ICC Case No. 6293 (1990), award reported in D. Hascher, L’autorité de chose jugée des sentences arbitrales, in Travaux du Comité français de droit international privé, (2004), at p. 20. 39. ICC Case No. 10027 (2000), award reported in D. Hascher, L’autorité de chose jugée des sentences arbitrales, in Travaux du Comité français de droit international privé, at p. 20. 40. ICC Case No. 8023 (1995), award reported in D. Hascher, L’autorité de chose jugée des sentences arbitrales, in Travaux du Comité français de droit international privé, at pp. 21-22. 41. ICC case No. 13808 (2008) (unpublished), referenced in L.G. Radicati di Brozolo, Res Judicata and International Arbitral Awards, at pp. 2-3. 42. A Gulf Company (first Gulf State) v. A Gulf Company (second Gulf State), Award, CRCICA Case No. 67/1995 (Aug. 11, 1996), in M.E. Eldin, (ed.), Arbitral Awards of the Cairo Regional Centre for International Commercial Arbitration (2000), at pp. 153-160. 43. K. Hober, Res Judicata and Lis Pendens in International Arbitration, at p. 259.

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awards appear to have done so reflexively, without a reasoned choice-of-law analysis or any consideration of possible alternatives.44 On closer examination, the characterization of res judicata as a procedural rule subject to the law of the forum is not self-evident:45 there are persuasive arguments that res judicata protects and enforces a substantive private law right conferred on parties as a function of their agreement to arbitrate and the New York Convention (even if this is effected through procedural devices such as “estoppel”).46 Thus, res judicata has both procedural and substantive dimensions,47 making automatic application of the law of the (new) forum difficult to justify. The automatic application of the forum law can also frustrate the parties’ expectations of finality in an arbitration.48 It would be inconsistent with the objectives of the New York Convention, which requires courts of Contracting States to recognize the “binding” effect of awards, to deny preclusive effects to awards by applying narrow procedural rules of forum law that are out of step with the parties’ expectations. Indeed, as discussed above, res judicata rules vary significantly between jurisdictions, and it would undermine parties’ expectations of finality if a disappointed party’s ability to reopen an already-decided dispute depends on where it decides to bring suit.49 The application by a tribunal of the res judicata rules of the (new) arbitral seat to the res judicata effects of prior awards or judgments is subject to the same criticisms, as well as additional problems. In particular, many authorities reason that those rules do not form part of the lex arbitri, generally provided by the arbitration legislation of the arbitral seat.50 Like the substantive laws of the arbitral seat, res judicata rules have

44. See S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals (2016), at paras. 4.126 et seq. 45. S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at para. 5.16; Virgin Atlantic Airways Ltd v. Zodiac Seats UK Ltd [2014] AC 160, at para. 25. 46. See Assoc’d Elec. & Gas Ins. Servs. Ltd v. European Reins. Co. of Zurich [2003] UKPC 11, (Bermuda Privy Council), at para. 15 (“[An arbitral award] conferred upon [the parties] a right which is enforceable by later pleading an issue estoppel. It is a species of the enforcement of the rights given by the award just as much as would be a cause of action estoppel. It is true that estoppels can be described as rules of evidence or as rules of public policy to stop the abuse of process by relitigation. But that is to look at how estoppels are given effect to not at what is the nature of the private law right which the estoppel recognises and protects. … [W]here arbitrators have, pursuant to the submission of a dispute to them, decided an issue; that decision then binds the parties and neither party can thereafter dispute that decision.”); G. Born, International Commercial Arbitration (2014), at pp. 3743-3744. 47. Final Report on Res Judicata and Arbitration, International Law Association, Committee on International Commercial Arbitration (2006), at para. 66. 48. These expectations can be made express in the parties’ arbitration agreement. For example, if parties agree that no preclusive effects should be given to their arbitration award, that should have effect and be taken into account by the court or tribunal. Likewise, if parties agree that a particular set of preclusive effects should be given to their arbitration award, that should also be given effect. See G. Born, International Commercial Arbitration (2014), at p. 3770. 49. See G. Born, International Commercial Arbitration (2014), at pp. 3769-3770. 50. S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at paras. 5.24-5.26; L.G. Radicati di Brozolo, Res Judicata and International Arbitral Awards, at p. 132; N. Voser and J. Raneda, Recent Developments on the Doctrine of Res Judicata in International Arbitration from a Swiss Perspective: A Call for a Harmonized Solution, at p. 765.

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a tenuous connection at best to the arbitration, and it is unlikely that parties would expect them to apply.51 As for the application of the law of the place of the prior award or the law of some other state, there is little authority applying such choice-of-law rules. Moreover, in the few cases where tribunals have adopted these approaches, the result could also be justified on other grounds (e.g., it is also the law of the place where a new claim is brought).52 Where the prior decision is an award, the application of the procedural law of the seat of the earlier arbitration is also problematic for the reasons already identified above. A more fundamental criticism of all these approaches is that res judicata rules developed for domestic litigation settings are inapposite for the issues that arise in international commercial arbitration.53 For example, it would make little sense to impose domestic law res judicata requirements for judicial jurisdiction in a prior proceeding when considering the preclusive effects of prior awards, because arbitral jurisdiction is consent-based and of a different juridical nature.54 This illustrates that the application of domestic res judicata rules to arbitral awards is problematic because these rules do not address the effect of arbitral awards except by “inappropriate analogies between international arbitration and litigation.”55 They fail to differentiate meaningfully between judgments and awards, even though awards arise from the parties’ agreement to arbitrate, have a different international character, and are required by Article III the New York Convention to be given “binding” effect.56

[B]

International Approach

A fundamentally different approach is to apply sui generis international preclusion standards designed for international commercial arbitration that are consistent with

51. See G. Born, International Commercial Arbitration (2014), at pp. 1622-1626, 3769, (“[O]ver the past several decades, the ‘procedural law’ of the arbitration has come to be understood as referring to the arbitration law of the selected state, rather than its national procedural code … [T]he parties’ agreement selecting the “procedural law” of a particular state should not be interpreted as a reference to local rules of civil procedure of the specified jurisdiction, but instead to the national arbitration legislation of that state.”); G. Bermann, Ascertaining the Parties’ Intentions in Arbitral Design, 133 Penn. State L. Rev. 1013 (2009), at pp. 1017-1019; Award in ICC Case No. 12073, XXXIII Y.B. Comm. Arb. (2008), 62, at p. 73 (“[I]nternational arbitrators do not have a lex fori in the manner of a national court judge. In particular, the international arbitrator sitting in Switzerland is not required to apply either Swiss civil procedure rules or conflict of law rules. Where appropriate, reference may be made to Swiss procedural laws or conflict rules, just as reference may be made to other national procedural laws or to apposite international arbitration practice.”). 52. See S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at paras. 4.128-4.130. 53. See G. Born, International Commercial Arbitration (2014), at pp. 3768-3769; F. De Ly and A. Sheppard, ILA Final Report on Res Judicata and Arbitration, at p. 73; S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at para. 5.35. 54. See G. Born, International Commercial Arbitration (2014), at pp. 3753-3754. 55. S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at para. 5.33. 56. F. De Ly and A. Sheppard, ILA Final Report on Res Judicata and Arbitration, at p. 72.

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the parties’ expectations. As discussed below, there are good reasons in principle for adopting such standards. However, the difficulties with such an approach lie in determining the sources or precise content of such standards, and in establishing a legal basis to apply them.

[1]

Rationale for Adopting International Standards

There are many reasons to adopt international preclusion standards for res judicata issues in international commercial arbitration, particularly in light of the difficulties involved in the choice-of-law approach, as discussed above. International standards of this character would be uniformly applicable and provide consistent guidance for courts and tribunals, in contrast to the unpredictability and uncertainty inherent in the choice-of-law approach.57 These standards better reflect the international character of awards, whose enforceability and effects should not be subject to the differing regulations in individual jurisdictions.58 These standards would also reduce the possibility of forum shopping by a disappointed party looking to reopen an alreadydecided dispute. International preclusion standards would be tailored to the needs of the arbitration process. They would obviate the need for courts and tribunals to apply domestic law rules, developed for other purposes that are often inappropriate in an international commercial arbitration context.59 More importantly, such international preclusion standards can give effect to the parties’ expectations as expressed in their arbitration agreement and informed by the provisions of the New York Convention, as discussed further below.60

[2]

Sources of International Standards

A number of arbitral awards reflect a pragmatic and flexible approach by tribunals to res judicata issues that is not based strictly on domestic res judicata principles and instead reflects the application of sui generis international preclusion standards, developed based on considerations of fairness and the parties’ expectations.61 Although these awards reflect a desire by tribunals to apply international standards, they

57. See F. De Ly and A. Sheppard, ILA Final Report on Res Judicata and Arbitration, at p. 73. 58. S. Brekoulakis, The Effect of an Arbitral Award and Third Parties in International Arbitration: Res Judicata Revisited, Int’l Arb., at pp. 27-29. 59. S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at para. 5.33. 60. G. Born, International Commercial Arbitration (2014), at p. 3769. 61. Final Award in ICC Case No. 3267, XII Y.B. Comm. Arb. (1987), 87, at para. 89 (“The binding effect of its first award is not limited to the contents of the order thereof adjudicating or dismissing certain claims, but … it extends to the legal reasons that were necessary for such order, i.e., to the ratio decidendi of such award. Irrespective from the academic views that may be entertained on the extent of the principle of res judicata on the reasons of a decision, it would be unfair to both parties to depart in a final award from the views held in the previous award, to the extent they were necessary for the disposition of certain issues.”); ICC Case No. 3383, Award (1979), in S. Jarvin and Y. Derains (eds.), Collection of ICC Arbitral Awards (1974-1985)

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provide little guidance as to the precise contours of such international standards, or a reasoned basis for developing such standards. It is therefore necessary to look at other potential sources.

[a]

Public International Law Jurisprudence

One potential source for international preclusion standards is public international law. As discussed above, res judicata is a well-established principle of international law. Various international tribunals, including the Permanent Court of International Justice, the International Court of Justice, the Iran-U.S. Claims Tribunal, and a number of ad hoc interstate tribunals, have applied international rules of preclusion.62 A number of investor-State tribunals have also applied these rules.63 In some cases, tribunals have apparently applied a so-called triple-identity test, requiring an identity of parties, object and claims for preclusive effect to apply. Applying the triple-identity test, however, has not proved to be a straightforward exercise,64 and there are divergent views on whether and how the test should be understood. A number of authorities have held that res judicata should be strictly construed and limited to issues that were argued and put into issue in the prior adjudication, and should not preclude a party from raising a legally distinct cause of

(1990), at pp. 396 et seq. (tribunal held that it was bound by a prior award in an ad hoc arbitration, without specifying what law governed the issue or applying any particular law). See also S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at para. 4.132. 62. See Interpretation of Judgments Nos. 7 & 8 Concerning the Case of the Factory at Chorzów in Collection of Judgments, Publications of the Permanent Court of International Justice (1927), Series. A, No. 11, at p. 23, dissenting opinion of Judge Anzilotti (“[W]e have here the three traditional elements for identification, persona, petitum, causa petendi, for it is clear that ‘that particular case’ (le cas qui a été decidé) covers both the object and the grounds of the claim. It is within these limits that the Court’s judgment is binding … .”); Partial Award of 17 July 2009, The Islamic Republic of Iran v. The United States of America, at para. 114 (“The doctrine of res judicata is applicable only where (1) the parties and (2) the question at issue (or the matter in dispute) are the same. This second element may be subdivided into the object (petitum) and the grounds of the case (causa petendi). The three traditional elements for identification are thus parties, object, and cause.”); Trail Smelter (United States v. Canada), 3 RIAA 1905 (1941), at p. 1952, (“There is no doubt that in the present case, there is res judicata [because] [t]he three traditional elements for identification: parties, object and cause … are the same.”). See also Haya de la Torre (Colombia v. Peru), 1951 I.C.J. 71, 80, (Jun. 13, 1951), at pp. 78-82. 63. See Final Award of 25 August 2014 in ICSID Case No. ARB(AF)/12/1, Apotex Holdings, Inc. v. United States of America, at para. 7.13; Final (ad hoc) Award of 14 March 2003 in CME Czech Republic BV v. The Czech Republic, at paras. 433-437. See also Amco Asia Corp. v. Republic of Indonesia, Decision on Jurisdiction, ICSID Review—Foreign Investment Law Journal, 166, at paras. 21, 26. 64. See, e.g., Partial Award of 17 July 2009, The Islamic Republic of Iran v. The United States of America, at para. 119, (“[T]here is some question as to whether, as a general matter, strict identity of the object of a claim is required for res judicata to apply under international legal standards. Depending on the circumstances of the case, the res judicata doctrine has been interpreted in a manner not requiring the strict identity of the object of the claim.”); B. Cheng, General Principles of Law as Applied by International Courts and Tribunals, at pp. 345-346.

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action based on the same facts in subsequent proceedings.65 Other authorities support a broader view, and have held that parties are barred from raising closely related but different claims that could have been raised in an earlier adjudication.66

[b]

The New York Convention

The New York Convention provides another source of international preclusion standards, although this has not been given due attention by courts or tribunals. While the Convention does not expressly deal with the res judicata effects of awards,67 it is properly understood as requiring Contracting States to afford preclusive effects to awards. In particular, Article III of the Convention requires Contracting States to recognize arbitral awards as “binding,” while Article II requires Contracting States to give effect to parties’ arbitration agreements.68 These obligations, and the Convention’s objectives, would be frustrated if the parties were free to relitigate their dispute even after an award has been rendered, or to hold back certain claims in a prior arbitration with a view to getting another bite at the cherry before a different court or tribunal.69 The Convention provides only a foundational “statement of principle” that the parties’ expectations and their arbitration agreement must be given effect,70 but it does not elaborate on the precise requirements and standards of preclusion to be applied. Nonetheless, the better view is that the Convention provides the basis for international preclusion standards that would preclude attempts to relitigate a dispute that has been decided in arbitration, regardless of whether particular claims were in fact asserted in the prior arbitration.71

65. See Interpretation of Judgments Nos. 7 & 8 Concerning the Case of the Factory at Chorzów in Collection of Judgments, Publications of the Permanent Court of International Justice (1927), Series. A, No. 11, at pp. 26-27 (dissenting opinion of Judge Anzilotti); Final Award of 29 March 2005 in SCC No. 126/2003, Petrobart Limited v. Kyrgyz Republic, at pp. 64-65, (“While Petrobart might have been able to raise issues under the Treaty in those proceedings, there is no provision in the Treaty indicating that the failure to do so would deprive Petrobart of the right to institute subsequent proceedings on the basis of Article 26 of the Treaty.”); V. Lowe, Res judicata and the Rule of Law in International Arbitration, 8 Afr. J. Intl & Comp. L. 38 (1996), at p. 40 (“[I]t [identity of object] is intended to ensure that it is in fact the very same issue which arises in both cases [which] is implicit in the very essence of res judicata.”). 66. See The Delgado Case, in J.B. Moore, History and Digest of the International Arbitrations To Which The United States Has Been A Party (1881), at p. 2199; The Machado Case, in J.B. Moore, International Arbitrations To Which The United States Has Been A Party, at p. 2194; A. Reinisch, The Use and Limits of Res Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute Settlement Outcomes, 3 L & Prac. Intl Cts & Trbs 37 (2004), at p. 63. 67. See G. Born, International Commercial Arbitration (2014), at pp. 3740-3741. 68. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, Jun. 10, 1958), Arts. II and III. 69. See G. Born, International Commercial Arbitration, at pp. 3741 and 3745-3746. 70. G. Born, International Commercial Arbitration (2014), p. 3744. 71. G. Born, International Commercial Arbitration (2014), pp. 3744-3746.

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§1.03[B]

ILA Recommendations on Res Judicata and Arbitration

The International Law Association (“ILA”) commissioned a five-year study by a committee of leading arbitration practitioners in an effort to harmonize the approach to res judicata questions in international commercial arbitration, and promulgated a series of Recommendations on Res Judicata and Arbitration in 2009 (“ILA Recommendations”). The ILA Recommendations do not set out an exhaustive set of international res judicata rules; instead they adopt a “mixed model” whereby they formulate international rules for some aspects of res judicata, but not others where such formulation would be premature, which would be left to domestic law under a choice-of-law approach.72 They are intended to be applied by tribunals considering previous awards, and not any other situation involving courts and tribunals. The ILA Recommendations provide for claim preclusion where a “claim for relief” was decided in proceedings involving the “same parties” and issue preclusion where “issues of fact or law … have actually been arbitrated and determined.”73 They provide that the determinations and relief in an award, as well as any “reasoning necessary thereto,” have preclusive effects.74 They also provide that the preclusive effects of an arbitral award extend to “a claim, cause of action or issue of fact or law, which could have been raised, but was not, in the proceedings resulting in that award,” but provided that this amounts to “procedural unfairness or abuse.”75 This is meant to give effect to the objectives of efficiency and finality, reflecting the robust approach to res judicata prescribed by the New York Convention, while also according tribunals the discretion to assess, in the given circumstances of each case, whether the extension of preclusive effects is justified.76 The ILA Recommendations do not have any formal status as law, and cannot be applied as such. Nonetheless, they provide useful guidance as a statement of prevailing arbitration practice, as concluded by a committee of experts in the field, and can be persuasive for a tribunal considering the effect of a previous award.

[3]

Critique of the International Approach

The application of international preclusion standards is attractive in principle and has the support of a number of commentators.77 There are, however, no reported instances

72. F. De Ly and A. Sheppard, ILA Final Report on Res Judicata and Arbitration, at para. 5. 73. F. De Ly and A. Sheppard, ILA Recommendations on Lis Pendens and Res Judicata and Arbitration, at p. 85. 74. Ibid. 75. Ibid. 76. See F. De Ly and A. Sheppard, ILA Final Report on Res Judicata and Arbitration, at paras. 60-63. 77. See D. Hascher, L’autorité de la chose jugée des sentences arbitrales, at p. 25; A. Sheppard, The Scope and Res Judicata Effect of Arbitral Awards, in Arbitral Procedure at the Dawn of the New Millennium: Cepani-Series No. 5 (2005), at p. 283; L.G. Radicati di Brozolo, Res Judicata and International Arbitral Awards, at pp. 143-145; S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at paras. 5.114-5.115; G. Born, International Commercial Arbitration (2014), at pp. 3742-3746.

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of international commercial arbitration tribunals that have adopted or applied international preclusion standards based on public international law jurisprudence, the New York Convention or the ILA Recommendations.78 In particular, it is unclear whether the triple-identity test formulated for public international law contexts and the determination of disputes involving states is suited for commercial arbitrations. Commercial tribunals do not typically apply, or have grounds to apply, public international law to the resolution of a dispute. More importantly, the application of a narrow triple-identity test would permit parties to reopen proceedings before different courts or tribunals based on claims that could and should have been raised in a prior arbitration, and is difficult to reconcile with the parties’ expectations in an international commercial arbitration that their dispute would be resolved with finality in a single forum.79 The New York Convention and ILA Recommendations can provide a basis for developing international preclusion standards. They can be valuable point of reference for tribunals and are capable of application in particular cases.80 They are, however, limited in scope and do not deal comprehensively with every situation that could give rise to res judicata in international commercial arbitration. For example, they do not deal with which kinds of third parties can rely on or are bound by the res judicata effects of prior awards.81 It remains to be seen whether courts and tribunals will build on this foundation and develop more detailed rules of international preclusion suitable for international commercial arbitration.

§1.04

CONCLUSION

Parties who agree to arbitrate their disputes justifiably expect that their disputes will be resolved with finality and efficiency. Res judicata serves to protect these expectations, which would be frustrated if, after an award in the dispute is rendered, parties are subjected to relitigation before a different court or tribunal of the same issues that have already been decided in the first arbitration. It is therefore unsatisfactory, and inimical to the objectives of the New York Convention and agreements to arbitrate, that the practice of courts and tribunals regarding the choice of law for res judicata is fragmented and inconsistent. The prevailing practice of applying rules developed for judgments in domestic litigation settings is also conceptually problematic. Against this background, commentators have suggested that courts and tribunals should apply sui generis international preclusion

78. Some tribunals and courts have reportedly considered the ILA Recommendations, but decided not to take them into account. See N. Voser and J. Raneda, Recent Developments on the Doctrine of Res Judicata in International Arbitration from a Swiss Perspective: A Call for a Harmonized Solution, at p. 774; Decision of the Swiss Federal Tribunal 141 III 229 (May 29, 2015), at para. 3.2.5. 79. See G. Born, International Commercial Arbitration (2014), at pp. 3745-3746; L.G. Radicati di Brozolo, Res Judicata and International Arbitral Awards, at p. 144. 80. See S. Schaffstein, The Doctrine of Res Judicata Before International Commercial Arbitral Tribunals, at paras. 4.117, 5.97-5.101. 81. See F. De Ly and A. Sheppard, ILA Final Report on Res Judicata and Arbitration, at para. 7.

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standards designed for international commercial arbitration, which would be consistent with the parties’ expectations. This is a commendable enterprise. It is, however, difficult to determine the appropriate sources and content of such standards, although the Convention and the ILA Recommendations provide a good starting point. Tribunals and courts must therefore take the next steps in formulating uniform and comprehensive international preclusion standards that can be applied in individual cases.

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CHAPTER 2

Assignments ‘Mid-Arbitration’: Some Practical Considerations Christopher Lau SC

§2.01

INTRODUCTION

While it is in principle accepted that one contracting party can ‘transfer’ to a third party (i.e., the ‘transferee’) the ‘benefit’ under a contract it had entered into with the other contracting party before and after initiating arbitral proceedings, a ‘transfer’ after arbitral proceedings have been commenced invariably raises a number of issues including the following: – what the law applicable to such ‘transfer’ is; – what are the requirements under the applicable law that need to be fulfilled for the ‘transfer’ to be valid; – what the third party’s rights in respect of the ongoing arbitral proceedings are; and – whether the ‘transfer’ negatively affects the arbitral tribunal’s jurisdiction. To compound matters, the approaches adopted in civil and common law jurisdictions to such ‘transfer’ mid-arbitration appear, at times, to differ widely. This chapter examines certain aspects of such ‘transfers’ including some of the more recent developments in this respect.

§2.02

WHICH LAW APPLIES TO WHAT?

Looking at the issues raised under section 2.01 above, it may seem odd to raise the question as to ‘which law applies to what’. However what appears – at first glance – to be fairly straightforward, may not be so when examined more closely. This is because

19

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the laws of more than one jurisdiction may have a role to play in respect of a ‘transfer’ mid-arbitration: – As the main contract and the arbitration agreement contained therein are separate,1 these could, at least theoretically, be transferred separately. The question could therefore arise as to which law applies to the ‘transfer’ in respect of the main contract and whether this is the same as the law that applies to the ‘transfer’ of the arbitration agreement. – Whilst the law governing the third party’s rights in respect of the ongoing arbitral proceedings can be the same as the law which governs the ‘transfer’ under the main contract and/or the ‘transfer’ of the arbitration agreement, this may not always be the case, for example, if the arbitration is seated in a different jurisdiction. – As to whether the ‘transfer’ negatively affects the arbitral tribunal’s jurisdiction, further investigation may be required into the law governing the arbitral proceedings which may be the law of a jurisdiction other than that governing the ‘transfer’ under the main contract and/or the ‘transfer’ of the arbitration agreement. These matters can be usefully illustrated by the example of an assignment absent any agreement on the applicable law. As regards the first, in England, by virtue of Rule 135(b) of Dicey’s Conflict of Laws, the law which governs the main contract is also the law applicable to the assignment of a benefit under the main contract2 and – as the arbitration agreement is automatically ‘transferred’ together with the benefit under the main contract3 – by extension, to the assignment of the arbitration agreement. The law governing the main contract therefore effectively governs the assignment of both the benefit under the main contract and the arbitration agreement. In arbitrations seated in Switzerland, an arbitration agreement is considered to be automatically ‘transferred’ to a third party provided the benefit under the main contract has been validly assigned to the third party.4 The law applicable to the assignment of the benefit under the main contract is however not determined by the conflict of laws rule which specifically applies to assignments (namely, Article 145 of the Swiss Federal Act on Private International 1. Nigel Blackaby/Constantine Partasides QC with Alan Redfern/Martin Hunter, Redfern and Hunter on International Arbitration, 6th ed. (2015), at para. 2.101. 2. Quoted in A v. B [2016] EWHC 3003 (Comm), at para. 20 as follows: [T]he law governing the right to which the assignment relates determines its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and any question whether the debtor’s obligation have been discharged.

3. Julian D. M. Lew/Loukas A. Mistelis/Stefan M. Kroell, Comparative International Commercial Arbitration, (2003), at para. 7-52; Nigel Blackaby/Constantine Partasides QC with Alan Redfern/Martin Hunter, Redfern and Hunter on International Arbitration, 6th ed. (2015), at para. 2.55. 4. Matthias Scherer, Three Recent Decisions of the Swiss Federal Tribunal Regarding Assignments and Transfers of Arbitration Agreements, 20 ASA Bulletin 1 (March 2002), at p. 111.

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Law)5 but the general conflict of laws rule for determining the applicable law in international arbitration, i.e. Article 187 of the Swiss Federal Act on Private International Law.6 Applying the latter may not however necessarily result in the law governing the main contract to also govern the assignment.7 Some jurisdictions do not appear to apply any specific national law to the assignment of the arbitration agreement8 whereas others effectively require the cumulative application of the national laws of several jurisdictions.9 Howsoever these differing approaches may be, to find the (practical) way forward, it helps to consider the purpose which (most) approaches seek to achieve, namely to ensure that the arbitration agreement is not assigned without the benefits under the main contract. The raison d’être being that arbitral proceedings based on the assigned arbitration agreement but without the benefits under the main contract are considered as being of little purpose10 rendering the arbitration agreement inoperative11 or void12 and thus depriving an arbitral tribunal of the basis of its jurisdiction.13 One widely adopted solution to achieving such purpose therefore is the ‘assumption’ that the arbitration agreement is automatically ‘transferred’ to the third party together with the benefits under the main contract:14 the right to arbitrate constituting a

5. Matthias Scherer, Three Recent Decisions of the Swiss Federal Tribunal Regarding Assignments and Transfers of Arbitration Agreements, 20 ASA Bulletin 1 (March 2002), at p. 113. 6. Matthias Scherer, Three Recent Decisions of the Swiss Federal Tribunal Regarding Assignments and Transfers of Arbitration Agreements, 20 ASA Bulletin 1 (March 2002), at p. 114. 7. Matthias Scherer, Three Recent Decisions of the Swiss Federal Tribunal Regarding Assignments and Transfers of Arbitration Agreements, 20 ASA Bulletin 1 (March 2002), at p. 113 with reference to a decision of the Swiss Federal Tribunal of 7 Aug., 2001, published in ASA Bulletin 1 (March 2002), at p. 88. 8. This appears to be the position in France: Jean-Louis Delvolvé/Gerald H. Pointon/Jean Rouche, French Arbitration Law and Practice: A Dynamic Civil Law Approach to International Arbitration, 2nd ed. (2009), at para. 135 suggest that since the existence, effectiveness and validity of arbitration agreements ‘is not subject to any national law and which is to be examined only in the context of the will and intentions of the parties, subject to mandatory rules of French law and international public policy,’ no grounds would presumably exist preventing the application of these principles to the assignment of an arbitration agreement. Accordingly, an arbitral tribunal would not be required to determine which law applies to the assignment of an arbitration agreement but merely the ‘validity and effect of the assignment on the basis of “the will of the contracting parties”’ (Jean-Louis Delvolvé/Gerald H. Pointon/Jean Rouche, French Arbitration Law and Practice: A Dynamic Civil Law Approach to International Arbitration, 2nd ed. (2009), at para. 137). 9. Gary B. Born, International Commercial Arbitration, 3rd ed. (2016), at p. 1471 fn. 353 with reference to Harris Adacom Corp. v. Perkom Sdn Bhd [1994] 3 MLJ 504, 507. 10. Jean-Louis Delvolvé/Gerald H. Pointon/Jean Rouche, French Arbitration Law and Practice: A Dynamic Civil Law Approach to International Arbitration, 2nd ed. (2009), at para. 133. 11. Jean-François Poudret/Sebastien Besson, Comparative Law of International Arbitration, (2007), at para. 285, p. 248. 12. Jean-Louis Delvolvé/Gerald H. Pointon/Jean Rouche, French Arbitration Law and Practice: A Dynamic Civil Law Approach to International Arbitration, 2nd ed. (2009), at para. 133. 13. Jean-François Poudret/Sebastien Besson, Comparative Law of International Arbitration, (2007), at para. 285, p. 248. 14. See overview in Gary B. Born, International Commercial Arbitration, 3rd ed. (2016), at pp. 1466 et seq.; Julian D. M. Lew/Loukas A. Mistelis/Stefan M. Kroell, Comparative International Commercial Arbitration, (2003), at para. 7-52; Noboru Kashiwagi, Drafting Arbitration Award and Asking Parties to Review, JCAA Newsletter, No. 34 (October 2015), at p. 8.

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(procedural) ancillary or incidental right.15 It would then follow that the law applicable to the arbitration agreement – even though still determining the validity of the arbitration agreement itself – in the event of an assignment, would not govern the assignment of the arbitration agreement but the law that applies to the assignment of the benefit under the main contract, would. This approach logically requires however that an exception be made to the doctrine of separability.16 Such exception can be justified if the origins of the doctrine are considered which is that separability, having its roots in the divergent functions of the arbitration agreement and the main contract, ‘is a device for ensuring both the sustainability of [the] arbitration clause where this does no harm to the parties’ agreement, what is sensible for them and public policy’.17 An arbitration agreement constitutes part of the economic value of the assigned benefit under the main contract18 making a particular form of dispute resolution available for a specific contractual relationship.19 Also, arbitration agreements would be of considerable less value if the assignor could escape such agreement by merely assigning the benefit under the main contract to a third party.20 It is therefore sensible and practical that an assignment under the main contract carries with it the arbitration agreement21 – unless parties have agreed otherwise. As for the second, where English law applies to an assignment effected in the course of an arbitration, the third party (i.e., the assignee), on giving notice to the other party to the main contract within a reasonable time of the assignment and submitting to the arbitral tribunal’s jurisdiction, is able to join the ongoing arbitral proceedings as a party in addition to the assignor – who remains a party to the arbitration.22 By way of contrast, in arbitrations seated in Germany, it appears possible – under certain conditions – for the assignee to take the assignor’s place in the arbitral proceedings23 or

15. See, e.g., Matthias Scherer, Three Recent Decisions of the Swiss Federal Tribunal Regarding Assignments and Transfers of Arbitration Agreements, 20 ASA Bulletin 1 (March 2002), at p. 112 with reference to a decision of the Swiss Federal Tribunal of 7 Aug. 2001, published in ASA Bulletin 1 (March 2002), at p. 88; see also Jean-François Poudret/Sebastien Besson, Comparative Law of International Arbitration, (2007), at para. 284, p. 246. 16. See, e.g., Jean-François Poudret/Sebastien Besson, Comparative Law of International Arbitration, (2007), at para. 285, p. 247. 17. Adam Samuel, Separability of Arbitration Clauses – Some Awkward Questions About the Law on Contracts, Conflict of Law and the Administration of Justice, available at: https://www.biicl.org /files/4243_separabi_updated.doc (last visited on 23 Sept. 2017), at p. 16. 18. Julian D. M. Lew/Loukas A. Mistelis/Stefan M. Kroell, Comparative International Commercial Arbitration, (2003), at para. 7-53. 19. Gary B. Born, International Commercial Arbitration, 3rd ed. (2016), at p. 1469. 20. Julian D. M. Lew/Loukas A. Mistelis/Stefan M. Kroell, Comparative International Commercial Arbitration, (2003), at para. 7-53. 21. Adam Samuel, Separability of Arbitration Clauses – Some Awkward Questions About the Law on Contracts, Conflict of Law and the Administration of Justice, available at: https://www.biicl.org /files/4243_separabi_updated.doc (last visited on 23 Sept. 2017), at p. 16. 22. Baytur SA v. Finagro Holding SA [1992] 1 QB 610. 23. German: Parteiwechsel. This would however require an agreement between the assignor and the assignee and consent by all parties to the arbitration as well as by the arbitral tribunal would be preferable: see Stefan Ruetzel/Gerhard Wegen/Stephan Wilske, Commercial Dispute Resolution – Litigation, Arbitration, Mediation, 2nd ed. (2016), at p. 136.

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for the assignor to continue with the arbitration on behalf of the assignee.24 A situation similar to the latter has however caused difficulties in a Swiss seated arbitration: in the case of Transkei v. F.J. Berger and Steyr-Daimler-Puch AG, Swiss Federal Tribunal Decision of 13 October 1992,25 a party which had assigned its claims to a third party was required under the terms of the assignment agreement, to arbitrate the claims it had assigned, so had on this basis, commenced arbitration against the debtor. The debtor did not challenge the validity of the assignment but the assignor’s standing in the arbitral proceedings asserting that as a result of the assignment, the assignor had lost both the right to invoke the arbitration agreement as well as its right to the substantive claim. The arbitral tribunal’s decision rejecting the debtor’s contentions was subsequently confirmed by the Swiss Federal Tribunal. Both fora effectively relied on the terms of the assignment finding, in addition, that the assignee had reassigned the claim to the assignor. The latter finding appears to have been necessary since, as pointed out above, even if the assignor as a signatory to the arbitration agreement could still invoke the same, arbitral proceedings without the benefits under the main contract would usually be considered lacking a purpose rendering the arbitration agreement inoperative or void. Again it can be seen that whilst not necessarily logical, arbitral tribunals and state courts do seek to find practical solutions to issues of assignment. As for the third, it appears that in the ongoing discussions concerning third party funding and the resulting changes in the legal landscape in some jurisdictions, issues regarding assignments pre- and mid-arbitration may have to be revisited.

§2.03

DETERMINING THE LAW APPLICABLE TO THE ‘TRANSFER’: THE IMPORTANCE OF QUALIFICATION

Central to determining the applicable law is the question as to what the legal nature of the ‘transfer’ is. The determination of the legal nature of the ‘transfer’ is called ‘qualification’ or ‘characterisation’. The legal term adopted by the parties when referring to the ‘transfer’ as, for example, constituting an assignment, may not always assist. The recent decision of the English High Court in A v. B [2016] EWHC 3003 (Comm) illustrates how meticulous an arbitral tribunal’s investigation into the legal nature of a ‘transfer’ – and by extension, the law applicable to such ‘transfer’ – needs to be. In A v. B [2016] EWHC 3003 (Comm), Sir Jeremy Cooke sitting as a Judge of the English High Court had to determine whether to set aside a partial award in which the arbitral tribunal had first allowed the original claimant P (an Indian company) to be substituted by another Indian company (i.e., F) and thereafter, awarded sums of money to F.

24. German: gewillkuerte Prozessstandschaft; see, e.g., OLG München, Beschluss v. 08.11.2016 – 34 Sch 11/15. 25. 11 ASA Bulletin (1993), at p. 68; see also Matthias Scherer, Three Recent Decisions of the Swiss Federal Tribunal Regarding Assignments and Transfers of Arbitration Agreements, 20 ASA Bulletin 1 (March 2002), at p. 117.

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In the course of the arbitration, F had applied to the arbitral tribunal to be substituted as the claimant asserting that following certain orders issued by the Bombay High Court, P, F and a further company had merged into F under a so-called Scheme of Amalgamation. It was not in dispute that on the effective date (i.e., 7 February 2015) pursuant to the Bombay High Court’s orders in accordance with Sections 391–394 of the Indian Companies Act:26 – the entirety of P’s assets would ‘without any further act, instrument or deed, be and stand transferred to and vested in or be deemed to have been and stand transferred to and vested in [F] as a going concern’; – ‘all liabilities of [P] [would] similarly [be] devolved upon [F] upon the coming into effect of [the Scheme of Amalgamation]’; – simultaneously, ‘all suits, actions and legal proceedings by or against [P] pending and/or arising on or before the effective date’ were to be ‘continued and/or enforced by or against [F] on and after the effective date, as effectually and in the same manner and to the same extent as if the same had been pending and/or arising by or against [F]’; – P was dissolved without being wound up. According to the Bombay High Court’s orders, F was to thereafter give notice to any debtor either in its own name or on behalf of the dissolved P. It was also not in dispute that English law applied to the main contract in respect of which P had initiated arbitral proceedings against appellant E (i.e., the respondents in the arbitration). There was further no controversy that ‘the law governing the right to which the assignment relates determines its assignability, the relationship between the assignee and the debtor, the conditions under which the assignment can be invoked against the debtor and any question whether the debtor’s obligation have been discharged’: see Rule 135(b) of Dicey’s Conflict of Laws.27 E asserted that ‘under English law the transfer, if any, of rights to sue in arbitration necessarily was by way of assignment from P to F’.28 E concluded that since the requirements for a legal assignment as set out in the Law of Property Act, 1925, had not been complied with, the assignment from P to F constituted an equitable assignment. Since under English law, an equitable assignee can only apply to join an arbitration which is already afoot between the assignor and the debtor and cannot merely replace the assignor, E asserted further that as no arbitration could exist which has only one party (in this case, solely the respondents), the arbitration between P and E had automatically lapsed at that precise moment when the original claimant P ceased to exist. Thus, by the time F had given notice to E, there was no longer any arbitration it could join. However, Rule 135(b) of Dicey’s Conflict of Laws only applies if ‘the transfer of the rights of suit in arbitration’29 from P to F constituted an equitable assignment. If not, 26. 27. 28. 29.

A v. B [2016] EWHC 3003 (Comm), at para. 10. As quoted in A v. B [2016] EWHC 3003 (Comm), at para. 20. A v. B [2016] EWHC 3003 (Comm), at para. 14. A v. B [2016] EWHC 3003 (Comm), at para. 17.

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the conflict of laws rule as stated in Rule 135(b) of Dicey’s Conflict of Laws would not apply and English law would not govern ‘the transfer of the rights of suit in arbitration’30 from P to F. It follows that the key question for determination was whether ‘the transfer of the rights of suit in arbitration’31 from P to F was, in fact, in the nature of an equitable assignment. E submitted that the transfer would necessarily have to be characterised as equitable assignment if it could not be qualified as ‘a true case of “universal succession”’.32 But could the transfer between P and F which was validly carried out under Indian law, be qualified as universal succession? At first glance, it seems the answer would have been in the negative. This is simply because ‘the concept of universal succession [is] […] a concept firmly entrenched in continental systems of law and in Scotland’.33 Parker LJ defined universal succession in Metliss v. National Bank of Greece and Athens SA [1957] 2 QB 33, at page 51 by stating that ‘[u]nder this conception a new person or entity continues the personality of another. All the rights and liabilities of the former are automatically transferred to and vested in the latter. The new person or entity succeeds “per universitatem” and not by a series of particular acts to each item of property’ (emphasis added). It was common ground in A v. B [2016] EWHC 3003 (Comm) that the concept of universal succession as defined by Parker LJ, is not known to India or to England both of which are common law jurisdictions. So how then did Cooke J conclude that the ‘the transfer of the rights of suit in arbitration’34 from P to F was nonetheless to be characterised as universal succession? He did so by choosing substance over form: whilst recognising that under the Scheme of Amalgamation, P’s rights and liabilities had not automatically been transferred to F ‘as a matter of general law or statute’, ‘[n]onetheless, the effect, once the [Bombay High] Court had made the [o]rder[s] and the effective date had passed, was identical[:] F succeeded to the rights and liabilities of P per universitatem and not by a series of particular acts to each item of property, even if F did not, as a matter of Indian Law, continue the personality of P. The substance of the Scheme [of Amalgamation] therefore had the primary effect of universal succession, properly so called. […] the transfer of the whole Undertaking of P to F cannot be described as an equitable assignment or characterised in that way. It was much more than that, as the Indian Law evidence showed. It would be wrong to classify it by reference to that English law concept […]’.35 Hence, the fact that the mechanism of the Scheme of Amalgamation differed from that of universal succession in the civil law sense did not justify the former’s qualification as an equitable assignment. Consequently, it was held that since the Scheme of Amalgamation could not be qualified as an equitable assignment in terms of English law, the requirement under English law to give notice in respect of an equitable assignment did not need to be fulfilled. 30. 31. 32. 33. 34. 35.

A v. B [2016] EWHC 3003 (Comm), at para. 17. A v. B [2016] EWHC 3003 (Comm), at para. 17. A v. B [2016] EWHC 3003 (Comm), at para. 17. A v. B [2016] EWHC 3003 (Comm), at para. 22. A v. B [2016] EWHC 3003 (Comm), at para. 17. A v. B [2016] EWHC 3003 (Comm), at para. 44.

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A v. B [2016] EWHC 3003 (Comm) thus emphasises the importance of qualification as part of the process an arbitral tribunal has to follow when determining the applicable law: since conflict of law rules only apply to specific legal instruments – as Rule 135(b) of Dicey’s Conflict of Laws only applies to assignments – it is necessary that arbitral tribunals determine as a first step how a foreign legal instrument is to be qualified. In this respect, it is clear that – at least in English seated arbitrations – arbitral tribunals must look less to the form of a foreign legal instrument. Rather, arbitral tribunals must closely examine the effect of a foreign legal instrument and whether such effect is the same as that of the specific legal instrument which triggers the application of a particular conflict of laws rule – in this instance, the effect of an equitable assignment which would have triggered the application of Rule 135(b) of Dicey’s Conflict of Laws. Further, because the conflict of laws rule is that of the lex fori,36 the comparison of the effect of the specific legal instrument triggering the application of a particular conflict of laws rule and the effect of a foreign legal instrument, is to be made from the perspective of the lex fori. In other words, Cooke J found in A v. B [2016] EWHC 3003 (Comm) that the effect of the Scheme of Amalgamation being a legal instrument governed by Indian law was not the same as that of an equitable assignment under English law. Consequently, Rule 135(b) of Dicey’s Conflict of Laws being the conflict of laws rule applicable to assignments was inapplicable.

§2.04

THE REQUIREMENT TO GIVE NOTICE OF AN ASSIGNMENT MID-ARBITRATION

As is clear from the decision in A v. B [2016] EWHC 3003 (Comm), the requirement to give notice under English law may have significant implications on the arbitral process. It is against this background that the decision of the Irish High Court in Stewart v. McKenna [2014] IEHC 301 may stand out. In Stewart v. McKenna [2014] IEHC 301, a neighbour of Mr and Mrs McKenna commenced proceedings against the same and Kapada Ltd t/a Homebuilder, a company that had carried out building works on Mr and Mrs McKenna’s house (‘Kapada’), alleging that Kapada had in the course of such works, damaged the neighbour’s property. Mr and Mrs McKenna were insured by Allianz plc (‘Allianz’) under a standard household policy with Kapada also being insured by Allianz under a standard building contractor’s policy. On 26 March 2010, Allianz informed Mr and Mrs McKenna as well as Kapada which was by then in liquidation, that neither was entitled to an indemnity from Allianz in respect of the neighbour’s claim. By letter dated 13 October 2010 to the solicitors for Allianz, Orpen Franks, the solicitors acting for Mr and Mrs McKenna and Kapada, stated that ‘[w]e are now putting you on notice that if insurers maintain their position as set out in their letter of the 26th March the Liquidator requires the issue of indemnity to be arbitrated upon. Please let us hear from you by return in order that the necessary arrangements may be made to agree to the

36. In this case English law as the award was challenged in the English courts.

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appointment of an arbitrator and to proceed with the arbitration as soon as speedily as possible.’37 On 23 March 2011, Kapada’s liquidator assigned to Mr and Mrs McKenna on Kapada’s behalf the benefit of Kapada’s insurance policy and Kapada’s entitlement to receiving from Allianz any sums payable under the said policy. Amongst the issues before the court was the question as to whether an assignment must be notified to be effective. The court found that ‘notice to Allianz, although both prudent and a practical necessity, was not legally required to complete the McKennas’ title’.38 This is because, on the court’s analysis, the relevant case law merely reflects an assignee’s practical interest and need in giving notice of the assignment which lies in the risk that unless and until the debtor is given written notice, the debtor is entitled to make payment to the assignor-creditor thereby discharging his debt. Further, the court considered that if no specific form has been agreed (in this case, in Kapada’s insurance policy) or prescribed by statute, the fact of notice would be of greater importance than the form such notice takes. Whilst typically, notice would be given in a letter, the court found that ‘it is difficult to see how Allianz could reasonably contend on the facts of this case that it is not now on notice of the assignment’.39 The court thus concluded that ‘the assignment of 23rd March 2011 was a valid assignment on its terms of Allianz Policy No. DN CPD 3544665, that Allianz is on notice of same, and that Allianz, if required to make a payment under that policy, is now entitled, and would be bound in the event of payment thereunder, to make such payment to Mr. and Mrs. McKenna’.40 The court was further of the view that Orpen Franks’ referral to arbitration by its 13 October 2010 letter was valid and timely notwithstanding that this referral was only to proceed if Allianz continued to repudiate liability. As arbitral proceedings had already been commenced prior to the assignment of the benefit of Kapada’s insurance policy to Mr and Mrs McKenna, the question then arose as to whether the assignees would be able to become a party to this arbitration. The court answered this question in the affirmative. Quoting Lloyd LJ’s statement in Baytur S.A. v. Finagro Holding S.A. [1991] 4 All E.R. 129, at 133 that ‘[a]n assignee does not automatically become party to a pending arbitration on the assignment taking effect in equity. Something more is required. He must at least give notice to the other side and submit to the jurisdiction of the arbitrator’, the court found ‘[i]t seems implicit from a letter of Orpen Franks to the solicitors for Allianz on 23rd May, 2011, enquiring on behalf of the McKennas as to whether Allianz “are obliged to provide indemnity to arbitration” that, either via that letter or previously, a form of notice, as contemplated by Baytur, had and has been given’.41 However, since an arbitrator had yet to be

37. 38. 39. 40. 41.

Stewart v. McKenna [2014] IEHC 301, at para. 18. Stewart v. McKenna [2014] IEHC 301, at para. 21. Stewart v. McKenna [2014] IEHC 301, at para. 11. Stewart v. McKenna [2014] IEHC 301, at para. 11. Stewart v. McKenna [2014] IEHC 301, at para. 22.

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appointed, any submission by Mr and Mrs McKenna to such arbitrator had not yet been possible. Thus, it appears from the decision in Stewart v. McKenna [2014] IEHC 301 that the threshold for the notice requirement may not be high.

§2.05

CONSENT AS A PROPOSED REQUIREMENT FOR AN ASSIGNMENT MID-ARBITRATION

Whilst it is still sufficient for an assignee to give notice of the assignment within reasonable time to the other party to the main contract and to submit to the arbitral tribunal’s jurisdiction by giving notice of the assignment to the arbitral tribunal, Lloyd LJ contemplated in Baytur SA v. Finagro Holding SA42 whether ‘[b]ecause of the nature of arbitration as a consensual method of settling disputes, it might be that the consent of the arbitrator and the other party to the arbitration was required’. He did so because no assignment can transfer the burden of a contract. That being the case, there is a risk that a successful party in the arbitration even if it is able to obtain an award in respect of its counterclaim and/or is awarded its costs, may find such award of little value if it is issued against an impecunious assignor.43 However, it has been opined that since an assignee has to take the benefit under the main contract assigned to it ‘subject to all rights of set-off and other defences which were available against the assignor’, this would presumably also include any counterclaim the other party to the main contract may have and so limiting the scope for potential injustice.44 Further, it may be less oppressive than requiring consent, to make appropriate orders for security for costs. Also, requiring the opposing party to expressly consent to the assignee’s participation in the arbitration may cause difficulties in cases where the opposing party chooses not to participate in the arbitration or, where the assignor has since ceased to exist leaving only the assignee as the entity that could be held liable for costs.45 The latter situation might require an exception to be made to the principle that the burden of a contract cannot be assigned by the assignor to the assignee.46

§2.06

CONCLUSION

Notwithstanding the difference in approaches taken and even though some of these require exceptions to be made to established principles in international arbitration, it is

42. [1991] 4 All ER 129, at 138. 43. See also Andrew Tweeddale/Karen Tweeddale, Arbitration of Commercial Disputes, (2005), at paras 19.35 et seq.; Sundra Rajoo, Law, Practice and Procedure of Arbitration, (2003), at p. 103. 44. Sundra Rajoo, Law, Practice and Procedure of Arbitration, (2003), at p. 104. 45. Andrew Tweeddale/Karen Tweeddale, Arbitration of Commercial Disputes, (2005), at para. 19.35. 46. Andrew Tweeddale/Karen Tweeddale, Arbitration of Commercial Disputes, (2005), at para. 19.36 with reference to Lloyd LJ’s observation in Baytur SA v. Finagro Holding SA [1991] 4 All ER 129, at 138.

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clear from the above that arbitral tribunals and state courts have sought to adopt practical solutions to issues arising from ‘assignments’ mid-arbitration. It can be assumed that they will continue to do so also when faced with new challenges which, for example, the changing (legal) landscape of third party funding may pose.

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CHAPTER 3

Exploring the Interpretative and Jurisdictional Consequences of Including an Investment Chapter in a Free Trade Agreement Christopher Thomas QC, Sarah Lim & Emily Choo*

…NAFTA is a complex document, arguably the most complex free trade agreement currently in existence. Virtually every Chapter contains its own articles on definitions. Annexes, beginning with Annex 201.1 attached to Chapter 2, are used to create further definitions, or may contain their own definitions applicable to those annexes alone. Some Chapters, such as Chapter 15 on Competition, stand virtually alone, while others, such as Chapter 3 on Goods, contain general rules and principles which run through much of the treaty text. There is a separate Chapter 21 dealing in a general way with exceptions, such as in Article 2101 which relates to the incorporation, to a certain extent, of provisions of Article XX of the GATT, in respect of most of NAFTA, and Article 2106 excepting cultural industries for Canada alone. Additional exceptions are to be found throughout the NAFTA. Five major Schedules list different types of non-conforming measures maintained by each of the Parties. State, provincial and local government measures, in several important areas, have not as yet actually been subjected to the disciplines of NAFTA, due to failure to agree within two years from entry into force of NAFTA as originally contemplated. Thus, the specific provisions of a particular Chapter need to be read, not just in relation to each other, but also in the context of the entire structure of NAFTA if

* The authors wish to thank Lucy Reed, Jansen Calamita, Mark Feldman, Patrick Foy QC and Cameron Mowatt for their thoughtful comments. All errors and omissions remain the authors’.

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Christopher Thomas QC, Sarah Lim & Emily Choo a treaty interpreter is to ascertain and understand the real shape and content of the bargain actually struck by the three sovereign Parties.1

§3.01

INTRODUCTION

This description of the North American Free Trade Agreement (‘NAFTA’) in ADF Group Inc. v. United States of America summarizes the complexities of the NAFTA Parties’ decision to insert an investment chapter containing a specialized dispute settlement procedure of limited jurisdiction within a broader free trade agreement. Among his many arbitral experiences, Michael Pryles has participated in numerous investment treaty cases, including NAFTA cases. Accordingly, the authors thought it appropriate to explore the interpretative and jurisdictional consequences of including an investment chapter in a free trade agreement (‘FTA’). For many years, preferential trade agreements did not address the promotion and protection of investments. This remained in the separate province of bilateral investment agreements. While some states negotiated treaties in both fields, others who were active on the trade front did not pursue investment agreements with the same degree of interest, if at all. The NAFTA was the first FTA to include an investment chapter enforceable by investor-State arbitration.2 Tribunals created under NAFTA’s investment chapter, Chapter Eleven have jurisdiction only to determine breaches of obligations located in one section of that chapter and in two articles situated in another chapter of the Agreement. Yet, when doing so, they are to apply the Agreement and such rules of international law as may be applicable. Issues pertaining to the tribunals’ role inevitably follow from the Agreement’s breadth of coverage. This is due to the fact that claims are sometimes brought by an investor who simultaneously acts as an importer or exporter of goods or as a cross-border provider of services, and those activities are regulated by other chapters of the Agreement.3 Consequently, claims sometimes pose questions as to the precise inter-relationship between different chapters, and the issues can be particularly 1. ADF Group Inc. v. United States of America v. USA, ICSID Case No. ARB(AF)/00/1, Award (9 Jan. 2003) (‘ADF’), paras 148-149, footnote references omitted. 2. The Canada-US Free Trade Agreement, concluded in 1987, for example, included a somewhat watered-down investment chapter and did not include investor-State arbitration because Canada, unlike the USA, had not pursued bilateral investment treaty negotiations and refused to agree to investor-State arbitration. Its attitude shifted in the following years when it concluded investment agreements with Argentina and the Soviet Union. By the time of the NAFTA negotiations, Canada was willing to go along with the US demand for the inclusion of investor-State arbitration in NAFTA’s Chapter Eleven. 3. As discussed infra, S.D. Myers, Inc. v. Canada, UNCITRAL (‘S.D. Myers’) concerned an investment made in Canada aimed at soliciting the purchase and sale of cross-border hazardous waste disposal services. Another case, Pope & Talbot Inc. v. Canada, UNCITRAL (‘Pope & Talbot’) involved measures taken by Canada in furtherance of the settlement of a trade dispute with the USA over the alleged subsidization of softwood lumber exports. Canfor Corporation v. USA and Terminal Forest Products Ltd. v. USA, UNCITRAL (‘Canfor’) involved challenges by Canadian lumber companies against the conduct of a US anti-dumping and countervailing duty case as well as US legislation that allowed petitioners in such cases to receive the payment of duties levied on their foreign competitors in such proceedings. The Canadian Cattlemen for Fair Trade v. USA

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acute given that a tribunal derives its existence and jurisdiction to determine breach from only one chapter. A tribunal can also be confronted by exclusionary language contained in chapters that fall outside of its subject-matter jurisdiction; in order to ascertain the extent of its jurisdiction, it is necessary for it to interpret such provisions.4 This is not a small matter. In principle, all disputes arising under NAFTA, including investment disputes, can be taken to five-person State-to-State Panel proceedings under NAFTA’s Chapter Twenty.5 Such Panels have plenary jurisdiction to interpret and apply the whole of NAFTA. Surprisingly however, those Panels have played a very small role in interpreting the Agreement:6 there have been only three State-to-State disputes7 in NAFTA’s twenty-three year history.8 In contrast, Chapter Eleven has been invoked repeatedly by investors. As of the date of this writing, some thirty-nine NAFTA claims have been filed against Canada, seventeen against the United States (US), and sixteen against Mexico. Of course, not all notices of claim result in a tribunal’s establishment and quite a few have been abandoned early on. But some thirty-six arbitrations have proceeded to a final award. The significantly larger number of investor-State cases as compared to State-toState cases has led to an interesting and perhaps unanticipated phenomenon: InvestorState arbitral tribunals of limited jurisdiction, rather than Chapter Twenty Panels of plenary jurisdiction, have become the principal interpreters of the NAFTA. This contribution begins by describing the NAFTA’s architecture, including Chapter Eleven and the necessary qualifications made to it to situate it within an FTA. It then elaborates on various mechanisms instituted by the NAFTA Parties which are

4. 5.

6. 7.

8.

involved a Chapter Eleven claim regarding a phytosanitary measure taken by the USA to halt exports of Canadian cattle after an outbreak of ‘mad cow’ disease in Alberta. This occurred in Canfor (supra n. 3), Decision on Preliminary Question (6 Jun. 2006), when the tribunal had to consider Chapter 19’s exclusion from dispute settlement procedures situated outside of that chapter. There are a few exceptions to a Panel’s plenary jurisdiction. Disputes over the administration or enforcement of a Party’s antidumping and countervailing duty law are to be decided through a special binational panel process under Chapter 19 of the NAFTA and according to Art. 1901(3), except for Art. 2203 Entry into Force, no provision of any other NAFTA Chapter shall be construed as imposing obligations on a Party with respect to the Party’s antidumping law or countervailing duty law. See Canfor, supra n. 4, para. 273: ‘… the inescapable conclusion must be that the exclusionary language of Article 1901(3), in the absence of an express exception to the contrary, encompasses all obligations stemming from Chapter Eleven, including those related to dispute settlement.’ The term ‘panel’ is derived from GATT dispute settlement lexicon; GATT was the trade regime in force at the time that the Agreement was being negotiated. Re Tariffs Applied by Canada to Certain U.S.-Origin Agricultural Products (USA/Canada), (2 Dec. 1996), CDA-95-2008-01 (Ch. 20 Panel), In the Matter of the US Safeguard Action taken in respect of Broomcorn Brooms from Mexico (Mexico/USA), (30 Jan. 1998), USA-97-2008-01 (Ch. 20 Panel), and Re Cross-Border Trucking Services (Mexico/USA), (6 Feb. 2001), USA-MEX-98-2008-01 (Ch. 20 Panel). The WTO is a different story; at the time of this writing, there have been some thirty-five WTO disputes pitting one or two NAFTA Parties against another. Some of these disputes involved WTO obligations that would not fall within a NAFTA Chapter Twenty panel’s jurisdiction. This is because not every trade dispute that arises between the NAFTA Parties can be taken to Chapter Twenty. Only those that could fall under either agreement are subject to the NAFTA’s permissive choice of forum rule. See Art. 2005, GATT Dispute Settlement. Thus, if a dispute is regulated by a WTO agreement or provision that has no NAFTA analogue, it must be taken to the WTO.

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intended to guide Chapter Eleven tribunals. Finally, it will discuss three Chapter Eleven cases which presented some of the interpretative and jurisdictional complications in concrete terms.

§3.02

[A]

AN OVERVIEW OF THE INVESTMENT CHAPTER AND ITS PLACE IN THE FTA The Substantive Obligations

Chapter Eleven is one of twenty-two chapters of the NAFTA. It follows certain drafting conventions used throughout the Agreement. Section A contains the Parties’ obligations in relation to investors and/or their investments, Section B sets out the investorState dispute provisions and Section C contains certain miscellaneous provisions, such as definitions, necessary to give full effect to the chapter. Like many other chapters, the chapter begins with a ‘scope and coverage’ provision that identifies the chapter’s subject matter and the types of measures with which the chapter is concerned.9 Article 1101 states that the chapter applies to ‘measures adopted or maintained by a Party’10 where they relate to either ‘investors of another Party’,11 or the ‘investments’ of such investors in the territory of a Party,12 or to ‘all investments’ in relation to a breach of two articles with respect to Article 1106 (Performance Requirements) and Article 1114 (Environmental Measures).13 An investor ‘means a Party or state enterprise thereof, or a national or an enterprise of such Party, that seeks to make, is making or has made an investment’.14 The term ‘investment’ in turn is defined fairly broadly (though not as broadly as the ‘asset-based’ illustrative definitions contained in many BITs), but excludes certain things such as claims to monies and short-term debt.15 These and other chapter-specific definitions of key terms are set out in Section C. In Section A, unlike many BITs, the drafters clearly distinguished between obligations owed to an ‘investor of another Party’ and obligations owed to ‘investments of an investor or another Party’. This distinction is explicitly made in the substantive obligations which can be summarised as follows: National Treatment (Article 1102): Each Party shall accord to investors of another Party (and to investments of investors of another Party) treatment no less favourable than that it accords, in like circumstances, to its own investors (and to investments of its own investors) with respect to the establishment, acquisition,

9. Chapters Three, National Treatment and Market Access for Goods, Six, Energy and Basic Petrochemicals, Seven, Agriculture and Sanitary and Phytosanitary Measures, Nine, StandardsRelated Measures, Ten, Government Procurement, Twelve, Cross-Border Trade in Services, Thirteen, Telecommunications, and Fourteen, Financial Services, all contain similar provisions. 10. NAFTA, Art. 1101, Scope and Coverage, para. (1). 11. NAFTA, Art. 1101(1)(a). 12. NAFTA, Art. 1101(1)(b). 13. NAFTA, Art. 1101(1)(c). 14. NAFTA, Art. 1139 (investor of a Party). 15. NAFTA, Art. 1139 (investment).

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expansion, management, conduct, operation, and sale or other disposition of investments.16 Most-Favored-Nation Treatment (Article 1103): Each Party shall accord to investors of another Party (and to investments of investors of another Party) treatment no less favourable than it accords, in like circumstances, to investors (and to investments of investors) of any other Party or of a non-Party with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.17 Standard of Treatment (Article 1104): Each Party shall accord to investors of another Party and to investments of investors of another Party the better of the treatment required by Articles 1102 and 1103. Minimum Standard of Treatment (Article 1105): Each Party shall accord to investments of another Party treatment in accordance with the customary international law minimum standard of treatment, including fair and equitable treatment and full protection and security.18 It adds that without prejudice to the foregoing obligations, and notwithstanding a subparagraph of Article 1108 dealing with reservations and exceptions, each Party shall accord to investors of another Party, and to investments of investors of another Party, non-discriminatory treatment with respect to measures it adopts or maintains relating to losses suffered by investments in its territory owing to armed conflict or civil strife.19 Performance Requirements (Article 1106): No Party may impose certain types of listed performance requirements. However, a Party may impose requirements which are not arbitrary or unjustifiable or constitute a disguised restriction on international trade or investment, where it is necessary to secure compliance with laws and regulations that are not inconsistent with the NAFTA, to protect human, animal or plant life, or for the conservation of living or non-living exhaustible natural resources.20 Senior Management and Boards of Directors (Article 1107): No Party may impose nationality requirements for senior management positions in an enterprise. However, it may impose nationality or residency requirements in relation to a majority of an enterprise’s board of directors or any committee thereof, provided that that does not materially impair the investor’s ability to exercise control over its investment.21 Transfers (Article 1109): A Party shall also permit free transfers relating to an investment of an investor (subject to certain exceptions such as the equitable, non-discriminatory and good faith application of its laws relating to, e.g., the protection of the rights of creditors or ensuring the satisfaction of judgments in adjudicatory proceedings).22 Expropriation and Compensation (Article 1110): No Party may directly or indirectly nationalise or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such

16. NAFTA, Art. 1102, National Treatment. 17. NAFTA, Art. 1103, Most-Favored-Nation Treatment. 18. NAFTA, Art. 1105, Minimum Standard of Treatment, para. (1) read with NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions (31 Jul. 2001) [‘FTC Notes’]. 19. NAFTA, Art. 1105(2). 20. NAFTA, Art. 1106, Performance Requirements. 21. NAFTA, Art. 1107, Senior Management and Boards of Directors. 22. NAFTA, Art. 1109, Transfers.

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an investment except (a) for a public purpose; (b) on a non-discriminatory basis; (c) in accordance with due process of law and the minimum standard of treatment; and (d) on payment of compensation equivalent to the fair market value of the investment immediately before the date of expropriation.23 Special Formalities and Information Requirements (Article 1111): Nothing in the national treatment obligations shall be construed to prevent a Party from adopting or maintaining a measure that prescribes special formalities in connection with the establishment of investments of investors of another Party provided they do not materially impair the protections afforded by a Party to investors of another Party and to their investments. Similarly, nothing in the national treatment and MFN obligations shall prevent a Party from requiring the provision of routine information concerning an investment in its territory solely for informational or statistical purposes and any confidential business information shall be protected from prejudicial disclosure.24

These are the main obligations made subject to the investor-state arbitration mechanism created and regulated by Section B, entitled Settlement of Disputes Between a Party and an Investor of Another Party.25 A tribunal’s subject-matter jurisdiction is fixed by Articles 1116 and 1117. An investor of a Party may, on its behalf or on behalf of an enterprise of another NAFTA Party that it owns or controls directly or indirectly, submit to arbitration a claim that another Party has breached an obligation: (i) under Section A of Chapter Eleven; (ii) under Article 1503(2) to ensure that a state enterprise exercises any governmental authority delegated to it by that Party in a manner that is not inconsistent with that Party’s obligations under Chapter Eleven and Chapter Fourteen (Financial Services); or (iii) under Article 1502(3)(a) to ensure that any monopoly shall exercise any governmental authority delegated to it by a Party in connection with the monopoly good or service in a manner not inconsistent with the Party’s obligations under the NAFTA, and where such monopoly has acted in a manner inconsistent with the Party’s obligations under Section A. The Chapter thus provides the grant of jurisdiction to tribunals to determine breaches of obligations found in its Section A and in two subparagraphs situated in Chapter Fifteen. This is a narrower grant of jurisdiction than that found in many BITs (which permit, e.g., the arbitration of ‘disputes relating to investments’).26

23. NAFTA, Art. 1110, Expropriation and Compensation. 24. NAFTA, Art. 1111, Special Formalities and Information Requirements. 25. NAFTA, Arts 1113, Denial of Benefits, and 1114, Environmental Measures, are also found in s. A and therefore subject to arbitration, but they are formulated more in the nature of permissive rights that can be exercised by a Party in certain circumstances; they are discussed separately below. 26. See, for example, Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. (formerly Compagnie Générale des Eaux) v. Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment (3 Jul. 2002) para. 55: ‘… Read literally, the requirements for arbitral jurisdiction in Article 8 [of the applicable BIT] do not necessitate that the Claimant allege a breach of the BIT itself: it is sufficient that the dispute relate to an investment made under the BIT. This may be

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The investment chapter’s insertion within the larger FTA requires the chapter to be interpreted within that broader context. This materially changes the interpretative exercise for NAFTA tribunals as compared to the task faced by tribunals established under more skeletal and narrowly focused bilateral investment treaties. It led the Parties to provide not only for formal rights of intervention for non-disputing NAFTA Parties and an express reservation of their power to issue binding interpretations of the Agreement, but also to the inclusion in the Agreement of an array of interpretative directions to tribunals as to how to fit the Chapter’s investment obligations into the Agreement’s overall architecture, an issue to which we now turn.

[B]

Chapter-Specific Qualifications of Substantive Obligations and Textual Directives to Tribunals

A key difference between the NAFTA, on the one hand, and other BITs that have formed the basis for many investor-State claims, on the other, is the overall structure of the investment chapter. Having given with one hand the substantive obligations just listed, the NAFTA Parties then took away with the other hand by modifying the obligations’ full effect through a series of devices included in Chapter Eleven and in Chapter Twenty-One, the ‘General Exceptions’ chapter (discussed further in the next section). The most important chapter-specific qualification is Article 1108, Reservations and Exceptions, which sets out reservations and exceptions to particular obligations.27 For example, the Parties realized that they could not accord national and MostFavored-Nation (‘MFN’) treatment across the board because each of them had noncompliant discriminatory national and subnational laws and regulations which, if not protected, would become susceptible to challenge after the treaty’s entry into force. Listing such ‘non-conforming’ measures in each Party’s Schedule allowed them to be maintained in the face of an obligation not to discriminate.28 Since all three Parties are federal states, their Schedules expressly addressed non-conforming measures at the federal level. The Parties also contemplated the subsequent scheduling of subnational measures maintained by their provinces, states and local governments, but this daunting exercise was never completed;29 a wide array of discriminatory subnational measures extant at the time of the Agreement’s conclusion has thus never been reduced to schedule form.

contrasted, for example, with Article 11 of the BIT, which refers to disputes “concerning the interpretation or application of this Agreement,” or with Article 1116 of the NAFTA, which provides that an investor may submit to arbitration under Chapter 11 “a claim that another Party has breached an obligation under” specified provisions of that Chapter.’ 27. NAFTA, Art. 1108, Reservations and Exceptions. 28. The general rule is that non-conforming measures can be maintained so long as they do not become more discriminatory. 29. NAFTA, Art. 1108(2) provides in this respect: ‘Each Party may set out in its Schedule to Annex I, within two years of the date of entry into force of this Agreement, any existing nonconforming measure maintained by a state or province, not including a local government.’

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The inclusion of the reservations and exceptions article, therefore, can be conceived as the negotiators having taken a ‘snapshot’ of the existing forms of discrimination at the federal level in each of the Parties. In essence, it is an agreement between the Parties that no Party is obliged to expose all sectors of its economy to a fully non-discriminatory investment regime. Another much narrower but indeterminate form of potential modification of Chapter Eleven obligations is found in Article 1112 which provides an ‘under-ride’ rule that establishes the investment chapter’s place in the hierarchy of the overall Agreement. Article 1112 states that in the event of any inconsistency between the investment chapter and another NAFTA chapter, the latter ‘shall prevail to the extent of the inconsistency’.30 The reason for this provision’s inclusion was that although in other parts of the Agreement the drafters established rules that delineated the extent to which certain obligations were exposed to dispute settlement,31 they could not anticipate every way in which inconsistency might arise. Hence, Article 1112 acts as a ‘tiebreaker’ in the event that an inconsistency arises between Chapter Eleven and another chapter. To illustrate the point, during a Chapter Eleven arbitration a claimant might request the tribunal to order the respondent to produce documents pertaining to the respondent’s law enforcement activities that are believed by the claimant to be relevant and material to the case. The general approach to deciding this sort of request was set out in Bilcon v. Canada, Procedural Order No. 13, namely, that ‘any refusal to produce documents based on their political or institutional sensitivity requires a balancing process, weighing, on the one hand, the compelling nature of the requested party’s asserted sensitivities and, on the other, the extent to which disclosure would advance the requesting party’s case’.32 However, if a request pertained to the respondent’s law enforcement activities, it might be met with an invocation of Article 2105, Disclosure of 30. NAFTA, Article 1112, Relation to Other Chapters. The tribunal noted in Canfor, supra n. 4 at para. 227: ‘Article 1112(1) appears to constitute a form of an “underride clause”. It seems that the drafters of the NAFTA wished to have a safety-valve for overreaching interpretations of other Chapters of the NAFTA in relation to the investment provisions in Chapter Eleven. In that respect, Article 1112(1) is an important guidance in interpretation of the NAFTA.’ However, it went on to note that it appears that there must be a real inconsistency likely to arise in the course of interpreting the NAFTA in a particular case: ‘The language of Article 1112(1), however, is limited to “any inconsistencies”. That limitation appears to be confined to differences in text, possibly as interpreted, and not to decisions resulting from dispute resolution mechanisms contemplated by those texts.’ (para. 228) 31. Three examples illustrate the point. Chapter Fifteen, Competition Policy, Monopolies and State Enterprises, sets out certain obligations with respect to those subjects, but then states in Art. 1501, Competition Law, that: ‘(3) No Party may have recourse to dispute settlement under this Agreement for any matter arising under this Article.’ Similarly, Chapter Sixteen, Temporary Entry for Business Persons, provides in its Art. 1606, Dispute Settlement, that a Party may not initiate proceedings under the Agreement’s Party-to-Party dispute settlement procedures regarding a refusal to grant temporary entry under the chapter or a particular case arising thereunder unless ‘the matter involves a pattern of practice’ and ‘the businessperson has exhausted the available administrative remedies regarding the particular matter’. Finally, Chapter Nineteen, Review and Dispute Settlement in Antidumping/Countervailing Duty Matters, makes clear that the chapter is intended to be a stand-alone chapter. See discussion on Art. 1901(3) supra n. 5. 32. Bilcon v. Canada, PCA Case No. 2009-04, Procedural Order No. 13 (11 Jul. 2012), para. 22 (‘Bilcon’).

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Information, which states that ‘nothing’ in the Agreement ‘shall be construed to require a Party to furnish or allow access to information the disclosure which would impede law enforcement … ’. Article 1112 could thus provide guidance to resolving a conflict between the claimant’s right to make its case and the respondent’s right to invoke Article 2105 for the stated reasons. Article 1113 creates a different type of power that might also affect the investment chapter’s operation, namely, a ‘denial of benefits’ clause that allows a Party to deny the chapter’s benefits to: (i) an investor of another Party that is an enterprise of that Party; and (ii) investments of such investor if investors of a non-Party own or control the enterprise and the denying Party does not maintain diplomatic relations with that non-Party or has taken measures prohibiting transactions with the non-Party’s enterprises that would be violated or circumvented if benefits of the investment chapter were granted.33 This provision was included to prevent investors of a third Party which was the subject of, for example, a Party’s economic sanctions from circumventing the sanctions by making an investment in that Party through the interposition of an investment incorporated in another NAFTA Party. Finally, Article 1114(1), in what might be described as a tautological nod to the importance of environmental protection, notes that nothing in the chapter ‘shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns’.34 It is followed by a paragraph recognizing that that it is ‘inappropriate to encourage investment by relaxing domestic health, safety or environmental measures’35 and accordingly, a Party should not waive or otherwise derogate from such measures as an encouragement for the establishment, acquisition, expansion or retention in its territory of an investment of an investor, or offer to do so. If a Party considers that another Party has offered such an encouragement, it may request consultations with the other Party and the two shall consult with a view to avoiding any such encouragement.36

[C]

Extra-Chapter Eleven Qualifications of Substantive Obligations and Textual Directives to Tribunals

As noted above, the chapter-specific exceptions and potential modifications of the investment obligations are supplemented by other exceptions situated in Chapter Twenty-One, Exceptions.37 One such exception, Article 2105, Disclosure of Information, has already been noted. The others that might be relevant to a Chapter Eleven proceeding are the following. 33. 34. 35. 36. 37.

NAFTA, Art. 1113, Denial of Benefits. NAFTA, Art. 1114, Environmental Measures, para. (1). [Emphasis added.] Ibid., para. (2). Ibid. NAFTA, Chapter Twenty-One, Exceptions, contains ‘general exceptions’ and exceptions for national security, taxation, balance of payments, disclosure of information, and cultural industries.

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Article 2102, National Security, provides that subject to two exceptions that are not relevant to the present discussion, ‘nothing’ in the Agreement ‘shall be construed’ to require any Party to furnish or allow access to any information the disclosure of which is determined to be contrary to its essential security interests, to prevent any Party from taking any actions that it considers necessary for the protection of its essential security interests (relating to, e.g., the traffic in arms, ammunition and limits of war), or to prevent any Party from taking action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.38 It takes little imagination to conceive of an investment dispute which could arise out of, for example, an acquisition that was quashed on national security grounds and which therefore could give rise to the respondent’s invocation of this exception if a dispute were to arise. Another Chapter Twenty-One exception which can play an important role in investment disputes is Article 2103, Taxation. NAFTA’s negotiators accepted that taxation measures could give rise to investment disputes. For example, it had long been considered that a confiscatory taxation measure could constitute an expropriation at customary international law.39 At the same time, the Finance and Treasury officials of the three NAFTA Parties wished to ensure that their freedom to effectively enforce their taxation laws not be unduly impaired by the investment obligations. The taxation exception was therefore drafted to establish a clear hierarchical relationship between the exception and various chapters of the Agreement, including Chapter Eleven. The article, which is complex, requires careful perusal. Article 2103(1) sets out the general rule that ‘[e]xcept as set out in this Article, nothing in this Agreement shall apply to taxation measures’.40 Thus, the general rule is that the Agreement does not apply to taxation measures unless a provision of Article 2103 explicitly permits it to apply. What Chapter Eleven obligations apply to taxation measures? There are four sets of obligations. The first two, the commonly paired national treatment and MFN treatment obligations, apply in certain circumstances.41 This is unsurprising. In the GATT/WTO world, these two obligations have always applied to taxation measures affecting trade in goods,42 and this was mirrored for Chapter Eleven’s investmentrelated national treatment and MFN treatment obligations. Certain paragraphs of the performance requirements provision are applicable to taxation measures.43 Finally, the

38. This type of national security exception has a long history going at least as far back as 1957 when it was included in GATT as Article XX. 39. See for example The American Law Institute, Restatement of the Law Third, The Foreign Relations Law of the United States, Vol. 2, s. 712, Comment g and Reporter’s Note 7. 40. NAFTA, Art. 2103, Taxation, para. (1). 41. NAFTA, Art. 2103(4)(b) 42. See GATT 1994, Arts I and III. 43. Article 2013(5) clarifies that subject to para. 2 and without prejudice to the rights and obligations of the Parties under para. 3, three paragraphs of Art. 1106, Performance Requirements, shall apply to taxation measures.

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expropriation provision can also apply, reflecting customary international law’s recognition that taxation can amount to confiscatory expropriation. But there are qualifications to the foregoing.44 The provisions governing expropriation claims warrant special note. Article 2103(6) begins by stating that Article 1110 ‘shall apply to taxation measures’ except that no investor may invoke that article as the basis for a claim where it has been determined pursuant to Article 2103(6) that the measure is not an expropriation. Under that paragraph, the would-be claimant must ‘refer the issue of whether the measure is not an expropriation for a determination to the appropriate competent authorities … at the time that it gives notice under Article 1119, Notice of Intent to Submit a Claim to Arbitration’.45 This reserves the possibility that the ‘Competent Authorities’ of the involved Parties can determine that it is not open to the claimant to advance an expropriation claim. (The competent authorities are identified in Annex 2103.6 as certain senior officials from the Department of Finance, the Ministry of Finance and Public Credit, and the Department of the Treasury of Canada, Mexico and the US, respectively.) This means that in a case involving, for example, an American claimant against Mexico, the competent authorities will be the treasury officials of the US and Mexico. Article 2103(6) goes on to state that if the competent authorities ‘do not agree to consider the issue or, having agreed to consider, failed to agree that the measure is not an expropriation within a period of six months of such referral’, the investor may submit its claim to arbitration. In Marvin Roy Feldman Karpa v. Mexico, the claimant employed the Article 2103 process only to find that the Competent Authorities agreed that the key measure complained of did not amount to an expropriation and therefore no claim for expropriation could be advanced in respect of that measure.46 What NAFTA obligations do not apply to taxation measures? As noted, the general rule is that nothing in NAFTA applies to taxation measures unless specified therein. Paragraph 2103(2) immediately clarifies that nothing in the NAFTA ‘shall affect the rights and obligations of any Party under any tax convention’. Like Article 1112, this paragraph goes on to state that in the event of ‘any inconsistency between this [A]greement and any such convention, that [tax] convention shall prevail to the extent of the inconsistency’.47 Notably, the most important Chapter Eleven obligation not specified in Article 2103 to apply to taxation measures is Article 1105, which as discussed above, prescribes certain standards of treatment, like fair and equitable treatment, that must be accorded to investments or investors of another Party. In addition, Articles 1107-1109, 1111 and 1113 are not listed in Article 2103 and therefore do not apply to taxation measures. In sum, sorting out how and when Chapter Eleven obligations will apply to certain governmental measures can in some cases be a challenging task which engages

44. These are listed in various densely worded subparagraphs of Art. 2103. 45. NAFTA, Art. 2103(6). 46. Marvin Roy Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1, Notice of Arbitration (30 Apr. 1999) p. 4 (‘Feldman’). 47. NAFTA, Art. 2103(2).

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not only the investment chapter but also other chapters of the Agreement. It is unsurprising that NAFTA tribunals have occasionally divided when they have sought to ascertain the treaty’s precise meaning in a concrete case.48

§3.03

[A]

INTERPRETATIVE ASPECTS AND MECHANISMS OF CHAPTER ELEVEN A Limited Jurisdictional Mandate Combined with the Duty to Apply the Agreement and ‘The Applicable Rules of International Law’

A NAFTA tribunal must apply the international law rules of treaty interpretation. Even though, unlike Canada and Mexico, the US is not a party to the Vienna Convention on the Law of Treaties (VCLT)49 it has accepted that the rules of treaty interpretation in Articles 31 and 32 of the VCLT are declarative of the customary international law rules of treaty interpretation.50 Thus, all three Parties have referred to the VCLT when interpreting Chapter Eleven (and the Agreement more generally). This requires that a treaty be interpreted in good faith and in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of the treaty’s object and purpose.51 The context shall, in addition to the text, include the treaty’s preamble, its annexes and any agreement or instrument made in connection with the conclusion of the treaty and in relation to the treaty.52 Chapter Eleven tribunals have routinely referred to NAFTA’s Preamble as well as to its Article 102, Objectives.53 Likewise, Chapter Two, General Definitions, has been

48. A case in point is Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/04 where the tribunal split as to whether certain research and development (R&D) requirements imposed by Canada and the province of Newfoundland amounted to measures inconsistent with Canada’s Art. 1106 performance requirements obligations. 49. 1969 Vienna Convention on the Law of Treaties, 1155 U.N.T.S. 331, 8 I.L.M. 67 (‘VCLT’). 50. Methanex Corporation v. USA, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits (7 Aug. 2002), para. 15: ‘More generally, as was common ground between the Disputing Parties, the provisions of NAFTA are to be interpreted “in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”, in accordance with customary international law rules of interpretation reflected in Article 31(1) of the 1969 Vienna Convention on the Law of Treaties.’ Canfor, supra n. 4, para. 177: ‘While the 1969 Vienna Convention is not in force among the three NAFTA State Parties (the United States has never ratified it), Articles 31 and 32 are regarded as reflective of established customary international law.’ 51. VCLT, supra n. 49, Art. 31(1). 52. VCLT, supra n. 49, Art. 31(2). 53. On establishing the tribunal’s jurisdiction, see, for example, Bilcon, supra n. 32, Award on Jurisdiction and Liability (17 Mar. 2015) paras 229, 305-308; Canfor, supra n. 4, paras 232-237, 242, 273. On the general approach to the interpretation of NAFTA, see for example Ethyl Corporation v. Canada, UNCITRAL, Award on Jurisdiction (24 Jun. 1998) paras 56 and 57; S.D. Myers, supra n. 3, Partial Award (13 Nov. 2000) paras 196-198, 214; ADF, supra n. 1, para. 147; UPS v. Canada, UNCITRAL, Award on Jurisdiction (22 Nov. 2002) paras 21, 22, 39 and 46; Metalclad Corporation v. Mexico, ICSID Case No. ARB(AF)/97/1, Award (30 Aug. 2000) (‘Metalclad’) paras 70 and 71; Pope & Talbot, supra n. 3, Interim Award (26 Jun. 2000) para. 65; and Grand River Enterprises Six Nations, Ltd., et al. v. USA, UNCITRAL, Award (12 Jan. 2011) para. 62. On the Chapter’s ‘scope and application’ see for example Fireman’s Fund Insurance

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consulted and applied when such terms have been relevant to understanding the meaning of a particular term that is not defined in Chapter Eleven’s own definitions section.54 In addition to the ordinary meaning being given to the terms of the treaty in their context and in light of the treaty’s object and purpose, under the VCLT the interpreter shall ‘take into account’ any subsequent agreement or subsequent practice establishing an agreement as to the interpretation or application of the treaty, and any relevant rules of international law applicable in the relations between the parties.55 Article 31 does not provide that a subsequent agreement or practice is automatically binding upon a tribunal; the tribunal has a power of appreciation. But a clear, shared subsequent agreement or subsequent practice will be persuasive evidence of a treaty’s meaning. Article 32 provides that supplementary means of interpretation can be utilized for confirmatory purposes, or where the approach under Article 31 leads to an ambiguous or obscure meaning or a manifestly absurd or unreasonable result. Article 33 addresses the approach to interpreting treaties which have been authenticated in two or more languages.56 Since Chapter Eleven tribunals must decide the dispute ‘in accordance with’ the terms of the Agreement and applicable rules of international law57 and are concerned only with alleged breaches of Section A (and the two obligations contained in Chapter Fifteen), they therefore lack jurisdiction to determine a breach of any other provision of the NAFTA.58 As noted in the Introduction, a question that arises not infrequently concerns the extent to which they find it necessary to consider other chapters or provisions of the Agreement in order to decide a claim under the investment chapter. Unsurprisingly, some cases require the tribunal to form a view as to the relationship

54.

55. 56. 57.

58.

Company v. Mexico, ICSID Case No. ARB(AF)/02/01, Decision on the Preliminary Question (17 Jul. 2003) (‘Fireman’s Fund’) paras 69-70. This was the case in Feldman, supra n. 46, Interim Decision on Preliminary Jurisdictional Issues (6 Dec. 2000), where, in the course of deciding a jurisdictional objection raised by Mexico against the claimant based on his long-time residency in Mexico, the tribunal found it necessary to refer to Art. 201, specifically the definition of the term ‘national’ (para. 26). VCLT, supra n. 49, Art. 31(3). NAFTA is equally authentic in the English, French and Spanish languages. See NAFTA Art. 2206, Authentic Texts. NAFTA, Art. 1131 Governing Law. C.f. Dominican Republic-Central America Free Trade Agreement (‘CAFTA-DR’) Art. 10.22(1), which uses the same formulation but makes the general governing law explicitly subject to the article’s para. 3, which in turn states: ‘A decision of the Commission declaring its interpretation of a provision of this Agreement under Article 19.1.3(c) (The Free Trade Commission) shall be binding on a tribunal established under this Section, and any decision or award issued by the tribunal must be consistent with that decision.’ This is similar to NAFTA, but goes further to make it clear that not only is an interpretation of the Commission binding on a tribunal, but that ‘any decision or award issued by the tribunal must be consistent with that decision’ (a point i.e., implicit in NAFTA Art. 1131). There is an exception to this rule. NAFTA Chapter Fourteen, Financial Services, permits investor-State arbitration of certain types of financial services investment disputes. The chapter permits this by expressly incorporating specific Chapter Eleven obligations into it and allowing those to be the subject of a claim. For a discussion of the interaction between the two chapters and the even more circumscribed jurisdictional grant effected by Chapter Fourteen, see Fireman’s Fund, supra n. 53, paras 66-74 and the Award in the same case (17 Jul. 2006), paras 167-168, 218.

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between the investment chapter’s rights and obligations and those found in chapters falling outside of its subject-matter jurisdiction.

[B]

The NAFTA Parties’ Reservation of Rights to Provide Interpretative Guidance to Tribunals

[1]

Interventions of Non-disputing NAFTA Parties

A notable feature of Chapter Eleven and the NAFTA’s interpretative experience concerns the right of non-disputing NAFTA Parties to intervene on questions of interpretation in cases brought against another Party. In this respect, NAFTA Article 1128 goes somewhat further than the position under the VCLT. Article 31(3) of the VCLT directs the treaty interpreter to have regard to any subsequent agreement or subsequent practice of the Parties when interpreting a treaty. Since the VCLT prescribes few conditions as to when and how states can agree to an interpretation, presumably it is open to non-disputing states to express their view to a tribunal as to a treaty’s interpretation during a dispute. The NAFTA makes clear that non-disputing Parties have the right of intervention to make submissions ‘on a question of interpretation’ of the Agreement in claims against another NAFTA Party.59 In parallel with (or perhaps as a consequence of) the rise in claims, this right of intervention has been used frequently by non-disputing Parties. As of the date of this writing, Mexico, Canada, and the US have intervened some thirty times, nineteen times and thirty-one times, respectively, in cases against another NAFTA Party. Indeed, in some cases there have been repeated ‘Article 1128 submissions’ over the course of a proceeding as successive pleadings filed by the disputing parties are reviewed by the non-disputing Parties.60 Such interventions have in some cases continued even into judicial review proceedings aimed at setting aside an award.61 Although a tribunal might consider the views of a single intervening Party to be helpful in deciding an interpretative point, under basic rules of treaty interpretation, even the concordant views of two of three Parties to a trilateral agreement cannot amount to a common interpretation of that agreement. While there is no special

59. NAFTA, Art. 1128, Participation by a Party. 60. NAFTA, Art. 1129 Documents permit a non-disputing Party to receive from the disputing Party, at the cost of the requesting Party, a copy of the evidence that has been tendered to the Tribunal and the written argument of the disputing parties. In practice, pleadings are routinely reviewed and indeed posted on the respective NAFTA Parties’ websites. As an example of repeated submissions, see The Loewen Group, Inc. and Raymond L. Loewen v. USA, ICSID Case No. ARB(AF)/98/3 (‘Loewen’), wherein which Canada filed three sets of submissions and Mexico, two sets. 61. The interventions of one or both non-disputing NAFTA Parties occurred in judicial review proceedings in the Canadian courts: see Mexico v. Metalclad Corporation, 2001 BCSC 664; Attorney General of Canada v. S.D. Myers, Inc., 2004 FC 38; Mexico v. Cargill, Incorporated, 2010 ONSC 4656 (‘Cargill Superior Court’); Mexico v. Cargill, Incorporated, 2011 ONCA 622 (‘Cargill Court of Appeal’).

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requirement of form, for a shared view to form an agreement on the interpretation of the treaty, all parties to the treaty must express their concordance with clarity and specificity.62 Under the VCLT, the interpreter is not necessarily bound by the shared view although it must be viewed as persuasive. The NAFTA is no different.63 The Parties’ shared view might not be accepted by a tribunal or by a reviewing court, at least on the terms envisaged by the Parties.64 In the early days of NAFTA arbitration, non-disputing Parties intervened only occasionally and if they did, they did not necessarily coordinate their interventions with the disputing Party. In some cases the extent of overlap of views between the non-disputing Parties and the disputing Party was difficult to ascertain.65 As the Parties developed further experience with the arbitral process they began to more closely coordinate their interventions with a view to demonstrating a ‘common front’ to tribunals on key interpretative issues. As unfair as that might seem to a claimant who might have to contend with more than one NAFTA Party, NAFTA’s inclusion of the right of intervention on interpretative questions has become a standard form of intervention included in many modern bilateral and plurilateral agreements. The Trans-Pacific Partnership Agreement, the CAFTA-DR, the EU-Canada Comprehensive Economic and Trade Agreement (CETA), the Singapore-EU FTA, and the draft EU-Vietnam FTA all contain such a provision.66

[2]

Binding Interpretations

The NAFTA went a step further by reserving a power to the ministerial-level Free Trade Commission, which is charged with the overall supervision and administration of the Agreement, to issue binding interpretations of the Agreement. Article 1131, Governing Law, states that an ‘interpretation by the Commission of a provision of this Agreement

62. ‘United Nations Report of the International Law Commission, Sixty-sixth session (5 May-6 June and 7 July-8 August 2014)’, Doc. A/69/10, ‘Conclusion 8, Weight of subsequent agreements and subsequent practice as a means of interpretation’. 63. Bilcon, supra n. 32, paras 431-432: ‘Article 31(3)(a) of the Vienna Convention on the Law of Treaties calls on treaty interpreters to take into account “any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions”. Yet NAFTA Article 1131(2) contains a lex specialis, which goes further in providing that “[a]n interpretation by the Commission of a provision of this Agreement shall be binding on a Tribunal established under this Section.” Under the general rule on interpretation set out in the Vienna Convention, a NAFTA tribunal would only need to “take into account” the subsequent agreement. However, by virtue of NAFTA Article 1131(2), acts of authentic interpretation by the States parties to the Agreement, like the Notes just referred to, are binding and conclusive. The disputants in the present case both agree that the FTC Notes are binding, although they disagree on their interpretation ... .’ 64. See Ontario Court of Appeal’s discussion of the Parties’ shared view and rejecting what was argued to be the exact nature of that the shared view (Cargill Court of Appeal, supra n. 61, paras 79-80). 65. Pope & Talbot Inc. v. Canada, UNCITRAL, Award on the Merits of Phase 2 (10 Apr. 2001), paras 112-118, see in particular fn. 109: ‘Neither Mexico nor Canada has subscribed to the version of the intent of the drafters put forward by the United States.’ 66. CAFTA-DR, Art. 10.20(2); European Union (‘EU’)-Canada Comprehensive Economic and Trade Agreement (‘CETA’), Art. 8.38; Singapore-EU FTA, Art. 9.23; EU-Vietnam FTA, Art. 25.

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shall be binding on a Tribunal established under this Section’.67 This power goes beyond that contemplated in Article 31 of the VCLT which, as noted above, requires that a subsequent agreement or practice ‘shall be taken into account’,68 to use Article 31(3)’s phrasing. In its twenty-three year history, the Free Trade Commission has formally interpreted NAFTA only once. On 31 July 2001, the Commission issued a ‘Notes of Interpretation’ addressing two issues: (i) the status of documents filed in Chapter Eleven proceedings (i.e., whether they were confidential or, subject to appropriate redaction, could be further disclosed); and (ii) the interpretation of Article 1105. The first issue arose from the evident lack of transparency in early NAFTA proceedings which gave rise to intense criticism, particularly in Canada and the US.69 This led the Parties to address the level of transparency that could be achieved in the circumstances, given that NAFTA’s text did not give the Commission free rein to completely modify the operation of the applicable arbitration rules such that it could, for example, require open hearings without the disputing parties’ consent.70 But the Commission did find that ‘nothing in the NAFTA imposes a general duty of confidentiality upon the disputing parties’71 and subject to Article 1137(4),72 ‘nothing in the NAFTA precludes the Parties from providing public access to documents submitted to, or issued by, a Chapter Eleven tribunal’.73 (The Federal Trade Commission (FTC) Notes concluded on this point by confirming that ‘nothing in this interpretation shall be construed to require any Party to furnish or allow access to information that it may withhold in accordance with Articles 2102 or 2105’.)74 Article 1105 was also addressed due to the Parties’ collective view that early NAFTA tribunals, such as the S.D. Myers, Pope & Talbot and Metalclad tribunals, had 67. NAFTA, Art. 1131(2). 68. VCLT, supra n. 49, Art. 31(3). 69. Anthony DePalma, ‘Nafta’s Powerful Little Secret; Obscure Tribunals Settle Disputes but Go too Far, Critics Say’, begins with a fairly accurate description of the criticisms of the early experience of NAFTA tribunals: ‘THEIR meetings are secret. Their members are generally unknown. The decisions they reach need not be fully disclosed. Yet the way a small group of international tribunals handles disputes between investors and foreign governments has led to national laws being revoked, justice systems questioned and environmental regulations challenged. And it is all in the name of protecting the rights of foreign investors under the North American Free Trade Agreement.’ See http://www.nytimes.com/2001/03/11/business/nafta-s-powerful-little-secret -obscure-tribunals-settle-disputes-but-go-too-far.html. 70. NAFTA permits the claimant to invoke: (i) the ICSID Convention and ICSID Arbitration Rules (assuming the Convention’s applicability); (ii) the ICSID Additional Facility Rules (again, assuming the Additional Facility’s applicability); or (iii) the UNCITRAL Arbitration Rules. All are applicable in full save as modified by the Agreement (see NAFTA, Art. 1120(2), Submission of a Claim to Arbitration, which provides that: ‘The applicable arbitration rules shall govern the arbitration except to the extent modified by this Section.’). Accordingly, the Parties could not go further than what they did in the FTC Notes without re-opening the treaty. In subsequent treaties, however, both Canada and the USA opted for more transparency. A comparison of, for example, the arbitral process contemplated by the Singapore-USA FTA, Chapter 15, with NAFTA shows a more transparent arbitral process than that contemplated by the NAFTA as interpreted by the FTC Notes. 71. FTC Notes, s. A, para. 1. 72. Which deals with the Party-specific annex regarding publication of awards. 73. Supra n. 71. 74. FTC Notes, s. A, para. 3.

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erred. These tribunals had to ascertain the scope of the Minimum Standard of Treatment under Article 1105 and what constituted breach of that standard. S.D. Myers decided by a majority that a breach of Article 1102 (National Treatment) also constituted a breach of Article 1105.75 Pope & Talbot held that Article 1105 provided for a higher standard of treatment than that required by international law.76 Metalclad decided that Article 1105’s content was informed by Chapter Eighteen’s prescriptions on ‘transparency’ when it concluded that Mexico had failed to ensure a transparent and predictable framework for the claimant’s business planning and investment.77 Only the Metalclad tribunal’s finding was set aside on judicial review (based on the court’s conclusion that the tribunal had stepped outside of its grant of jurisdiction to apply the customary international law minimum standard of treatment by relying on a conventional international law obligation found in another chapter of the Agreement). S.D. Myers withstood judicial review, and evidently since damages ultimately awarded in Pope & Talbot were minimal and only one measure engaged responsibility, Canada did not seek review of that award. Nevertheless, the three awards generated concern, leading the FTC to clarify Article 1105. The FTC Notes stated that Article 1105(1) requires only the customary international law minimum standard of treatment of aliens,78 that the concepts of fair and equitable treatment and full protection and security do not require treatment beyond that standard,79 and a determination of breach of another NAFTA provision or other international agreement does not establish breach of Article 1105(1).80 With the exception of the Pope & Talbot tribunal, which was still in the damages phase and clearly disgruntled by the Notes, subsequent NAFTA tribunals have generally duly applied the Notes of Interpretation without hesitation. The Loewen tribunal, for example, referred to it and commented that: ‘To the extent, if at all, that NAFTA Tribunals in [Metalclad, S.D. Myers and Pope & Talbot] … may have expressed contrary views, those views must be disregarded.’81 These different means available to the Parties in maintaining oversight over the interpretation of the FTA were unprecedented in investment treaty-making, but in a sense were driven by the Agreement’s complexity and breadth. As noted in the quotation from ADF, cited at the beginning of this chapter, the Agreement exhibited an ‘extraordinarily complex architecture’ and was ‘arguably the most complex free trade agreement currently in existence’.82 Canadian Cattlemen likewise observed that NAFTA Chapter Eleven ‘functions as part of a larger agreement that requires analysis of how the different parts of the treaty interrelate in a range of circumstances’ and that it ‘is replete with provisions showing its interconnectedness to other parts of the NAFTA’ such that

75. 76. 77. 78. 79. 80. 81. 82.

S.D. Myers, supra n. 3, Partial Award (13 Nov. 2000), para. 266. Pope & Talbot, supra n. 3, Award on the Merits of Phase 2 (10 Apr. 2010), paras 110-111. Metalclad, supra n. 53, para. 71 FTC Notes, s. B, para. 1. FTC Notes, s. B, para. 2. FTC Notes, s. B, para. 3. Loewen, supra n. 60, Award (26 Jun. 2003), para. 128. ADF, supra n. 1, paras 147-148.

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provisions situated outside of Chapter Eleven could affect an investor’s exercise of the rights granted by the investment Chapter.83

§3.04

TRIBUNAL ENCOUNTERS WITH JURISDICTIONAL LIMITS

As discussed above, the NAFTA Parties undertook substantive obligations and granted a right of access to investor-State arbitration, but circumscribed both subjects through textual directives both within and without Chapter Eleven. There were thus limits to the jurisdiction of Chapter Eleven tribunals, and this section discusses encounters with two such limits. First, given the nature of cross-border commercial activities, the NAFTA Parties included chapters that could apply to a commercial actor depending on the capacity in which those activities were undertaken. Second, there were unexpressed territorial limits on the jurisdiction of tribunals. In ascertaining such limits, the tribunals were faced with statements by the NAFTA Parties (but not always from all three in the same proceeding) as to what those limits were, and as shall be seen, dealt with them differently.

[A]

Limitations on Tribunal’s Subject-Matter Jurisdiction?

It was certain that Chapter Eleven tribunals would confront claims that mixed together commercial activities that were addressed in different parts of the NAFTA with investments. In fact, this did not take long to occur. The issue was presented in an early claim brought against Canada brought by a family-owned US firm, S.D. Myers, Inc. (‘SDMI’).84 SDMI provided hazardous waste remediation services (for ‘PCBs’)85 in the US and with the gradual reduction of demand for PCB remediation services in the US (due to a global ban in the production of PCBs and a reduction in the supply of PCBs for remediation), SDMI’s business in the US was declining and it looked to Canada for a new source of work.86 The focus of its Canadian investment was to solicit remediation business from industrial clients in Canada. The idea was that Canadian-originating PCB wastes could be exported from Canada for treatment at SDMI’s US facility. (A company, Myers Canada, was incorporated pursuant to the Canada Business Corporations Act by four members of the Myers family who also owned shares in SDMI, but Myers Canada was not owned by SDMI; a question would later arise in the arbitration

83. Canadian Cattlemen for Fair Trade v. USA, UNCITRAL, Award on Jurisdiction (28 Jan. 2008) (‘Canadian Cattlemen’), paras 164-165. 84. S.D. Myers, supra n. 3, Partial Award (13 Nov. 2000), and Second Partial Award (21 Oct. 2002). 85. PCBs (polychlorinated biphenyls) are a waste product generated by electrical transformers that were extracted from oil and transformers at SDMI’s specialized remediation facility in Ohio. 86. S.D. Myers, supra n. 3, Partial Award, para. 92: ‘SDMI’s interest in Canada developed in the 1990s as the U.S. market declined. Mr Dana Myers testified that SDMI went into the Canadian market because … that’s going to extend the usefulness of our facility. It’s going to extend our business. The PCB remediation business was working its way out of existence, because no new PCBs were being manufactured and the world’s stockpiled inventory was decreasing as SDMI and its competitors did their work.’ [Footnote references omitted.]

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as to whether it was ‘owned or controlled’ by SDMI such as to permit SDMI to claim on its behalf.)87 SDMI’s business plan envisaged that Canadian customers would contract for the treatment of their waste in the USA and that Myers Canada would receive a percentage of the contract as its remuneration. The business was done by marketing, customer contact, testing and assessment of oil and other like services. SDMI personnel from the USA participated in these activities.88 In seeking to gain access to the Canadian PCB remediation market, SDMI encountered a regime regulated by Canadian federal legislation called the Canadian Environmental Protection Act 1995 (‘CEPA’) and applied by a federal agency, Environment Canada. Both Canada and the US had long banned the production of PCBs and in principle had closed their borders to imports and exports of PCBs. At the time of the dispute, Canada was a party to the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, an environmental convention which was explicitly listed in Article 104 of the NAFTA, Relation to Environmental and Conservation Agreements.89 (The US had signed but not ratified the Convention at the time that the dispute arose).90 Existing Canadian regulations permitted exports if prior approval from the US Environmental Protection Agency (‘EPA’) was obtained.91 Somewhat surprisingly to Canadian environmental officials, SDMI was able to obtain an ‘enforcement discretion’ from the EPA, valid from 15 November 1995-31 December 1997, for the purpose of importing PCBs and PCB waste from Canada into the U.S. for disposal.92 This was opposed by the single Canadian PCB remediation services supplier who had lobbied against allowing PCBs to be exported to the U.S. for destruction. Given that as a general rule the international regime governing the handling of PCBs contemplated that hazardous wastes should be treated in their country of origin and the perceived desirability of maintaining an adequate domestic capability to perform its obligations under the Basel Convention, the government of Canada acceded to the pressure of the

87. NAFTA Art. 1117, Claim by an Investor of a Party on Behalf of an Enterprise, allows an investor of a Party to assert a claim on behalf of an enterprise of another Party that is a juridical person that the investor owns or controls directly or indirectly. In the Partial Award, upon hearing Canada’s objection to its jurisdiction to consider a claim made in relation to Myers Canada, the tribunal held that it did ‘not accept that an otherwise meritorious claim should fail solely by reason of the corporate structure adopted by a claimant in order to organise the way in which it conducts its business affairs’ adding that its view was reinforced by the use of the word ‘indirectly’ in NAFTA’s definition of an ‘investment of an investor of a Party’. Partial Award, para. 229. 88. Partial Award, para. 93. 89. Article 104 of the NAFTA, Relation to Environmental and Conservation Agreements, provides in its paragraph (1) that: ‘In the event of any inconsistency between this Agreement and the specific trade obligations set out in [various agreements including the Basel Convention] such obligations shall prevail to the extent of the inconsistency, provided that where a Party has a choice among equally effective and reasonably available means of complying with such obligations, the Party chooses the alternative that is the least inconsistent with the other provisions of this Agreement.’ 90. Partial Award, para. 105. 91. Ibid., para. 100. 92. Ibid., para. 118.

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Canadian competitor, and the Canadian Minister of the Environment signed an Interim Order (later turned into a Final Order) that effectively banned the export of PCBs from Canada.93 This led SDMI to commence a NAFTA investor-State arbitral claim on its own behalf and on behalf of Myers Canada. SDMI claimed that Canada had breached its national treatment, minimum standard of treatment and expropriation obligations, and that it had suffered lost sales and profits as a result of the alleged breaches and the loss of its investment in its joint venture with Myers Canada, and had incurred losses from the cost of reducing its operations in Canada.94 Having unanimously found a breach of Article 1102 and, by a majority, a breach of Article 1105, the tribunal then had to consider the damages suffered by SDMI and Myers Canada. This required it to consider the fact that SDMI as not only an ‘investor’ but a would-be cross-border supplier of waste remediation services. This point was made by Canada and the other two NAFTA Parties who both intervened on the point. All three NAFTA Parties argued that the tribunal must exercise care to distinguish between SDMI’s acting in its capacity as an investor and its acting as a provider of services. The US, for example, observed that ‘not every activity of an investor in the territory of another NAFTA country constitutes an investment’95 given that NAFTA ‘addresses a broad range of topics in the relations between Canada, Mexico and the United States’,96 and in contrast to the jurisdiction of a State-to-State dispute settlement Panel established under Chapter Twenty, ‘Chapter Eleven addresses the relatively narrow topic of investment. All of Chapter Eleven’s substantive obligations, set forth in Section A of the chapter, relate solely to investment.’97 It added: 12. … Article 1102, for example, requires national treatment only with respect to certain aspects of investments; it does not require national treatment with respect to cross-border trade in goods or services. Tribunals established under Chapter Eleven lack authority to address violations of other chapters of the NAFTA. Instead, their task is limited to assessing whether there has been a breach of Section A of Chapter Eleven (or certain articles of Chapter Fifteen not at issue here) and whether the investor or investment has suffered loss or damage proximately caused by such a breach. 13. The United States therefore agrees with Canada and Mexico that the Tribunal’s task at this phase is limited to assessing damages flowing from the breach of the NAFTA’s provisions with respect to investments, that is, those of Section A of Chapter Eleven. The Tribunal may not assess damages with respect to any decrease in cross-border trade in goods or services as such, for those matters are not addressed by Chapter Eleven.98

The tribunal did not fully take the Parties’ point. In its view, once Chapter Eleven was engaged, even though SDMI was admittedly seeking to be engaged in cross-border 93. Ibid., para. 123. 94. Ibid., para. 144. 95. Submission of the United States of America (18 Sept. 2001) https://www.state.gov/documents /organization/6029.pdf, para. 4. (‘US Article 1128 Submission’). 96. Ibid., para. 11. 97. Ibid., para. 12. 98. Ibid., paras 12-13. [Emphasis added.]

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trade in services, it was entitled to benefit from both the provisions of Chapter Twelve, Cross-Border Trade in Services, and Chapter Eleven.99 It noted further that in its First Partial Award, it had adopted the application of the ‘cumulative principle’ to the case, which principle held that in a given situation, a government or private entity might have different rights under different trade provisions that generally complement, rather than diminish, each other.100 Declaring that this was ‘neither novel nor startling’, it held that the grant of a right generally does not take away other rights unless they are mutually exclusive, or the grant is stated expressly to abrogate another right.101 In short, the tribunal did not see the Parties’ point that while damages were compensable under Chapter Eleven for losses suffered by an investor qua investor, they could not be awarded when such losses were suffered by the investor in its capacity as a cross-border services provider or trader. That is, from the Parties’ perspective, Chapters Eleven and Twelve could not be applied cumulatively when it came to awarding damages. As the US pointed out in the passage just quoted, the tribunal could ‘not assess damages with respect to any decrease in cross-border trade in goods or services as such, for those matters are not addressed by Chapter Eleven’. While the Myers tribunal did not embrace the distinction, as discussed below, some tribunals did.

[B]

Tribunal Encounters with Unexpressed Territorial Limitations

Even with all of the attention paid by NAFTA’s drafters to giving tribunals direction as to how to navigate the Agreement’s complex architecture, not every interpretative issue could be anticipated. An example of this can be found in these two fascinating cases which posed essentially the same question: did a claimant with an investment in one NAFTA Party that claimed to have been damaged by a measure taken by another NAFTA Party need to have an investment in the territory of the latter Party in order to be able to bring a claim against it? As counterintuitive as this might sound, both sets of claimants were able to find support in the language of the Agreement for their argument that no investment in the respondent state was needed. Article 101, Establishment of the Free Trade Area, for example, spoke to the creation of a single free trade area. This supported an argument that the three states were constrained in the exercise of their sovereign powers not to, for example, discriminate against each other’s investors irrespective of their location. Moreover, a close reading of Chapter Eleven showed that there was no express territorial limitation on the concept of ‘investor’ in Chapter Eleven. The question was first presented in Bayview Irrigation District et al. v. Mexico.102 The claim concerned Mexico’s diversion of water from the Rio Grande River, allegedly in breach of a 1944 US-Mexico boundary waters treaty and to the detriment of the

99. 100. 101. 102.

Second Partial Award, para. 130. Ibid, para. 131. Ibid, para. 132. Bayview Irrigation District et al. v. Mexico, ICSID Case No. ARB(AF)/05/1, Award (19 Jun. 2007)(‘Bayview’).

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claimants. The claimants were Texan irrigation districts that, under US law, held legal rights to water that belonged to the US pursuant to the resource-sharing treaty governing the river, but none of the claimants alleged that it had actually made an investment in the territory of Mexico, at least in the conventional sense.103 One jurisdictional objection raised by Mexico was that Chapter Eleven only served to protect investors of one NAFTA Party insofar as they had in fact made an investment in the territory of another NAFTA Party.104 The claimants’ response was that investors and investments were protected whenever one NAFTA Party’s measure affected the investment of an investor of another Party regardless of its location.105 They argued further and in the alternative that to the extent that Chapter Eleven did require an investment in the territory of the other Party, they each had ownership rights to Texas’s share of water situated in the Mexican watersheds of the Rio Grande River and thus met any territorial requirement that NAFTA might prescribe.106 The tribunal found that the claimants’ investments in Texas were insufficient to establish jurisdiction, holding that in order to be an ‘investor’ within the meaning of Article 1101(a), an enterprise must make an investment in another NAFTA Party, and not its own:107 While NAFTA Article 1139 defines the term ‘investment’ it does not define ‘foreign investment’. Similarly, NAFTA Chapter XI is named ‘Investment’, not ‘Foreign Investment’. However, this Tribunal considers that NAFTA Chapter XI in fact refers to ‘foreign investment’ and that it regulates ‘foreign investors’ and ‘investments of foreign investors of another Party’. The ordinary meaning of the text of the relevant provisions of Chapter Eleven is that they are concerned with foreign investment, not domestic investments…108

The award is of interest because it illustrates some of the issues touched on above in the S.D. Myers case. First, at the time of Bayview’s being heard, the US was facing its own claim in the Canadian Cattlemen case (discussed below) and had its own interests to consider. Having had sight of the disputing parties’ submissions at the hearing on jurisdiction, the US decided to file an Article 1128 submission on the jurisdictional issues.109 This proved to be of considerable importance to the tribunal’s disposition of the claim and later had some influence in the Canadian Cattlemen case.

103. The claimants sought to argue, in the alternative, that they had property rights in water located within Mexico. Although the tribunal expressed admiration for the claimants’ arguments ‘of considerable subtlety and ingenuity’ (ibid., para. 119), it was unable to conclude that they held an investment in the territory of Mexico. 104. Bayview, supra n. 104, para. 28. 105. Ibid., para. 74. 106. Ibid., para. 45. 107. Ibid., para. 101. 108. Ibid., para. 96. 109. Ibid., paras 18-21: Following the hearing on jurisdiction, the tribunal invited the NAFTA Parties to file written submissions on two issues of treaty interpretation: (a) the standing of the claimants under the NAFTA; and (b) the concept of territoriality in relation to Arts 1102 and 1105.

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Second, although Canada did not see fit to state its view on the territoriality issue in Bayview, Mexico and the US both drew the tribunal’s attention to statements made by Canada at the time of NAFTA’s implementation as well as in the course of its defence of the S.D. Myers claim. The US noted in this regard: Canada’s Statement on Implementation of the NAFTA, also concluded contemporaneously with the NAFTA, provides that Chapter Eleven was intended to build upon Canada’s experience with ‘investment agreements both to protect the interests of Canadian investors abroad and to provide a rules-based approach to the resolution of disputes involving foreign investors in Canada or Canadian investors abroad.’ In the S.D. Myers arbitration, Canada reiterated its understanding that Chapter Eleven applies only to investors that have, or are seeking to make, investments in the territory of the disputing Party. All three NAFTA Parties thus agree that the scope and coverage of NAFTA Chapter Eleven is restricted to investors of a NAFTA Party that are seeking to make, are making or have made investments in the territory of another NAFTA Party.110

The absence of one NAFTA Party from the arbitration did not seem to trouble the Bayview tribunal, presumably because the Canadian government’s statement made to its Parliament was thought to be sufficiently considered and made well before any disputes arose under the treaty. The tribunal emphasized in this regard that it found support in interpretations publicly adopted by the NAFTA Parties prior to the case, as set out in various governmental documents relating to the conclusion and approval of the NAFTA.111 As in a number of other NAFTA cases, the losing party in Bayview sought judicial review at the place of arbitration. Since the case was not brought under the ICSID Convention (due to Mexico not being an ICSID Contracting State at that time), by agreement of the disputing parties, Ontario was designated the place of arbitration and its Superior Court of Justice heard the application. The set-aside application was later dismissed.112 Turning to Canadian Cattlemen, in this case the US had prohibited imports of Canadian-origin livestock and beef products for public health reasons after an outbreak of ‘mad cow’ disease in Alberta. It was common ground between the disputing parties that the claimants all had investments in Canada, and further that they did not have investments in the territory of the US. The question presented for decision was whether the investments in the territory of Canada sufficed to afford a basis for jurisdiction.113 Unsurprisingly, the US brought the Bayview award to the attention of the Canadian Cattlemen tribunal.114 The tribunal resolved the objection by first observing that while the two limbs relating to ‘investments’ in Article 1101 contained express territorial limitations, the third limb focusing on ‘investors’ did not. However, the tribunal reasoned that ‘investors’ only existed based on ‘investments’ and thus territorial limitations must 110. 111. 112. 113. 114.

US Article 1128 Submission, supra n. 95, para. 14 (footnotes omitted). Bayview, supra n. 102, para. 106. Bayview Irrigation District v. Mexico, 07-CV-340139-PD2, Reasons for Judgment. Canadian Cattlemen, supra n. 83, para. 41. Ibid., para. 56.

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extend to investors.115 Based on a textual analysis of Article 1101, Scope and Application, which, following a prior NAFTA award rendered in the Methanex case,116 it described as the ‘gateway’ to Chapter Eleven,117 the tribunal concluded that Chapter Eleven was applicable only to investors of one NAFTA Party with investments in another NAFTA Party.118 Thus, it had no jurisdiction (but observed that the claimants might have an indirect remedy under NAFTA Chapter Twenty’s State-to-State proceedings if Canada was minded to challenge the US measures).119 The tribunal also considered whether there was a subsequent agreement between the Parties to the treaty as to the treaty’s interpretation, as contended by the US, relying on its own statements before the tribunal and made elsewhere, Mexico’s Article 1128 submission, and Canada’s statements in implementing the NAFTA and made in its counter-memorial in S.D. Myers.120 The tribunal did not accept that there was subsequent agreement (noting in particular that it had not received any Article 1128 submission by Canada),121 but found that there was a subsequent practice of the Parties showing agreement that NAFTA did not permit claims of this nature. Instead, Canadian Cattlemen considered the Bayview award as a supplementary means of interpretation. It did not agree with the US that Bayview had squarely addressed and rejected the same arguments advanced by the Canadian Cattlemen claimants.122 The tribunal was not convinced by all of Bayview’s reasoning and found support only in certain of the tribunal’s conclusions. First, it had some difficulty following the order of reasoning in the Bayview award, which appeared to have started its examination with the travaux préparatoires. This differed from the Canadian Cattlemen tribunal’s view that Article 31 of the VCLT called for a primary examination of the ordinary meaning of the terms of the treaty in their context and in the light of its object and purpose, while the travaux préparatoires can only be considered at a later stage as supplementary means of interpretation according to Article 32 of the VCLT.123 Second, the factual situation in Bayview was not in the tribunal’s view analogous because it dealt with water supplied across the U.S.-Mexico border whereas the case before it dealt with the export of livestock and meat products in what was alleged to be an integrated market. And in Bayview, the claimants argued that they owned the water flowing through Mexican watersheds and that was their investment in that State, an argument that found no counterpart in Canadian Cattlemen.124

115. 116. 117. 118. 119. 120. 121. 122. 123. 124.

Ibid., para. 126. Ibid., para. 118 citing Methanex Corporation v. USA, First Partial Award, 7 Aug. 2002, para. 106. Ibid., para. 127. Ibid. Ibid., para. 193. Ibid., paras 173-177. Ibid., para. 187. Ibid., para. 56. Ibid., para. 219. Ibid., para. 220.

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§3.05

Third, the tribunal thought that it might well be argued that Bayview was different because it was about the treatment owed under NAFTA Article 1105, while Canadian Cattlemen was not.125 In the end, however, the tribunal did agree that certain findings made in Bayview supported its own conclusions: (i) the Bayview tribunal’s considerations regarding the relevance and interpretation of the territorial requirement in Article 1101(b) and its conclusion that in order to be an ‘investor’ under Articles 1101(a) and 1139, one must make an investment in the territory of another NAFTA State, not only in the territory of one’s own Party; and (ii) the Bayview tribunal’s reliance on the subsequent practice of all three NAFTA States in this respect.126 These two cases illustrate how unanticipated issues arose from the structural complexity of the NAFTA and how tribunals have had to resolve these issues to ascertain the precise contours of their jurisdiction under the investment chapter. At the same time, these tribunals faced the further challenge of having to determine what effect to give to the interpretative guidance given by only two out of three NAFTA Parties who in effect sought to bring the views of the third, non-appearing Party, to their attention. And as time has showed, other tribunals faced such issues.127

§3.05

CONCLUSION

The NAFTA was unprecedented in its incorporation of an investment chapter and its consequent structural complexity. Such incorporation necessitated complex modifications to Chapter Eleven, and these can be found both within and without Chapter Eleven. Matters were complicated further by Chapter Eleven’s conferral of limited jurisdiction on tribunals, which were then faced with the task of addressing NAFTA’s cross-chapter effects while staying within their limited mandate. The NAFTA Parties anticipated to some extent the complexity of the tribunals’ task, and intended to guide by building in mechanisms to offer individual interpretative views as well as binding interpretations reached by the Parties acting collectively. Even with such foresight on the part of the drafters, it was inevitable that difficult interpretative issues would remain. This included cases where claimants sought to expand the scope of the Agreement’s investment protection in perhaps unforeseen ways. Tribunals also had to deal with some unexpected interpretative pickles, such as tribunals questioning whether the Parties’ statements that they agreed a point equated to subsequent agreement or practice (if at all), and when only two Parties made 125. Ibid., para. 221. 126. Ibid., paras 221-222. 127. See, for example, the tribunals in Archer Daniel Midland Company (ADM) and Tate & Lyle Ingredients (North America) Inc. v. Mexico, ICSID Case No. ARB(AF)/04/05, Award (21 Nov. 2007) and Cargill Inc. v. Mexico, ICSID Case No. ARB(AF)/05/2, Award (18 Sept. 2009), and later the Canadian courts in Cargill Superior Court and Cargill Court of Appeal, both supra n. 61. All of these had to ascertain whether there were limitations to the scope of damages that would exclude a U.S. claimant’s claim for losses incurred from lost cross-border trade between the claimant and its Mexican subsidiary (which was also the investment) when the subsidiary was affected by the wrongful measures. Only the Ontario Court of Appeal had the benefit of all three NAFTA Parties’ submissions on that interpretative issue.

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submissions but referred to one or more statements of the third, non-appearing Party in order to show that there was agreement between all three Parties. There is no doubt that the interpretative experience of NAFTA tribunals has informed post-NAFTA treaty-making. This is evident in a number of ways. First, many subsequent treaties have incorporated language from the FTC Note of Interpretation. They have also reserved rights for non-disputing State Parties to intervene and for the State Parties to issue binding interpretations. Many subsequent treaty texts now hold that not only are the Parties’ interpretations binding upon tribunals, but that their awards must be consistent with such interpretations.128 And most recently, States have sought to guide tribunals to distinguish between the types of losses that might have been suffered by commercial actors (i.e., in their capacity as investors as opposed to in their capacity as traders of goods or services). The process has been an iterative one; treaty-making practice continuously evolves as states gain further experience with the sometimes difficult interpretative issues that concrete cases present to tribunals established pursuant to these complex types of treaties.

128. See the Trans-Pacific Partnership Agreement, Art. 9.25(3).

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CHAPTER 4

The Temptation of Domesticity: An Evolving Challenge in Arbitration The Hon. Justice Clyde Croft

§4.01

INTRODUCTION

The establishment of the specialist Arbitration List in the Commercial Court of the Supreme Court of Victoria in 2010 marked a first in an Australian court and a development which placed the Victorian Court among a select few courts internationally which have specialised in this way. This was followed by the development of new Arbitration Rules for this Court and a Practice Note. I am very pleased to say that since the commencement of the new Rules, the Arbitration List has flourished and I have heard a number of important, high-profile applications as judge in charge of the Arbitration List. For instance, in late 2014 I heard an application for the issue of subpoenas to attend before the AFL Anti-Doping Tribunal in the Essendon supplements case,1 while 2015 began with the urgent Formula 1 enforcement proceedings,2 and ended with the enforcement of an SIAC award in the Gutnick case.3 Coincidentally, all three of these high-profile cases were of some interest to the sports-mad public of Melbourne – albeit rather tangentially in the Gutnick case, with those proceedings having nothing to do with Mr Gutnick’s former presidency of the Melbourne Football Club.

1. Chief Executive Officer of the Australian Sports Anti-Doping Authority v. 34 Players [2014] VSC 635. 2. Giedo van der Garde BV v. Sauber Motorsport AG (2015) 317 ALR 792; Sauber Motorsport AG v. Giedo van der Garde BV (2015) 317 ALR 786 (collectively, ‘the Sauber case’). 3. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199; Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (No 2) [2015] VSC 770; Gutnick v. Indian Farmers Fertiliser Cooperative Ltd (2016) 49 VR 732 (collectively, ‘the Gutnick case’).

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§4.02

The Hon. Justice Clyde Croft

My present purpose is to discuss the role of the courts in arbitration. In so doing, I will focus on an evolving challenge in this area – a challenge which I have come to know well sitting in the Arbitration List, and that I have come to describe as the ‘temptation of domesticity’.4 The ‘temptation of domesticity’ describes the intuitive appeal of approaching matters for determination through the prism of legal doctrines and principles with which the court is most familiar. In the case of Australian courts this, at the very least, means considering matters through a common law lens, if not going so far as to apply common law doctrines and equitable principles expressly. Like all temptation, such an approach is attractive in the short-term, but ultimately has the potential to interfere with broader, longer-term objectives. Chief among these longterm objectives is the promotion of international uniformity in international commercial arbitration practice. As I will explain, the international provenance of Australia’s arbitration regime necessitates an international judicial approach. Particular regard is to be had to the reasoned decisions of courts in other countries – particularly those in our region – where their arbitration law shares a common basis with ours in the New York Convention5 and the Model Law.6 Accordingly, courts must resist the temptation to approach issues arising in arbitration-related applications using principles not found in these international instruments, and which may be peculiar to a particular jurisdiction or domestic legal system.

§4.02

THE INTERNATIONAL PROVENANCE OF NATIONAL ARBITRATION LEGISLATION

I turn first then to consider the international provenance of Australia’s domestic and international arbitration regimes. The International Arbitration Act 1974 (Cth) (‘the International Arbitration Act’) gives the Model Law the force of law in Australia,7 and the Uniform Commercial Arbitration Acts – which govern domestic arbitrations in Australia, and which are enacted in each State and Territory – substantially reproduce the terms of the Model Law.8 Another important object of the International Arbitration Act is to give effect to Australia’s obligations under the New York Convention.

4. See Robotunits Pty Ltd v. Mennel (2015) 297 FLR 300 at 321; Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 204–9 [12]–[24], 215–7 [43]–[49]; Justice Clyde Croft, ‘The “Temptation of Domesticity” and the Role of the Courts in Australia’s Arbitration Regime’ (2015) 89 Australian Law Journal 684; Chief Justice James Allsop and Justice Clyde Croft, ‘The Role of the Courts in Australia’s Arbitration Regime’ (Paper presented at the Commercial CPD Series, 11 November 2015). 5. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature 10 June 1958, 330 UNTS 3 (entered into force 7 June 1959) (‘the New York Convention’). 6. UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006) (‘the Model Law’). 7. International Arbitration Act 1974 (Cth) s. 16(1). 8. The Uniform Commercial Arbitration Acts are enacted in each State and Territory. See Commercial Arbitration Act 2010 (NSW); Commercial Arbitration Act 2011 (SA); Commercial Arbitration

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§4.02

The Full Court of the Federal Court of Australia had cause to consider the international provenance of Australia’s arbitration regime in its highly influential judgment in TCL Air Conditioner (Zhongshan) Co Ltd v. Castel Electronics Pty Ltd, which was handed down in July 2014.9 The facts of the case were relatively straightforward and involved the distribution in Australia of air conditioning units manufactured in China by TCL. TCL breached its promise to Castel of exclusivity of rights of distribution of certain TCL products and Castel successfully obtained an arbitral award in its favour following a ten-day hearing. TCL sought to resist enforcement and have the award set-aside, arguing that the arbitration tribunal had failed to accord it procedural fairness, thereby breaching the rules of natural justice and rendering enforcement of the award contrary to the public policy of Australia. TCL argued that the proper approach was to revisit in full the questions which were before the tribunal in order to determine whether the rules of natural justice had been breached. Murphy J dismissed TCL’s arguments and enforced the award. Despite an unsuccessful challenge to the constitutional validity of his Honour’s decision in the High Court, TCL pressed its appeal to the Full Federal Court.10 By its grounds of appeal, TCL challenged Murphy J’s findings (among others) that: – there is a need to balance the efficacy of enforcing international arbitral awards with public policy; and – that uniformity across jurisdictions is a relevant consideration when determining whether enforcement would be contrary to the public policy of Australia. TCL also sought to comprehensively reagitate arguments made before Murphy J as to the asserted inadequacies of the factual findings of the tribunal. The Full Federal Court found that there was no breach of the rules of natural justice and therefore that enforcement would not be contrary to public policy. In relation to the international provenance of Australia’s arbitration regime, the Full Court said that:11 it is not only appropriate, but essential, to pay due regard to the reasoned decisions of other countries where their laws are either based on, or take their content from, international conventions or instruments such as the New York Convention and the Model Law. It is of the first importance to attempt to create or maintain, as far as the language employed by Parliament in the … [International Arbitration Act] permits, a degree of international harmony and concordance of approach to international commercial arbitration. This is especially so by reference to the reasoned judgments of common law countries in the region, such as Singapore, Hong Kong and New Zealand. (National Uniform Legislation Act) 2011 (NT); Commercial Arbitration Act 2011 (Tas); Commercial Arbitration Act 2011 (Vic); Commercial Arbitration Act 2012 (WA); Commercial Arbitration Act 2013 (Qld); Commercial Arbitration Act 2017 (ACT). 9. (2014) 232 FCR 361 (‘the TCL case’). 10. See TCL Air Conditioner (Zhongshan) Co Ltd v. Judges of the Federal Court of Australia (2013) 251 CLR 533. 11. TCL Air Conditioner (Zhongshan) Co Ltd v. Castel Electronics Pty Ltd (2014) 232 FCR 361 at 383–4 [75].

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The Hon. Justice Clyde Croft

Similar sentiments have been expressed by the Victorian Court of Appeal in the context of the Uniform Commercial Arbitration Acts.12 In New Zealand, in Todd Petroleum Mining Co Ltd v. Shell (Petroleum Mining) Co Ltd, the Court of Appeal has described the relationship between the Model Law and the Arbitration Act in the following terms:13 Implementing the … Model Law, the Act was ‘designed to substantially overhaul and modernise’ New Zealand arbitration law and bring the statutory provisions ‘into line with the international regime’.14

Over fifteen years ago – but in a similar vein – in Gold and Resource Developments (NZ) Ltd v. Doug Hood Ltd, the Court of Appeal acknowledged that assistance in interpreting the Act may be ‘gained by considering the experience of other common law jurisdictions’.15 The Court of Appeal only identified England and Australia’s arbitration legislation as mirroring that of New Zealand; however, it surely would not take much by way of detailed reasoning to extend this to other countries – particularly those in our region – where their arbitration law is based on the Model Law or the New York Convention. Indeed, as I have just observed, this is clearly now the position in Australia following the TCL case.

§4.03

ENFORCING AND CHALLENGING AWARDS

I now turn to consider examples of the temptation of domesticity in a range of arbitration-related applications which may come before the courts. But first, in the spirit of the international perspective mandated by our respective arbitration regimes, it is fitting that I refer to what is but a fraction of the writings of the Chief Justice of Singapore on this topic. Delivering the judgment of the Singapore Court of Appeal in the case of AKN v. ALC, Menon CJ framed the issue as follows:16 A critical foundational principle in arbitration is that the parties choose their adjudicators. Central to this is the notion of party autonomy. Just as the parties enjoy many of the benefits of party autonomy, so too must they accept the consequences of the choices they have made. The courts do not and must not interfere in the merits of an arbitral award and, in the process, bail out parties who have made choices that they might come to regret, or offer them a second chance to canvass the merits of their respective cases. This important proscription is reflected in the policy of minimal curial intervention in arbitral proceedings, a mainstay of the Model Law.

The Chief Justice is referring here to perhaps the most prevalent manifestation of the temptation of domesticity, namely where the court is invited in enforcement or

12. 13. 14. 15. 16.

See, e.g., Subway Systems Australia Pty Ltd v. Ireland (2014) 46 VR 49 at 57 [24]–[27]. [2015] 2 NZLR 180 at 188 [31]. Amaltal Corporation Ltd v. Maruha (NZ) Corporation Ltd [2003] 2 NZLR 92 at 97 [18]. [2000] 3 NZLR 318 at 323 [16]. [2015] SGCA 18, [37] (emphasis added).

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§4.03[A]

setting-aside proceedings to intervene to correct errors of law or fact made by an arbitral tribunal.17 His Honour continued and said that:18 In the light of their limited role in arbitral proceedings, the courts must resist the temptation to engage with what is substantially an appeal on the legal merits of an arbitral award, but which, through the ingenuity of counsel, may be disguised and presented as a challenge to process failures during the arbitration.

As in the TCL case, these comments were made in the context of a challenge to an award based on alleged breaches of the rules of natural justice. Another example of an invitation being extended to the court to inappropriately interfere with procedural rulings made by an arbitral tribunal came before me last year in the case of Cameron Australasia Pty Ltd v. AED Oil Ltd.19

[A]

The Cameron Case

The Cameron case involved an application to set-aside two procedural rulings – which were rendered in separate partial awards – and the final award of an arbitral tribunal. The substantive dispute submitted to arbitration concerned a claim in negligence for costs incurred in rectifying a leak at an oil well in the Timor Sea, north-west of Darwin. The first procedural ruling complained of was a decision not to allow the respondent in the arbitration, Cameron, to reopen its case in order to withdraw its voluntary admission that it owed a duty of care in tort to the claimant, AED. In its pleading in the arbitration, Cameron did not admit the existence of the duty of care pleaded by AED. However, in preparing its opening written submissions, and in light of a recent decision of the New South Wales Court of Appeal, Cameron decided to admit the existence of the duty. The admission was made despite the High Court granting special leave to appeal the Court of Appeal decision. The arbitration hearing proceeded on this basis, but before the tribunal rendered its award, the High Court overturned the Court of Appeal decision. Cameron therefore sought to reopen the arbitration hearing in order to withdraw its admission – based, as it was, on the overturned Court of Appeal decision. The tribunal refused Cameron’s application. As a result, Cameron submitted before me that it was unable to present its case before the tribunal.20 Cameron argued that although the tribunal articulated the correct test with respect to an application to reopen a hearing, it did not apply that test. Thus, Cameron argued that the ‘serious legal errors’ of the tribunal in refusing the application to reopen ‘comprised an affront to the basic fairness of the arbitral process’ – and that therefore enforcement ought to be refused and the award set-aside.21 17. See Chief Justice Sundaresh Menon, ‘Standards in Need of Bearers: Encouraging Reform from Within’ (Paper presented at the Chartered Instituted of Arbitrators, Singapore Centenary Conference, Singapore, 3 September 2015) 17. 18. [2015] SGCA 18, [39]. 19. [2015] VSC 163 (‘the Cameron case’). 20. Commercial Arbitration Act 2011 (Vic) s. 34(2)(a)(ii). 21. Cameron Australasia Pty Ltd v. AED Oil Ltd [2015] VSC 163, [45].

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The Hon. Justice Clyde Croft

The second procedural ruling complained of was a decision not to allow Cameron to rely on an expert report in circumstances where Cameron chose not to call the expert as a witness in the arbitration. Cameron argued that the arbitral procedure was therefore not in accordance with the parties’ agreement – namely, that the tribunal would not be bound by the rules of evidence.22 Cameron sought to rely on a particular provision of the Supreme Court Rules which provides that a party may put in evidence a report served on that party without calling the expert.23 Given that the governing law of the arbitration was that of Victoria, Cameron argued that the tribunal was not permitted to refuse to admit evidence that was admissible under the rules of evidence. I rejected both grounds for setting the awards aside and found that Cameron was, in effect, attempting to pursue a merits appeal in the form of an appeal on questions of law. Indeed, the nature of Cameron’s arguments revealed that the purported grounds were simply appeals from determinations of the tribunal which were – to borrow the phrase used by the Full Court in TCL – ‘dressed up’ as either complaints about the fairness of the arbitral process or as breaches of the agreed arbitral procedure. As in the TCL case, a tell-tale sign of this was the fact that Cameron sought to reargue why it should have been permitted to rely on the expert report in the arbitration. To have succumbed to the temptation of domesticity in this context would have meant considering these arguments on their merits, despite the tribunal having exercised its powers in a ‘considered and reasoned manner, in circumstances where there was no suggestion that the parties did not have a full or reasonable opportunity’ to put those arguments to the tribunal.24 At this point, I might add that invitations to intervene in the factual or legal merits of an arbitral award are not the only ways in which a court might be tempted by the comfort of domesticity. Indeed, temptation may present itself in circumstances where an award is yet to be rendered, or even where there is no arbitration on foot. Examples to which I will return later include applications seeking a stay of court proceedings and referral to arbitration, and applications for the issue of subpoenas to attend before or produce documents to an arbitral tribunal. Before exploring these examples though, I wish to turn to another enforcement application heard in the Arbitration List in early 2015 – the Sauber case.25

[B]

The Sauber Case

The Sauber case concerned a Dutch Formula 1 race car driver seeking to be reinstated as a driver for the Sauber F1 Team. The applicant driver, Mr van der Garde, and the company set up to manage his interests sought enforcement in Victoria of a Swiss arbitral award. The critical dispositive provision of the award required Sauber to:

22. 23. 24. 25.

Commercial Arbitration Act 2011 (Vic) s. 34(2)(a)(iv). Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 44.04. Cameron Australasia Pty Ltd v. AED Oil Ltd [2015] VSC 163, [55]. Giedo van der Garde BV v. Sauber Motorsport AG (2015) 317 ALR 792.

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refrain from taking any action the effect of which would be to deprive Mr van der Garde of his entitlement to participate in the 2015 Formula One Season as one of Sauber’s two nominated race drivers.

Two days after the rendering of the award, van der Garde’s Australian representatives contacted my Associates in accordance with the Arbitration Practice Note. The matter was listed for the hearing of an urgent ex parte application the following day (a Thursday), at which van der Garde sought orders permitting substituted service of the Originating Application on Sauber in Switzerland. I made orders for substituted service and listed the substantive application for hearing on the following Monday, the Labour Day public holiday, less than a week before the first race of the season, the Australian Grand Prix at Albert Park in Melbourne. At the hearing, Sauber sought to resist enforcement on public policy grounds arguing that the critical dispositive provision was too uncertain to constitute an order of the Court. In support of this submission, Sauber argued that the subject of an order of the court ‘must be able to ascertain in precise terms what it is that they must do, or refrain from doing’, where default may ground an action for contempt.26 In addition to this uncertainty argument, Sauber submitted that enforcement would be futile because the award did not require Sauber to take any positive step to reinstate van der Garde as one of its drivers. I delivered my judgment and written reasons one day after the hearing. In allowing the application and enforcing the award, I found that the critical dispositive provision was not too vague or uncertain, nor was enforcement futile; noting that the court was available to assist the parties in the event of any ‘doubt or difficulty’ in this regard.27 The Court of Appeal affirmed this approach, finding that ‘all concerned [were] well aware of the nature of the dispute and its resolution’, and that there was ‘no demonstrated lack of utility in the award as to render it against public policy to enforce it as an order of the court’.28 Although not described explicitly as such, Sauber’s submissions on uncertainty and futility appeared to draw directly on equitable principles – principles which, despite their intuitive appeal to the common lawyer, are not found in the Model Law, or the New York Convention. In this context, it is important to remember that these international instruments constitute an amalgam of common law and civil law concepts. Clearly, the application of principles peculiar to one legal system has the potential to hinder the uniformity project which the Model Law exists to serve and which Australia’s arbitration regime is unequivocally designed to support. A challenge for courts then is to identify the jurisprudential basis of submissions like those advanced by Sauber, before exercising restraint and, to the extent permitted by our parliaments, applying concepts found in these international instruments with reference to international jurisprudence.

26. Giedo van der Garde BV v. Sauber Motorsport AG (2015) 317 ALR 792 at 795 [7]. 27. Giedo van der Garde BV v. Sauber Motorsport AG (2015) 317 ALR 792 at 797–8 [22]. 28. Sauber Motorsport AG v. Giedo van der Garde BV (2015) 317 ALR 786 at 789–90 [12]–[13].

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§4.04[A] §4.04

The Hon. Justice Clyde Croft SUPPORTING ARBITRAL PROCESSES

I turn now to consider how the temptation of domesticity manifests itself in applications other than enforcement or setting-aside proceedings, before returning to another high-profile enforcement proceeding – the Gutnick case.29 As will become apparent, there is nothing special about the role of the court in enforcement or setting-aside applications when compared with applications for some kind of intervention in the arbitral process itself. Indeed, the international provenance of our respective arbitration regimes is equally as relevant.

[A]

Stay and Referral to Arbitration

I move first to consider applications to stay court proceedings and refer the parties to arbitration. In June 2015, in the case of Robotunits Pty Ltd v. Mennel, the defendant, Mr Mennel, sought orders that proceedings commenced by the plaintiff, Robotunits Pty Ltd, be stayed and that the parties be referred to arbitration.30 The proceedings in question involved a claim for the return of money which Robotunits claimed that Mennel, its former managing director, had wrongly caused it to pay to his bank account. Mennel sought a stay and referral to arbitration in reliance on an arbitration agreement contained in a shareholders agreement to which he and Robotunits were parties. Mennel claimed that he was entitled to make the bulk of the payments under the shareholders agreement, and that therefore the proceeding involved the ‘determination of a matter that, in pursuance of the [arbitration] agreement, [was] capable of settlement by arbitration’, and so was required to be stayed under the International Arbitration Act.31 In resisting the application, Robotunits submitted that, in order to constitute a ‘matter’ under that section, the assertions giving rise to the dispute between the parties must be ‘sustainable’, in that they must have a reasonable prospect of success. Robotunits argued that Mennel’s assertion that the shareholders agreement authorised some or all of the payments did not meet this sustainability requirement and so there was no matter – or dispute – to which the arbitration agreement could apply. Upon reviewing the authorities, including from Hong Kong, Singapore and the UK, I found that neither the Act, nor the equivalent article in the Model Law – Article 8 – imposed a threshold requirement of this kind. I noted that:32 to find otherwise would be to succumb to the temptation of ‘domesticity’ … by allowing the determination of whether to stay proceedings and refer the parties to arbitration to be coloured by the merits of the case.

29. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199; Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (No 2) [2015] VSC 770; Gutnick v. Indian Farmers Fertiliser Cooperative Ltd (2016) 49 VR 732. 30. (2015) 297 FLR 300. 31. International Arbitration Act 1974 (Cth) s. 7(2). 32. Robotunits Pty Ltd v. Mennel (2015) 297 FLR 300 at 321 [42].

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Moreover, in relation to the role of the courts in applications of this kind, I observed that:33 Even though the merits of the case are necessarily yet to be canvassed by an arbitration tribunal, courts are no more entitled to delve into the merits of the case in the context of a stay application, than they are in the context of enforcement or setting-aside proceedings.

[B]

Subpoenas

I turn now to consider applications for the issue of subpoenas to attend before, or produce documents to an arbitral tribunal. In Australia, as in New Zealand, applications of this kind may only be made with the permission of the arbitral tribunal.34 In another matter heard in the Arbitration List in 2015 – Esposito Holdings Pty Ltd v. UDP Holdings Pty Ltd – Esposito applied for the issue of subpoenas to a number of corporate entities in relation to a domestic arbitration.35 Before setting out the applicable principles, I reiterated the view that I had expressed in the ASADA case,36 namely that it is:37 clearly inappropriate for the Court, in an application … by a party to obtain subpoenas, to embark upon a process which would, in effect, ‘second guess’ the arbitral tribunal which has already given permission for the application to obtain a subpoena.

In ordering that the proposed subpoenas be issued in the Esposito case, I noted that the principles applicable to the question of whether an arbitral tribunal should grant permission to a party to apply to the courts for the issue of a subpoena are not necessarily the same as the principles which the courts apply in deciding whether to issue a subpoena. Nevertheless, I remarked that there is ‘every reason why an arbitral tribunal should not grant permission in circumstances where it is reasonably clear that the court will … not issue the subpoena’.38 In relation to the court’s role in this kind of application, practitioners ought be reminded that courts are not a mere rubber stamp on the determination of an arbitral tribunal to permit a party to apply to the court. Under the Australian regime, courts retain a discretion whether to issue the subpoena and it is for the court, not the arbitral tribunal, to determine whether the coercive powers of the state to compel a person to

33. Robotunits Pty Ltd v. Mennel (2015) 297 FLR 300 at 306 [14]. 34. International Arbitration Act 1974 (Cth) s. 23; Arbitration Act 1996 (NZ) s. 27. See also Commercial Arbitration Act 2011 (Vic) s. 27A. 35. [2015] VSC 183; see also Aurecon Australasia Pty Ltd v. BMD Constructions Pty Ltd [2017] VSC 382. 36. Chief Executive Officer of the Australian Sports Anti-Doping Authority v. 34 Players [2014] VSC 635. 37. Esposito Holdings Pty Ltd v. UDP Holdings Pty Ltd [2015] VSC 183, [5] (‘the Esposito case’) citing Chief Executive Officer of the Australian Sports Anti-Doping Authority v. 34 Players [2014] VSC 635, [63]. 38. Esposito Holdings Pty Ltd v. UDP Holdings Pty Ltd [2015] VSC 183, [7].

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do something should be exercised.39 This gives rise to a relatively delicate balancing act whereby the court must exercise its discretion without ‘second guessing’ the tribunal’s decision to allow the application to be made, or otherwise interfering with the substantive or procedural issues in the arbitration, or otherwise succumbing to the temptation of domesticity. In light of this, it was particularly helpful in the Esposito case that the tribunal had furnished detailed reasons for its decision to permit the application for the issue of subpoenas to be made to the court. As such, I was able to see that the tribunal appeared to have accorded procedural fairness to the parties and that the principles applicable to the issue of subpoenas had been considered and applied.

§4.05

THE GUTNICK CASE

Finally, I turn to another high-profile case heard in the Arbitration List in late 2015 – an appeal from which was heard and determined by the Court of Appeal shortly after my judgment – the Gutnick case.40 This case raised some particularly interesting issues in the context of the purpose of this discussion which necessitated extended treatment in the judgment of the proper judicial approach to be taken. By way of factual background, the applicants – Indian Farmers Fertiliser Cooperative Ltd, or IFFCo, and its subsidiary, Kisan International Trading Fze – sought enforcement in Australia of an arbitral award rendered under the SIAC Rules.41 In the arbitration, the respondents, Joseph Gutnick, and Legend International Holdings, Inc, were found by a three-member tribunal to have induced, by fraudulent misrepresentation, the purchase of certain shares in Legend. Among other awards and orders, the tribunal made a declaration that the relevant agreements ‘are rescinded’. The tribunal also made express orders that the respondents pay the applicants the purchase price of the shares with interest. The juridical seat and venue of the arbitration was Singapore, and the governing law of the agreements was that of England – a position which gave rise to a somewhat unusual state of affairs to which I now turn. Before me, the respondents sought to resist enforcement of the award on public policy grounds. Specifically, the respondents argued that the tribunal’s awards and orders entitled the applicants to have their money back and yet keep the shares. As a consequence, it was argued that the award offended a ‘“universal” and “cardinal” principle that a plaintiff is not to be compensated for more than their loss’, and therefore that enforcement would be ‘contrary to a universal bedrock principle of justice and morality’.42 In other words, it was argued that enforcement would be contrary to public policy because the award allowed for double recovery by the applicants. In line with the respondents’ submissions, I was prepared to accept that enforcement of an award which allows for double recovery would likely be contrary to 39. See Aurecon Australasia Pty Ltd v. BMD Constructions Pty Ltd [2017] VSC 382, [6]–[7]. 40. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199; Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (No 2) [2015] VSC 770; Gutnick v. Indian Farmers Fertiliser Cooperative Ltd (2016) 49 VR 732. 41. Arbitration Rules of the Singapore International Arbitration Centre (4th ed, 2010) (‘the SIAC Rules’). 42. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 229–30 [100].

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public policy.43 However, I found that the award did not in fact allow for double recovery and so I enforced the award and entered judgment against the respondents in the sum of USD 40.4 million with interest. The Court of Appeal, comprising Warren CJ, Santamaria and Beach JJA, refused leave to appeal, upholding my decision and finding that:44 When the tribunal made its award declaring that the agreements had been rescinded, it did not declare that the respondents were entitled to retain ownership of the shares; nor did it say anything that implied such an entitlement. It is plain from the award that the respondents’ case was a conventional claim for rescission involving the return of what was purchased with a refund of the purchase price. The arbitral tribunal accepted those claims and made an award and order accordingly. As the judge put it, ‘the declaration of rescission in the award necessarily entails the avoidance of the transactions from the beginning and the restoration of the parties to their previous positions’. With respect, we agree. Far from being contrary to public policy, we consider that the award conforms with the public policy of Australia.

In the course of its judgment, the Court of Appeal referred to my characterisation of the proper approach to be taken by the Court to the consideration of the parties’ submissions and noted that the parties had accepted that approach.45 The question of the proper approach to be taken was particularly interesting and somewhat unusual because the relevant aspects of the governing law of the contract happened to align with the domestic law of the enforcement jurisdiction. Moreover, the governing law, being English law, was informed by Australian case law with respect to rescission and the converse was also true. Indeed, the relevant aspects of the governing law also happened to align with the domestic law of the seat of the arbitration, namely Singapore.46 This state of affairs made it particularly important to clearly define the Court’s role in order to explain why a significant portion of the judgment discusses rescission – a domestic, common law doctrine not found in the Model Law or the New York Convention. As I explain in the judgment, this discussion was a consequence of the need to ‘read and understand the award … in the context of its governing law’.47 In the context of this case, this was necessary in order to ‘determine what effect the award may or may not have’ had, and, more specifically, ‘in order to ascertain whether the [award allowed] for double recovery’.48 As a result, my consideration of the operation of the doctrine of rescission in English law does not demonstrate that I succumbed to the temptation of domesticity because these references were made only – and for that matter, necessarily – by way of understanding the tribunal’s declaration that the agreements were rescinded. Accordingly, this detailed discussion of rescission does not inform the question of whether

43. 44. 45. 46. 47. 48.

Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 214 [39], 231–2 [105]. Gutnick v. Indian Farmers Fertiliser Cooperative Ltd (2016) 49 VR 732 at 744–5 [30]. Gutnick v. Indian Farmers Fertiliser Cooperative Ltd (2016) 49 VR 732 at 740–1 [20]. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 216–7 [47]. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 216 [44]. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 216 [44].

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enforcement would have been contrary to public policy – it only goes to the question of whether the award provided for double recovery. To help demonstrate the point, it may be noted that this discussion does not canvass whether the tribunal correctly applied the relevant legal doctrine, as reasoning of that kind would have constituted an impermissible interference with the determination of the tribunal.

[A]

Residual Discretion to Enforce

Another interesting issue raised by the Gutnick case was whether a court can enforce an award even if to do so would be contrary to public policy.49 Although it was not necessary for me to decide this point, I expressed the view that under the New York Convention and the Model Law enforcement is discretionary, not mandatory. However, I observed, as others have done, that ‘given the nature of the public policy ground for refusing enforcement … this discretion would only fall to be exercised in favour of enforcement in the most exceptional of cases’.50 That is, it is only in the most exceptional of cases that a court would find that enforcement would be contrary to public policy but then go ahead and enforce the award anyway. This case did not meet this description and I was not satisfied that the fact that the award had already been enforced in Singapore, or that the SIAC Rules may or may not have allowed for recourse to be had to the tribunal to request an interpretation of the award, would have been relevant discretionary considerations in the circumstances.51 Further, I gave as an example of ‘domesticity’ an alternative submission of the applicants that the Court could ‘ameliorate the effects of any conflict with public policy by making enforcement conditional upon the return of the shares, and that, therefore, the Court should exercise its discretion to enforce the [award]’.52 Indeed, I noted that:53 it is difficult to see how a court would be enforcing a foreign award … in a manner consistent with authority if enforcement were made conditional on some extraneous matter not contemplated by, or not provided for by the arbitral tribunal.

IFFCo and Kisan pursued this point on appeal by way of a notice of contention; however, given the Court of Appeal’s conclusion that enforcement was not contrary to public policy, it was not necessary for it to rule on the notice and it declined to do so.54

[B]

Stay of Enforcement Judgment

Finally, as part of the Gutnick enforcement proceedings, I also had cause to consider the applicable principles to the grant of a stay of execution of a judgment enforcing an

49. See Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 232–6 [108]–[121]. 50. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 233 [111]. 51. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 236 [121]. 52. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 235–6 [120]. 53. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (2015) 304 FLR 199 at 236 [120]. 54. Gutnick v. Indian Farmers Fertiliser Cooperative Ltd (2016) 49 VR 732 at 745 [33].

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arbitral award. The respondents sought a stay on the basis that a proposed appeal would be rendered nugatory unless a stay was granted. The stay application was heard and written reasons were published on 22 December 2015, the day after I had handed down the enforcement judgment. In support of the application, the respondents relied on the relevant provision of the Supreme Court Rules which allows the court to stay execution of a judgment, and submitted that the same principles were applicable as in any other application for a stay pending appeal.55 This argument gives rise to an interesting conundrum in light of the challenge that I have been discussing. The whole point of enforcement is that an arbitral award can be enforced as an order of the court. Accordingly, the court should be entitled to stay execution of those orders if appropriate, pursuant to the usual principles. However, on face value, the application of these principles appears to be indicative of domesticity in the sense that provision is not made for the grant of stay of execution in either the New York Convention or the Model Law. Indeed, as Allsop CJ put it in the case of Elders International Australia Pty Ltd v. Beijing Be Green Import & Export Co Ltd:56 A clear, express and demonstrated public policy of the Australian Parliament is contained within the Act for the facilitation of the enforcement of international arbitral awards. That facilitation means their proper, efficient and timeous facilitation and recognition. To grant a stay would delay enforcement.

After referring to this passage and other authorities, including from Singapore, I found that ‘the policy underlying the [International Arbitration] Act speaks strongly against staying execution of a judgment enforcing a foreign arbitral award’.57 As the Chief Justice went on to say in Elders though, this does not mean that ‘a stay of a judgment based on an international arbitration award should never be given’.58 However, in my view, this does suggest that the court must exercise its discretion to grant a stay sparingly. In the circumstances of the Gutnick case, I was prepared to grant an interim stay of no more than five court days during a Law Term, subject to the direction of the Court of Appeal.59 Given the time of year, this meant that the respondents obtained a stay of execution of the judgment until the first week of February the following year, 2016. The application for leave to appeal was filed promptly following the grant of the stay, and the Court of Appeal heard that application and the appeal (as if leave had been granted) on the final day of the stay, which was a Friday. As I have already mentioned, the Court of Appeal refused leave to appeal and delivered its judgment the following Tuesday. Once again, upon judgment Gutnick and Legend indicated their intention to appeal and sought an extension of the stay. IFFCo and Kisan opposed this application but

55. Supreme Court (General Civil Procedure) Rules 2005 (Vic) r 66.16; see now Supreme Court (General Civil Procedure) Rules 2015 (Vic) r 66.16. 56. (2014) 324 ALR 194 at 198 [14] (‘Elders’). 57. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (No 2) [2015] VSC 770, [18]. 58. Elders International Australia Pty Ltd v. Beijing Be Green Import & Export Co Ltd (2014) 324 ALR 194 at 198 [14]. 59. Indian Farmers Fertiliser Cooperative Ltd v. Gutnick (No 2) [2015] VSC 770, [18], [22]–[23].

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ultimately conceded that there would be no prejudice to them should the stay be extended to the end of that week. As a result, the Court of Appeal made orders extending the stay to 12 February, or until such other time as might otherwise be ordered by it or the High Court of Australia. An application for special leave to appeal to the High Court was refused.

§4.06

CONCLUSION

As I have indicated, the challenge of resisting the temptation of domesticity is significant. Practitioners and courts alike must remain vigilant in order to ensure that due regard is had to the international provenance of domestic legislation based on the New York Convention and the Model Law, in order to promote international uniformity in international commercial arbitration practice.

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CHAPTER 5

Interaction of Laws in International Arbitration: An Asian Perspective Tan Sri Dato’ Cecil Abraham, Aniz Ahmad Amirudin & Daniel Chua Wei Chuen

§5.01

INTRODUCTION

In international arbitration, the choices of law interact complexly to derive at the law which governs the arbitration agreement, the arbitral procedure, and the substantive rights, to name a few.1 This chapter discusses the interaction between a choice of law clause governing the underlying dispute, choice of the seat of the arbitration, and the law governing an arbitration agreement. At the outset, the interaction of laws in respect of conflict of law issues in international arbitration in Asia have been addressed in other dedicated works.2 The author will instead attempt to provide an account of the effect of interaction of laws in international arbitration, in respect of how the law governing an arbitration agreement is determined by national courts and tribunals seated in Asian jurisdictions, and some arguments in support of, and against, agreeing upon the law of the arbitration agreement at the outset.

1. Tan Sri Dato’ Cecil Abraham and Aniz Ahmad Amirudin, ‘Interaction of Laws in International Arbitration’ in Arifin Zakaria, Sundra Rajoo and Philip Koh, Arbitration in Malaysia: A Practical Guide (Sweet & Maxwell 2016) 53, 55. See also Nigel Blackaby et al., Redfern and Hunter on International Arbitration, 3.07 (6th edn, Oxford University Press 2015), which identifies at least five different systems of law that may bear upon an international arbitration: (i) the law governing the arbitration agreement; (ii) the law governing the proceedings of the arbitral tribunal; (iii) the proper law of the underlying contract; (iv) procedural ‘soft law’ instruments; and (v) the law governing the recognition and enforcement of an arbitral award. 2. See, e.g., Michael J Moser and John Choong, Asia Arbitration Handbook (Oxford University Press 2011), Harinkar KS, International Commercial Arbitration in Asia and the Choice of Law Determination, 30 Journal of International Arbitration 6 (2013).

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Tan Sri Dato’ Cecil Abraham et al. INTERACTION OF LEGAL ISSUES RELATING TO THE AGREEMENT TO ARBITRATE

A primary motivation for parties choosing international arbitration to resolve their disputes is the advantage of avoiding specific legal systems or national courts in jurisdictions which, but for recourse to international arbitration, would have to be litigated in such national courts.3 A corollary of this choice of international arbitration over litigation is its accompanying ‘tortuous choice of law questions’.4 A choice of international arbitration is a choice to opt for a dispute resolution process which inevitably involves complex conflict of law issue, even as compared to international litigation.5 In relation to how a choice to arbitrate disputes gives rise to a multiplicity of interactions between laws, the editors of Dicey, Morris and Collins, note that a choice to arbitrate disputes: has a significant effect on the applicable law. It takes the regulation of such disputes outside the operation of the ordinary rules of law applicable to private law disputes … Instead, it subjects them to a separate regime, which is partly the product of private regulation, and partly the result of developments in international treaties and national law, which themselves permit a considerable scope for party autonomy in arbitration.6

An arbitral tribunal may be required to apply multiple conflict of law rules in order to derive the laws or rules which apply to any one particular law which arises during arbitral proceedings, e.g., the rules governing the jurisdiction of the arbitral tribunal, the rules governing the procedure, the conflict of law rules, the rules governing the issues relevant to the solution of the merits of the dispute, and the rules governing the enforcement of an award.7 In the words of Lord Mustill: It is by now firmly established that more than one national system of law may bear upon an international arbitration. Thus, there is the proper law which regulates the substantive rights and duties of the parties to the contract from which the dispute has arisen. Exceptionally, this may differ from the national law governing the interpretation of the agreement to submit the dispute to arbitration. Less exceptionally it may also differ from the national law which the parties have expressly or by implication selected to govern the relationship between themselves and the arbitrator in the conduct of the arbitration: the ‘curial law’ of the arbitration, as it is often called.8

3. Queen Mary University of London and White & Case, 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, 6, http://www.arbitration.qmul.ac. uk/docs/164761.pdf (accessed 25 January 2018). 4. Gary B Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing, 73 (5th edn, Kluwer Law International 2016). 5. Tan Sri Dato’ Cecil Abraham, supra n. 1, at 53, 55. 6. Lord Collins of Mapesbury et al. (eds), Dicey, Morris & Collins’ on the Conflict of Laws, vol 1 § para. [16-006] (15th edn, Sweet & Maxwell 2012). 7. Filip De Ly, Mark Friedman and Luca Radicati Di Brozolo, The International Law Association International Commercial Arbitration Committee on Ascertaining the Contents of the Applicable Law in International Commercial Arbitration, 26 Arbitration International 193, 194-195 (2010). 8. Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd [1993] 1 All ER 664, 682 (HL 1993).

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Even within the confines of a single conflict of law issue in international arbitration (of which the focus of this chapter is the determination of the law governing an arbitration agreement),9 an unenviable number of choice of law issues may potentially emerge. Some of these issues may arise within the course of arbitral proceedings and are accounted for in national arbitration legislation. For example, in Asian jurisdictions adopting the UNCITRAL Model Law on International Commercial Arbitration,10 the formal validity of the arbitration agreement will be governed by the lex arbitri, i.e., the law governing the arbitration agreement.11 Some others may concern the arbitration agreement, but arise outside the arbitral proceedings proper. As an illustration, consider the case where proceedings are brought to enforce an arbitral award.12 A judgment debtor may raise grounds for national courts to refuse the recognition and enforcement of arbitral awards by virtue of that party to the arbitration agreement having been plagued by one party’s incapacity to enter into the arbitration agreement. Such issues are accounted for not only by reference to national arbitration legislation,13 but also by reference to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.14 Even so, the standard by which such incapacity is to be determined ought to be a standard which can be measured by a standard of law, which is clear from the wording of New York Convention: The parties to the agreement … were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made.15

However, some other issues may not be provided for strictly under national arbitration legislation based on the Model Law, nor is it clearly accounted for in the New Yok Convention. These include the applicable law to determine the arbitrability of the dispute, the capacity and authority to conclude an arbitration agreement,16 the law applicable to the interpretation of international arbitration agreements,17 and even the

9. As compared with the relatively straightforward submission agreement. See, e.g., Philippa Charles, The Proper Law of the Arbitration Agreement, 80 Arbitration 55 (2014), ‘… agreements to arbitrate “after the event”, often referred to as “submission agreements”, are separate documents in any event, but the distinguishing feature of an “arbitration clause” within a larger contract is that … it is “ring-fenced” from the agreement within which it sits and is to be interpreted and applied on its own terms and not by reference to, or in association with, the other clauses of the host contract including in particular the provision concerning governing law with respect to the performance of the contract.’ 10. Hereinafter referred to as the ‘Model Law’. 11. For example, this is provided for under the Malaysian Arbitration Act 2005, s. 9(3) and (4) which requires an arbitration agreement to be in writing, and provides an exhaustive list of circumstances in which an arbitration agreement would be deemed to be ‘in writing’. 12. See, e.g., the Arbitration Act 2005, s. 38 (Malaysia). 13. See, e.g., the Arbitration Act 2005, s. 39 (Malaysia). 14. Hereinafter referred to as the ‘New York Convention’. 15. The New York Convention, Art. V(1)(a). 16. See, e.g., Tan Sri Dato’ Cecil Abraham, supra n. 1, at 53, 65-67. 17. See in general Gary B Born, International Commercial Arbitration, vol 1, §§ 1325-1345 (2nd edn, Kluwer Law International 2014).

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extent of the presumption of separability in international arbitration agreements.18 In this regard, it is noteworthy that the Model Law only provides conflict of law rules for the determination of the law governing the substance of the dispute.19 As a result, much ink has been spilt, with little effect of alleviating the confusion surrounding this subject; a far cry from ‘the ideals of international commercial arbitration – ie, the objective of simplifying, expediting and rationalising transnational dispute resolution’.20 The ‘basic’ conflict of law problem in determining the law governing the arbitration agreement is aptly described by the authors of Redfern and Hunter: It might be assumed that this is the same law as that which the parties chose to govern the substantive issues in dispute – but this is not necessarily a safe assumption. An ‘applicable law clause’ will usually refer only to the ‘substantive issues in dispute’. It will not usually refer in terms to disputes that might arise in relation to the arbitration agreement itself. It would therefore be sensible, in drafting an arbitration agreement, also to make clear what law is to apply to that agreement. If no such express designation has been made and it becomes necessary to determine the law applicable to the agreement to arbitrate, what are the choices? There are other possibilities, but the principal choice – in the absence of any express or implied choice by the parties – lies between the law of the seat of the arbitration and the law that governs the contract as a whole.

As regards the first part, practitioners in many Asian jurisdictions have readily attested to the absence of a separate choice of law clause to govern their arbitration agreements.21 As for the second part, there is little controversy that a choice of law to govern the underlying contract is a choice of the applicable law for the substance of the dispute, and a choice of seat of the arbitration is more often than not22 a choice of the procedural law of the arbitration. The real controversy lies in the corollary area of law which is derived from the presumption of the separability of an arbitration agreement from the host agreement in which the arbitration agreement is contained. In the absence of a specific choice of law clause to govern the arbitration agreement, and the fact of a choice of law governing the host agreement and a choice of the seat of arbitration having been made, gives rise to the question of which law governs the arbitration agreement?

18. See in general Gary B Born, International Commercial Arbitration, vol 1, §§ 345-348, 489 (2nd edn, Kluwer Law International 2014). 19. See the Model Law, Art. 28. A number of Asian jurisdictions have adopted the Model Law for their respective national arbitration legislations, e.g., Brunei Darussalam, Cambodia, Hong Kong, India, Japan, Malaysia, Philippines, Singapore, South Korea, and Thailand, to name a few. 20. Gary B Born, The Law Governing International Arbitration Agreements: An International Perspective, 26(3) Singapore Academy of Law Journal 814 (2014). 21. See, in passim in Michael J Moser and John Choong (eds) in Asia Arbitration Handbook, 4.66, 5.40, 9.68, 16.59, 21.42, 23.58 (Oxford University Press 2011). 22. Although this presumption can be varied by agreement, collective experience dictates the lack of wisdom in doing so. See, e.g., Michael Hwang SC and Fong Lee Cheng, Relevant Considerations in Choosing the Place of Arbitration, 4 Asian International Arbitration Journal 195, 216, 219 (2008); Gary B Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing, 73-74 (5th edn, Kluwer Law International 2016).

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§5.03

THE CONFLICT OF LAW METHOD TO DETERMINING THE LAW GOVERNING THE ARBITRATION AGREEMENT IN THE ABSENCE OF CHOICE

The law applicable to an arbitration agreement is determined by the common law conflict of law analysis, which is not at all unfamiliar to Asian jurisdictions.23 The analysis undertakes a three-stage inquiry into: (i) whether there is an express choice of law to govern the arbitration agreement; (ii) in the absence of an express choice, whether there is an implied choice of law to govern the arbitration agreement; and (iii) in the absence of both an express choice and an implied choice, the system of law with which the arbitration agreement has its closest connection.24 What is in controversy is the effect of the choices of governing law and seat of the arbitration on the conflict of law analysis, i.e. the basic problem of determining which law is the implied choice of law or the law with which the arbitration agreement has its closest connection. The difficulty lies in differentiating between the choice of seat and the choice of law governing the main contract as being the implied choice of law, or instead as a connecting factor which points to the applicable law. On the one hand, while the court is required first to consider whether an implied choice of law has been made before considering the system of law with which the arbitration agreement has its closest connection,25 the dichotomy between an implied choice and a factor which points to the most closely connected system of law often overlap, and is difficult to distinguish with certainty the circumstances in which this happens, and why so.26 The starting point of the traditional conflict of law analysis is to determine the law governing the arbitration agreement based on the putative applicable law, i.e. the law which would apply if the clause were valid, and then to apply the rules of that law to determine whether or not the impugned clause is valid.27 On the one hand, the result of this is that an express choice of law for the main contract generally operates as an express, or implied, choice of the law of the arbitration agreement.28 An implied choice of law governing an arbitration agreement traditionally arises from a strong presumption in favour of the law governing the 23. See, e.g., Pacific Recreation Pte Ltd v. S Y Technology Inc, 2 SLR(R) 491 at [36] (SGCA 2008), wherein the Singapore Court of Appeal used the common law conflict of law analysis to determine the substantive law governing commercial contracts. 24. See Sulamérica CIA de Seguros v. Enesa Engenharia SA, EWCA Civ 638 at [9] (CA 2012); Arsanovia Ltd, Burley Holdings Ltd, Unitech Ltd v. Cruz City 1 Mauritius Holdings, EWHC 3702 (QB 2012) and Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi v. VSC Steel Co Ltd, EWHC 4071 (QB 2013). 25. Arsanovia Ltd, Burley Holdings Ltd, Unitech Ltd v. Cruz City 1 Mauritius Holdings, EWHC 3702 at [17] (QB 2012). 26. Sulamérica CIA de Seguros v. Enesa Engenharia SA, EWCA Civ 638 at [25] (CA 2012). 27. See, e.g., the Parouth, Lloyd’s Rep 351, 353 (1982); Robert Merkin and Johanna Hjalmarsson, Singapore Arbitration Legislation: Annotated, 161 (2nd edn, Informa Law 2016) at n. 791. See also CIMB Bank Bhd v. Dresdner Kleinwort Ltd, 4 SLR 543 at [30] (SGCA 2008), where the Singapore Court of Appeal endorsed the putative proper law approach to determine the validity of impugned clauses in an impugned agreement. 28. See, e.g., Woh Hup (Pte) Ltd v. Property Development Ltd, 1 SLR 652 (SGHC 1991), although the analysis therein may be described as too simplistic. See also Julian Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, ICCA Congress Series No 14, 136 (1998).

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underlying agreement which contains the arbitration clause.29 In Sulamérica CIA de Seguros v. Enesa Engenharia SA, the English Court of Appeal described the assumption that parties intend their chosen law to govern both the substantive contract as well as the arbitration agreement as being a ‘natural inference’.30 On the other hand, it may very well be the case that qui indicem forum elegit jus, i.e. a choice of forum is a choice of law.31 According to the authors of Dicey, Morris and Collins, the law of the seat of the arbitration ‘will apply if the circumstances point to an implied intention to choose the law of that place to govern the arbitration agreement’.32 The assumption here is that, given the close connection the seat of arbitration has with the arbitration agreement, an express choice of the seat of the arbitration is therefore an implied choice of the law governing the arbitration agreement.33 To that effect, an express choice of the proper law of the main contract is not of itself sufficient to displace this presumed intention.34 The basis of this assumption, however, is not without criticism.35 Moving away from the arbitrary determination of which of the two choices in the contract is the implied choice of the law governing the arbitration agreement, certain circumstances may arise where an implied choice cannot be taken to be the applicable law intended by the parties. For example, in Sulamérica CIA de Seguros v. Enesa Engenharia SA, the English Court of Appeal took the view that there was no implied choice of law made by the parties, as the effect of the choice of London as the seat of the arbitration, and the intended effect of the arbitration agreement should it operate under Brazilian law36 was plainly incompatible. In such circumstances where the cumulative effect of the choices made by parties would be one which would invalidate the arbitration agreement, the implied choice of law cannot be taken as the law which the parties intended to govern their arbitration agreement. Wherefore, where the parties have agreed to a seat of arbitration, that becomes the most likely law to govern the arbitration agreement, as it is the place where the arbitration is to be legally

29. This approach is supported by a number of academic authorities. See, e.g., B Hanotiau, What Law Governs the Issue of Arbitrability?, 12 Arbitration International 391 (1996); Julian Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, ICCA Congress Series No 14, 136 (1998); Nigel Blackaby et al., Redfern and Hunter on International Arbitration, 3.205–3.207 (6th edn, Oxford University Press 2015). See also Sonatrach Petroleum Corp (BVI) v. Ferrell International Ltd, 1 All ER 627 at [32] (2002); Black Clawson International Ltd v. Papierwerke Waldhof-Aschaffenberg AG, 2 Lloyd’s Rep 446, 455 (1981). 30. EWCA Civ 638 at [9] (CA 2012). 31. Nigel Blackaby et al., Redfern and Hunter on International Arbitration, 3.205 (6th edn, Oxford University Press 2015). 32. Lord Collins of Mapesbury et al. (eds), Dicey, Morris & Collins’ on the Conflict of Laws, vol 1 § para. [16-020] (15th edn, Sweet & Maxwell 2012). 33. Nigel Blackaby et al., Redfern and Hunter on International Arbitration, 3.205 (6th edn, Oxford University Press 2015). 34. See, e.g., C v. D, EWCA Civ 1282 (CA 2007); FirstLink Investment Corporation Ltd v. GT Payment Pte Ltd, SGHCR 12 (SGHC 2014). 35. Nigel Blackaby et al., Redfern and Hunter on International Arbitration, 3.206–3.207 (6th edn, Oxford University Press 2015); Sundra Rajoo, Law, Practice and Procedure of Arbitration, 827-828 (2nd edn, LexisNexis 2016). 36. Which was the law governing the underlying contract.

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conducted, and submission to the jurisdiction of the national courts which will exercise its supervisory jurisdiction.37

§5.04

THE LAW GOVERNING THE ARBITRATION AGREEMENT IN THE ABSENCE OF CHOICE OF LAW: SURVEY OF ASIAN JURISDICTIONS

Although the New York Convention expressly recognises the principle of party autonomy in respect of the law governing an arbitration agreement,38 there appears to be no international consensus on the law governing the arbitration agreement in the absence of a specific choice of law clause for the arbitration agreement.39 The same can be said of Asian jurisdictions; insofar as national courts are concerned, the authorities in Asian jurisdictions are split between following the choice of law governing the underlying dispute, and the law of the seat of the arbitration chosen by the parties. A survey of laws in the Asian region suggests that a majority of Asian jurisdictions adopt the English method of conflict of law in international arbitration.40 The position in four Asian jurisdictions is considered briefly.

[A]

Malaysia

In the absence of a designated choice of law to govern the arbitration agreement, Section 30(4) of the Arbitration Act, 2005, following the Model Law, directs that ‘the arbitral tribunal shall apply the law determined by the conflict of law rules’. The Federal Court (the apex court in Malaysia) in Thai-Lao Lignite Co Ltd and Anor v. Government of the Lao People’s Democratic Republic held that, under Malaysian conflict of law rules, in the absence of an express choice of law to govern the law of the arbitration agreement, the designation of a seat of the arbitration (the law of the seat being the closest and most real connection to the arbitration agreement) is a tacit designation of the law governing the arbitration agreement.41

37. See David Sutton, Judith Gill QC and Matthew Gearing QC, Russell on Arbitration, 2-121 (24th edn, Sweet & Maxwell 2015); C v. D, EWCA Civ 1282 at [26] (CA 2007). 38. For example, in the context of the enforcement of an arbitration award, Art. V(1)(a) of the New York Convention provides that the enforcement of an arbitration award may be refused if the arbitration agreement ‘is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made’. 39. Julian DM Lew, Loukas A Mistelis and Stefan M Kröll, Comparative International Commercial Arbitration, 6-25–6-74 (Kluwer Law International 2003). 40. See, in passim in Michael J Moser and John Choong (eds) in Asia Arbitration Handbook, 1.38–1.39, 2.46–2.47, 3.52–3.57, 4.66–4.68, 5.39–5.40, 6.31, 7.25, 8.34, 9.68, 10.49–10.50, 13.34, 14.42, 15.43, 16.59–16.61, 19.51–19.52, 20.44, 21.42, 22.58, 23.57–23.58 and 24.60 (Oxford University Press 2011). 41. 6 AMR 219 at [244] (2017). Despite upholding the decision of the High Court, the Court of Appeal did not revisit this issue. See also Lambert Rasa-Ratnam, Ang Hean Leng and Darshendev Singh, ‘The Arbitration Agreement’ in Arifin Zakaria, Sundra Rajoo and Philip Koh (eds), Arbitration in Malaysia: A Practical Guide, (Sweet & Maxwell 2016) 91, 111-112.

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In FirstLink Investment Corporation Ltd v. GT Payment Pte Ltd,42 the Assistant Registrar in the Singapore High Court adopted the conflict of law method in international arbitration in Sulamérica Cia Nacional de Seguros SA and others v. Enesa Engenharia SA and others,43 which the learned Assistant Registrar noted as mirroring the conflict of law method used by the Singapore Court of Appeal to determine the substantive law governing commercial contracts.44 However, the High Court departed from the weight of connecting factors set out in Sulamérica Cia Nacional de Seguros SA and others v. Enesa Engenharia SA and others, and held that the applicable law follows the law of the seat of the arbitration rather than the law of the substantive contract. The basis that the arbitration clause is only triggered when the relationship in the underlying agreement had irretrievably broken down. Therefore, there is no basis for drawing upon the choice of law clause in the main agreement to determine law applicable to the arbitration clause. However, in 2016, the Singapore High Court in BCY v. BCZ45 considered whether there existed a valid and binding arbitration agreement in the context of a negotiated but unsigned contract. The High Court took the opportunity to hold that there is a strong presumption that the law governing the underlying agreement will be the law governing an arbitration agreement, unless this would negate the arbitration agreement, which follows the approach in Sulamérica Cia Nacional de Seguros SA and others v. Enesa Engenharia SA and others. This approach was followed by subsequent decisions of the Singapore High Court in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd46 and BMO v BMP.47 While the approach in FirstLink has since been disapproved in BCY v. BCZ, both decisions, and the subsequent decisions which follow the latter, are first-instance decisions of the Singapore High Court. Until the Singapore Court of Appeal has the opportunity to provide the final word on this issue, the binding position on this matter may be far from settled as disputes relating to the law governing an arbitration agreement appear to be rather uncommon in Singapore.

[C]

Hong Kong

The approach taken in Hong Kong cases has been to conduct the traditional English conflict of law analysis.48 However, practitioner commentary has noted the effect of the

42. 43. 44. 45. 46. 47. 48.

SGHCR 12 (SGHC 2014). EWCA Civ 638 (CA 2012). See Pacific Recreation Pte Ltd v. S Y Technology Inc, 2 SLR(R) 491 at [36] (SGCA 2008). SGHC 249 (SGHC 2016). 3 SLR 267 (SGHC 2017). SGHC 127 (SGHC 2017). See, e.g., Klöckner Pentaplast Gmbh & Co Kg v. Advance Technology (H.K.) Company Limited 14 July 2011, HCA 1526/2010. See also Karaha Bodas Company LLC v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (otherwise known as Pertamina) (HCCT 28/2002) (CFI) (27 March 2003).

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competing view that the law of the seat of the arbitration is prima facie indication of the law governing the arbitration agreement, and it remains to be seen whether Hong Kong chooses to decisively adopt or reject this approach.49

[D]

India

In India, the law governing the arbitration agreement in the absence of an express choice of law for the arbitration agreement is the law governing the underlying contract as expressly chosen by the parties:50 The proper law of the arbitration agreement is normally the same as the proper law of the contract. It is only in exceptional cases that it is not so even where the proper law of the contract is expressly chosen by the parties. Where, however, there is no express choice of the law governing the contract as a whole, of the arbitration agreement as such, a presumption may arise that the law of the country where the arbitration is agreed to be held is the proper law of the arbitration agreement. But that is only a rebuttable presumption.

§5.05

THE PRESUMPTION OF SEPARABILITY

Some authors posit that the nature of separability and the need to promote effective arbitration agreements as having played pivotal roles in bifurcating the law governing the arbitration agreement from the proper law of the contract, and the subsequent jurisprudential development on the former.51 Yet, the underlying basis for the bifurcation has been criticised as being artificial.52 In the words of Derain: The autonomy of the arbitration clause and of the principal contract does not mean that they are totally independent one from the other, as evidence by the fact that

49. See, e.g., Michael J Moser and John Choong, ‘China and Hong Kong’ in Frank-Bernd Weigand (ed), Practitioner’s Handbook on International Commercial Arbitration (2nd edn, Oxford University Press 2009) 4.73-4.75; John Choong and Michael J Moser, ‘Hong Kong SAR’ in Michael J Moser and John Choong (eds), Asia Arbitration Handbook, 4.66-4.68 (Oxford University Press 2011). 50. National Thermal Power Corp v. Singer Co, 3 SCC 551, 561 (India) (SC 1992); Sumitomo v. Oil and National Gas Corporation Ltd, 1 SCC 305 (SC 1998); Eitzen Bulk AS v. Ashapura Minechem Ltd AIR 2011 Guj 13 (HC Guj 2011); Shin-Etsu Chemical Co Ltd v. Aksh Optifibre Ltd, 7 SCC 234 (SC 2005), 268-269. See also Indu Malhotra, O.P Malhotra on the Law & Practice of Arbitration and Conciliation, 1054-1057 (3rd edn, Thomson Reuters 2014). 51. See, e.g., Sabrina Pearson, Sulamérica v. Enesa: The Hidden Pro-Validation Approach Adopted by the English Court with Respect to the Proper Law of the Arbitration Agreement, 29 Arbitration International 115 (2013); Philippa Charles, The Proper Law of the Arbitration Agreement, 80 Arbitration 55 (2014). 52. See, e.g., Matthew Parish, The Proper Law of an Arbitration Agreement, 76 Arbitration 661, 667 (2010): ‘… it seems highly artificial to suppose that an express choice of law in an arbitration agreement … applies to the entirety of an agreement except for one isolated part of it. “Seperability” is not the same as depecage. Moreover, the choice of law provision in a commercial contract is often in the same clause as the arbitration agreement; to suggest that a choice of law clause applies to the whole contract except the clause in which it appears seems particularly odd.’

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the acceptance of the contract entails acceptance of the clause, without any formality.53

The notion of departing from the rule that the law governing the arbitration agreement follows the proper law of the contract serves one of the purposes of what is known as the doctrine of separability. The doctrine of separability is a ‘conceptual and practical cornerstone of international arbitration’.54 The doctrine of separability originated as a device to rescue an arbitration clause or proceedings which was under the risk of invalidation by virtue of the underlying contract being impugned.55 The separability presumption is the leading explanation for the principle that the law governing an arbitration agreement is capable of being governed by a different system of law than that which is applicable to the underlying contract.56 This separability presumption underscores a ‘pro-arbitration’ approach taken by modern jurisdictions which prefers an interpretation which is in favour of a valid arbitration agreement, as opposed to an invalid one. A number of cases where the law applied to the parties’ arbitration agreement was different from the law applicable to the underlying contract has been that the arbitration clause was more readily upheld against challenges to its validity.57 That is to say, by applying a law other than that which governs the parties’ underlying contract, national courts and arbitral tribunals have safeguarded international arbitration agreements against challenges to their validity based on local, and often idiosyncratic or discriminatory, law.58 A consequence of the separability presumption in the choice of law context has been the development of a multiplicity of different approaches to choosing the law governing issues relating to the validity of arbitration agreements,59 two of which have been examined above.60 In this regard, Asian jurisdictions have come a long way to recognising the separability of arbitration agreements from their underlying contracts. By way of example, the traditional restrictive approach taken by Asian jurisdictions can be seen in New India Assurance Co v. Lewis,61 wherein the Federal Court of Malaysia, on appeal from Singapore, held:

53. Yves Derain, The ICC Arbitral Process–Part VIII: Choice of the Law Applicable to the Contract and International Arbitration, 6 ICC International Court of Arbitration Bulletin 10, 16 (1995). 54. Gary B Born, International Commercial Arbitration, vol 1 § 28 (2nd edn, Kluwer Law International 2014). 55. Gary B Born, International Commercial Arbitration, vol 1 §§ 358-362 (2nd edn, Kluwer Law International 2014). 56. Gary B Born, International Commercial Arbitration, vol 1 §§ 464, 475 (2nd edn, Kluwer Law International 2014). 57. See Gary B Born, International Commercial Arbitration, vol 1 §§ 464, 476 (2nd edn, Kluwer Law International 2014). 58. Gary B Born, International Commercial Arbitration, vol 1 §§ 476, 486-487 (2nd edn, Kluwer Law International 2014). 59. Gary B Born, International Commercial Arbitration, vol § 487 (2nd edn, Kluwer Law International 2014). 487. 60. See sections 5.03 and 5.04 supra. 61. New India Assurance Company Ltd v. Lewis, 1 MLJ 156, 157 column 1D-F (SGFC 1967).

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It is settled law that where the dispute is as to whether a contract, which contains an arbitration clause in the widest and most usual form … was entered into at all cannot go to arbitration under the clause. The reason why such an issue cannot go to arbitration is because in the words of Viscount Simon LC in Heyman v Darwins Ltd … ‘The party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission.’ In the words of Lord Macmillan … ‘If there has never been a contract at all, there has never been as part of it an agreement to arbitrate; the greater includes the less.’

Decades later, the separability of arbitration agreement has since been statutorily recognised.62 In BCY v. BCZ,63 the Singapore High Court considered that the principle of separability could not justify the preference of the law of the seat as the law of the arbitration agreement. In doing so, the High Court confirmed the theory that the purpose of separability is to give effect to the parties’ expectation that the arbitration agreement between them will survive even if the underlying agreement is impugned. The doctrine of separability thus endorses an arbitration agreement which becomes separable from the underlying agreement, and not as being a free standing, separate, arbitration agreement. Separability does not provide for a separate and distinct agreement in and of itself from the time the main contract is formed – this would not reflect commercial reality.64

§5.06

PRACTICAL IMPLICATIONS ON DRAFTING ARBITRATION AGREEMENTS AND FUTURE DIRECTIONS

Notwithstanding the criticisms mounted against the artificiality of the choice of law implications as a result of the separability presumption, the practical implications of choosing a seat of the arbitration to resolve conflict of law issues should not be downplayed. Based on the possible permutations in the conflict of law analysis, parties do not make a direct choice of the law applicable to their arbitration agreement, but rather make a conscious choice of the choice of seat and the applicable law governing the arbitration agreement flows directly from it.65 Yet, if parties expressly select a seat, but make no provision as to the choice of substantive law of the contract, that choice of seat may become determinative of the choice of the governing law of the obligation.66 A caveat should be noted; the simplicity of this rule as stated above ought not be mistaken for a detraction from the need to consider secondary connecting factors.

62. See, e.g., the Arbitration Act 2005 (Malaysia), s. 18(2)(a): ‘an arbitration clause which forms part of an agreement shall be treated as an agreement independent of the other terms of the agreement …’ and 18(2)(b): ‘a decision by the arbitral tribunal that the agreement is null and void shall not ipso jure entail the invalidity of the arbitration clause’. 63. SGHC 249 (SGHC 2016). 64. BCY v. BCZ, SGHC 269 at [61] (SGHC 2016). 65. See Alastair Henderson, Lex Arbitri, Procedural Law and the Seat of Arbitration: Unravelling the Laws of the Arbitration Process, 26 SAcLJ 886 at [14] (2014). 66. David Sutton, Judith Gill QC and Matthew Gearing QC, Russell on Arbitration, 2-120 (24th edn, Sweet & Maxwell 2015); Indu Malhotra, O.P Malhotra on the Law & Practice of Arbitration and Conciliation, 423 (3rd edn, Thomson Reuters 2014).

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Leaving the determination of the law applicable to the arbitration agreement to the conflict of law rules reflects a methodology which, while certain, may not often produce certain results.67 The use of conflict of law rules to determine the applicable law sometimes produces unpredictability, and perhaps some degree of perceived unfairness.68 One author has commented that ‘it is not possible to reconcile the outcome and dicta in all previous decisions’,69 and even the Court of Appeal in Sulamérica CIA de Seguros v. Enesa Engenharia SA acknowledged the lack of certainty created by the conflict of law rules.70 In response to potentially protracted arbitral proceedings to determine the law governing an arbitration agreement, at least one arbitral institution in the Asian region has amended its model arbitration clause to provide for a choice of law to govern the arbitration agreement between the parties.71 Indeed, in both India72 and Singapore,73 practitioner commentaries take the view that the law of the arbitration agreement ought to be expressly agreed by the parties in the arbitration clause in the contract between them. Born’s leading commentary and toolkit for drafting arbitration clauses equally advocates this position.74 While incorporating a choice of law clause for this purpose is ‘an easy addition’,75 the need for careful drafting in order to avoid complexity and protracted satellite arbitration is readily understandable. Provisions addressing the law applicable to the

67. See, e.g., Markus A Petsche, International Commercial Arbitration and the Transformation of the Conflict Of Laws Theory, 18 Michigan State Journal of International Law 453, 457 (2010); Sundra Rajoo, Law, Practice and Procedure of Arbitration, 825 (2nd edn, LexisNexis 2016); Hew R Dundas, An Old Friend Reappears: Which Law Governs the Arbitration Agreement?, 79 Arbitration 325, 331 (2013). 68. Consider, e.g., the outcome in see Sulamérica CIA de Seguros v. Enesa Engenharia SA, EWCA Civ 638 (CA 2012) and Arsanovia Ltd, Burley Holdings Ltd, Unitech Ltd v. Cruz City 1 Mauritius Holdings, EWHC 3702 (HC 2012). In the former, a choice of London as the seat of the arbitration, and Brazilian law as the proper law of the contract resulted in English law as the proper law of the arbitration agreement. In the latter, a choice of London as the seat of the arbitration, and Indian law as the proper law of the contract resulted in Indian law being the proper law of the arbitration agreement. See further David Sutton, Judith Gill QC and Matthew Gearing QC, Russell on Arbitration, 2-120 (24th edn, Sweet & Maxwell 2015). 69. David Joseph QC, Jurisdiction and Arbitration Agreements and their Enforcement, 6.30 (3rd edn, Sweet & Maxwell 2015). 70. See Sulamérica CIA de Seguros v. Enesa Engenharia SA, EWCA Civ 638, 52 (CA 2012). In AES UST-Kamenogorsk Hydropower Plant LLP v. UST-Kamenogorsk Hydropower Plant JSC, UKSC 35 (SC 2013), the opportunity for consideration of this area of law by the Supreme Court was lost when parties reached an agreement on the governing law for the purpose of the appeal to the Supreme Court. 71. For example, the Hong Kong International Arbitration Centre provides its model arbitration clause to specify ‘[t]he law of this arbitration clause shall be … ’. 72. Indu Malhotra, O.P Malhotra on the Law & Practice of Arbitration and Conciliation, 423 (3rd edn, Thomson Reuters 2014). 73. Lim Wei Lee and Alvin Yeo SC, ‘Singapore’ in Michael J Moser and John Choong (eds), Asia Arbitration Handbook (Oxford University Press 2011) 671, 5.43. 74. Gary B Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing, 75-76 (5th edn, Kluwer Law International 2016). 75. David Joseph QC, Jurisdiction and Arbitration Agreements and their Enforcement, 6.30 (3rd edn, Sweet & Maxwell 2015).

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arbitration agreement, or the arbitral proceedings, can produce complexities, if not well drafted.76 One remote but possible downside to fixing one particular system of law to govern an arbitration agreement is to relinquish the option of considering various other systems of law to determine the substantive validity of a disputed arbitration agreement. While there is virtue in promoting certainty in arbitration, it is worth considering the equal merit of pursuing the ultimate goal of ensuring a valid and enforceable arbitration agreement. In the spirit of the internationality of the New York Convention, Born advocates for an international approach to determining the law governing the arbitration agreement, with the primary goal of ensuring a valid and enforceable arbitration agreement.77 This requires Contracting States to the New York Convention to ‘give effect to international arbitration agreements if they are made valid under the law of any State with a connection to that arbitration agreement’.78 Born’s proposal is a step further than the liberal Swiss approach, which allows the validity of an arbitration agreement to be measured by four possible systems of law connected to the arbitration agreement. Under Swiss law, an arbitration agreement is ‘valid if it is valid under the law chosen by the parties, or the law applying to the dispute, in particular the law applicable to the principal contract, or Swiss law’.79 As mentioned earlier, a multiplicity of systems of law may interact upon an arbitration agreement, which would thus allow Born’s validation approach to accommodate any number of systems of law which has a connection with the arbitration agreement and the issues that arise thereunder. A more conservative iteration of this ‘pro-validation’ approach is simply to regard the notion of separability as now stated in Sulamérica as being a ‘silent adoption of a pro-validity approach’.80 In this light, an inherent risk of assigning a law to govern the arbitration agreement at the outset would be to limit or oust the discretion of a court or tribunal to render a contractual interpretation or conflict of law analysis which would be geared towards a finding of a valid and enforceable arbitration agreement. The numbers of systems of law which may possibly bear upon an arbitration agreement differ depending on the issue raised against the arbitration agreement, which thus provides a bevy

76. Greater specificity in the arbitration agreement has sometimes led to protracted satellite litigation, all the way to the apex courts of some Asian jurisdictions. See, e.g., The Government of India v. Petrocon India Limited, 3 MLJ 435 (FC 2016), which concerned an arbitration agreement which did specify the law governing the arbitration agreement, but did not specify the seat of the arbitration. See also Insigma Technology Ltd v. Alstom Technology, 3 SLR 936 (SGCA 2009), wherein the arbitration agreement in dispute provided for arbitration ‘… before the Singapore International Arbitration Centre in accordance with the Rules of Arbitration of the International Chamber of Commerce … ’. 77. Gary B Born, The Law Governing International Arbitration Agreements: An International Perspective, 26 Singapore Academy of Law Journal 814 (2014). 78. Gary B Born, The Law Governing International Arbitration Agreements: An International Perspective, 26 Singapore Academy of Law Journal 814, 85–86 (2014). 79. Federal Private International Law Act, 1987, Art. 178(2). 80. Sabrina Pearson, Sulamérica v. Enesa: The Hidden Pro-Validation Approach Adopted by the English Court with Respect to the Proper Law of the Arbitration Agreement, 29 Arbitration International 115, 124-126 (2013).

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of choices from which a tribunal or court may consider in order to pursue a pro-validation agenda.81 Yet, on the other hand, such attempts to depart from the status quo in Asian jurisdictions may be a risk which is well worth not taking. Absent straightforward rules for determining the law governing an arbitration agreement,82 much satellite arbitration and litigation can be avoided by simply incorporating a choice of law clause to apply to the arbitration agreement.

§5.07

CONCLUSION

The law and practice of international arbitration has come a long way in Asia. The leading regional arbitral institutions are recording growing numbers of new case filings year-on-year.83 This lack of uniform rules on conflict of law in international arbitration, while not an issue specific to Asia, has implications on the predictability and enforceability of arbitral awards. Given the rising number of arbitrations seated in the Asian region, the complex interaction of laws in international arbitration is unlikely to abate, absent a uniform regime to govern conflict of law issues in international arbitration. The concerns of certainty in conflict of law issues in international arbitration is likely to be real, than academic. The One Belt, One Road (or the Belt and Road) initiative launched by China in 2013 as an extensive outbound investment and development strategy involves at least sixty-five countries at the time of writing, and history has shown that Chinese investment in some parts of Asia have not inspired confidence.84 With sixty-five different laws and different judicial traditions, the importance of conflict of law determinations in international arbitration, and the manner in which such conflict of law issues are determined, may put to test the existing concepts of the conflict of law method in international arbitration. In Asia alone, the diversity in economic and legal systems and traditions means that there are inherent legal risks in deal-making and dispute resolution. The need for certainty, realised through international arbitration, is thus a precious commodity. However, what entails this certainty, as demonstrated in this chapter, is not as simple

81. Gary B Born, The Law Governing International Arbitration Agreements: An International Perspective, 26 Singapore Academy of Law Journal 814 (2014). 82. Sabrina Pearson, Sulamérica v. Enesa: The Hidden Pro-Validation Approach Adopted by the English Court with Respect to the Proper Law of the Arbitration Agreement, 29 Arbitration International 115, 126 (2013). 83. In 2016, the Singapore International Arbitration Centre recorded 343 new case filings: see Singapore International Arbitration Centre, Annual Report 2016 (2017) at 13, http://siac.org.sg /images/stories/articles/annual_report/SIAC_AR_2016_24pp_WEBversion_edited.pdf (accessed on 25 January 2018). In the same year, the Kuala Lumpur Regional Centre for arbitration recorded 522 new case filings: see Kuala Lumpur Regional Centre for Arbitration, 2016 Annual Report; The Multi-Service Global Hub for ADR, (2017) at 16, http://klrca.org/annualreport/ 2016annual/#PDF/16-17 (accessed on 25 January 2018). In 2015, the Hong Kong International Arbitration Centre recorded 520 new case filings: see Hong Kong International Arbitration Centre, Annual Report: 2015 Reflections (2016), http://www.hkiac.org/sites/default/files/ annual_report/2015_Annual_Report_Final.pdf (accessed on 25 January 2018). 84. The suspension of the USD 3.6 billion Myitsone hydropower plant by the Thein Sein-led government of Myanmar on the eve of China’s National Day in 2011 comes to mind.

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as it seems. Insofar as how Asia as a whole leans towards an internationalised approach to conflict of laws in international arbitration, questions still remain on the most effective method to uphold an arbitration agreement and any ensuing arbitral award vis-à-vis the law governing an arbitration agreement.

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CHAPTER 6

Balancing Party Autonomy, Jurisdiction and the Integrity of Arbitration: Where to Draw the Line? Sir David A.R. Williams KNZM, QC & Anna Kirk*

§6.01

INTRODUCTION

Professor Jan Paulsson has observed that:1 The ideal of arbitration is freedom reconciled with law. Acceptance of arbitration is a distinctive feature of free societies and is generally rejected by totalitarian states.

Paulsson concluded that the argument in favour of arbitration is based on respect for private arrangements. The philosophical premise is that people are free to arrange their private affairs as they see fit, provided that they do not offend public policy or mandatory law. Underlying Paulsson’s analysis is respect for ‘party autonomy’ – a foundational concept in international arbitration. It embodies consent and flexibility, and is a consequence of the contractual nature of arbitration. Party autonomy denotes the ability of parties ‘to decide on all aspects of an international arbitration procedure, subject only to certain limitations of mandatory law’2 and is fundamental to the

* The authors would like to gratefully acknowledge the research assistance of Jovana Nedeljkov in preparing this chapter. 1. J Paulsson The Idea of Arbitration (OUP, Oxford, 2013), at 1. 2. K-H Böckstiegel ‘Party Autonomy and Case Management – Experiences and Suggestions of an Arbitrator’ (2013) (1) 11 Schieds 1-5, at 1.

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development of ‘private economy systems at the national level as well as of international trade and investment’.3 The right to appoint an arbitrator and to determine the scope of that arbitrator’s mandate are key aspects of party autonomy and is pivotal in differentiating arbitration from national court systems. However, party autonomy is not unlimited or unfettered. Despite its fundamental importance in arbitration, the principle of party autonomy must be balanced with other foundational concepts, including the right to be heard, the principle of equal treatment, the right to an impartial tribunal and other aspects of natural justice. In the context of arbitrability, party autonomy is balanced against generally recognised public policy limitations as to the nature of disputes that are capable of being submitted to private dispute resolution. This chapter explores the tensions that arise when these foundational principles clash – specifically, where the jurisdiction bestowed by parties on a particular arbitrator conflicts with concepts of natural justice or public policy. In this context, analysing the extent to which the principle of party autonomy should be circumscribed raises important policy considerations which leads to reflection on the nature of arbitration and the supervisory role of the courts. Where these fundamental principles collide, is party autonomy in danger of undermining the very foundations that give arbitration its legitimacy? When should courts intervene to protect arbitration at the expense of the parties’ wishes? The themes above are developed in this chapter through the exploration of two specific case examples: 1. The New South Wales Court of Appeal case of Rinehart v. Welker,4 which raises questions as to the arbitrability of internal trust disputes. The discussion considers how courts can reconcile the tension inherent in questions of arbitrability, between the parties’ desire to submit their dispute to arbitration and the mandatory limits to an arbitrator’s jurisdiction. 2. The New Zealand Court of Appeal case of Bidois v. Leef5 which has raised important questions as to the extent of the parties’ ability to agree to allow an arbitrator with a serious conflict of interest to decide a dispute, and waive their right to challenge the Award at a later date. The debate raised by this case reflects the tension between the importance of party autonomy and the need to maintain the legitimacy of the arbitral process.

§6.02

PARTY AUTONOMY AND ITS LIMITS

As noted above, party autonomy is a defining element of the arbitral process. It is recognised and protected by Article V(2)(b) of the New York Convention,6 which permits non-recognition of an arbitral award where a tribunal fails to comply with the 3. 4. 5. 6.

Id. Rinehart v. Welker [2012] NSWCA 95 (20 April 2012). Bidois v. Leef [2015] NZCA 176. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).

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parties’ agreed arbitral procedures. Arbitrators are generally required to adhere to the process agreed by the parties and have wide discretion to ‘dispense with technical formalities and procedures of national court proceedings and instead fashion procedures tailored to particular disputes’.7 As Judge Posner eloquently observed in Baravati v. Josephthal lyon & Ross Inc:8 Short of authorizing trial by battle or ordeal, or more doubtfully, by a panel of three monkeys, parties can stipulate to whatever procedures they want to govern the arbitration of their disputes.

However, it is recognised that the arbitral process also has to maintain minimum standards of procedural fairness so as to remain a legitimate dispute resolution process. This in itself indicates that there are limits to party autonomy. While promoting adherence to parties’ agreed procedure, the New York Convention also permits non-recognition of an Award where a party was unable to present its case and for violations of public policy (which could include serious procedural unfairness).9 As noted by Professor Gary Born:10 All leading international arbitration conventions indirectly recognize and give effect to mandatory requirements of procedural fairness and regularity of the arbitral proceedings. They do so by permitting arbitral awards to be denied recognition if basic requirements of procedural fairness have not been satisfied.

Therefore, mandatory requirements of procedural fairness are one such recognised limitation on the principle of party autonomy. Such requirements may be found in either the New York Convention or domestic procedural law. At a more theoretical level, Professor Emmanuel Gaillard has also explored the concept of autonomy and the extent to which this might impact the legitimacy of the arbitral process:11 The fundamentally philosophical notions of autonomy and freedom are at the heart of [the study of arbitration]. Similarly essential are the questions of legitimacy raised by the freedom of the parties to favour a private form of dispute resolution over national courts, to choose their judges, to tailor the procedure as they deem appropriate, to determine the rules of law that will govern the dispute even where the chosen rules are not those of a given legal system.

The limitations imposed on party autonomy may also be seen as a way to give legitimacy to the arbitral process. The more that arbitral parties attempt to bring their arbitration close to a ‘trial by battle’ through the exercise of their procedural autonomy, the less legitimacy the arbitral process retains. The key is surely to find balance between promoting the flexibility and adaptability that differentiates arbitration from more judicialised forms of dispute resolution and the need to ensure that arbitration

7. G Born International Commercial Arbitration (2nd edn, Kluwer Law International, The Netherlands, 2014), at 85. 8. 28 F 3d 704 (7th Cir 1994) at 709. 9. New York Convention, Arts V(1)(b) and V(2)(b). 10. G Born International Commercial Arbitration (2nd edn, Kluwer Law International, The Netherlands, 2014), at 2154. 11. E Gaillard Legal Theory of International Arbitration (Martinus Nijhoff, Leiden, 2010), at 2.

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maintains its underlying integrity as a valid system of dispute resolution under the rule of law. In the context of procedural autonomy, the question of legitimacy Gaillard was exploring can be answered in some respects through imposing limitations based on natural justice concerns, as allowing parties to agree on arbitral procedures that unacceptably diminish a party’s right to be heard or the opportunity to present its case casts doubt on the legitimacy of the arbitral process. In some circumstances, however, it is unclear where the limit to party autonomy lies and when a court or arbitrator should intervene to impose such a limitation – if they should intervene at all. Helpfully, there has been some discussion of this potential ‘grey area’ where it is unclear the extent to which arbitrators must abide by the parties’ exercise of their right to procedural autonomy. Professor Michael Pryles gives the following example of such uncertainty in circumstances where an arbitral tribunal possesses a discretion as to whether to accept the parties’ agreement:12 In those cases where the arbitral tribunal is not obliged to accept the parties’ agreement but possesses a discretion, how should the discretion be exercised? In the first place if the parties’ agreement is inconsistent with a mandatory rule of law then the parties’ agreement may not be accepted. An instance of such a legal rule is article 18 of the Model Law. This requires that the parties be treated with equality and that each party be given a fair opportunity of presenting his case. But even here, the strict application of such a provision might be regarded as problematic. For example, if the parties agree that the respondent would be allowed more time for its submissions then the claimant, should this be struck down by the arbitral tribunal as a breach of article 18?

Pryles further emphasises that the concept of party autonomy is complex, an analysis that is equally applicable to the general principles of fairness of proceedings embodied in arbitral procedural laws. While this should not prevent engagement with these principles by arbitral panels or courts alike, it foreshadows the difficulties likely to arise when analysing the conflict between these principles. It is evident, in light of the above, that while there are some situations where there is a clear conflict between party autonomy and a party’ right to natural justice (commonly embodied in the procedural law applicable to the arbitration), in practice often these conflicts are less clear cut. In analysing these situations, a balancing exercise has to be undertaken which is likely to be highly contextual.

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JURISDICTION AND PARTY AUTONOMY: THE ARBITRABILITY OF TRUST DISPUTES

When it comes to issues of arbitrability, another balancing exercise also has to be undertaken: weighing the parties’ desire to submit their dispute to arbitration against the public policy issues that may militate against certain legal issues or disputes being resolved in a private forum. 12. M Pryles ‘Limits to Party Autonomy in Arbitral Procedure’ (2007) 24(3) Journal of International Arbitration 327, at 336-337.

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The doctrine of non-arbitrability is founded on the notion that some matters are not suitable for private arbitration because they involve certain public policy concerns, powers reserved to the courts only, the interests of third parties, or matters of governmental authority. Agreements to resolve such disputes by arbitration are prohibited and ineffective.13 This doctrine finds force in Article V(2)(a) of the New York Convention which provides that an award need not be recognised or enforced if ‘[t]he subject matter of the difference is not capable of settlement by arbitration under the law’ of the country where recognition and enforcement is sought. In deciding whether a particular dispute is arbitrable, there is an inherent tension between the parties’ agreement to submit their dispute to arbitration and mandatory limits to such jurisdiction. In certain cases, it is clear that public interest trumps private agreement and any attempt to arbitrate such disputes will be unenforceable. However, there exists a number of ‘grey areas’ where it is considerably less evident as to whether or not a dispute is arbitrable if the parties so desire. An example that has been receiving attention recently is the arbitration of trust disputes. Trusts are a creature of equity. The courts have traditionally maintained a supervisory jurisdiction over trusts and, in particular, over internal trust disputes (i.e., disputes arising between the settlor, trustees and/or beneficiaries regarding internal trust matters). The nature of a trust means that the traditional contractual paradigm used to analyse and enforce arbitration agreements is not directly opposable. In a trust dispute, unless a submission agreement has been signed, the arbitration clause is likely to be contained in the trust deed which is not a contract and which does not require the consent of some parties potentially involved in a dispute (i.e., the beneficiaries). Two questions arise that create ambiguity as to whether or not internal trust disputes can be submitted to arbitration: (i) are trust disputes inherently arbitrable; and (ii) if so, where does the consent to arbitrate come from? The current law in most countries is unclear on both points, creating the ‘grey area’ referenced above. There is a growing interest in this issue due to an increase in the number cases considering whether internal trust disputes can or should be arbitrated, especially where one party objects. This growth suggests that settlors are seeking to include arbitration clauses in their trust deeds more frequently.14 New Zealand lawyer, Tony Molloy QC, speculates that one reason for this may be a lack of specialist equity judges in the New Zealand courts – the agreement to submit disputes to arbitration may reflect the parties’ desire to appoint the person deciding the dispute to ensure they have a requisite expertise. Molloy observes that (until recently) there has been no specialist commercial panel of judges in the High Court of New Zealand to hear commercial disputes, with the result that parties may be before a judge with little knowledge of

13. See G Born International Commercial Arbitration (2nd edn, Kluwer Law International, The Netherlands, 2014), at 945. 14. M Conaglen ‘The Enforceability of Arbitration Clauses in Trusts’ (2015) Cambridge Law Journal 450, at 450.

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trusts or equity more generally.15 Given the specialist nature of this area of law, that is a potentially concerning issue. Undoubtedly, another reason why parties may prefer arbitration over litigation in certain trust matters is confidentiality. Molloy explains that, although not the original purpose of a trust, many trusts are now set up for inheritance purposes or for matrimonial property issues.16 As a result, many trust disputes will concern private family matters which those involved may want to shield from public view; thus, preferring to avoid open court. In addition, trust disputes may involve an international element as the use of offshore trusts increases so the international enforceability of an arbitral award may appeal. Yet, despite these valid reasons for wanting to arbitrate trust disputes, there remains considerable doubt as to whether such disputes are arbitrable at all and, if so, whether the reference to arbitration (e.g., in the trust deed) will be enforced by the courts. The Australian case of Rinehart v. Welker provides a timely example of the issues that may arise.17 In this case, the New South Wales Court of Appeal (by majority) found that a dispute concerning an allegation of misconduct against a trustee was an arbitrable matter. In reaching this conclusion, Bathurst C.J. acknowledged that trusts are creatures of equity and that the courts maintain an inherent supervisory jurisdiction over their administration. However, he considered that, at least where both parties had consented, a court should give effect to their agreement and that the courts’ supervisory jurisdiction was not ousted as ‘[i]t continues to have the supervisory role conferred upon it by the relevant legislation’.18 Bathurst C.J. concluded that it was not ‘contrary to public policy for beneficiaries under the Trust and trustees to agree to resolve their disputes by arbitration, provided the supervisory jurisdiction of the court contained in the relevant legislation is maintained’.19 Young J.A. dissented on the basis that arbitrators could not offer the range of remedies available to the courts in regard to this particular dispute which involved the removal and replacement of the trustee. In particular, a court of equity has the power to make an in personam order against a trustee commanding him or her to act in a certain way and which could lead to imprisonment if disobeyed.20 Because an arbitrator does not have the power to make such order (or at least, a direction of this nature could not be enforced by imprisonment), Young J.A. considered that this particular dispute was not arbitrable. Matthew Conaglen, Professor of Equity and Trusts at Sydney University Law School, analysed the dissent Rinehart v. Welker and provided a convincing rebuttal on 15. T Molloy ‘Trust Arbitration in New Zealand’ in SI Strong and T Molloy (eds) Arbitration of Trust Disputes: Issues in National and International Law (OUP, Oxford, 2016), at 367-369. Note that in September 2017, the New Zealand High Court introduced a ‘Commercial Panel’ of judges for the first time. 16. T Molloy ‘Trust Arbitration in New Zealand’ in SI Strong and T Molloy (eds) Arbitration of Trust Disputes: Issues in National and International Law (OUP, Oxford, 2016), at 365. 17. Rinehart v. Welker [2012] NSWCA 95 (Bathurst C.J. and McColl J.A. (majority), with Young J.A. dissenting). 18. Rinehart v. Welker [2012] NSWCA 95, at para. 175. 19. Rinehart v. Welker [2012] NSWCA 95, at para. 177. 20. Rinehart v. Welker [2012] NSWCA 95, at paras 226-227.

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the basis that arbitrability should not depend upon an exact alignment of remedies – there are other remedies and enforcement mechanisms available to an arbitrator. Remedies should not therefore be a reason for a dispute to be considered unarbitrable.21 Essentially, if the parties wish to refer their dispute to arbitration, they accept that the range of remedies on offer may differ from those available in the courts. Conaglen also analyses the issue of arbitrability in broader terms, providing a concise review of the history of arbitrating trust disputes. He notes that, in cases as far back as the sixteenth century, the courts were willing to allow trust disputes to be arbitrated which negates Young J.A.’s position in Rinehart.22 Conaglen concludes that ‘trusts disputes are not necessarily inherently unarbitrable … and that the shift in the court’s attitude toward the public policy of arbitration generally supports the view that trust disputes can be arbitrated’.23 The majority judgment in Rinehart v. Welker affirms this position. The view that trust disputes are arbitrable is also supported by the UK Trust Law Committee in its 2011 report on the issue.24 Moreover, the International Chamber of Commerce (ICC) has formulated a model arbitration clause for inclusion in trust deeds for this very purpose. The decision in Rinehart v. Welker now confirms that courts also appear to give effect to an arbitration agreement, at least in circumstances where both parties have expressly agreed to refer the dispute to arbitration. However, the Court in Rinehart side-stepped the more difficult question of what would happen if the arbitration agreement purported to bind all persons beneficially entitled under the trust, including infants and unborn beneficiaries. This was at issue in the US case of Rachal v. Reitz,25 where the trial court and the Texas Court of Appeals held that an arbitration agreement contained in a trust instrument was unenforceable in a dispute between the trustee and a beneficiary, as the beneficiary was not party to the arbitration agreement and therefore not bound by it. In the Supreme Court, the beneficiary relied upon Schoneberger v. Oelze26 (Arizona Court of Appeals) and Diaz v. Bukey27 (California Court of Appeals) which stand for the proposition that an arbitration provision in a trust instrument is not enforceable because it is not a ‘contract’. However, the Supreme Court invoked the doctrine of direct benefits estoppel to conclude that all that was required was a written ‘agreement’ to arbitrate (not necessarily a contract) and that the beneficiary had assented to the arbitration agreement by accepting benefits from the trust. The trustee could therefore compel the beneficiary to arbitrate the dispute in accordance with the trust instrument. The Supreme Court also placed significant emphasis on upholding the settlor’s intentions.

21. M Conaglen ‘The Enforceability of Arbitration Clauses in Trusts’ (2015) Cambridge Law Journal 450, at 456-457. 22. Ibid., at 453-456. 23. Ibid., at 478-479. 24. Trust Law Committee (United Kingdom) Arbitration of Trust Disputes (25 November 2011). 25. Rachal v. Reitz 403 SW 3d 840 (Tex 2013). 26. 96 P.3d 1078 (Ariz. Ct. App. 2004). 27. 125 Cal. Rptr. 3d 610 (Ct. App. 2011).

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This stance can be contrasted with McArthur v. McArthur,28 where a dispute arose between two beneficiaries to a trust after the death of the settlor. One beneficiary moved to compel arbitration of the dispute under the terms of the trust instrument. The California Court of Appeals affirmed the trial court’s decision to deny the motion because the beneficiaries were not signatories to the arbitration agreement (i.e., the trust deed). The Court distinguished Rachal on the facts, given that the beneficiary in McArthur had not claimed a benefit, but was challenging the validity of the trust itself. Uncertainty of the position remains in the US where, for those States without clarify legislation, the Courts must decide whether to follow the approach in Rachal or McArthur (or indeed a number of other cases, all taking slightly different approaches).29 Similar uncertainty exists in most jurisdictions due to a lack of clarifying statutory guidance. As noted above, consent is one of the touchstones of arbitration. Leaving aside issues of arbitrability, if all parties to a trust dispute agree to arbitration, consent is not likely to be an issue. The problem arises if one party seeks to compel arbitration based on a clause in the trust deed which has not been signed by those involved in the dispute. Some of those advocating for the arbitration of trust disputes contend that such a clause should be respected and enforceable, as if it were a contract. However, a trust situation is fundamentally different from a standard contractual scenario, and simply overlooking these differences does not appear to be a sufficient answer. The matter is further complicated by the fact that, in a trust dispute, other beneficiaries (who may be unknown or unborn at the time) could be affected by the outcome of the arbitration without being represented. A 2011 report by the UK Trust Law Committee (which has not yet been implemented) proposed the facilitation of arbitration to resolve trust disputes, but observed that there was a need to protect the interests of minor, unborn and unascertained beneficiaries.30 It is this issue that has been most problematic in debate as to whether statutory clarification of the arbitrability of trust disputes should be provided. Along with general arbitrability issues, the lack of clear consent is a factor that creates ambiguity in the enforcement of arbitration clauses contained in trust deeds. While rationales can be advanced for the enforcement of such clauses,31 it is suggested here that clarity and certainty in the law is unlikely to be achieved without statutory

28. (2014) 168 Cal. Rep. 3d 785. 29. See, for example: Crowley Maritime Corp. v. Boston Old Colony Ins. Co. (2008) 158 Cal.App.4th 1061; Pinnacle Trust Co., LLC v. McTaggart 152 So.3d 1123 (Miss., 2014); Re Nestorovski Estate (2009) 769 N.W. 2d 720 (MI CA); Belzberg v. Verus Investments Holdings Inc. (2013) 999 N.E. 2d 1130 (NY CA). 30. Trust Law Committee (United Kingdom) Arbitration of Trust Disputes (25 November 2011), at 14-16. 31. For example, Matthew Conaglen argues that the inherent jurisdiction of the courts can be used to stay litigation in favour of an arbitration clause. Courts could use this power to enforce the clause, thus giving effect to the settlor’s intention. M Conaglen ‘The Enforceability of Arbitration Clauses in Trusts’ (2015) Cambridge Law Journal 450, at 475-478.

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intervention. Laws to this effect have already been enacted in The Bahamas and Guernsey (and some US States), and statutory reform has been recommended in England and Wales (although as yet, not enacted). New Zealand provides a timely and proactive example of how legislatures can assist to clarify the position on the arbitrability of trusts and address issues of consent. The New Zealand Parliament is presently considering amending its Arbitration Act 1996 to expressly allow for the arbitration of trust disputes, where agreed by the parties. The Arbitration Amendment Bill (2017) includes the following provision: 10A Validity of arbitration clauses in trust deeds (1) It is lawful for a settlor of a trust to insert an arbitration clause in a deed of trust and such clause will be binding on all trustees, guardians, and any beneficiaries, or anyone claiming to be a trustee, guardian, or beneficiary, under the trust in relation to matters arising under or in relation to the trust as if it was an agreement under the Arbitration Act 1996.32 (2) Any tribunal appointed pursuant to an arbitration clause in a deed of trust has the same power of the High Court to appoint representatives to conduct litigation on the part of any minor, unborn, or unascertained beneficiary or class of beneficiaries. (3) Where an appointment is made under subsection (2) – (a) the approval of the tribunal is required in relation to a settlement affecting the person or class represented; and (b) the tribunal may approve a settlement where it is satisfied that the settlement is for the benefit of the person or class represented; and (c) any award given in the trust arbitration will be binding on the person or class represented; and (d) the costs of representation may be paid from property held on the trust subject to the arbitration and, for the avoidance of doubt, an arbitrator may order the payment of those costs by another party in the proceeding.

By clarifying that arbitral tribunals have the same power as the High Court to appoint persons to conduct litigation on the part of minor, unborn or unascertained beneficiaries (or classes of beneficiaries), any decision of an arbitral tribunal will effectively bind all interested parties. The legislation ensures that jurisdiction conferred on an arbitral tribunal by a settlor cannot be undermined by others following the formation of the trust, and in particular that issues of arbitrability involving trust disputes are not used as a basis for setting aside a valid arbitration clause. Essentially, the legislation grants certainty to settlors that their wishes will be respected and enforced by the courts. Thus, public policy issues do not – on this occasion – trump party autonomy.

32. There is a proposal to supplement this clause with a clarification as follows: (2). Notwithstanding subsection (1) any other dispute affecting the Trust may be submitted to Arbitration in accordance with the Arbitration Act 1996 where – (a) The trust deed or instrument does not exclude the reference; and (b) All parties competent to do so agree to arbitrate; and (c) Appropriate representational orders are made in respect to any other interests affected.

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NATURAL JUSTICE AND PARTY AUTONOMY: SHOULD PARTIES BE ABLE TO CONSENT TO AN ARBITRATOR WHO HAS A CLEAR CONFLICT OF INTEREST?

Moving away from issues of arbitrability, the discussion now turns to the proper limits that should be imposed on party autonomy in order to respect natural justice. This affects the mandate granted to arbitrators by the parties. The maxim nemo judex in causa sua – no-one should be a judge in his own cause – is a legal principle held out as a basic standard of independence for judicial and quasi-judicial decision-makers. Despite this, in arbitration, there is the potential for arbitral parties to appoint an arbitrator who has a significant conflict of interest, such that he or she appears to lack independence or impartiality. This ability is an interesting example of the tensions that can arise between fundamental principles of natural justice and party autonomy in the arbitration context, and of the disparity between court proceedings and arbitration. In court, the appearance of bias on behalf of the judge is sufficient to seek judicial review, while in arbitration it has been recognised that conflicts of interest can, at least in some circumstances, be waived by the parties to an arbitration in line with the emphasis on party autonomy. Such waiver is premised on the fact that the existence of a conflict of interest does not, in and of itself, entail that the arbitrator is in fact biased or would not approach the dispute with an open mind. If the arbitral parties are satisfied that an arbitrator can remain sufficiently impartial despite the conflict, they should be able to continue before that arbitrator if they so choose. In light of this, the question then turns to whether there is any limit to the ability of the parties to agree upon the use of an arbitrator where (e.g.,) it is evident that the arbitrator lacks impartiality, in order to guarantee a minimum standard of procedural fairness in the arbitral process. Born has observed that: 33 [a]rbitration is fundamentally a creature of contract and the parties’ autonomy with respect to the selection of the arbitrators is a foundation of the international arbitral process. Given that, there is substantial presumptive force to the position that parties should generally be free to agree upon predisposed arbitrators, provided that this is done transparently and that the parties are treated equally.

In contrast, Professor William. W. Park has noted:34 [p]rejudgment would seem to impede the very heart of the arbitral process, which presumes a quasi-judicial function of deciding legal claims after weighing evidence and argument. […] prejudgment renders the process a sham formality, an unnecessary social cost. Although the New York Convention contains no definition of arbitration, prejudgment seems entirely foreign to the process whose recognition the treaty contemplates.

33. G Born International Commercial Arbitration (2nd edn, Kluwer Law International, The Netherlands, 2014), at 1815. 34. W.W. Park ‘Arbitrator Integrity: The Transient and the Permanent’ (2009) 46 San Diego Law Review 629, at 640.

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A clear tension exists here between two fundamental principles: the parties’ right to appoint an arbitrator(s) of choice and the legitimacy of the arbitral process predicated on the hearing of a dispute by an open-minded tribunal. The tension between these principles is underpinned by important policy matters, and examination of their conflict leads to reflection on the very nature of arbitration itself.35 How this tension is to be resolved was the subject of a recent New Zealand Court of Appeal case, Bidois v. Leef.36 In this case, the Court of Appeal ultimately favoured party autonomy and ruled that the Respondent had waived his right to object to the partiality of one of the arbitrators by not raising an objection within the relevant timeframe. At a policy level, the Court appeared to place party autonomy above wider natural justice concerns by finding that the provision in the New Zealand Arbitration Act 1996 (the NZ Act) requiring the impartiality of arbitrators was not mandatory. Consequently, the failure to object to the conflict of interest within the required timeframes resulted in a waiver of the conflict, and the resulting award was upheld. The case concerned a dispute over customary land rights which required settlement because the wider tribe (known in Maori as an ‘iwi’) was about to enter into a settlement with the New Zealand government for compensation resulting from breaches of the Treaty of Waitangi.37 The issue to be decided was whether the parties to the dispute represented two separate sub-tribes (known as ‘hapu’) within the iwi, or whether they were in fact part of the same hapu. The issue had considerable fiscal implications as each hapu would receive a certain amount of the overall settlement. The conflict of interest arose because one of the two arbitrators appointed to decide the dispute had an indirect pecuniary interest in the outcome due to the fact that his wife was a member of the hapu represented by the Defendant (Mr Leef). It also transpired that one of the witnesses for the Defendant was a cousin of his wife. While the appointing party informed the other party of the wife’s interest, the arbitrator himself made no disclosure of the conflicts until the hearing. The Claimant (represented by Mr Bidois) raised no objection at the time or during the following fifteen days, being the statutory period for raising objections.38 The Tribunal issued an award in favour of the arbitrator’s wife’s hapu. The High Court initially set aside the award rendered in these proceedings due to the breaches of natural justice. On appeal, the Court of Appeal reinstated the Award holding that Mr Bidois, in electing to proceed with the arbitration, had waived his objections to the arbitrator’s pecuniary and familial conflicts of interest. The Court of Appeal’s analysis rested on the assumption that all conflicts of interest in an arbitration context were waivable if neither party timely objected.

35. A Kawharu and A Kirk ‘Arbitration’ (2016) New Zealand Law Review 615, at 622. 36. [2015] NZCA 176. 37. The Treaty of Waitangi (1840), signed by the British Crown and Maori chiefs, provided certain protections to the Maori people. A process for settling grievances arising out of breaches of the Treaty by the Crown has been statutorily mandated in New Zealand since 1975. 38. NZ Act, Art. 13, sch. 1.

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Statutory Approach The starting point for the Court of Appeal’s analysis in Bidois v. Leef was, as would be expected, the NZ Act. The Court considered that there was no doubt that, in practical terms, the Respondent had waived his right to object to the arbitrator’s partiality. Therefore, the more difficult issue was whether such a waiver was legally possibly under the New Zealand statutory scheme, given that it required the Court to find that fundamental requirements of the arbitral process – such as the parties’ right to natural justice – could be negated through the agreement of the parties.39 The starting point for analysis was Article 4, schedule 1 to the NZ Act – the waiver provision. Article 4 states that a party’s failure to object in a timely manner to a breach of any derogable provision of the Act shall be deemed a waiver of the right to object. The argument before the Court was that the Respondent had waived its right to object to a breach of Article 12, schedule 1 of the Act. Article 12 sets out the grounds for challenging an arbitrator for lack of impartiality or independence and mirrors the equivalent Model Law provision: 12 Grounds for challenge (1) A person who is approached in connection with that person’s possible appointment as an arbitrator shall disclose any circumstances likely to give rise to justifiable doubts as to that person’s impartiality or independence. An arbitrator, from the time of appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by that arbitrator. (2) An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to that arbitrator’s impartiality or independence, or if that arbitrator does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by that party, or in whose appointment that party has participated, only for reasons of which that party becomes aware after the appointment has been made.

The Court had to consider whether or not the right to challenge an arbitrator under Article 12 could be derogated from by the parties. However, the NZ Act in its waiver provision (Article 4, schedule 1) does not specify which provisions of the Act are non-derogable. If Article 12 was non-derogable, then a party could not lose its right to challenge an arbitrator for lack of independence or impartiality, even if they had made an informed waiver of such circumstances before or during the arbitral hearing. The Court, in analysing Article 12, first noted that some natural justice principles were examples of provisions that were non-derogable under the Act (e.g., the right to equal treatment in Article 18),40 a position supported by the fact that non-compliance with natural justice was a ground upon which an award could be set aside under Article 34 of schedule 1. However, as regards arbitrator impartiality and independence, the Court noted that regard must be had to Article 13, schedule 1 of the Act, which sets out a procedure by which to challenge an arbitrator:

39. Bidois v. Leef, at para. 66. 40. See Methanex Motunui Ltd v. Spellman [2004] NZLR 95 (HC), at para. 130.

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13 Challenge procedure (1) The parties are free to agree on a procedure for challenging an arbitrator, subject to the provisions of paragraph (3). (2) Failing such agreement, a party who intends to challenge an arbitrator shall, within 15 days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstance referred to in article 12(2), send a written statement of the reasons for the challenge to the arbitral tribunal. Unless the challenged arbitrator withdraws from office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. (3) If a challenge under any procedure agreed upon by the parties or under the procedure of paragraph (2) is not successful, the challenging party may request, within 30 days after having received notice of the decision rejecting the challenge, the High Court to decide on the challenge, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award.

The Court found that in the context of the NZ Act, Article 13 was the only opportunity a party had to object to grounds of arbitrator bias (or appearance thereof). However, while a timely objection under Article 13 may represent the only opportunity a party has to challenge an arbitrator during the arbitral process, it does not follow that where an award suffers from apparent bias, it should not be subject to setting aside procedures on this ground. It is suggested that the better view is that the effect of failing to raise a challenge within the timeframe specified in Article 13 precludes further recourse to that challenge procedure.41 However, it would not preclude the award being set aside under Article 34 for non-compliance with fundamental principles of natural justice, although the failure to timely object would be a relevant factor in the overall assessment of the issues before the Court and in the use of its discretion to set aside an award.42 This view is supported by Holtzmann and Neuhaus, who added that ‘[t]here is a policy rationale for this result … in that a court might understandably hesitate to uphold an award issued by an arbitral tribunal constituted contrary to the mandatory requirements of the [Model] Law’.43 The Court of Appeal considered, but rejected this argument, noting that if the objection to an arbitrator can still validly be raised after proceedings have finished, and if after inquiry a case of apparent bias or lack of independence is made out, then ‘there will in reality be very little scope for a reviewing court to withhold a remedy, regardless of the prior inactivity of the objector’.44 Therefore, in order for the timeframe in Article 13 to have some preclusive effect, it had to act to prevent a party from raising an arbitral challenge after it expired. The Court held that their interpretation of Article 13 was ‘more consistent with the Act’s policy of facilitating arbitration, and party control of

41. See A Kawharu and A Kirk ‘Arbitration’ (2016) New Zealand Law Review 615, at 625. 42. See D.A.R Williams and A Kawharu Williams & Kawharu on Arbitration (2nd edn, Lexis Nexis, Wellington, 2017), at 158-159; A Kawharu and A Kirk ‘Arbitration’ (2016) New Zealand Law Review 615, at 627. 43. H Holtzmann and J Neuhaus A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer, The Hague, 1989), at 409. 44. Bidois v. Leef, at para. 79.

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that arbitration’.45 The Court further considered that the ability to waive an objection was consistent with the ability of the parties to select an arbitrator who may otherwise be disqualified through a conflict of interest because of the special skills or knowledge that person possessed.46 If the Court of Appeal’s position in Bidois is accepted, then a failure to object to a conflict of interest of an arbitral panel under Article 12, schedule 1 within the fifteen day timeframe specified by Article 13 will automatically preclude a party from challenging the award by virtue of the Act’s waiver provision. While a reviewing court might, in order to circumvent this holding, raise such a matter as being a conflict with public policy on its own motion under Article 34(2)(b)(ii) of the Act,47 the position in Bidois may still prevent the award from being set aside, regardless of the extent of any bias present in the case.48 This is because the Court in Bidois rejected the position that independence and impartiality are fundamental requirements that cannot be waived. This is an issue as the public policy ground under Article 34(2)(b)(ii) is a limited ground for setting aside awards, and only deals with fundamental issues of public policy. The IBA Guidelines on Conflicts of Interest – the Non-waivable Red List When considering issues of waiver and concerns of arbitral conflicts of interest, a good place to start is the International Bar Association’s Guidelines on Conflicts of Interest in International Arbitration 2014 (IBA Guidelines). These Guidelines, while non-binding, have considerable persuasive force and have been recognised by courts around the world as authoritative guidance.49 The IBA Guidelines classify various relationships and interests into three groups: a ‘red list’, an ‘orange list’ and a ‘green list’. These Application Lists give practical examples of non-waivable conflicts (the Non-waivable Red List), conflicts which require disclosure and party consent (the Waivable Red List), conflicts which the arbitrator has a duty to disclose but can nonetheless act unless the parties make a timely objection (the Orange List), and situations where disclosure is not necessary (the Green List). As noted above, within the Red List, there are two categories: waivable and non-waivable conflicts. Those relationships and interests falling within the Non-waivable Red List indicate that disqualification is likely required, whereas other potential conflicts require disclosure to the parties. The Nonwaivable Red List includes situations where the arbitrator has a direct pecuniary interest in the award, or where the arbitrator is employed by one of the arbitral parties.50 The presumption is that these situations represent conflicts so serious that natural justice considerations trump party autonomy and the right to choose one’s arbitrator. 45. Bidois v. Leef, at para. 78. 46. Bidois v. Leef, at para. 71. 47. The Art. 34(2)(b) grounds can be raised by the reviewing court on its own motion, although the applicant would have to supply the evidence. 48. A Kawharu and A Kirk ‘Arbitration’ (2016) New Zealand Law Review 615, at 628-629. 49. D.A.R. Williams and A Kawharu Williams & Kawharu on Arbitration (2nd edn, Lexis Nexis, Wellington, 2017), at 680-681. 50. IBA Guidelines, Non-waivable Red List, Arts 1.2 and 1.3.

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The IBA Guidelines are the product of widespread consultation amongst the arbitral community and are said to represent best practice in the industry. The fact that they are widely referenced and adhered to is testimony to their general acceptance as being illustrative ‘of what the international arbitral community considers to be cases of conflicts of interest or apparent bias’.51 It can be inferred from the very existence of a Non-waivable Red List in the IBA Guidelines that arbitrators themselves consider that some conflicts are so serious that the arbitrator should not continue even if the parties consent to their appointment. The Guidelines state that the Non-waivable Red List situations derive from the ordinary principle that no person can be a judge in their own cause, and that an arbitral party’s acceptance of a conflict of interest that is described in this list cannot cure the breach of natural justice.52 The integrity of the arbitral process would be undermined in such situations if arbitration were allowed to continue. It is at least arguable that the circumstances in Bidois v. Leef fell within the IBA Non-waivable Red List in that ‘[t]he arbitrator ha[d] a significant financial or personal interest in one of the parties, or the outcome of the case’. More likely, however, it would be considered to fall within the Waivable Red List in that ‘[a] close family member of the arbitrator has a significant financial interest in the outcome of the dispute’. As noted above, according to the IBA Guidelines, any conflicts falling within the Waivable Red List require the parties to expressly consent to the arbitrator continuing to act. Surprisingly, the Court of Appeal did not refer to the IBA Guidelines but, as mentioned above, the fact that some conflicts are considered non-waivable in these widely endorsed international Guidelines casts doubt on the Court of Appeal’s reasoning that a failure to object negates any conflict of interest no matter how serious. Weaknesses of the Guidelines Of course, the IBA lists are not determinative and it is often recognised that finding bias is an incredibly fact-specific exercise. Rigid adherence to the Guidelines’ lists would risk the removal of qualified arbitrators or the setting aside of arbitral awards rendered by such arbitrators, where the arbitrator cannot reasonably be viewed as biased or giving the appearance of bias. The fact-specific nature of bias inquiries, and the potential issues with the IBA Guidelines as they stand can be seen through the following comparison of two arbitrator-bias cases. First, the English High Court, in W Ltd v. M Sdn Bhd,53 dismissed a challenge against a sole arbitrator in circumstances where he was a partner in a Canadian law firm which, during the course of the arbitration, provided substantial legal services to an affiliated company of the defendant and derived substantial remuneration from the instructions. The arbitrator stated that he had no knowledge of

51. Sierra Fishing Co v. Farran [2015] EWHC 140 (Comm); [2015] 1 All ER 560 (Comm), at para. 58, per Popplewell J. 52. IBA Guidelines, at pg. 17. 53. [2016] EWHC 422 (Comm).

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this clear conflict of interest during the course of the arbitration, despite the substantial publicity surrounding the instruction of his firm in the above-mentioned matter. The judge in the High Court accepted that this conflict fell within the IBA’s Non-waivable Red List, which applies to situations where ‘the arbitrator or his firm regularly advises the party, or an affiliate of the party, and the arbitrator or his or firm derives significant financial income therefrom’. However, the judge concluded that there was no bias based on the English common law test. In the decision, Knowles J first noted that the Guidelines had made a ‘distinguished contribution in the field of international arbitration’ and they were to be ‘commended’ for attempting to assist in assessing impartiality and independence.54 It was with diffidence then that Knowles J concluded that the IBA Guidelines were flawed in at least one respect as apparent from this case. The issue the case raised was the Guideline’s lack of discretion in allowing a case-by-case examination of situations that fell within the Non-waivable Red List. Instead, the IBA Guidelines appear to take a ‘categoric position’ that in every situation that fell within this list, the parties could not waive a conflict of interest as in such situations justifiable doubts ‘necessarily’ exist as to the arbitrator’s impartiality or independence. On the facts of this case, Knowles J concluded that there was no apparent bias based on the English common law test, despite it falling within the IBA’s Non-waivable Red List situations. There was no suggestion that the arbitrator did any of the work for the client company – he operated effectively as a sole practitioner within the Canadian firm and would have made a disclosure if alerted to the situation in this case. This decision can be contrasted with the recent decision of the French Cour de Cassation (Supreme Court)55 where, in similar circumstances, the Court found that a sole arbitrator’s failure to disclose his firm’s role in a transaction involving the parent company of one of the parties to the arbitration was such as to reasonably cause a doubt regarding the independence and impartiality of the arbitrator. This example highlights, once again, that bias is a fact-specific exercise that should be dealt with on a case-by-case basis and that different courts might have different views on the level of apparent bias required to aside an award. While the above cases highlight the issues that can arise when one takes an overly rigid approach to the IBA Guidelines (given that bias is a contextual, fact-specific inquiry), this should not detract from the importance of the IBA’s recognition that some conflicts of interests cannot be waived by arbitral parties. The issues the above cases highlight can be addressed by treating the IBA’s lists as indicative, rather than determinative, with the court retaining discretion to categorise the conflict of interest as non-waivable, waivable, and as requiring disclosure or not, on a case-by-case basis. Given the above, the finding of the New Zealand Court of Appeal in Bidois v. Leef is surprising as it suggests that all arbitrator conflicts of interest, no matter how serious, are waivable and that party autonomy thus trumps natural justice considerations.

54. Bidois v. Leef, at para. 33. 55. Sociétés Colombus v. Société AGI Cour de Cassation, Civ. 1, 16 December 2015, N°D14-26.279.

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What should be the limit in allowing a party to agree to an impartial arbitrator? In deciding if there should be a limit to a party’s ability to accept a partial arbitrator or arbitral panel to decide their case, a question arises as to how far party autonomy should allow an arbitrator to stray from the strict standards of impartiality normally imposed on judicial decision-makers. Perhaps the decision in Bidois can be justified if it is accepted that arbitrators do not have to abide by the standards of impartiality imposed by judges in domestic courts. For example, many arbitrators are partyappointed and are specialists as regards the issue concerned in the arbitration, it may be that from a small pool of specialists, conflicts inevitably arise and of course it is well accepted that parties can waive some conflicts (the rationale being that the conflict does not prevent the arbitrator from acting impartially). These features distinguish arbitration from the judicial process and impact how a court analyses whether there has been a breach of the right to an independent tribunal. However, even if it is acknowledged that parties can waive less serious conflicts which do not impact upon the ability of the arbitrator to keep an open mind, most authorities accept that there is a limit to how ‘partial’ an arbitrator can appear. As to what this limitation is, the principle that no-one should be a judge in his own cause is again relevant. This maxim has been noted by many academics as being a necessary feature of a process which bears resemblance to the judicial system. Born has thus concluded:56 [T]here are certain minimum levels of impartiality that should be required of the arbitral process regardless of the parties’ apparent agreement. The law should not permit a sole or presiding arbitrator that is himself a party to the dispute, or who is employed by (or similarly dependent upon) one party, even if this is what the parties agreed. The law may choose to enforce agreements that one party’s opinion will be dispositive on a particular issue, but it should not permit that opinion to be portrayed as an ‘arbitral’ award and should not be subject to ‘arbitration’ legislation. The nature of the arbitral process, which is based upon an adversarial adjudicatory proceeding in which both parties have the opportunity to present their cases to a quasi-judicial decision-maker, is wholly inconsistent with a process where one party (or its proxy) has the power unilaterally to decide a disputed issue.

In regard to how this impacts the ability of a party to waive an arbitrator conflict, Park has argued that a lack of independence lends itself up to waiver up to the point where the litigant actually becomes judge of its own cause. He notes that when this occurs ‘the decision making process may no longer bear the attributes permitting its enforcement as an “award” under relevant statutes and treaties’.57 This would not prevent the enforcement of an arbitrator’s decision simply as a matter of contract, but

56. G Born International Commercial Arbitration (2nd edn, Kluwer Law International, The Netherlands, 2014), at 1818. 57. W.W. Park ‘Arbitrator Integrity: The Transient and the Permanent’ (2009) 46 San Diego Law Review 629, at 639.

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in order to be subject to the wider recognition and enforcement procedures given to arbitral awards, a higher standard needs to be applied.58 It is arguable, in light of the above commentary, that the Court of Appeal in Bidois v. Leef may have placed too much emphasis on party autonomy when it determined that parties can waive their right to have a case heard by an impartial tribunal by failing to object to a potential conflict in a timely manner. The heavy emphasis on this ‘timeliness’ appears at odds with the seemingly well-accepted jurisprudential approach that arbitrators, while subject to less strict impartiality requirements than judges, must retain some standard of impartiality that allows their quasi-judicial decisions to be recognised as arbitral awards. If an arbitrator becomes a judge in their own cause, the parties should not be able to waive this partiality or lack of independence. In Bidois, the Court of Appeal noted that their approach allowed parties to choose arbitrators who would otherwise be disqualified for conflicts of interest because of special skills and/or knowledge. If one analyses Article 12 of the NZ Act on its face, and in light of other guidance such as the IBA Guidelines, it is suggested that this provision is aimed at preventing the appointment of people who, objectively, cannot bring an open mind to a case, but it is not intended to unreasonably constrain the parties’ choices.59 Perhaps part of the issue with the Court’s reasoning is the way it approached waiver. In the Court’s view ‘[e]ither the right to an independent tribunal is derogable or it is not’;60 the issue for the Court was clear cut. However, balancing the right to an independent tribunal against party autonomy in choosing an arbitrator is a contextual exercise and the Court’s finding that the right was derogable prevents this exercise from being carried out. Following the holding in Bidois, an informed waiver will trump any conflict of interest no matter how serious. However, the alternative position – that a right to an independent tribunal is non-derogable – instead allows a supervisory court to carry out this balancing exercise. It is true that some arbitrators may not be totally independent or conflict-free because of the nature of the industry, but in many cases a conflict of interest will not be sufficiently serious to infringe on a party’s right to an impartial tribunal and an informed waiver of that conflict will still preclude a party from raising a subsequent challenge to the award. There would be no actual or apparent bias in such a case. The waiver of the conflict indicates the parties’ views that, even though there may be a potential conflict that requires disclosure, the arbitrator is still capable of deciding the dispute fairly and with an open mind. Instead of looking at the issue as if it were clear cut, this contextual approach allows each court to analyse the issue on a case-by-case basis and recognises the widespread view that there are natural justice limitations to a party’s right to choose one’s arbitrator.

58. Ibid., at 640. 59. A Kawharu and A Kirk ‘Arbitration’ (2016) New Zealand Law Review 615, at 626. 60. Bidois v. Leef, at para. 79.

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CONCLUSION

The purpose of this chapter has been to examine the limits of party autonomy – one of the foundational concepts in international arbitration – on the jurisdiction and mandate given to an arbitral tribunal by the parties. When placed in the context of real issues currently before the courts, it is evident that this is more than just a theoretical notion – it has genuine repercussions for the debate on the utility and desirability of arbitration in general. The constant tension between respecting the parties’ wishes and protecting the fundamental integrity of the arbitral process is a challenging dynamic which is well worth reflecting on in the current environment where the arbitral process has been subject to critical examination.61

61. See, for example, R Thomas, Lord Chief Justice of England and Wales ‘Developing Commercial Law Through the Courts: Rebalancing the Relationship Between the Courts and Arbitration’ (speech to the Bailii Lecture 2016, 9 March 2016).

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CHAPTER 7

Jurisdictional Findings on Provisional Measures Applications in International Arbitration Donald Francis Donovan, David W. Rivkin & Christopher K. Tahbaz*

Long past are the days when it could be seriously argued that litigation had an edge over arbitration because of the availability of provisional or interim measures.1 Over time, arbitral tribunals have demonstrated an increased willingness to order such measures when they consider it necessary or appropriate to do so, and it is now beyond dispute that orders providing for such measures are not merely precatory, but are issued with binding effect.2 Such measures are frequently requested to maintain the status quo ante, to prevent the aggravation of a dispute, to preserve evidence or

* The authors wish to acknowledge with thanks the able assistance of Debevoise associates Jennifer Lim and Shanu Rana. 1. See generally, Donald Francis Donovan, Remarks on Provisional Measures in the International Court of Justice and Investment Treaty Arbitration: Dialogue and Development, in PROCEEDINGS OF THE ANNUAL MEETING OF THE AMERICAN SOCIETY OF INTERNATIONAL LAW, 105 Am. Soc’y Int’l L. Proc. 330 (2011); Donald Francis Donovan, Provisional Measures in the ICJ and ICSID: Further Dialogue and Development, in CONTEMPORARY ISSUES IN INTERNATIONAL ARBITRATION AND MEDIATION: THE FORDHAM PAPERS 2012, 100 (Arthur W. Rovine ed. 2013); Donald Francis Donovan, The Scope and Enforceability of Provisional Measures in International Commercial Arbitration: A Survey of Jurisdictions, the Work of UNCITRAL and Proposals For Moving Forward, in INTERNATIONAL COMMERCIAL ARBITRATION: IMPORTANT CONTEMPORARY QUESTIONS, ICCA CONGRESS SERIES NO. 11, 82 (Albert Jan van den Berg ed. 2003); Lawrence Collins, Provisional and Protective Measures in International Litigation, in RECUEIL DES COURS, COLLECTED COURSES OF THE HAGUE ACADEMY OF INTERNATIONAL LAW, Vol. 234 (1992). 2. See, e.g., Perenco Ecuador Ltd. v. Republic of Ecuador and Empresa Estatal Petróleos Del Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Decision on Provisional Measures (May 8, 2009) (hereinafter “Perenco”), ¶ 74. The seminal decision concerning the binding effect of provisional measures in the public international law context, which is discussed in Perenco (at ¶ 69), is LaGrand (Germany v. United States of America), Judgment [2001] I.C.J. Rep. 466, in which the International Court of Justice unambiguously held, at paragraph 109, that “orders on provisional

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Donald Francis Donovan, David W. Rivkin & Christopher K. Tahbaz conserve assets, or otherwise to protect the integrity of the arbitral process or the enforceability of an eventual award. National arbitration laws correspondingly provide support in enforcing awards of provisional or interim measures.3 In the development of the legal framework for evaluating provisional measures applications, tribunals have often looked both to their power to award provisional measures, as well as to their fundamental competence or jurisdiction to act in the underlying dispute.4 As to the former, in today’s world, tribunals find the power to award interim measures in various institutional rules, as well as in some treaties, arbitral agreements and other sources. With regard to fundamental competence or jurisdiction, the question arises whether and to what extent the applicant for provisional measures must demonstrate that the tribunal has jurisdiction over the underlying dispute. In the context of a provisional measures application, the need to assess the existence of jurisdiction over the underlying dispute often is complicated by a temporal problem: Because the filing of such an application more often than not occurs at a relatively early point in the proceedings, before the ultimate jurisdictional question has been fully briefed, the question of jurisdiction over the underlying dispute is often not ripe when an application for provisional measures is filed. Thus, resolution of the ultimate jurisdictional question prior to entertaining the provisional measures application is often impracticable. Moreover, on occasion, a respondent who actually intends to mount a full challenge to the tribunal’s jurisdiction over the main dispute will nonetheless be in a position in which it believes it requires an order of provisional measures.5 In such circumstances, conditioning a grant of provisional measures on resolution of the ultimate jurisdictional question would mean either that the respondent would need to concede jurisdiction or that provisional measures—no matter how urgent or necessary—would not be available during the weeks or months required for the tribunal to reach a final determination on jurisdiction. Neither outcome would be in the interests of justice.

measures under Article 41 [of the ICJ Statute] have binding effect.” See also Vienna Convention on Consular Relations (Paraguay v. United States of America), Memorial of the Republic of Paraguay (Oct. 9, 1998). 3. For a discussion of the respective roles of national courts and arbitral tribunals in connection with the award and enforcement of provisional measures, see Donald Francis Donovan, Report: The Allocation of Authority Between Courts and Arbitral Tribunals to Order Interim Measures: A Survey of Jurisdictions, the Work of UNCITRAL and a Model Proposal, in NEW HORIZONS IN INTERNATIONAL COMMERCIAL ARBITRATION AND BEYOND, ICCA CONGRESS SERIES NO. 12, 203 (Albert Jan van den Berg ed. 2004). 4. See, e.g., Dawood Rawat v. Republic of Mauritius, PCA Case No. 2016-20, Order Regarding Request for Interim Measures (Jan. 11, 2017) (hereinafter “Dawood”), ¶¶ 43-46, 81-86; Quiborax S.A., Non Metallic Minerals S.A. and Allan Fosk Kaplún v. Plurinational State of Bolivia, ICSID Case No. ARB/06/2, Decision on Provisional Measures (Feb. 26, 2010), ¶ 108; Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. Government of Mongolia, UNCITRAL, Order on Interim Measures (Sept. 2, 2008) (hereinafter “Paushok”), ¶¶ 34-36, 47-54. 5. See, e.g., BSG Resources Limited, BSG Resources (Guinea) Limited and BSG Resources (Guinea) SÀRL v. Republic of Guinea, ICSID Case No. ARB/14/22, Procedural Order No. 3 (Nov. 25, 2015) (hereinafter “BSG Resources”), ¶ 74 (respondent State requested an order of provisional measures requiring claimant to post security for costs, in accordance with Art. 39(1) of the ICSID Arbitration Rules, even though respondent had “announced that it will raise an objection to the Tribunal’s jurisdiction”).

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Chapter 7: Jurisdictional Findings on Provisional Measures The answer to this jurisdictional conundrum, as it has emerged in arbitral jurisprudence, is to require an applicant for provisional measures to show only that the tribunal has prima facie jurisdiction over the underlying dispute.6 Typically, prima facie jurisdiction is interpreted to be just as it is described—a showing of jurisdiction “at first glance” or “on its face,” a standard thought to impose “a low threshold.”7 Unfortunately, however, the characterization of the jurisdictional requirement as imposing a “low threshold” leads to a risk that the jurisdictional analysis will be conducted in a rote fashion or otherwise be given short shrift. This would be a mistake. Particularly given the significance of some provisional measures—for example, in investor-State cases, provisional measures have been awarded (among other things) recommending that a State suspend extradition proceedings against a claimant, or that a State temporarily refrain from taking any enforcement actions to collect certain taxes from a claimant8—it is essential to the credibility and weight of any provisional measures order that the tribunal evaluating an application for such relief thoughtfully attend to the question of whether it has jurisdiction over the underlying dispute, even if the analysis is necessarily abbreviated and preliminary.9 In this brief chapter, we explore a few of the issues that arise in connection with how and why tribunals evaluate their jurisdiction in the course of reviewing provisional measures applications.

6. See, e.g., Italba Corporation v. Oriental Republic of Uruguay, ICSID Case No. ARB/16/9, Decision on Claimant’s Application for Provisional Measures and Temporary Relief (Feb. 15, 2017) (hereinafter “Italba”), ¶ 111; Hydro S.r.l. and others v. Republic of Albania, ICSID Case No. ARB/15/28, Order on Provisional Measures (Mar. 3, 2016) (hereinafter “Hydro”), ¶ 3.8; Menzies Middle East and Africa S.A. and Aviation Handling Services International Ltd. v. Republic of Senegal, ICSID Case No. ARB/15/21, Procedural Order No. 2 (Dec. 2, 2015) (hereinafter “Menzies”), ¶ 108; Lao Holdings N.V. v. Lao People’s Democratic Republic [I], ICSID Case No. ARB(AF)/12/6, Decision on Claimant’s Second Application for Provisional Measures (Mar. 18, 2015), ¶ 16; Paushok at ¶ 45. 7. Bear Creek Mining Corporation v. Republic of Peru, ICSID Case No. ARB/14/21, Procedural Order No. 2 (Apr. 19, 2015), ¶ 47 (summarizing the Respondent’s position). 8. See, e.g., Hydro; Perenco. 9. At least one arbitrator has argued, in the context of a respondent State’s security for costs application in an investment treaty arbitration, that a respondent State should not be required to make any showing of even prima facie jurisdiction, since this would be tantamount to requiring the respondent to “establish the negative against its own interests.” See RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs, Assenting Reasons of Gavan Griffith (Aug. 12, 2014), ¶¶ 4-6. In another investment treaty arbitration, however, the respondent State was apparently content to make an admission of prima facie jurisdiction, even though it intended ultimately to challenge jurisdiction over the merits. See BSG Resources at ¶ 7 (“[T]he Respondent submits that, notwithstanding the Tribunal’s lack of competence to entertain the merits of the Claimant’s case, the Tribunal has prima facie jurisdiction to order the requested [provisional] measures ….”). In RSM, the tribunal was not required ultimately to deal with the jurisdictional question because jurisdiction on the merits had been “undisputed among the Parties.” RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs (Aug. 13, 2014), ¶ 61.

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ANTECEDENT QUESTION: ARE ANY ISSUES PRESENTED WITH REGARD TO TRIBUNALS’ SPECIFIC POWER TO AWARD PROVISIONAL MEASURES?

It is well known in modern arbitral practice that tribunals derive the specific power to award provisional measures from a variety of sources, including applicable treaties or conventions, national laws, the rules of various arbitral institutions, and on some occasions the parties’ arbitration agreement itself. Many of these sources of arbitral power are relatively straightforward. For example, Article 47 of the ICSID Convention provides: Except as the parties otherwise agree, the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of either party.

Similarly, Article 28(1) of the ICC Rules of Arbitration (2017) provides: Unless the parties have otherwise agreed, as soon as the file has been transmitted to it, the arbitral tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate.10

Many national laws also provide tribunals with the power to award provisional measures. Some of these laws, similar to the ICSID Convention and the ICC Rules, are relatively straightforward. For example, the UNCITRAL Model Law creates a presumption that tribunals have the power to order interim measures “[u]nless otherwise agreed by the parties.”11 Other laws, however, contain their own, specific complexities. For example, the Swedish Arbitration Act provides that “[u]nless the parties have agreed otherwise, the arbitrators may, at the request of a party, decide that, during the proceedings, the opposing party must undertake a certain interim measure to secure the claim which is to be adjudicated by the arbitrators.”12 As another example, the English Arbitration Act 1996 provides that “[u]nless otherwise agreed by the parties the tribunal has the following powers,” and proceeds to specify various provisional measures that the tribunal is presumed to have the authority to grant.13 For all other provisional measures, “[t]he parties are free to agree on the powers exercisable by the arbitral tribunal for the purposes of and in relation to the proceedings.”14

10. In addition to the ICC rules, the rules of other leading arbitral institutions, as well as the UNCITRAL arbitration rules, also empower tribunals to award provisional measures. See, e.g., UNCITRAL Arbitration Rules (2013), Art. 26; LCIA Arbitration Rules (2014), Art. 25; Arbitration Rules of the Singapore International Arbitration Centre (2016), Art. 30; HKIAC Administered Arbitration Rules (2013), Art. 23. 11. UNCITRAL Model Law on International Commercial Arbitration (2006), Art. 17(1). 12. Swedish Arbitration Act (SFS 1999:116), § 25 (unofficial translation) (emphasis added). 13. English Arbitration Act 1996, § 38. 14. Id.

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Notably, there are still some national arbitration laws—such as the arbitration laws of China15—that reserve the granting of provisional measures exclusively to local courts. This factor may influence the decision of whether such jurisdictions should be chosen as the seat of arbitration in particular cases. Some treaties also place limits on the nature of provisional relief that a tribunal may grant. For example, both the North American Free Trade Agreement (“NAFTA”) and the Dominican Republic-Central America Free Trade Agreement (“CAFTA-DR”) empower tribunals to award provisional measures, but they specifically exclude from that authority interim relief addressed to certain alleged breaches of the respective treaties.16 The 2012 U.S. Model Bilateral Investment Treaty contains a similar restriction.17 Finally, despite the proliferation of legal sources expressly providing arbitral tribunals with the power to award provisional measures, the question still arises whether a tribunal has such power in cases where applicable legal sources neither clearly provide nor proscribe it. In such circumstances, some tribunals have asserted an inherent jurisdiction to issue provisional measures. The Iran-U.S. Claims Tribunal, for example, has held that it has “an inherent power to issue such orders as may be necessary to conserve the respective rights of the Parties and to ensure that this Tribunal’s jurisdiction and authority are made fully effective.”18 From this brief discussion, two observations can be made that are relevant to a consideration of the role of jurisdictional findings on a provisional measures application in international arbitration. First, in modern arbitral practice, the tribunal’s specific power to award provisional measures is largely uncontroversial, subject to some limitations, as well as restrictions contained in a few national arbitration laws. Second, depending on the source of a tribunal’s specific power to award provisional measures, that power is not always coextensive with the scope of the tribunal’s jurisdiction over the underlying dispute.

§7.02

ASSUMING THAT THE TRIBUNAL HAS THE POWER TO ORDER PROVISIONAL MEASURES, WHY IS A SHOWING OF JURISDICTION OVER THE UNDERLYING DISPUTE NECESSARY?

One interesting aspect of the rules and other sources of a tribunal’s specific power to award provisional measures, as canvassed above, is that they typically do not expressly condition a grant of provisional measures on a finding of jurisdiction over the

15. Chinese Civil Procedural Law, Art. 272; Chinese Arbitration Law, Art. 68; see also Italian Code of Civil Procedure, Art. 818 (“[t]he arbitrators may not grant attachment or other interim measures of protection.”). 16. NAFTA, Art. 1134; CAFTA-DR, Art. 10.20.8. 17. U.S. Model Bilateral Investment Treaty (2012), Art. 28.8. 18. E-Systems Inc. v. Islamic Repub. of Iran and Bank Melli, Interim Award in IUSCT Case No. 13-388-FT (Feb. 4, 1983) at 10, 2 Iran-U.S. C.T.R. 51 (1983), 57. See also Rockwell Int’l Sys., Inc. v. Islamic Repub. of Iran, Award in IUSCT Case No. 20-430-1 (Jun. 6, 1983) at 4-5, 2 Iran-U.S. C.T.R. 369, 371 (1983) (same); RCA Global Commc’ns Disc, Inc. v. Islamic Repub. of Iran, Award in IUSCT Case No. ITM 30-160-1 (Oct. 31, 1983), at 5, 4 Iran-U.S. C.T.R. 9 (1983), 11-12 (same).

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underlying dispute. For example, Article 28(1) of the ICC Rules of Arbitration (2017), quoted above, provides that a tribunal may award interim relief “as soon as the file has been transmitted to it.” Article 47 of the ICSID Convention, also quoted above, does not contain even this much of a limitation. This being the case—and given that provisional measures are by their nature intended to be temporary and often conservatory in nature—it is worth asking why any showing of jurisdiction should be required before a tribunal should be able to order such measures. The need to read a jurisdictional requirement into these provisions, and provisions similar to them, can be justified on at least two grounds. First, it is fundamental that a tribunal derives its power to act in a dispute from the parties’ consent to arbitrate. To order provisional measures without first conducting even a “low threshold” inquiry into jurisdiction would be to act in a potentially far-reaching (albeit temporary) way without having even asked whether the parties consent to the exercise of the tribunal’s power. It is not enough to say that the applicable rules do not mention a jurisdictional requirement; it is fair to assume that consent to the application of a particular set of rules to a dispute for procedural purposes does not equal consent to a tribunal’s exercise of power to affect substantive rights where the tribunal has no jurisdiction. Proceeding without at least an initial, provisional showing of the parties’ consent arguably would be contrary to a fundamental basis of international arbitration. Second, the jurisdictional requirement can be justified by concerns about legitimacy, related to but distinct from consent. If the tribunal acts without any showing of jurisdiction, then its acts risk having no legitimacy in the eyes of the parties, the courts, or anyone else affected by the order. This threatens the legitimacy of the entire international arbitral system—if a tribunal can act without jurisdiction in this respect, what is to stop it from acting without jurisdiction in other respects? The requirement that there be a showing of prima facie jurisdiction in the circumstances of a provisional measures application strikes the right balance—enough to proceed, without being so burdensome as to block the availability of relief. The rationale for the “prima facie test” is straightforward. Some showing of jurisdiction over the dispute is required to avoid the inequity and waste of time and costs that would result if a tribunal were to order provisional measures without having jurisdiction to decide the parties’ dispute. At the same time, the urgency that typically accompanies requests for provisional relief makes it impracticable for tribunals to reach a final decision on jurisdiction before issuing provisional measures.19 Indeed, one can imagine circumstances—such as those concerning the preservation of evidence—where provisional measures would be required in order to protect a tribunal’s ability to come to a considered view on its ultimate jurisdiction.20 Setting a 19. See Chapter 17: Interim Measures—Article 26, in THE UNCITRAL ARBITRATION RULES: A COMMENTARY 523 (David D. Caron & Lee M. Caplan eds., 2d ed. 2013); Chapter 17: Provisional Relief in International Arbitration, in GARY B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION 2483 (2d ed. 2014). 20. See, e.g., Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 1 (Mar. 31, 2006), ¶¶ 84-98 (recommending the preservation

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relatively low jurisdictional threshold at the provisional measures stage strikes an appropriate balance between these considerations.

§7.03

WHY DOES A TRIBUNAL NEED TO BE ABLE TO ORDER PROVISIONAL MEASURES PRIOR TO A FINDING OF ULTIMATE JURISDICTION?

It is uncontroversial that a tribunal cannot order provisional measures before it is constituted. If provisional measures are required before this point—and putting aside the availability of emergency arbitration—parties typically must resort to national courts. This leads to another question: Given the importance of a tribunal’s jurisdiction to act in the underlying dispute, why cannot parties who believe they require provisional measures before the ultimate jurisdictional question is resolved be directed to national courts, as they are before the tribunal is constituted? There are again at least two answers to this question. The first answer lies in a concern for efficiency. Requiring a party to turn to a national court for interim relief, at least until the tribunal has made a final determination on jurisdiction, would mean that the parties would be required to educate both the court and the tribunal on the dispute, a needless duplication of effort, with attendant increases in time and cost. Although this may be unavoidable before the tribunal is constituted, it is arguably best avoided at all points thereafter. Moreover, one can imagine circumstances where provisional measures initially ordered by a court would need to be reconsidered or perhaps modified by a tribunal that subsequently concluded that it had jurisdiction, creating another set of inefficiencies (e.g., the tribunal may need to be educated on the court proceedings that led to the order) as well as the risk of inconsistent outcomes (e.g., would a tribunal be required to preserve any part of a provisional measures order entered by a court, where the tribunal would have never ordered the measures had it been the first to consider the application?). Finally, limiting a tribunal’s power to order provisional measures to a point in time after it has made an ultimate finding of jurisdiction would almost certainly ensure that jurisdiction and liability would be bifurcated more often than is currently the case—again, with attendant increases in time and cost. The second answer to this question also may be found in the importance of consent. A party that legitimately believes in the existence of jurisdiction will be disappointed if the tribunal is not available to provide provisional relief that it believes is fairly within the scope of what the parties bargained for when they agreed to submit their dispute to arbitration.21 To the extent that the tribunal’s ability to award of documentary evidence notwithstanding the respondent’s jurisdictional objections, and recognizing that “there is a need for such evidence to be preserved before the proceedings progress any further (e.g. to enable each party properly to plead their respective cases).”). Art. 26(2)(d) of the UNCITRAL Arbitration Rules (2013) also authorizes tribunals to issue provisional measures orders to “[p]reserve evidence that may be relevant and material to the resolution of the dispute.” 21. See UNCITRAL, Working Group II, Settlement of Commercial Disputes, Preparation of Uniform Provisions on Interim Measures of Protection, Note by the Secretariat, U.N. Doc.

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provisional measures before a full jurisdictional finding may be viewed as expressing a presumption in favor of arbitral jurisdiction, the requirement of a lesser prima facie showing arguably ameliorates some of the unfairness that the party challenging jurisdiction may perceive.

§7.04

WHAT DOES PRIMA FACIE JURISDICTION MEAN?

Finally, although it is now uncontroversial that a tribunal can decide an application for provisional measures if there is a prima facie basis to assert jurisdiction over the dispute, this begs the question of what a showing of prima facie jurisdiction actually means. In the context of investor-State arbitration, it has been observed that ICSID tribunals have adopted a definition of “prima facie” from the jurisprudence of the International Court of Justice (“ICJ”).22 Although ICJ opinions do not offer a uniform definition, one commonly found formulation finds that an assertion of jurisdiction meets the prima facie test if the case as stated by the claimant is “capable of falling within” the legal framework that gives rise to jurisdiction.23 Another tribunal, also citing ICJ jurisprudence, has adopted a slightly different formulation: whether “Claimants have established such a basis upon which the jurisdiction of the Tribunal might be founded” (emphasis added).24 The two formulations giving some meaning to the prima facie standard are by no means exclusive. A nonexhaustive survey of commentary and recent decisions on provisional measures applications reveals the following additional examples: – At least one decision suggests that the prima facie standard would be satisfied if “any credible basis” for jurisdiction has been advanced.25 – Another decision explains that the prima facie standard “implies that the Arbitral Tribunal cannot and must not examine in depth the claims and

22.

23. 24.

25.

A/CN.9/WG.II/WP.119 (Jan. 30, 2002), ¶ 15 (noting the “importance of ensuring that parties choosing to resolve their disputes through arbitration do not forfeit any rights to avail themselves of any interim relief measure that they would have had in litigation.”). A thorough discussion of the evolution of ICJ jurisprudence and its adoption by investor-State tribunals can be found in Audley Sheppard, Chapter 23: The Jurisdictional Threshold of a Prima-Facie Case, in THE OXFORD HANDBOOK OF INTERNATIONAL INVESTMENT LAW 932 (Peter T. Muchlinski et al. eds., 2008). Id. at p. 940; see also id. at p. 960 (stating that this formulation “appears to find most favor”). Paushok at ¶¶ 47-48 (citing Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Provisional Measures, Order of May 10, 1984 [1984] I.C.J. Rep. 169 at ¶ 24). See also Valle Verde Sociedad Financiera S.L. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/12/18, Decision on Provisional Measures (Jan. 25, 2016) (hereinafter “Valle Verde”), ¶ 77(b); Ford Aerospace & Commc’ns Corp. v. The Air Force of Iran and others, Case No. 159, Interim Award No. ITM 39-159-3 (Jun. 4, 1984), 6 Iran-U.S. C.T.R. 104 (1984), 108. PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Decision on the Claimant’s Request for Provisional Measures (Jan. 21, 2015) (hereinafter “PNG”), ¶ 120.

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arguments submitted on the merits of the case,” and is confined to “an initial analysis, i.e. ‘at first sight’.”26 At the end of the day, one could possibly conclude that the differences between all of the various standards set forth above are rather more semantic and less meaningful, and that the important point to take away is that the requirement of a prima facie showing indeed imposes a “low standard.” Even if one is happy to leave off with this conclusion, however, there have emerged important nuances that should be considered when applying the standard. First, it is clear that a finding of prima facie jurisdiction is not a substitute for a full jurisdictional analysis, and does not preclude a later finding of no jurisdiction. For example, the tribunal in the case of PNG v. Papua New Guinea granted provisional relief after finding that the claimant had satisfied the “relatively undemanding requirements” of prima facie jurisdiction, while noting the existence of “serious counter-arguments—both jurisdictional and otherwise—to the claimant’s claims.”27 Less than four months later, the tribunal issued an award holding that it lacked jurisdiction over the claimant’s claims, putting an end to the arbitration and the provisional measures ordered in support thereof.28 Likewise, in Perenco v. Ecuador, the tribunal granted provisional measures against both Ecuador and Petroecuador in the face of unresolved jurisdictional challenges, after finding that there existed a prima facie basis for exercising jurisdiction over both respondents.29 The tribunal explained that once it was “putatively vested with jurisdiction to hear a claim (subject to resolving any objections thereto definitively),” it had “the duty to protect its jurisdiction to resolve the dispute that has been put before it.”30 The tribunal subsequently issued its decision on jurisdiction, determining that it had no jurisdiction over Petroecuador (although it did confirm that it had jurisdiction over claims against Ecuador).31 Thus, some of the jurisdictional challenges that had not yet been ruled upon at the time the tribunal granted provisional relief were later sustained by the tribunal. These cases illustrate that the difference between prima facie jurisdiction and a final determination of jurisdiction is real. A finding of prima facie jurisdiction is only temporary—based on an “at first sight,” “low threshold” analysis—and will be revisited when the tribunal considers its ultimate jurisdiction. Second, tribunals tend not to consider the fact that an ICSID case has been registered as dispositive of the existence of prima facie jurisdiction.32 This fact suggests

26. Millicom International Operations B.V. and Sentel GSM S.A. v. Republic of Senegal, ICSID Case No. ARB/08/20, Decision on the Application of Provisional Measures (Dec. 9, 2009) (hereinafter “Millicom”), ¶ 42. 27. PNG, ¶ 125. 28. PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Award (May 5, 2015), ¶¶ 379, 417(a). 29. Perenco, ¶¶ 39-41. 30. Id. ¶ 64. 31. Perenco Ecuador Ltd. v. Republic of Ecuador and Empresa Estatal Petróleos Del Ecuador (Petroecuador), ICSID Case No. ARB/08/6, Decision on Jurisdiction (Jun. 30, 2011). 32. See, e.g., PNG, ¶ 119; Millicom, ¶ 43(a); Menzies, ¶ 109; Perenco, ¶ 39.

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that prima facie jurisdiction imposes a higher standard than the dispute not being “manifestly outside the jurisdiction of [ICSID],” which is the standard required for registration by the Secretary-General under Rule 6 of the ICSID Institution Rules. Third, tribunals have differing views on the relevance of the existence of bifurcation to their prima facie analysis. In Valle Verde v. Venezuela, the respondent argued that no prima facie jurisdiction existed because it had raised “strong jurisdictional objections … that led the Tribunal to bifurcate the proceeding.”33 The tribunal rejected this argument, noting that bifurcation was a “case management determination” made for the purposes of procedural fairness and efficiency, and had “no implication on the Tribunal’s determination of jurisdiction.”34 By contrast, in Italba v. Uruguay, the tribunal held that because the respondent had agreed that jurisdiction should be heard together with the merits, it had “accepted that the Tribunal is vested with the necessary adjudicative powers to conduct this arbitration,” including the power to recommend provisional measures.35 Based on this reasoning, the tribunal found the prima facie jurisdiction test to be satisfied.36 The important point in this regard is that there is a danger in treating a party’s stance on bifurcation as any sort of concession on jurisdiction, prima facie or otherwise. The considerations that should drive decisions on bifurcation, such as procedural fairness and efficiency and the extent of overlap in facts and law, are procedural in nature. They are different in kind from jurisdictional considerations, which involve substantive issues such as whether a valid arbitration agreement exists and the scope of such agreement. Fourth, there remains the question of when it is appropriate (if ever) to look behind the pleadings even in connection with a prima facie analysis. One tribunal posited that an exception to taking the claimant’s allegations at face value exists when jurisdiction is founded on a most-favored nation (“MFN”) clause. In Dawood Rawat v. Republic of Mauritius, the treaty under which the arbitration was brought, the France-Mauritius BIT, did not provide the investor with a direct right of arbitration against the host State; rather, the investor sought to “import” the relevant provision of another treaty (the Finland-Mauritius BIT) into the France-Mauritius BIT through the latter’s MFN clause. Here, the tribunal stated that in such a situation, “the very question … concerns the limits of our jurisdiction, and so the ‘prima facie’ issue arises at an earlier stage.”37 Rather than asking whether the claimant’s allegations, if assumed to be true without regard to the respondent’s jurisdictional objections, would constitute breaches of the France-Mauritius BIT (the tribunal found that they would), the tribunal asked itself “whether [it] has jurisdiction at all, via the MFN clause in the France-Mauritius BIT.” Ultimately, the tribunal did not resolve the question, choosing to resolve the interim measures application on nonjurisdictional grounds.38

33. 34. 35. 36. 37. 38.

Valle Verde, ¶ 76. Id. ¶ 77(c). Italba, ¶¶ 113-114. Id. ¶¶ 111-112. Dawood at ¶ 83. Id. ¶ 86.

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Other than the specific scenario of MFN clauses, should tribunals always assume that a claimant’s allegations are true when determining their prima facie jurisdiction? Judge Holtzmann, in his concurring opinion in an Iran-U.S. Claims Tribunal interim award, considered that the “benefit of doubt” should be given to the existence of prima facie jurisdiction.39 Yet it cannot be that a claimant’s allegations are immune from attack when there are key facts or legal principles that can be easily and definitively disproven. For example, if the respondent furnishes conclusive proof that the claimant sold the investment before the dispute arose under any view of the facts as stated by the claimant, jurisdiction ratione tempore would not exist even under the prima facie standard. Finally, although the discussion above deals largely with investor-State arbitration, the approach in commercial arbitration is similar. Commercial tribunals also satisfy themselves as to the existence of prima facie jurisdiction when granting provisional measures,40 although it appears that they may do so less explicitly.41 The Chartered Institute of Arbitrators recommends that arbitrators consider whether they have prima facie jurisdiction over the dispute before deciding whether to grant provisional relief. This is “usually satisfied by clear evidence of the existence of a written agreement to arbitrate between the parties.”42 This may be a stricter standard than that applied by the ICC Court when considering Article 6(3) jurisdictional challenges, as the latter standard simply requires a prima facie existence of an ICC arbitration agreement.43

§7.05

CONCLUSION

As tribunals become more comfortable with ordering provisional measures and the range and nature of such measures evolve, it will become even more important for the analysis of jurisdiction on provisional measures applications to remain a thoughtful inquiry, rather than becoming simply a “tick the box” exercise. Although the threshold for finding jurisdiction in these circumstances may be low, that will never justify effectively skipping over the exercise altogether, particularly when the provisional measures sought are significant. To the contrary, a thoughtful evaluation of jurisdiction and well-articulated jurisdictional findings in provisional measures orders, even if on the “low” prima facie standard, will continue to be essential to the credibility of arbitral

39. Bendone-DeRossi Int’l v. Islamic Repub. of Iran, Concurring Opinion of Howard M. Holtzmann in Interim Award of June 7, 1984 in IUSCT Case No. ITM 40-375-1 (Jun. 8, 1984), reprinted in 6 Iran-U.S. C.T.R. 133 (1984), 134. 40. See ALI YESILIRMAK, PROVISIONAL MEASURES IN INTERNATIONAL COMMERCIAL ARBITRATION 175 (Kluwer 2005). 41. A review of several ICC awards on interim measures reveals that many tribunals do not expressly consider their jurisdiction over the disputes. 42. See CHARTERED INSTITUTE OF ARBITRATORS, INTERNATIONAL ARBITRATION PRACTICE GUIDELINE: APPLICATIONS FOR INTERIM MEASURES 6 (Chartered Institute of Arbitrators 2015) (citing CHARTERED INSTITUTE OF ARBITRATORS, INTERNATIONAL ARBITRATION PRACTICE GUIDELINE: JURISDICTIONAL CHALLENGES (Chartered Institute of Arbitrators 2015)). 43. ICC Rules of Arbitration (2017), Art. 6(4); see also JASON FRY ET AL., THE SECRETARIAT’S GUIDE TO ICC ARBITRATION (2012), ¶¶ 3-196, 3-197, 3-202, 3-203.

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tribunals—and to the extent that provisional measures orders are sought to safeguard the integrity of particular proceedings, paying due attention to jurisdictional prerequisites becomes an important element in the integrity of the arbitral process itself.

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CHAPTER 8

Work in Progress: Res Judicata and Issue Estoppel in Investment Arbitration Gavan Griffith QC & Isabella Seif*

§8.01

DOCTRINE OF RES JUDICATA

Res judicata holds that a final decision by a court or tribunal is conclusive in subsequent proceedings involving the same parties, causes of action and relief, and is a universal principle elevated to the level of ‘general principles of law recognised by civilised nations’ and, separately, as a principle of international law.1 Res judicata is founded upon an inertia to hold that a matter once adjudicated (either by curial or arbitrated decision) should have legal finality in both negative and positive applications: negative in the sense that a party is precluded from relitigating a dispute that has already been finally determined and positive in the sense that finally decided disputes have binding effect on the parties to them. Principles of finality may vary in international arbitrations in situations falling short of res judicata strictu sensu, particularly in adapting to the disconformities between common law systems embracing concepts of issue estoppel and civil law nomenclatures, which generally have adopted a more reserved reach in the articulation of exclusionary principles. The results may be much the same but the expression of settled doctrine as applied by investment tribunals is closer to nascent than settled. In this regard, the requirements for res judicata in international law reflect those of municipal laws. It is generally accepted that for a claim to be precluded by operation of res judicata arising from a prior determination, all of the parties, the causes of action and the relief sought are required to be identical. * ©2018, Gavan Griffith QC & Isabella Seif. 1. Polish Postal Service in Danzig, Advisory Opinion, 1925 P.C.I.J. (Ser. B) No. 11 (May 16), para. 86; Interpretation of Judgments Nos. 7 & 8 Concerning the Case of the Factory at Chorzow, 1927 P.C.I.J. (Ser. A) No. 13 (16 December 1927), Dissenting Opinion of Judge Anzilotti, p. 20.

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If a 1925 dictum may be regarded as recent, the core articulation of the principle in international disputation was by Judge Anzilotti’s dissent in the Chorzow Factory (Interpretation): we have here the three traditional elements for identification, persona, petitum,2 causa petendi,3 for it is clear that ‘that particular case’ (le cas qui a été décidé) covers both the object and the grounds of the claim.4

The requirement that these three elements be identical is increasingly perceived as unhelpfully stringent and largely impractical in international investment arbitration, for it enables claimants in later proceedings to escape the res judicata effect of a prior decision by inconsequential variations as to parties, venue or pleadings of claims over essentially the same issues. For example, a claimant alleging expropriation may seek restitution in one claim and then compensation in another. Similarly for variations in respect of the parties and their privies: in one case the shareholders of an investment vehicle may bring a claim against the host State and in another it may be the holding company of that investment vehicle. Self-evidently, an overly restrictive test may defeat the public interest in finality arising from the exclusionary intent of res judicata principles.

§8.02

DOCTRINE OF ISSUE ESTOPPEL

Within common law systems, principles of issue estoppel may be engaged to preclude the relitigation of issues in later disputations in situations falling short of establishing res judicata. The requirements for issue estoppel was stated by Lord Guest in Carl Zeiss Stiftung as: (1) that the same question has been decided; (2) that the judicial decision which is said to create the estoppel was final; and (3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.5 Plainly, this is a less strict requirement than Judge Anzilotti’s conception of res judicata because a party need only satisfy the second decision maker that the same question has been finally decided in respect of the same parties, or their privies.6 Self-evidently issue estoppel is more easily engaged than res judicata, as essentially it

2. Petitum refers to the relief sought. 3. Causa petendi refers to the cause of action or legal grounds of the case. 4. Polish Postal Service in Danzig, Advisory Opinion, 1925 P.C.I.J. (Ser. B) No. 11 (May 16), para. 86; Interpretation of Judgments Nos. 7 & 8 Concerning the Case of the Factory at Chorzow, 1927 P.C.I.J. (Ser. A) No. 13 (16 December 1927), Dissenting Opinion of Judge Anzilotti, p. 20. 5. Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) [1967] A.C. 853 at 935 (per Lord Guest). 6. V. Lowe, Res judicata and the Rule of Law in International Arbitration 8 African Journal of International & Comparative Law 38, 41 (1996).

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allows the party relying on it to elect between the petitum and causa petendi, while extending the persona component to the privies of parties.7 More simply, the second decision maker may look to the reasoning of the earlier judgment to determine if a particular fact or issue has already been decided. As stated by Spencer Bower and Handley’s last (2009) edition, such a decision: will create an issue estoppel if it determined an issue in a cause of action as an essential step in its reasoning. Issue estoppel applies to fundamental issues determined in an earlier proceeding which formed the basis of the judgment.8

For a common lawyer there is a natural progression to engage principles of issue estoppel within international disputations as a preclusionary rule falling short of res judicata. The transmission is not so apparent to a civil lawyer, referencing law systems that generally adopt a more reserved approach to exclusionary principles as being confined to a decision’s dispositif, to the exclusion of its reasons. It follows that exclusionary consequences of earlier proceedings are inclined to be limited to where the second arises from the same cause of action. Further, civil law courts are also less inclined to extend exclusionary principles to a party’s privies. Nonetheless, within the field of international law, exclusionary principles have come to be articulated and applied beyond the narrow reach of res judicata, without definition of the boundaries between it and issue estoppel. One of the first international arbitrations to consider the doctrine of res judicata was the 1902 award in the Pious Fund Arbitration between the United States and Mexico, holding that an earlier arbitral award had res judicata effect between the parties. Although the Tribunal made no reference to issue estoppel, it applied the test of issue estoppel to reach a preclusionary result, namely ‘same parties’ and the ‘same subject-matter that was judged’.9 And soon after in 1902 (still more than twenty years prior to Judge Anzilotti’s test), the leading statement on issue estoppel in international arbitration was taken from the United States Supreme Court judgment, Southern Pacific Railroad Co v. United States, and affirmed by the France-Venezuela Mixed Commission in the Company General of the Orinoco Case: the general principle announced in numerous cases is that a right, question, or fact distinctly put in issue and distinctly determined by a court of competent jurisdiction as a ground of recovery, cannot be disputed.10

7. In the United States there is widespread acceptance of a broader doctrine of collateral estoppel, which largely dispenses with the requirement of identity of parties. See San Remo Hotel v. San Francisco 545 US 323 (2005). 8. K.R. Handley and G. Spencer Bower, Spencer Bower and Handley: Res judicata, p. 103 (4th edn, LexisNexis, 2009). 9. The Pious Fund of the Californias (The United States of America v. The United Mexican States), Award of the Tribunal, 14 October 1902, p. 3. 10. Company General of the Orinoco Case, Reports of International Arbitral Awards, 31 July 1905, Volume X, p. 276, referring to Southern Pacific Railroad Co v. United States 168 US 1, 48-49 (1897) (emphasis in original).

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Investment tribunals also have applied mixed and confusing nomenclature within these contexts, to reach, in most matters, objectively ‘correct’ results to vindicate the underlying public policy for there to be finality. Some use the term res judicata without particularising that they are applying issue estoppel. Some do not apparently recognise concepts of issue estoppel as a separate exclusionary principle. Others treat res judicata and issue estoppel as entirely distinct doctrines. And these approaches do not divide along the lines of common and civil lawyer. Investment tribunals faced with questions regarding the exclusionary effect of an earlier international award (as opposed to an earlier domestic decision), generally have preferred the common law notion of issue estoppel to the civil law concept of res judicata. One of the first investment tribunals to consider the issue of res judicata is AMCO Asia Corporation and others v. Republic of Indonesia (Resubmitted Case) in 1990. A final award had been rendered between the parties by a tribunal constituted under the aegis of the International Centre for Settlement of Investment Disputes (‘ICSID’) and partially annulled by an ad hoc committee pursuant to Article 52 of the ICSID Convention. Upon the case being resubmitted to a new ICSID Tribunal both parties accepted that the un-annulled parts of the first award remained res judicata. However, Indonesia argued that the second Tribunal was required to look beyond the dispositif of the ad hoc committee’s award and consider the reasoning provided in that award. The Tribunal stated, somewhat cautiously, that ‘it is by no means clear that the basic trend in international law is to accept reasoning, preliminary or incidental determinations as part of what constitutes res judicata’.11 Ultimately, the Tribunal resolved Indonesia’s argument in the context of the ICSID framework and the peculiarities of its annulment system: If the present Tribunal were bound by the ‘integral reasoning’ of the Ad Hoc Committee, then the present Tribunal would have bestowed upon the Ad Hoc Committee the role of an appeal court. The underlying reasoning of an Ad Hoc Committee could be so extensive that the tasks of a subsequent Tribunal could be rendered mechanical, and not consistent with its authority – as indicated in Article 52(6), which speaks of ‘the dispute’ being submitted to a new Tribunal.12

Some ten years later, in Grynberg v. Grenada, the Tribunal squarely faced an argument for issue estoppel within an investment dispute (there referred to as collateral estoppel). RSM Production Company had been the sole claimant in a prior ICSID arbitration against Grenada (RSM v. Grenada) relating to the breach of a petroleum and exploration agreement.13 Its claim in Grynberg included additional

11. Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Award in Resubmitted Proceeding, 5 June 1990, para. 32. 12. Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Award in Resubmitted Proceeding, 5 June 1990, paras 43-44. 13. RSM Production Corporation v. Grenada, ICSID Case No. ARB/05/14.

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claimants and was brought pursuant to a different bilateral investment treaty, but related to the same petroleum and exploration agreement. The parties there agreed as to the requirements of the doctrine of issue estoppel: The disputing parties […] agree that a finding concerning a right, question or fact may not be re-litigated (and, thus, is binding on a subsequent tribunal), if, in a prior proceeding: (a) it was distinctly put in issue; (b) the court or tribunal actually decided it; and (c) the resolution of the question was necessary to resolving the claims before that court or tribunal.14

Despite this agreement, the claimants argued that issue estoppel did not here apply as the RSM v. Grenada Tribunal had examined questions of breach of contract, rather than breach of treaty. The Grynberg Tribunal rejected this argument on the basis that it ‘confuses issue preclusion and claim preclusion’.15 In doing so, it stated that collateral estoppel, also known as issue estoppel, is now a well-established principle of international law.16 The Grynberg Tribunal held that ‘an essential predicate’ to the success of the claimants’ claims was the ability of the Tribunal to reconsider and decide in the claimants’ favour conclusions of fact or law concerning the parties’ contractual rights that had already distinctly been put in issue and distinctly determined by the RSM v. Grenada Tribunal.17 As it held it was prevented from doing this by the application of issue estoppel, the Tribunal found that the claimants’ claims were manifestly without legal merit and dismissed them in their entirety. Likewise in a NAFTA dispute, in Apotex Holdings v. United States, two previous awards had been rendered under NAFTA’s Chapter Eleven and the UNCITRAL Arbitration Rules 1976. The parties disagreed as to ‘whether res judicata in international law includes the broader concept of or akin to issue estoppel’.18 The Tribunal commented that ‘certain international tribunals and scholars have questioned [res judicata’s] division between petitum and causa petendi; and many cases have used a simpler analysis’.19 The Tribunal further noted that ‘international tribunals have applied forms of issue estoppel, without necessarily using the term’.20 The Tribunal referred to the British-US Claims Arbitral Tribunal and the Pious Fund Tribunal applying tests involving the same parties and the same ‘question at issue’ or ‘subject matter that was judged’, and decided that:

14. Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, ICSID Case No. ARB/10/6, Award, 10 December 2010, para. 7.1.1. 15. Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, ICSID Case No. ARB/10/6, Award, 10 December 2010, para. 7.1.3. 16. Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, ICSID Case No. ARB/10/6, Award, 10 December 2010, para. 4.6.5. 17. Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, ICSID Case No. ARB/10/6, Award, 10 December 2010, para. 7.2.1. 18. Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF/12/1), Award, 25 August 2014, para. 7.17. 19. Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF/12/1), Award, 25 August 2014, para. 7.15. 20. Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF/12/1), Award, 25 August 2014, para. 7.18.

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where there is a question regarding the extent of a prior decision or award’s res judicata effect, international tribunals regularly look to the prior tribunal’s reasons and indeed also to the parties’ arguments, in order to determine the scope of what was finally decided in that earlier proceeding.21

These are two direct decisions by investment tribunals explicitly embracing issue estoppel to justify its refusal to reconsider questions already determined by the prior international award, either in the reasons of the award or its dispositif. Two swallows do not make a summer. But they do flag the admission of the dichotomy into the field of preclusionary results arising from prior investment awards. However, it is by no means established that principles of issue estoppel are available to be applied by an investment tribunal when arising from earlier decisions from municipal courts or domestic arbitral tribunals. For example, in Gavazzi v. Romania, the Tribunal applied the conventional res judicata test, dismissing the exclusionary effect of a decision of the Bucharest Court of Cassation because of its different cause of action to that of the investment claim. Here the claimants had entered into a share purchase agreement with the Romanian State Ownership Fund for the purchase of shares in a steel plant company. A dispute arose between the parties in relation to the share purchase agreement. By the time the claimants had started their ICSID claim against Romania, the Bucharest Court of Cassation had already held that the claimants were not owed compensation under the share purchase agreement. The majority, comprising civil lawyer Professor van Houtte (President) and common lawyer V.V. Veeder QC, referred to issue estoppel, but then went on to examine whether the three components of the res judicata test were present, namely same parties, causes of action and relief claimed. The majority finding was that the treaty claim and the Bucharest Court proceedings had different causes of action and that ‘for this reason alone … the Bucharest court decisions cannot have conclusive … effect for the Tribunal under the doctrines of res judicata and issue estoppel’.22 In contrast, Mr Rubino-Sammartano dissented on this point, finding that the different causes of action of the two claims did not prevent the application of issue estoppel: One has to distinguish cause of action estoppel from issue estoppel, since the former prevents a party from resubmitting the same claim which was previously decided, while issue estoppel prevents a party from re-litigating a point of law or fact which was already decided by a previous judgment.23

Further, in Helnan v. Egypt the Tribunal made no mention of issue estoppel, implying that had it been necessary it would have applied the conventional res judicata test. In this case, the Tribunal was faced with a prior arbitral award that had been rendered under the aegis of the Cairo Regional Centre for International Commercial Arbitration (the ‘Cairo Award’). It recognised that the Cairo Award had binding and

21. Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF/12/1), Award, 25 August 2014, para. 7.30. 22. Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Decision on Jurisdiction, Admissibility and Liability, 21 April 2015, para. 171. 23. Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Dissenting Opinion of Mr Mauro Rubino-Sammartano, 14 April 2015, para. 17.

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res judicata effect in the Egyptian legal order, but considered that ‘a decision by national court [sic] or a private arbitral tribunal cannot be opposed as res judicata to the admissibility of an action filed with an international arbitral tribunal’.24 It held that, even if the Cairo Award could affect the admissibility of the investment claim, the conventional res judicata test would not be met as the claims arose from different causes of action and sought different relief. However, while the Helnan Tribunal dismissed Egypt’s claim that the Cairo Award rendered the treaty claim before it inadmissible, it did not completely disregard the Cairo Award in relation to the merits. The Tribunal held that it must give res judicata effect to the Cairo Award, so far as questions of internal law were relevant, and referred to the dissenting opinion of Professor Cremades in Fraport v. Philippines, who observed: The ICSID tribunal is not bound by the decision of the Philippine court, even the Supreme Court, but its own judgment on Philippine law must be premised on the Philippine law itself. It is res judicata in Philippine law that the Terminal 3 concession is null and void ex tunc and not ex nunc, and this must be accepted by the arbitral tribunal…the tribunal should respect the consequences of the Supreme Court decision.25

In summary, whilst the Tribunal did not explicitly adopt and apply issue estoppel concepts and reasoning, their result is entirely consistent with the application of issue estoppel analysis. Most recently, in 2017, the Ampal-American Israel Corporation v. Egypt Tribunal, fully embraced issue estoppel, upholding the exclusionary effect of an earlier ICC award relating to a contractual dispute between the claimants’ investment company and some State-owned enterprises.26 Whilst the two disputes arose from different causes of action, namely contract and treaty, the Tribunal did not consider that sufficient basis to reagitate issues already decided by the ICC award. For example, when considering whether Egypt had breached its treaty obligation to accord full protection and security, the Tribunal considered res judicata the ICC Tribunal’s findings of fact relating to attacks on a pipeline at the time of the 2011 Egypt uprising. Additionally, the Tribunal held that it must uphold the ICC Tribunal’s finding that the relevant contract between the parties had been wrongfully terminated. It then went on to consider, in light of this, whether the termination of the contract was tantamount to expropriation. This seems a sensible approach, consistent with the result of Helnan. Finally, it is uncontroversial that a domestic judgment or award would lose its res judicata effect in the event a finding of denial of justice in the domestic proceeding. Such a finding would engage a State’s international responsibility under public international law and would reopen the determinations of the domestic judgment or

24. Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, Award, 3 July 2008, para. 125. 25. Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, Award, 3 July 2008, para. 125. 26. Ampal-American Israel Corporation v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Liability and Heads of Loss, 21 February 2017.

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award for reconsideration. As the Grynberg Tribunal stated ‘even when the contractual forum is not an ICSID Tribunal, BIT tribunals do not reopen the municipal law decisions of competent fora, absent a denial of justice’.27 Likewise, in Desert Line v. Yemen, the Tribunal dismissed any res judicata effect of a prior Yemeni arbitral award due to the fact that the treaty claim before it arose out of Yemen’s alleged interference in the proper conduct of the same Yemeni arbitral proceedings.28

§8.04

EXPANSION OF THE PERSONA REQUIREMENT BY ISSUE ESTOPPEL

A significant difference between res judicata and issue estoppel is the application of the persona criterion. Applied strictly, res judicata requires parity of parties between the first completed claim and the later proceedings, whereas issue estoppel expands the persona element to include privies. In international investment arbitration a discrepancy between the identities of the parties will often arise where in one case the claimant is the investment vehicle and in another its shareholders. Investment tribunals may come to examine whether they can consider that the shareholders have parity of interest with the investment vehicle, as arose in 2003 in CME Czech Republic v. Czech Republic, where the Tribunal strictly applied the identity requirement of res judicata. As noted above, the case involved two arbitrations in respect of the same facts arising under different BITs. The Tribunal concluded that findings made in the award involving the controlling shareholder were not res judicata in the case involving the subsidiary.29 Nonetheless, and continuing as work in progress, some later tribunals have been more flexible with respect to the identity requirement, and have precluded claimants from bringing new suits where their privies have had a first shot in a different forum. For example, the Tribunal in Grynberg had to resolve whether res judicata applied in respect of an earlier ICSID case brought by the claimants’ investment company, RSM. The claimants in the ICSID proceedings were the three sole shareholders of RSM. The Tribunal held that: it is true that shareholders, under many systems of law, may undertake litigation to pursue or defend rights belonging to the corporation. However, shareholders cannot use such opportunities as both sword and shield. If they wish to claim standing on the basis of their indirect interest in corporate assets, they must be subject to defences that would be available against the corporation – including collateral estoppel.30

27. Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, ICSID Case No. ARB/10/6, Award, 10 December 2010, para. 7.1.11. 28. Desert Line Projects LLC v. Republic of Yemen, ICSID Case No. ARB/05/17, Award, 6 February 2008. 29. CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Final Award, 14 March 2003, paras 432-433. 30. Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Company v. Grenada, ICSID Case No. ARB/10/6, Award, 10 December 2010, paras 7.1.5-7.1.7.

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This appears a principled and fair approach to a sensible result. Further, in Apotex Holdings, the first claimant (Apotex Holdings) conceded that it was a privy of one of the claimants in two earlier arbitrations (Apotex Inc.), prompted by the concession made in Grynberg. However, it denied that it was a privy of another claimant of the earlier arbitrations (Apotex-US), which it independently owned and controlled. The Tribunal rejected this argument: In the Tribunal’s view, independently from the concession (rightly) made by Apotex-Holdings at the Hearing, Apotex-Holdings is a ‘privy’ with Apotex-US, albeit not a named party in the Apotex I & II arbitration. Its relevant claims in this arbitration, albeit made in its own right and in its own name, depend upon Apotex Inc.’s ANDAs as investments under NAFTA Articles 1116 and 1139; and if these are not investments, Apotex-Holdings cannot bring such claims before this Tribunal as a matter of jurisdiction.31

Most recently, the Tribunal in Ampal-American Israel Corporation v. Egypt cited with approval the more relaxed application of the persona requirement by the Grynberg and Apotex Tribunals where the claimants had brought a claim as shareholders of a local corporation, who had been party to a prior ICC arbitration. The Tribunal held that: since, in the context of investment arbitration, a shareholder is entitled to pursue a claim for investments that are indirectly held through a corporation, it must also be subject to defences that would be available against the corporation, including the defences of estoppel based on a prior judgment.32

Unlike Grynberg and Apotex, the claimants did not wholly own the corporation. Nevertheless, the Tribunal held that the claimants were in privity of interest with their corporation as the claims in the present proceedings existed only through the corporation and in respect of a contract that the corporation had entered into. This was especially reflected in the claimants’ claim for damages which only sought compensation for the loss of the value of their shares as a result of the damages sustained by their corporation. The drift is trending towards a less formal application of the persona requirement, which makes sense in the context of investor-State arbitration, particularly in the situation where an investor has incorporated one or more entities in the host state to comply with that State’s legal requirements, but remains in control of and benefits from that investment (including from any successful local suit against the host State). In these contexts, identity of the respondent State is also a live issue in international investment arbitration. Often a State organ has been party to an earlier arbitration brought pursuant to a contract (such as an ICC arbitration), whereas the sovereign State as a whole is party to the international investment arbitration: for example, in Helnan, the Tribunal considered the application of res judicata with respect to earlier domestic arbitration proceedings against the Egyptian Organization

31. Apotex Holdings Inc. and Apotex Inc. v. United States of America, ICSID Case No. ARB(AF/12/1), Award, 25 August 2014, para. 7.40. 32. Ampal-American Israel Corporation v. Arab Republic of Egypt, ICSID Case No. ARB/12/11, Decision on Liability and Heads of Loss, 21 February 2017, para. 266.

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for Tourism and Hotel.33 However, the Tribunal did not fully resolve the identity issue once it found that res judicata was unavailable on other grounds. A similar issue arose in Gavazzi v. Romania, where a Romanian State agency known as the Authority for State Asset Recovery (AVAS) had been a party to earlier court proceedings in Bucharest. The majority held that the Bucharest Court decision had no conclusive effect with respect to the claim before the Tribunal: while AVAS is a public body that depends on the Government of Romania, under Romanian law it has a distinct legal personality, is organized pursuant to its own articles of incorporation, and is managed by its own Board.34

Mr Rubino-Sammartano dissented on this point to hold that the acts of AVAS were attributable to Romania as an agency or instrumentality and that because of this attribution, there was identity of parties: Because of the attribution of the relevant acts to the State, there is a ‘sufficient degree of identification between such parties’, i.e., between the agency and the State. As AVAS’ acts and omissions are attributable to Romania, Romania must be considered as identical to AVAS. There is consequently identity of the parties in the two proceedings.35

§8.05

CONCLUSIONS

Tensions arise from the sometimes uncomfortable shortcomings of the strict res judicata test adequately to deal with the capacity of claimants to move from domestic litigations to the international legal order. Issues also arise from its stipulations for identity of the parties and claims. The few investment tribunals who have considered the effect of prior international arbitration awards have been inclined to embrace the nomenclature of common law issue estoppel to ease the strict application of res judicata principles. However, the context of the recognition of conclusionary consequences arising from domestic litigations and arbitral awards under municipal laws is of more open texture, with some tribunals modifying the indicia of res judicata to soften the conventional test and others invoking, separately from conventional res judicata analysis, a modified ‘issue estoppel’ approach, impliedly informed by common law references. Whilst it remains that a decision of a municipal court or an arbitral tribunal cannot per se have res judicata effect in an investment dispute, there is now an emerging recognition of capacity for domestic dispositions arising from an apparently fair process under municipal laws between ‘like’ but not necessarily identical parties to be given conclusionary effect by an investment tribunal. Whether the reasoning is

33. Helnan International Hotels A/S v. Arab Republic of Egypt, ICSID Case No. ARB/05/19, Award, 3 July 2008. 34. Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Decision on Jurisdiction, Admissibility and Liability, 21 April 2015, para. 174. 35. Marco Gavazzi and Stefano Gavazzi v. Romania, ICSID Case No. ARB/12/25, Dissenting Opinion of Mr Mauro Rubino-Sammartano, 14 April 2015, para. 23.

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explained in terms of a modified res judicata effect or as an extension to the international application of the concept of issue estoppel may be a matter of preference, and not confined either way to labels of common or civil law. These somewhat practical solutions reflect a result driven outcome essentially driven by circumstances where the investment tribunal regards it as appropriate for it to close off the later reconsideration of issues previously determined by municipal courts or tribunals.

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CHAPTER 9

Choosing the Law Governing the Arbitration Agreement Ian Glick QC & V. Niranjan

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INTRODUCTION

Any international arbitration potentially involves at least three systems of law because different laws may govern: (1) the matrix contract;1 (2) the arbitration clause or arbitration agreement within the matrix contract; and (3) the conduct of the arbitration.2 The parties often make an express choice in respect of (1) and the choice of seat generally determines (3). But only rarely do they make an express choice in respect of (2). It is then for the court or arbitrator to decide whether the proper law of the arbitration agreement is the law governing the matrix contract or the law of the seat.3 In recent years, that question – whether the arbitration agreement is governed by the law of the matrix contract or the law of the seat – has, as Gary Born recently observed, ‘given rise to extensive commentary, and almost equally extensive confusion’.4 In this chapter we consider why this confusion has arisen and offer a possible solution.

1. We use the expression ‘arbitration agreement’ to refer to the arbitration clause in the contract and the expression ‘matrix contract’ to refer to the rest of the contract. 2. See, e.g., Sumitomo Heavy Industries Ltd v. Oil and Natural Gas Commission [1994] 1 Lloyd’s Rep 45 at 56-57 (Potter J) and D Joseph, Jurisdiction and Arbitration Agreements and their Enforcement (3rd edn, 2015), at para. 6.03. The reference of an individual dispute to arbitration may be governed by a different law but this does not matter for present purposes. 3. In theory, there are other possibilities – one author identifies as many as nine – but in practice it usually boils down to either the law governing the matrix contract or the law of the seat: see M Blessing, ‘The Law Applicable to the Arbitration Clause’ in A van den Berg (ed), ICCA Congress Series vol 9 (1999) (‘ICCA 9’) at 168-69 and G Born, International Commercial Arbitration (2nd edn, 2014) (‘Born (2014)’) at 486-87. 4. Born (2014) at 472.

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Ian Glick QC & V. Niranjan SUMMARY

It may be helpful to summarise at the outset the arguments that we make in this chapter in the form of the following six propositions. First, the doctrine of separability has rightly been described as the one of the ‘cornerstones’ of international arbitration.5 But its true scope has sometimes been misunderstood. As we explain below, the doctrine, properly analysed, treats the arbitration agreement as a ‘distinct agreement’ only in the context of a challenge to the validity of that agreement: it does not treat it as a distinct agreement more generally or for other purposes (such as choice of law). Second, it follows from the first point that a court which is asked to determine the proper law of an arbitration agreement is in fact being asked to determine the law governing one clause which forms part of a single contract. Third, in answering that question, it is necessary to distinguish between: (a) a case where the matrix contract does not contain any express choice-of-law clause but does contain a seat of arbitration (e.g., London); and (b) a case where the matrix contract contains an express choice-of-law clause (e.g., ‘this Agreement is governed by New York law’) and also a (different) seat of arbitration (e.g., London). In the former case, it is generally agreed that the arbitration agreement is governed by the law of the seat.6 But this, we submit (contrary to recent English authority), is not because the arbitration agreement is ‘most closely connected’ to the law of the seat: it is because the choice of seat constitutes a choice7 of the law of the seat as the proper law of the arbitration agreement. Fourthly, the latter case – where the matrix contract does contain an express choice of law but also a different seat of arbitration – is more difficult and requires careful analysis. Most of the authorities on the point are concerned with this type of case. However, the answer, we argue below, should be the same: the arbitration agreement is generally governed by the law of the seat. Fifthly, our analysis means that a single contract – on the footing that the doctrine of separability does not treat the arbitration agreement as a separate contract for the purposes of choice of law – may be governed by two different laws. But there is no conceptual difficulty about that because many jurisdictions recognise what is sometimes described as the doctrine of dépeçage: the possibility that different parts of a single contract may be governed by different laws. Finally, it is sometimes the case that the arbitration agreement would be void or invalid if it is governed by one law (e.g., the law of the seat). We argue that this does not of itself constitute a reason not to apply that law or a reason to apply a different law (e.g., the proper law of the matrix contract). Invalidity is only relevant as a matter of

5. Born (2014) at 349. 6. Which is usually, but not always, also held to be the proper law of the matrix contract: see below. 7. We use the terminology of ‘express’ and ‘implied’ choice in this chapter because it is conventional but what matters is that it is a choice, that is to say, something objectively intended by the parties and not a default rule imposed by law.

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construction: if the parties knew when they entered into the contract that the arbitration agreement would be invalid under a particular law, that may be relevant to the question of whether they intended that the agreement should be governed by some other law. But there is no independent or freestanding principle that the arbitration agreement should be taken to be governed by a law which would render it valid rather than invalid. These points are addressed in more detail below.

§9.03

THE FRAMEWORK FOR THE ANALYSIS

The authorities concerning the proper law of the arbitration agreement do not speak with one voice: some courts and tribunals favour the law of the seat8 while others take the arbitration agreement to be governed by the proper law of the matrix contract where this is expressly chosen by the parties.9 In analysing this material, the first question that arises concerns the method by which the proper law should be ascertained: what is the correct test? In English (common)10 law, the proper law of any contract, including an arbitration agreement, is determined by applying a choice-of-law rule. This choice-oflaw rule, which is well established, involves asking whether the parties made an express or implied choice of law and, if not, with which system of law (and not country) the contract has its ‘closest and most real connection’.11 In Sulamérica,12 which is now the leading English authority on the point, the Court of Appeal confirmed that the same choice-of-law rule applies to arbitration agreements: so the court must first ask whether the parties expressly or impliedly chose a law to govern the arbitration agreement (not the matrix contract) and, if not, apply the closest connection test. Not all jurisdictions or arbitral tribunals adopt the English choice-of-law method to ascertain the proper law of the arbitration agreement. Some institutional rules contain a different choice-of-law rule;13 some authorise the Tribunal to determine the proper law ‘directly’14 (i.e., without applying a choice-of-law rule); some jurisdictions

8. This includes Sweden (Bulgarian Foreign Trade Bank Ltd v. AI Trade Finance Inc, Case No. T1881–99, Swedish Supreme Court, 27 October 2000 and Swedish Arbitration Act 1998, s 49), Belgium (Matermaco SA v. PPM Cranes Inc (2000) XXV YBCA 673) and several international arbitral awards: see, e.g., Born (2014) at 485-86 and Redfern and Hunter on International Arbitration (6th edn, 2015) at para. 3.26. 9. See, e.g., the authorities cited in Born (2014) at 514-16 and L Collins, ‘The Law Governing the Agreement and Procedure in International Arbitration in England’ in J Lew (ed), Contemporary Problems in International Arbitration (1987) at 127. 10. We do not deal with the Rome Convention or the Rome I Regulation because these instruments do not apply to arbitration agreements. All subsequent references to ‘English law’ are references to the common law rules. 11. Amin Rasheed Shipping Corp v. Kuwait Insurance [1984] AC 50 at 61 (Lord Diplock). 12. Sulamérica Cia Nacional De Seguros SA v. Enesa Engenharia SA [2013] 1 WLR 102 (‘Sulamérica’). 13. Article 16.4 of the LCIA Rules 2014 is arguably an example. 14. See, e.g., Art. 21(1) of the ICC Rules 2012 which provides that the tribunal shall, if the parties have not made a choice of law, ‘apply such rules of law which it determines to be appropriate’ without having to apply any choice-of-law rule. Contrast Art. 13(3) of the ICC Rules 1975, which

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adopt a different choice-of-law rule altogether; and others adopt a ‘denationalised’ approach which involves determining the validity of the arbitration agreement according to the ‘common intentions’ of the parties without reference to any national law.15 While recognising this diversity of choice-of-law techniques in modern international arbitral practice, we nevertheless use the English choice-of-law method as our analytical framework in this chapter because an analysis of this material is likely to be relevant even to courts or tribunals which adopt different choice-of-law techniques.

§9.04

THE ENGLISH AUTHORITIES

It is perhaps unsurprising that the English authorities on this point are not uniform, particularly where the analysis has been distracted by a debate about the doctrine of separability.16 It is not, however, necessary to discuss the older authorities17 because they were reviewed by the Court of Appeal in Sulamérica, the leading modern authority, and in subsequent cases decided at first instance. But Sulamérica itself requires close analysis. In that case, an insurance policy expressly governed by Brazilian law provided for arbitration in London in accordance with the ARIAS Arbitration Rules. The question before the English court was whether the arbitration agreement was governed by Brazilian law or by English law. Cooke J held at first instance that it was governed by English law on the basis that this was the system of law with which it had its closest and most real connection.18 The Court of Appeal arrived at the same conclusion but by a rather different route. Moore-Bick LJ, with whom Hallett LJ and Lord Neuberger MR agreed,19 emphasised that the court should apply the first two stages of the choice-of-law rule –

15.

16. 17.

18. 19.

provided that the tribunal shall ‘apply the law determined by the conflict of law rules which it considers applicable’. See, further, JD Lew, ‘The Law Applicable to the Form and Substance of the Arbitration Clause’ in ICCA 9 at 114, 135-37. See, e.g., Blessing (above) at 168, 169. French law, as is well known, regards an arbitration agreement as wholly independent of the main contract and tests its validity without reference to any national law. It is beyond the scope of this chapter to examine this approach but see, for recent criticism, Lord Mance, ‘Arbitration: A Law unto Itself?’ (4 November 2015, available at https://www.supremecourt.uk/docs/speech-151104.pdf). Nazzini has recently argued that a more modest version of ‘delocalisation’ should be adopted by treating certain principles such as ‘non-discrimination’ and ‘estoppel’ as principles of domestic law which are applied in ascertaining the law governing the arbitration agreement: see R Nazzini, ‘The Law Applicable to the Arbitration Agreement: Towards Transnational Principles’ (2016) 65 International and Comparative Law Quarterly 681. Which, as we explain below, is irrelevant in the context of choice of law. The principal pre-Sulamérica authorities are: Black-Clawson v. Papierwerke [1981] 2 Lloyds Rep 446; Sumitomo (above); XL Insurance v. Owens Corning [2001] 1 All ER Comm 530; Sonatrach Petroleum Corp v. Ferrell International Ltd [2002] 1 All ER (Comm) 627; Leibinger v. Stryker Trauma GmbH [2005] EWHC 690 (Comm) and C v. D (above). See also Lord Collins of Mapesbury et al. (eds), Dicey, Morris & Collins on the Conflict of Laws (15th edn, 2016) (‘Dicey, Morris and Collins’) at paras 16-017-16-018. Sulamérica Cia Nacional De Seguros SA v. Enesa Engenharia SA [2012] EWHC 42 (Comm) at paras 10-15 (Cooke J). Lord Neuberger MR gave additional reasons which emphasise that ascertaining the governing law is a question of construction.

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express and implied choice – before applying the closest connection test. In that context, he thought that the fact that the insurance policy was expressly governed by Brazilian law was a ‘strong pointer towards an implied choice of the law of Brazil as the proper law of that agreement’. This was because the parties are likely to have intended the arbitration agreement to be governed by the same law which applies to the matrix contract unless there are indications to the contrary: an express choice of law for the matrix contract may therefore generally be regarded as an implied choice of law for the arbitration agreement.20 Moore-Bick LJ concluded, however, that Brazilian law did not apply after all. This was because there were two factors which suggested that it was not intended to be an implied choice of law for the arbitration agreement. The first was that the parties had selected London as the seat of arbitration. The second, which Moore-Bick LJ described as a ‘powerful factor’,21 was a rule in Brazilian domestic law that an arbitration agreement cannot be invoked or enforced against the insured without its consent. Moore-Bick LJ said at paragraph 31 that, in the light of this rule, the express choice of Brazilian law in the matrix contract could not be regarded as an implied choice of law for the arbitration agreement because ‘there is a serious risk that a choice of Brazilian law would significantly undermine that agreement’. This meant that the parties had made no choice, whether express or implied. The proper law of the arbitration agreement therefore fell to be determined by the closest connection test. Applying that test, Moore-Bick LJ concluded, as had Cooke J below, that English law applied because an arbitration agreement is generally more closely connected to the law of the seat than to the proper law of the matrix contract. It follows from this that the Court of Appeal in Sulamérica did not regard the mere choice of a London seat as sufficient to displace the implied choice of Brazilian law for the arbitration agreement supposedly evidenced by the choice-of-law clause in the matrix contract: there was an additional factor – the effect that applying Brazilian law would have had on the arbitration agreement – which persuaded Moore-Bick LJ that the parties could not have intended to select that law as the proper law. It is therefore wrong to read Sulamérica, as some have done,22 as a case which establishes a presumption that, in a case where the matrix contract contains an express choice-oflaw clause, the arbitration agreement is nevertheless governed by the law of the seat and not by the proper law of the matrix contract: indeed, the presumption, if there is one, is the exact opposite. This analysis of Sulamérica was confirmed in two subsequent cases decided at first instance. In Cruz City,23 the contract was expressly governed by Indian law and contained an arbitration clause which provided for arbitration in London under the LCIA Rules. Cruz City sought to challenge the jurisdiction of the Tribunal on the ground 20. It was not argued that it should be regarded as an express choice of law for the arbitration agreement. 21. Sulamérica at para. 30. Importantly, Moore-Bick LJ did not treat this as a freestanding or independent reason not to apply Brazilian law: instead, it was relevant as a matter of construction. 22. See, e.g., Joseph (above) at para. 6.36; Born (2014) at 509. 23. Arsanovia Ltd v. Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm) (‘Cruz City’).

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that certain disputes were not arbitrable under Indian law, which it said was the proper law of the arbitration agreement.24 Andrew Smith J began by pointing out that the parties’ express choice of Indian law for the matrix contract was, in the light of Sulamérica, to be regarded as ‘a strong pointer to their intention about the law governing the arbitration agreement’.25 Unlike in Sulamérica, the only contrary indication was the choice of a London seat: there was nothing in this case (analogous to the rule of Brazilian law in Sulamérica) which cast doubt on the implied choice of Indian law. Andrew Smith J said correctly (at least as a matter of authority) that the choice of a London seat alone was not enough to displace this implied choice of Indian law.26 The arbitration agreement was therefore governed by Indian law. These principles have been subsequently adopted by Hamblen J in Habas Sinai27 and by the Singapore High Court in BCY v. BCZ.28 The current position in English law – at least below the level of the Supreme Court – may therefore be illustrated by this example. If the matrix contract is expressly governed by New York law and the parties choose London as the seat of arbitration, the English court will treat the parties as having impliedly chosen New York law for the arbitration agreement unless there is some additional factor – i.e. beyond the choice of seat – which points to English law or (at least) away from New York law. The question is whether the English approach is sound in principle. We address that in Section G below and suggest that it is not. But it is first necessary to deal with two preliminary issues which are, in our view, central to a proper analysis of this area of the law: the doctrine of separability and the concept of dépeçage. As we explain below, the arbitration agreement is, for choice-of-law purposes, in fact not a distinct agreement from the matrix contract but may nevertheless be governed by a different law, even if the matrix contract contains an express choice-of-law clause.

§9.05

SEPARABILITY AND CHOICE OF LAW

Many, perhaps most, jurisdictions accept that an arbitration agreement is not invalid merely because the matrix contract of which it forms part is invalid: for this purpose, the arbitration agreement is regarded as a ‘distinct agreement’. We refer to this doctrine, which is known by various names, as the doctrine of ‘separability’. Lord Steyn has described it as ‘part of the very alphabet of arbitration law’29 and Born calls it ‘one of the conceptual and practical cornerstones of international arbitration’.30 The doctrine of separability is the reason why it is usually not open to the parties to allege that the arbitration agreement is invalid merely because the matrix contract is

24. It is worth noting that the LCIA Rules applicable at the time, the 1998 Rules, did not contain any provision concerning the proper law of the arbitration agreement, as the 2014 Rules do. 25. Cruz City at para. 21. 26. Cruz City at para. 19. 27. Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v. VSC Steel Co Ltd [2013] EWHC 4071 (Comm) (‘Habas Sinai’) at para. 101 (Hamblen J). 28. BCY v. BCZ [2016] 2 Lloyd’s Rep 583. 29. Lesotho Highlands Development Authority v. Impregilo SpA [2006] 1 AC 221 at para. 21. 30. Born (2014) at 349.

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invalid.31 In this sense, at least, the doctrine is simply concerned with protecting the validity of the agreement rather than with its status more generally or for other purposes. But many authors (and some courts) have interpreted the doctrine of separability more widely: they argue, in the context of the problem addressed in this chapter – choice of law – that the reason why the arbitration agreement is not governed by the proper law of the matrix contract is that it is a distinct agreement generally.32 Although there is some limited support in English law for the use of separability in the context of choice of law,33 the real impetus for it comes from international arbitral practice. Born, for example, argues that one of the ‘consequences’ of the ‘separability presumption’ is the ‘possible application of a different national law, or a different set of substantive legal rules, to the arbitration agreement’.34 As he puts it:35 The separability presumption means that differing national laws may36 apply to the main contract and the arbitration agreement. The essential point, however, is that, where the arbitration clause is a separate agreement, a separate conflict of laws analysis must be performed with regard to that separate agreement.

We respectfully regard this proposition as unsound and indeed responsible for a number of the difficulties in the authorities. The doctrine of separability, in our view, treats the arbitration agreement as a distinct agreement only in the context of a challenge to its validity and not for other purposes, including that of choice of law.37 Four arguments may be made in support of this narrower conception of separability. First, Article 16(1) of the Model Law,38 which adopts the doctrine of separability, carefully limits the doctrine to disputes about validity: ‘the arbitral tribunal may rule on its jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract … .’ Second, certainly as a matter of English law, there is no real support for the proposition that the doctrine of separability elevates the arbitration agreement into a distinct agreement generally rather than merely in the context of a challenge to its 31. One might describe this as a ‘parasitic’ challenge to the validity of the arbitration agreement: see, e.g., Harbour Assurance Co (UK) Ltd v. Kansa General International Insurance Co Ltd [1993] QB 701 at 722, 724 (Hoffmann LJ); Fiona Trust v. Privalov (sub nom Premium Nafta Products Ltd v. Fili Shipping & Co Ltd) [2007] 2 CLC 553 at paras 17, 19 (Lord Hoffmann) and para. 35 (Lord Hope). 32. See, e.g., Dicey, Morris & Collins at para. 16-012; E Gaillard and J Savage (eds), Fouchard Gaillard and Goldman on International Commercial Arbitration (1999) at 211 and further below. 33. See, e.g., C v. D [2007] EWCA Civ 1282 at para. 22 (Longmore LJ). 34. Born (2014) at 350. 35. Born (2014) at 463. 36. Emphasis in original. 37. If this is right, it follows, in the context of choice of law, that the arbitration clause is no different from any other clause of the contract; and there is no rule that it must be governed by the same law which applies to the rest of the contract or that it cannot be. As we explain below, it is a matter of construction. 38. UNCITRAL Model Law on International Commercial Arbitration (1985, as amended in 2006) (emphasis added).

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validity. There is little trace of it in the authorities concerning separability before the enactment of the English Arbitration Act 1996 (‘the 1996 Act’), as separability was only invoked in these cases to prevent a parasitic challenge to the validity of the arbitration agreement.39 Section 7 of the 1996 Act, which codified the common law doctrine, makes this clear by providing that: an arbitration agreement which forms or was intended to form part of another agreement … shall not be regarded as invalid, non-existent or ineffective because that other agreement is invalid … and it shall for that purpose be treated as a distinct agreement.40

The use of the words ‘for that purpose’ was no accident. They did not appear in an early draft of the 1996 Act, which was prepared by the Departmental Advisory Committee (‘the DAC’), but were subsequently inserted for the express purpose of clarifying that the doctrine of separability was not intended to become a general principle of arbitration law. As the DAC explains:41 In the draft Clauses published in July 1995 we inserted a provision to make clear that the doctrine of separability did not affect the question whether an assignment of rights under the substantive agreement carried with it the right or obligation to submit to arbitration in accordance with the arbitration agreement. This is now omitted as being unnecessary, since we have redrafted sub-section (1) in order to follow the relevant part of Article 16 of the Model Law more closely, and to make clear that the doctrine of separability is confined to the effect of invalidity etc of the main contract on the arbitration agreement, rather than being, as it was in the July 1995 draft, a freestanding principle.

Third, the justification for the wider conception of the doctrine of separability is not obvious. The conceptual basis of the doctrine, even in the context of validity, is that the parties ordinarily intend to choose a tribunal to resolve all (and not merely some) disputes arising out of the relationship into which they have entered or purported to enter.42 But this has no bearing on governing law: the fact that the parties intend the arbitration agreement to be effective even if the matrix contract is not says nothing about whether they intend that agreement to be governed by the same law which governs the matrix contract.43 Fourth, although this has often been overlooked, the arbitration agreement is in fact not regarded as distinct from the matrix contract for all purposes even on the existing authorities. The clearest example of this is Ronly Holdings.44 The contract in that case provided that no variation to ‘any clause of this Agreement’ would take effect

39. See, eg, Heyman v. Darwins [1942] AC 356; Harbour v. Kansa (above) but cf. Deutsche Schachtbau v. Shell International Petroleum Co [1990] 1 AC 295 at 310A–B. 40. Emphasis ours. 41. Departmental Advisory Committee Report on the Arbitration Bill (1996) at para. 44 (emphasis ours). 42. See, e.g., Fiona Trust (above) at paras 13-17. 43. See also P Mayer, ‘The Limits of Severability’ in ICCA 9 at 261. 44. JSC Zestafoni G Nikoladze Ferroalloy Plant v. Ronly Holdings Ltd [2004] EWHC 245 (Comm).

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unless reduced to writing.45 The claimant argued that it was open to the parties to vary the arbitration agreement orally because that was a ‘distinct agreement’ to which the clause requiring variations to be reduced to writing did not apply. Colman J rejected that argument and observed that:46 In the present case, the question arises whether on the proper construction of clause 18 the mutual intention of the parties was that the words ‘any Clause of this Agreement’ should include the Law and Jurisdiction clause. There is nothing in the intrinsic character of an arbitration agreement as having an attribute of separability which prevents it from being included in that phrase. The fact that in substance it may have that attribute does not prevent it being aptly described as a ‘Clause of this Agreement’. The phrase simply refers to any one of the clauses collected together in the document which all the parties have signed. The function of clause 18 in regulating the means of waiver or variation of the terms in that document is in no sense inconsistent with the separability principle: it is simply a term which on its proper construction is overtly directed to all the clauses in the document, including the clause containing the agreement to arbitrate.

We would, with respect, endorse that approach. Thus, when the court is asked to determine the proper law of the arbitration agreement, it is in fact concerned with ascertaining the law which governs one clause of a single contract. Although the point was not argued in Sulamérica, it follows that Moore-Bick LJ was correct to observe that the doctrine of separability is of no real assistance in ascertaining the proper law of the arbitration agreement.47 Chong J in the Singapore High Court has recently come to the same conclusion.48

§9.06

DÉPEÇAGE

The fact, however, that the arbitration agreement is not a distinct agreement from the matrix contract for the purposes of choice of law does not mean that it is necessarily governed by the same law. This is because English law recognises, as do other

45. It should be noted that a ‘no oral variation’ clause of this kind is no longer regarded as effective: see, e.g., Globe Motors Inc v. TRW Lucas Varity Electric Steering Ltd [2016] EWCA Civ 396; MWB Business Exchange Centres v. Rock Advertising Ltd [2016] EWCA Civ 553 and ZVI Construction Co LLC v. The University of Notre Dame (USA) in England [2016] EWHC 1924 (TCC). But this does not, of course, undermine Colman J’s analysis of the doctrine of separability. 46. Ronly Holdings (above) at paras 30-31 (emphasis ours). 47. Sulamérica at para. 26. In an illuminating analysis, Blake Primrose has recently argued that this makes the result (whether separability applies or not) depend on what the respondent chooses to argue: if, says Mr Primrose, he argues that the arbitration agreement is invalid because it is governed by a particular law, then separability does apply since the choice-of-law question arises in the context of a challenge to validity: see B Primrose, ‘Separability and stage one of the Sulamérica inquiry’ (2017) 33(1) Arbitration International 139. That is, with respect, incorrect: the question ‘which law governs the arbitration agreement’ is logically distinct from the question ‘is the arbitration agreement valid under that law’, and separability is relevant only to the latter question even if both questions arise in the same proceedings. 48. BCY v. BCZ [2016] 2 Lloyd’s Rep 583 at para. 60.

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jurisdictions, the concept of dépeçage, i.e., that different systems of law may govern different parts of a single contract.49 It goes without saying that dépeçage is rare in practice50 but that is only because there is usually no reason or commercial purpose for subjecting different parts of a single contract to different laws: it would be odd for a contract of sale to provide that the seller’s obligation to deliver the goods is governed by English law but that the buyer’s obligation to pay the price is governed by New York law. But where there is a good reason for choosing a different law for a particular part of a contract, it is wrong to begin with any presumption that the parties are unlikely to have intended to do so. This is illustrated by the fact that there are a number of instances of dépeçage in the authorities both within and outside the context of arbitration agreements.51 If, as we suggest below, there are good reasons for regarding the choice of seat as also a choice of the law of the seat as the proper law of the arbitration agreement, then dépeçage, rather than separability, would provide a straightforward explanation for why the proper law of the matrix contract does not apply to the arbitration agreement. It was precisely this point which Lord Herschell LC made in a powerful speech in one of the early English authorities on the point, Hamlyn v. Talisker Distilleries.52 In that case, an English company agreed to buy grains from a Scottish company. The contract provided that any dispute would be resolved by arbitration by two members of the London Corn Exchange or their umpire.53 The Scottish company commenced proceedings in the Scottish courts and argued that the arbitration agreement was void because it was contrary to a then rule of Scots law which required any arbitration agreement to name the arbitrators. This argument failed because the arbitration agreement was found to be governed by English law: Scots law was therefore irrelevant. The key point for present purposes is, however, that their Lordships did not say that the arbitration agreement was a distinct agreement: they said that it was intended to be governed by a different law even though it was not a distinct agreement. This appears most clearly from the speech of Lord Herschell LC: the arbitration clause which I have read to your Lordships does not indicate that that part of the contract between the parties was to be implemented by performance in Scotland. That clause is as much a part of the contract as any other clause of the contract, and certainly there is nothing on the face of it to indicate, but quite the contrary, that it was in the contemplation of the parties that it should be implemented in Scotland … The learned judges in the Court below treat the lex loci solutionis of the main portion of the contract as conclusively determining that all the rights of the parties under the contract must be governed by the law of that place. I am unable to agree with them in this conclusion. Where a contract is entered into between parties residing in different places, where different systems

49. For a contrary view, see C McLachlan, ‘Splitting the Proper Law in Private International Law’ (1990) 61 British Yearbook of International Law 311. 50. Kahler v. Midland Bank [1950] AC 24 at 42 (Lord MacDermott). 51. See, e.g., Tamari v. Rothfos [1980] 2 Lloyd’s Rep 553 and Re Helbert Wagg & Co [1956] Ch 323 at 340 (Upjohn J). 52. [1894] AC 202. 53. Hamlyn, it is true, was not a case in which the matrix contract contained an express choice of law. However, as we argue below, the answer should be the same even if it does.

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of law prevail, it is a question, as it appears to me, in each case, with reference to what law the parties contracted, and according to what law it was their intention that their rights either under the whole or any part of the contract should be determined…54 Now in the present case it appears to me that the language of the arbitration clause indicates very clearly that the parties intended that the rights under that clause should be determined according to the law of England. As I have said, the contract was made there; one of the parties was residing there. Where under such circumstances the parties agree that any dispute arising out of their contract shall be ‘settled by arbitration by two members of the London Corn Exchange, or their umpire, in the usual way,’ it seems to me that they have indicated as clearly as it is possible their intention that that particular stipulation, which is a part of the contract between them, shall be interpreted according to and governed by the law, not of Scotland, but of England.55

What Lord Herschell LC was saying, in short, is that parties who agree to arbitrate under the aegis of the London Corn Exchange may intend that obligation to be governed by English law even if every other obligation in the contract containing the agreement to arbitrate is governed by Scots law. But this is not because the arbitration agreement is a separable agreement: rather, it is part of the same contract but governed by a different law to the rest of the contract because this is what the parties intended. Against that background, we turn to the application of the three-stage test (express/implied choice and closest connection), bearing in mind that the arbitration agreement is not a separate agreement but may nevertheless by governed by a different law.

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THE CORRECT ANALYSIS IN PRINCIPLE

As we have explained in Section D above, there is in English law a rebuttable presumption that the arbitration agreement is governed by the proper law of the matrix contract (where that law has been expressly chosen) even if the parties choose a different seat. In this section we respectfully argue that this approach is wrong in principle. In analysing the position, it is helpful to approach the problem in two stages. The first stage is to ask what the position would be in a case where the matrix contract does not contain an express choice-of-law clause but does designate a seat of arbitration. The second is to ask whether the analysis should be different in a case where the matrix contract does contain an express choice-of-law clause and also designates a (different) seat of arbitration. The central argument that we make in this section is that the choice of seat constitutes a choice of the law of the seat as the proper law of the arbitration agreement in both cases, not merely in the first case.

54. Hamlyn (above) at 207-208 (emphasis ours). 55. Hamlyn (above) 208 (emphasis ours). See also 212-13 (Lord Watson) and Lord Macnaghten and Lord Morris, who agreed with the Lord Chancellor. Lord Shand appears to have adopted the same analysis (see 216) but Lord Ashbourne’s speech is less clear.

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Ian Glick QC & V. Niranjan No Choice-of-Law Clause: The Significance of the Seat

In a case where the contract contains an arbitration agreement but does not contain an express choice-of-law clause either for the matrix contract or for the arbitration agreement, it is generally agreed that the arbitration agreement is governed by the law of the seat. English law, it is true, reaches this result on the basis that the arbitration agreement is ‘most closely connected’ to the law of the seat56 but other jurisdictions simply treat the choice of seat as an implied choice of law.57 This distinction is important because the question of ‘closest connection’ – the third stage of the common law choice-of-law rule – only arises on the assumption that the parties did not make any choice of law, whether express or implied. But the latter analysis is in our view preferable: if there is no choice-of-law clause in the matrix contract, the designation of a seat of arbitration should, both on authority and in principle, be understood as a choice of the law of the seat as the proper law, certainly for the arbitration agreement and usually also for the matrix contract. Two points may be made in this respect. First, the consequence of choosing a seat is that many aspects of the arbitration agreement – and not merely the arbitration procedure – will be governed by the law of the seat in any event, regardless of the law which applies to the matrix contract. For example, some provisions of the 1996 Act apply to any arbitration seated in London, and many apply unless excluded. Section 7, which codifies the doctrine of separability, is one of these provisions.58 Section 12 allows the English court to extend time limits specified in the arbitration agreement for the commencement of claims. If the arbitration agreement does not specify the procedure for the appointment of arbitrators, this, too, is governed by the English Act,59 not by the law governing the matrix contract. If, as is not uncommon, an agreement that each party will pay its own costs of the arbitration irrespective of the result forms part of the arbitration agreement, that is (unless entered into after the dispute arose) nullified by the English Act even if it would have been valid under the proper law of the matrix contract.60 Similarly, the formal validity of the arbitration agreement often depends on the formal requirements imposed by the law of the seat.61

56. See, e.g., Sulamérica at para. 26; Habas Sinai at paras 102-103. It is worth noting that Hamlyn, which of course treats the choice of seat as a choice of law, does not appear to have been cited either at first instance or in the Court of Appeal in Sulamérica. 57. See, e.g., Born (2014) at 510-11, text to fns 199-201. This was also the approach adopted in FirstLink Investments Corp Ltd v. GT Payment Pte Ltd [2014] SGHCR 12 but the Singapore High Court has subsequently taken a different view in BCY (above). 58. National Iranian Oil Company v. Crescent Petroleum Company International Ltd [2016] EWHC 510 (Comm) at paras 13-17 (Burton J). The effect of section 7 is therefore that the doctrine of separability will be applied by the English court even if it is not recognised under the proper law of the arbitration agreement. 59. Arbitration Act, section 16. See also sections 48 (remedies), 49 (interest), 58 (effect of award) and 61 (costs). 60. Arbitration Act, section 60 (this is a mandatory provision). 61. Arbitration Act, section 5.

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In circumstances where many aspects of the arbitration agreement will in any event be governed by the law of the seat in this way,62 the natural inference is that the parties, by choosing a seat, intended the entirety of that agreement (i.e., the arbitration agreement, not the matrix contract) to be governed by that law.63 That is in principle not affected by the question of whether the choice of seat also constitutes a choice of law for the rest of the contract: it usually will, but it need not and, where it does not, this is irrelevant to the analysis. It is for this reason that the House of Lords in Hamlyn was able to conclude that the choice of a London seat was a choice of law in relation to the arbitration agreement though not in relation to the rest of the (same) contract, which was governed by Scots law.64 Put differently, parties who choose a seat would objectively be understood to also choose the law of the seat as the proper law of the arbitration agreement. Second, the suggestion that the choice of seat is only relevant at the third stage of the analysis – ‘closest connection’ – is inconsistent with the Hamlyn case which, as we have noted above, treated the choice of a London seat as evidence of what the parties intended. It is also inconsistent with the reasoning in Compagnie d’Armement Maritime SA v. Compagnie Tunisienne de Navigation,65 which is the leading English authority on the relevance of an arbitration clause to the determination of the proper law of the matrix contract. The House of Lords held in that case that the choice of a seat ordinarily, though not inevitably, constitutes a choice of that country’s law as the law governing the matrix contract. Lord Morris, for example, observed that ‘the circumstance that parties agree that any differences are to be settled by arbitration in a certain country may and very likely will lead to an inference that they intend the law of that country to apply’66 and Lord Wilberforce described this inference as a ‘sound general rule’.67 What is important for present purposes is that their Lordships did not say that the matrix contract is ordinarily governed by the law of the seat because this is the law with which it has its closest connection: rather, it is ordinarily governed by the law of the seat because a choice of seat is ordinarily also a choice of law. It would, however, be anomalous if the choice of seat constitutes a choice of law for the matrix contract but not for the arbitration agreement.68 If anything, the converse is true: in some cases, the usual inference that the choice of seat is a choice of law for the matrix contract may be displaced, but it does not follow that it is displaced for the arbitration agreement as well. Indeed, in Compagnie Maritime itself, Lord Wilberforce said expressly69 that the

62. See also XL Insurance (above), where Toulson J pointed out that ‘[t]he Arbitration Act contains various provisions which could not readily be separated into boxes labelled substantive arbitration law or procedural law, because that would be an artificial division’. 63. See also Sulamérica at para. 55 (Lord Neuberger MR). 64. Although both C v. D and Sulamérica take the choice of seat to be relevant only at the third stage (‘closest connection’), this was not always the approach of the English courts prior to C v. D: See, e.g., XL Insurance (above) at 543 (Toulson J, obiter). 65. [1971] AC 572 (‘Compagnie Maritime’). 66. Compagnie Maritime at 590 (emphasis added). 67. Compagnie Maritime at 596. 68. As Hamblen J noted in Habas Sinai at para. 102. 69. Compagnie Maritime at 596.

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Hamlyn case, which we have discussed above, was consistent with his analysis, which suggests that: (a) he regarded Hamlyn as a case in which the arbitration agreement was governed by English law by reason of a choice made by the parties, not a default legal rule (such as ‘closest connection’); and (b) he recognised that it is in principle possible for the choice of seat to constitute a choice of law for the arbitration agreement alone even if the matrix contract is governed by some different law. For these reasons, the choice of a seat of arbitration should be treated as a choice of law for the arbitration agreement, whether or not it is also a choice of law for the matrix contract.

[B]

Express Choice of Law in the Matrix Contract

Against that background, the question is whether the analysis changes when the matrix contract (which for these purposes is not a separate agreement) does contain an express choice-of-law clause: does this mean that the choice of a London seat can no longer be treated as a choice of English law for the arbitration agreement, with the result that the express choice-of-law clause in the matrix contract constitutes a choice of law for the arbitration agreement as well? It does not. The argument may be tested by asking what the position would be if the parties had made an express choice in relation to both the matrix contract (e.g., ‘this Agreement shall be governed by New York law’) and the arbitration agreement (e.g., ‘the seat of arbitration is London and this arbitration agreement shall be governed by English law’). In such a case, the court would have no difficulty in concluding that the arbitration agreement is governed by English law70 even if it is not regarded as a ‘distinct agreement’: it is governed by English law while the rest of the (same) contract is governed by New York law simply because it is evident that this is what the parties intended. However, we submit that the same result should follow where the parties simply choose London as the seat of arbitration because that is, as we have explained above, equivalent to, or shorthand for, saying in terms that the arbitration agreement is governed by English law: this is inherent in the choice of seat and is what the parties would objectively be understood to have intended.71 The only conceivable basis, therefore, for saying that English law does not apply to the arbitration agreement is the assumption that the existence of the express choice-of-law clause in the matrix contract displaces the usual inference that the choice of seat was intended to be a choice of law

70. That is the only construction which harmonises both clauses and it is a well-established principle that the court will seek to so construe them in order to avoid inconsistency: See Lewison on the Interpretation of Contracts (6th edn) at para. 9.13. 71. This also addresses a question that Andrew Smith J raised in Cruz City at para. 22: why is the express choice-of-law clause in the matrix agreement not regarded as an express (rather than implied) choice of law for the arbitration agreement? The answer is that the express choice-oflaw clause is displaced by the choice of a different law (in the form of the choice of seat) for the arbitration agreement, just as it would be displaced if that different law had been identified in terms.

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for the arbitration agreement. That proposition is, with respect, misconceived for three reasons. First, the considerations which justify treating a choice of seat as a choice of law for the arbitration agreement are not in any way undermined by the fact that the matrix contract contains an express choice-of-law clause. For example, the point made above – that aspects of the arbitration agreement will be governed by the law of the seat in any event – holds good even if the proper law of the matrix contract is chosen expressly rather than impliedly. Certain aspects of an arbitration agreement in a matrix contract expressly governed by New York law will nevertheless be governed by English law if the parties choose to arbitrate in London. To return to the example we gave above, if the arbitration agreement provides for arbitration in London and also that the parties will bear their own costs of the arbitration in any event, the latter agreement may be invalid under the English Act even if it would have been valid under New York law, and the matrix contract is expressly governed by New York law. The parties are therefore not any less likely to have intended the entirety of the arbitration agreement to be governed by the same law, i.e. the law of the seat. Second, an ad hoc arbitration agreement – that is to say, a contract which contains nothing but an arbitration agreement – is likely to be governed by the law of the seat even if the disputes it submits to arbitration are disputes arising out of a pre-existing contract which contains an express choice-of-law clause. So if, for example, the parties in 2015 enter into a contract expressly governed by New York law but without any arbitration clause, and in 2017 enter into a separate self-contained agreement to submit all disputes arising out of the 2015 contract to arbitration in London, the 2017 contract would, we submit, almost certainly be found to be governed by English law, not New York law. But it would be very odd if the result is different merely because, instead of making the arbitration agreement at a different time (2017) or in a different document (i.e., as a self-contained contract) they happened to make it at the same time as they made the matrix contract. The choice of seat is a choice of law for the arbitration agreement in both cases and for the same reasons. Third, in practice, the commercial purpose of choosing a neutral seat of arbitration, as parties often do, is generally to insulate the dispute resolution mechanism from the national law of either party. That may be the case even if, and indeed precisely because, the matrix contract containing the substantive commercial obligations of the parties are not governed by a neutral law. In C v. D, for example, Longmore LJ observed that the Bermuda Form, which expressly provides that New York law is the proper law of the insurance policy but requires parties to arbitrate in London, emerged in the insurance market principally as a way of moving disputes out of the United States court system while ensuring that the substantive obligations of the insurer were governed by New York law.72 Against that background, it seems more likely that the parties would have intended disputes about their dispute resolution mechanism – e.g., the validity of the arbitration agreement or its construction – to also be governed by the law of the (neutral) seat. Put differently, this is another reason why the express choice-of-law

72. C v. D (above) at para. 1.

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clause in the matrix contract does not ‘displace’ or ‘neutralise’ the ordinary inference inherent in a choice of seat that the arbitration agreement was intended to be governed by the law of the seat, even though it does displace that inference for the rest of the contract. So the Hamlyn case, for example, should in our view have been decided the same way even if there had been an express choice-of-law clause in the matrix contract in favour of Scots law. It may be suggested that our analysis infringes the rule that an implied term cannot contradict an express term. There is of course such a rule73 but we do not think it is relevant in this context because a choice of seat, if one wishes to adopt the express/implied classification, is equivalent to, or should be regarded as, an express choice of the law of the seat for the arbitration agreement. As Andrew Smith J noted in Cruz City at paragraph 22, ‘express terms do not stipulate only what is absolutely and unambiguously explicit’: one is instead concerned with identifying ‘the ordinary and natural meaning of the parties’ express words’. The ordinary and natural meaning of choosing to arbitrate in a particular seat of arbitration is, as we have explained above, that the parties intended the agreement to arbitrate to be governed by the law of the seat. This is the point Lord Herschell LC made in Hamlyn when he said:74 ‘it appears to me that the language of the arbitration clause indicates very clearly that the parties intended that the rights under that clause should be determined according to the law of England.’ To put it differently, in circumstances where the consequence of choosing a seat is that the law of the seat will in any event govern many aspects of the arbitration agreement, the parties would objectively be understood by choosing that seat to have demonstrated their intention that the entirety of that agreement (i.e., the arbitration agreement) should be governed by the law of the seat. For these reasons, it is submitted that the arbitration agreement is likely, simply as a matter of construction, to have been intended to be governed by the law of the seat: this is inherent in the choice of seat, whether or not the matrix contract is expressly or impliedly governed by a different law. To that extent, it is respectfully submitted that the first proposition in Sulamérica – that an express choice of law for the matrix contract is likely to be an implied choice of law for the arbitration agreement – is wrong: on the contrary, the choice of seat is likely to be a choice of law for the arbitration agreement.75 We have, of course, addressed this question on the footing that the doctrine of separability is – as we contend – irrelevant in the context of choice of law. But it is worth noting that the reasoning (though not the result) in Sulamérica is, with respect, wrong even if the doctrine of separability is relevant: on that hypothesis, the arbitration 73. We do not here enter into the debate as to how far there is any real distinction between express and implied terms in the light of the modern approach to construction in English law: See, in particular, Mannai Investment Co Ltd v. Eagle Star Life Assurance Co [1997] AC 749 at 775-778 and Lord Hoffmann, ‘The Intolerable Wrestle with Words and Meanings’ (1997) 114 South African Law Journal 656 at 658-662. 74. Hamlyn (above) at 208. 75. It is sometimes suggested that Art. V(1)(a) of the New York Convention supports the argument that we have made – that the arbitration agreement is generally governed by the law of the seat. It is not necessary to discuss this in any detail, save to say that we do not think that this is right and do not rely upon it.

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agreement is a distinct agreement, and there is even less reason to allow the express choice-of-law clause in the matrix contract to displace the powerful considerations which ordinarily justify treating a choice of seat as a choice of the law of the seat.

[C]

Two Qualifications

There are two qualifications to the proposition that the process of construction is likely to lead to the conclusion that the arbitration agreement was intended to be governed by the law of the seat. First, our argument is only relevant in cases where the seat is chosen by the parties rather than by an institution or the tribunal when a dispute arises. The reason is that there is a principle, certainly in English law,76 that every contract must have a governing law on the date it is made: this is why a ‘floating’ choice of law, i.e., a term in a contract which leaves the determination of the governing law to some subsequent event, is ineffective. This means that the arbitration agreement must have had a governing law on the date it was made. If the parties did not select a seat, the fact that someone else subsequently decided under the relevant institutional rules that the seat would be London is irrelevant for the purposes of choice of law. The proper law of the arbitration agreement would therefore be determined by applying the ordinary choiceof-law rule to the contract as it stood when it was made: so, if the parties had chosen a law to govern the matrix contract, this would ordinarily also govern the arbitration agreement. Again, the doctrine of separability is irrelevant: if there is an express choice-of-law clause in the matrix contract, that constitutes an express choice of law for the arbitration agreement and it is not displaced by any choice of a different law that is ordinarily inherent in a choice of seat because the parties did not choose a seat. Second, even if the parties do choose a seat, the proposition that the law of the seat ordinarily governs the arbitration agreement is, as with all questions of construction, subject to indications to the contrary. One possible indication to the contrary, which we deal with more fully below, is that the arbitration agreement would be invalid under the law of the seat but not under the proper law of the matrix contract. If the parties may objectively be taken to have known of this when they made the agreement, the very fact that they agreed to arbitrate suggests that they did not intend the arbitration agreement to be governed by the law of the seat, since the agreement would then be ineffective. Another possible indication to the contrary is a case where the parties provide for ‘two-tier’ arbitration, i.e., for a first-instance arbitration and then an appeal from the first tribunal’s award to a second tribunal. If the two arbitrations have different seats, the seat is unlikely to provide any assistance in ascertaining the proper law of the arbitration agreement when it was made. But it is fair to say that these possibilities are relatively rare in practice and that the arbitration agreement, if our analysis is correct, is likely to be governed by the law of the seat in most cases.

76. Amin Rasheed (above) at 65 (Lord Diplock); The Star Texas [1993] 2 Lloyd’s Rep 445 at 448.

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Ian Glick QC & V. Niranjan THE VALIDATION PRINCIPLE

A recent development in this field is the suggestion that the proper law of the arbitration agreement should depend on what has been described as ‘the validation principle’. According to this principle, the court should eschew the conventional choice-oflaw method in favour of simply applying the law of the jurisdiction which would validate rather than invalidate the arbitration agreement. There is some support for the validation principle in arbitral case law77 and it has also recently been suggested78 that it is the best explanation of the English authorities, particularly because of the reference in Sulamérica to the fact that the arbitration agreement would have been invalid under Brazilian law. We accept, as we explain below, that the fact that the arbitration agreement would be invalid under one law but not the other may sometimes be relevant as a matter of construction. But we respectfully think that the wider principle – apparently of law, not construction – that a particular law should be regarded as the proper law merely because it validates the agreement is unsound. To explain why, we will deal principally with Gary Born’s sophisticated analysis of the validation principle,79 which we take to be representative of the theory more generally. Born’s thesis consists of three central propositions. First, there are ‘grave deficiencies’ in the traditional choice-of-law methods which are ‘formulaic, and ultimately arbitrary and unpredictable’.80 It is altogether more consistent with what the parties are likely to have intended to ascertain the proper law on the basis that their ‘overriding objective … is to make an agreement that is valid and enforceable’.81 Second, where the proper law of the matrix contract would regard the arbitration agreement as invalid but the law of the seat would not, the latter should be applied; and third, and conversely, where the proper law of the matrix contract would render the arbitration agreement valid but the law of the seat would not, the former should be applied. We respectfully think that each of these propositions is unsound. The first proposition appears to overlook the fact that any question of construction – which is ultimately what the choice-of-law rule for contracts is – is bound to produce different answers in different cases. This does not of itself mean that the choice-of-law rule has ‘grave deficiencies’.82 In any event, Born’s alternative analysis – that the parties generally intend to enter into a ‘valid’ arbitration agreement and therefore to subject the agreement to whatever law would regard it as valid – is difficult to accept because the parties cannot by fiat make an agreement valid or invalid: that

77. See, e.g., Born (2014) at 545, fn 390. 78. S Pearson, ‘Sulamérica v. Enesa: The Hidden Pro-Validation Approach Adopted by the English Courts with Respect to the Proper Law of the Arbitration Agreement’ (2013) 29 Arbitration International 115. 79. Born (2014) at 541-548. 80. Born (2014) at 543. 81. Born (2014) at 544. 82. See Sulamérica at para. 51.

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depends on the legal consequences which a legal system attaches to the contract which the parties purport to make and the choice-of-law exercise is concerned with identifying the relevant legal system. Born’s second proposition is that the law of the seat should prevail if it would regard the arbitration agreement as valid and the proper law of the matrix contract would not. We have already suggested that the separability presumption, on which Born relies in this context,83 is in fact irrelevant for the purposes of choice of law. Nor, with respect, is Born right to say that the parties are likely to have intended to apply the law of the seat merely because this would validate the arbitration agreement. For one thing, this proposition, if it is really justified by the intentions of the parties, must be limited to cases where the legal rule which invalidates the arbitration agreement existed when the contract was made. Indeed, it is significant that Sulamérica treats the possible invalidity of the arbitration agreement as a factor that is relevant to the construction exercise rather than as an independent reason for adopting one governing law rather than another.84 Born, however, appears to regard his validation principle as a freestanding principle. Further, as we have explained above, the validation principle cannot have any application if the seat was chosen not by the parties but by the tribunal: it is not obvious, however, that Born’s approach would produce the same result. The same points may be made about Born’s third proposition, which simply deals with the converse case where the arbitration agreement is valid under the law of the matrix contract but not under the law of the seat. Finally, Born argues that the validation principle is implicit in Article V(1)(a) of the New York Convention which provides that the enforcement of an arbitral award may be refused if the arbitration agreement was invalid under the applicable law. The difficulty about this argument is that it proves too much. Consider a case where: (a) a contract is expressly governed by New York law and provides for arbitration in Paris; (b) the arbitration agreement would be invalid under both New York and French law but would be valid under several other systems of law. Born’s thesis appears to lead to the conclusion that one of those other systems of law (but which?) should be applied on the basis that the parties impliedly chose to subject their arbitration agreement to any system of law which would validate it, but this would obviously be unsustainable: the agreement has nothing to do with any other system of law.

§9.09

CONCLUSION

The central argument that we have made in this chapter is twofold: first, that the doctrine of separability is irrelevant in identifying the proper law of the arbitration agreement because it does not regard the arbitration agreement as a ‘distinct agreement’ save where its validity is being impugned; and second, the arbitration agreement is, despite this, in principle likely to be governed by the law of the seat, not by the

83. Born (2014) at 544. 84. See para. 61 (Lord Neuberger MR).

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proper law of the matrix contract. The English authorities have, however, adopted what is effectively a rebuttable presumption to the contrary: that the arbitration agreement will be governed by the law expressly stated to be applicable to the matrix contract unless there is something over and above the choice of a (different) seat which shows that the parties did not intend this. We have suggested that this analysis is questionable but that is not because the arbitration agreement is separable generally: it is because the parties would, as a matter of construction, objectively be understood to have chosen the law of the seat as the proper law of the arbitration agreement, even if the matrix contract is expressly stated to be governed by a different law.

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Evidentiary Inferences: Do Choice of Law and Seat Make a Difference? Karyl Nairn QC, Timothy G. Nelson & Paula F. Henin*

One of the key areas of divergence between the civil law tradition and the common law tradition is the approach to the gathering and testing of evidence in litigation. Many commentators have noted, for example, the wide divide that separates the U.S. approach to discovery and use of witness evidence from the approach typically adopted in French litigation.1 One might expect, therefore, that the choice of arbitral seat and governing law would have a dramatic impact on the manner in which a tribunal approaches evidentiary questions, including the use of evidentiary inferences. Yet, as this Chapter’s discussion illustrates by reference in particular to the drawing of adverse inferences, the arbitral seat and applicable substantive law seem in practice to have only a modest influence on the manner in which tribunals typically approach these issues. With respect to evidentiary inferences, as with many procedural issues, ‘[m]ost international arbitrations will proceed as a self-contained process, in the manner agreed by the parties, unencumbered by any external exigencies of an unusual or unexpected nature’.2

* The views expressed in this Chapter are the authors’ own and do not necessarily reflect those of their firm or their firm’s clients. The authors gratefully acknowledge the assistance of Anna Grunseit and William Wang in the preparation of this Chapter. 1. See, e.g., Jalal El-Ahdab & Amal Bouchenaki, ‘Discovery in International Arbitration: A Foreign Creature for Civil Lawyers?’, in Albert Jan van den Berg (ed.), Arbitration Advocacy in Changing Times (2011), pp. 71-89 (identifying ‘core similarities and differences between evidentiary principles common to the civil law legal tradition, focusing mainly on France, and the common law legal tradition, looking mainly at the United Kingdom and the United States’); Jeff Waincymer, Procedure and Evidence in International Arbitration (2012), pp. 746-48 (providing a comparative law perspective on the taking of evidence in international arbitration, referring generally to the common law and civil law systems). 2. Eric A. Schwartz, ‘Is Procedure Really Neutral? The Seat: Does It Matter? (A Tale of More Than Two Cities)’, Dispute Resolution International, Vol. 6, p. 193 (2012).

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This is not to say, however, that the choice of an arbitral seat and substantive law make no difference at all. Their influence upon the process and substantive consequences which may arise from the drawing of an evidentiary inference, however, appears to be more indirect and subtle. This Chapter first explores the origin and characterisation of adverse inferences (Section §10.01) within the legal framework for international arbitration (Section §10.02), before seeking to answer some of the key questions regarding the influence of choice of law and seat: – What is the source of an arbitral tribunal’s power to draw evidentiary inferences and, in particular, adverse inferences from a party’s failure to produce evidence? (Section §10.03) – What are the norms that guide and limit an arbitral tribunal’s discretion in drawing such inferences, and what is the source of those norms? (Section §10.04) – Once an adverse inference is drawn, what is the legal framework that dictates its broader implications for a party’s case? (Section §10.05) This Chapter seeks to identify and fill the gaps in the rules and principles that underlie the use and consequences of drawing adverse inferences in international arbitration and, thereby, provide some guidance to counsel and arbitrators involved in making, resisting, or evaluating a request to draw an adverse inference from a party’s non-production of evidence.

§10.01

THE ORIGIN AND CHARACTERISATION OF ADVERSE INFERENCES

Evidentiary inferences – or ‘the process of thought by which one moves from evidence to proof’3 – are an integral component of legal reasoning in most national and international systems.4 An evidentiary inference is the process by which the existence

3. Black’s Law Dictionary (10th edn., 2014), p. 897. 4. For a seminal consideration of inferences in international law, see Corfu Channel (United Kingdom v. Albania), Judgment of April 9, 1949 (Merits), [1949] ICJ Rep. 4, at 18 (‘[T]he victim of a breach of international law, is often unable to furnish direct proof of facts giving rise to responsibility. Such a State should be allowed a more liberal recourse to inferences of fact and circumstantial evidence. This indirect evidence is admitted in all systems of law, and its use is recognized by international decisions.’). For a discussion of the origins of inferences in philosophy and in law, see Arif H. Ali & Tatiana E. Sainati, ‘Adverse Inferences: A Proposed Methodology in the Light of Investment Arbitrations Involving Middle Eastern States’, BCDR International Arbitration Review, Vol. 3, No. 2, pp. 293-299 (2016). See especially id., p. 296 (‘Legal systems – like philosophical traditions – uniformly recognize the potential utility of inferences as a means of establishing truth. Adjudicators across legal regimes have inherent authority to draw inferences as a necessary component of the power to manage cases and weigh evidence. But law, like logic, also demands caution in the exercise of this inference-drawing authority.’).

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of a principal fact is inferred from evidence establishing secondary facts or ‘circumstantial evidence’.5 Adjudicators often draw inferences from the evidence before them to reach factual conclusions that they might not be able to reach solely on the basis of the direct evidence before them – typical examples are intent, and good or bad faith.6 Although inferences can arise in various circumstances, and in a manner that can be either favourable or adverse to a party’s case, this Chapter focuses on a particular type of evidentiary inference, arising out of a particular set of circumstances – namely, a party’s failure to furnish evidence on a particular topic. An ‘adverse inference’ is ‘[a] detrimental conclusion drawn by the fact-finder from a party’s failure to produce evidence that is within the party’s control’.7 The origins of the concept can be traced far back into the common law and beyond, to the maxim omnia praesumuntur contra spoliatorem (all things are presumed against the destroyer/wrongdoer).8 The making of adverse inferences is now so entrenched in legal decision-making – it has been called ‘one of the simplest in human experience’9 – that international arbitration commentators exploring the subject rarely delve deeply into its origins.10 It has been suggested that the concept is one that arises in ‘all systems’,11 distinguishing it from other elements of the approach to evidence that are deeply rooted in a particular legal tradition.12

5. See William P. Richardson, The Law of Evidence, §111 at 68 (3rd edn., 1928) (defining ‘circumstantial evidence’ as ‘[e]vidence of some collateral fact, from which the existence or non-existence of some fact in question may be inferred as a probable consequence’). 6. A very basic example is a person in possession of stolen goods who runs from the police; the fact that he/she runs away can be the basis for an inference that the person knows the goods were stolen. 7. Black’s Law Dictionary, supra note 3, p. 897. 8. See, e.g., Robert H. Stier, Jr., ‘Revisiting the Missing Witness Inference: Quieting the Loud Voice from the Empty Chair’, Maryland Law Review, Vol. 44, No. 1, pp. 140, 142 (1985) (quoting Blackstone (‘If it be found that there is any better evidence existing than is produced, the very not producing it is a presumption that it would have detected some falsehood that at present is concealed.’); and tracing the case law origin to the English case of Armory v. Delamirie (1721) 1 Stra 505, which involved a direction to a jury to presume the maximum value of a missing jewel). 9. Id., p. 140 (quoting Wigmore, who was referring to an inference that proceeded from evidence of spoliation to the conclusion that the spoliator does not believe his case and that the case must therefore not warrant belief). 10. See, e.g., Vera van Houtte, ‘Adverse Inferences in International Arbitration’, in Teresa Giovannini & Alexis Mourre (eds.), Written Evidence and Discovery in International Arbitration: New Issues and Tendencies (2009), p. 209 (‘Most illustrations of adverse inferences come from common law criminal cases.’). But see, for an example of the contrary, Ali & Sainati, supra, note 4. 11. ALI / UNIDROIT Principles of Transnational Civil Procedure (2004), adopted by the American Law Institute (ALI) in May 2004 and by the International Institute for the Unification of Private Law (UNIDROIT) in April 2004, ¶ P-17B (‘In all systems the court may draw adverse inferences from a party’s failure to advance the proceeding or to respond as required.’). These Principles also provide standards for adjudication of transnational commercial disputes (applicable to international arbitration). See also, id., Principles 17.3, 18.2 and 21.3 and ¶ P-21C. See also Ali & Sainati, supra note 4, p. 297 (‘Common and civil law regimes (all Middle Eastern jurisdictions following the latter) alike authorize both courts and arbitral tribunals to draw adverse inferences, either explicitly or as an implicit part of the inherent power to sanction parties for the failure to cooperate in producing relevant evidence.’). 12. See supra note 1 and accompanying text.

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Some have described adverse inferences as a type of ‘sanction’.13 Indeed, given the arbitrators’ lack of imperium and inability to hold parties in contempt, and considering the limited effectiveness of judicial assistance in international arbitration, adverse inferences can be regarded as a practical tool to address a party’s unjustified failure or refusal to provide evidence in its possession that is both relevant and material to the opposing party’s case.14 In this respect, the use of adverse inference in international arbitration has much in common with the historical context in which the concept emerged in litigation, at a time when few tools of control over evidence were available to courts (in contrast to the more robust powers of modern courts in many jurisdictions).15 Alternatively, adverse inferences can be regarded as an ordinary part of the fact-finding process; ‘a rule of evidence which, if the elements are made out, creates an indirect piece of evidence that needs to be weighed together with all the rest of the evidence’.16 Put another way, in drawing an adverse inference, the adjudicator relies on secondary evidence, namely the failure to furnish direct evidence of a primary fact, to reach a conclusion that touches upon that primary fact. Thus, notwithstanding their potential role in disciplining and deterring non-complying parties, adverse inferences are a ‘much broader phenomenon’,17 which has been described as flowing from the parties’ ‘duty to contribute in good faith to the discharge of the opposing party’s burden of proof’.18

13. See, e.g., Andreas Baum, Hagit Elul & Nicolas Swerdloff, ‘Arbitrators’ Power to Sanction Non-Compliance in Discovery in International Commercial Arbitration’, in Albert Jan van den Berg (ed.), Legitimacy: Myths, Realities, Challenges (2015), pp. 221, 230 (‘Adverse inferences are one of the most common forms of sanctions used to remedy the improper withholding of evidence.’); Reto Marghitola, Document Production in International Arbitration (2015), p. 173 (‘Adverse inferences are the most important sanction for non-compliance with procedural orders of the arbitral tribunal’); ALI / UNIDROIT Principles of Transnational Civil Procedure (2004), ¶ P-21C (‘[d]rawing such [adverse] inferences can be considered a sanction…’). As explored further below, other commentators reject the ‘sanction’ label. See, e.g., Simon Greenberg & Felix Lautenschlager, ‘Adverse Inferences in International Arbitral Practice’, ICC International Court of Arbitration Bulletin, Vol. 22, No. 2, p. 48 (2011) (‘the drawing of an adverse inference should not be described as a “sanction” or punishment for non-production…’). 14. See Jeremy K. Sharpe, ‘Drawing Adverse Inferences from the Non-production of Evidence’, Arbitration International, Vol. 22, No. 4, pp. 549-550 (2006). See also Robert B. von Mehren, ‘Burden of Proof in International Arbitration’, in Albert van den Berg (ed.), Planning Efficient Arbitration Proceedings: The Law Applicable in International Arbitration, ICCA Congress Series No. 7 (1996), p. 129 (‘Unlike a court, the tribunal has no sovereign power to compel production. Its power is limited to its use of the fact of refusal as a factor in its decision of the case.’). 15. See Stier, supra note 8 (‘[T]he inference developed at a time when parties had no means of compelling their opponents to produce documentary evidence; it supplied a necessary incentive for the parties to present a full picture of the facts.’). See also, Dale A. Nance, ‘Adverse Inferences about Adverse Inferences: Restructuring Juridical Roles for Responding to Evidence Tampering by Parties to Litigation’, Boston University Law Review, Vol. 90, p. 1091 (2010) (‘[t]he adverse inference response became entrenched in the common law at a time when very few tools of discovery were available. … But our system of litigation has changed dramatically over the last century.’). 16. See Greenberg & Lautenschlager, supra note 13, pp. 43, 48. 17. Van Houtte, supra note 10, p. 200. 18. ALI / UNIDROIT Principles of Transnational Civil Procedure (2004), ¶ P-21C.

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However they are viewed, adverse inferences, when properly applied, serve to protect the integrity of the fact-finding process, and thereby, the efficacy and fairness of the procedure. Indeed, the availability of an adverse inference can be said to: facilitate each party’s right to present its case and ensure that the record contains evidence sufficient to permit issuance of an award based on a full evaluation of the merits, thus promoting the international enforceability of the resulting award and, perhaps, greater voluntary compliance with that award.19

The failure to produce evidence regarding a primary fact can take various forms, the most obvious of which is a party’s failure to produce documents within its control. It may also take the form of a failure to produce relevant testimony from a witness within that party’s control. Of course, not all failures to produce evidence within a party’s control will justify an adverse inference being drawn against that party, and not all adverse inferences will bear the same weight. The weight will be relative as it depends on the existence and weight of other evidence, and an adverse inference will likely not of itself be sufficient to satisfy the burden of proof.20 Instead, the process of drawing an adverse inference has been described as ‘no more than common sense conclusions arrived at on the basis of evidence which is accepted as reliable’.21 Despite the long-established place of adverse inferences in legal reasoning, some observers have discerned a ‘reluctance’ on the part of arbitral tribunals to draw adverse inferences in their arbitral awards (at least, explicitly).22 Reasons identified for this reluctance include ‘the traditional preference of adjudicatory bodies for direct evidence as the best means to establish the truth’23 and ‘pragmatic’ considerations such as the

19. Sharpe, supra note 14, p. 550. 20. See Van Houtte, supra, note 10, p. 198. 21. Demco Investments and Commercial SA and others v. SE Banken Forsakring Holding Aktiebolag [2005] EWHC 1398 (Comm) ¶ 25 (U.K.). This case is one of the few English decision discussing inferences in the arbitration context. 22. Greenberg & Lautenschlager, supra note 13, pp. 43, 44 (‘[D]espite all the talk about adverse inferences, arbitral tribunals are in fact pretty reluctant to rely on them.’); Ali & Sainati, supra note 4, p. 294 (‘Despite the well-established and long-standing authority to draw adverse inferences, tribunals remain reluctant to do so.’); Marghitola, supra note 13, pp. 173, 174 (‘[A]rbitral tribunals are reluctant to explicitly draw adverse inferences in their arbitral awards.’). Commentators have also observed that: [t]he reluctance of tribunals to apply an adverse inference is most evident in disputes between private parties and sovereign states and especially against the state party. In the investor-state context, this reluctance is attributable to the fact that, as a practical and legal matter, international tribunals have limited powers to compel the compliance of sovereigns, particularly in evidentiary matters, as well as the general tendency of tribunals to accept objections put forward by state parties on the basis of sovereign prerogative, deliberative process or executive privilege, or national security considerations, and the practical realities associated with the decentralized constitutional and functional structure of the state. But it is in just such proceedings that adverse inferences may play their most important role, especially in circumstances where the balance of custodial power in relation to key evidence lies in favour of the state.

Ali & Sainati, supra note 4, pp. 294-295. 23. Id., p. 294.

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willingness to avoid creating due process concerns (and thereby open the award to the risk of annulment),24 and the perception that an explicit reference to ‘adverse inferences’ would be ‘redundant’.25 A better understanding of adverse inferences may address this reluctance and increase their effectiveness in international arbitration. Defining the parameters that support drawing an adverse inference, and determining the consequences of such an inference, necessitates balancing various factors, often including practical considerations such as the comparative lack of tools available to arbitrators to enforce their evidentiary orders, the recognition that non-production of evidence can sometimes be the result of legitimate obstacles beyond the non-producing party’s control, and the imperatives of due process and procedural fairness. It also begs the question of the applicable law, to which we now turn.

§10.02

THE LEGAL FRAMEWORK FOR INTERNATIONAL ARBITRATION: THE IMPORTANCE OF CHOICE OF LAW AND SEAT

As explored in Section §10.03 below, since evidentiary matters raise both procedural and substantive issues, the choice of seat and law, and the consequent nature of the lex arbitri, lex fori and lex causae, are critical to the analysis of the legal framework in which evidentiary inferences are applied. This Section explores the general principles affecting that framework, including the specific issues that arise in the context of arbitrations under the ICSID Convention.26 In court proceedings, procedural matters are generally governed by the law of the forum (or lex fori), which typically provides a detailed set of civil procedure rules binding upon a particular court (a circumstance which is not always the product of a conscious election by the parties). International arbitration, in contrast, typically arises from a deliberate choice by the parties, both of the applicable arbitral rules and the seat of the proceedings, and is characterised by a wide degree of procedural autonomy for the parties.27 Thus viewed, the procedural framework flows primarily from the agreement of the parties. The applicable arbitral rules, institutional or ad hoc, typically

24. Greenberg & Lautenschlager, supra note 13, pp. 44, 49 (‘[I]n an attempt to be pragmatic, [arbitral tribunals] quite often skirt around the adverse inference contention, preferring to tread safely and rely on other evidence’; ‘[arbitral tribunals] sometimes skirt around the issue and decide the case by other means, presumably in an effort to avoid creating due process concerns … ’); Ali & Sainati, supra note 4, p. 294 (‘[The hesitation of arbitral tribunals to draw adverse inferences] also reflects concern with respecting the due process rights of both parties and with protecting awards from annulment.’); Marghitola, supra note 13, p. 173 (‘There may be several reasons for arbitral tribunals to not mention adverse inferences. One might be the fear that adverse inferences for non-compliance with document production orders could be difficult for parties to accept. Another may be the risk of annulment or non-enforcement … ’). 25. Greenberg & Lautenschlager, supra note 13, p. 49. 26. Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) [hereinafter, ‘ICSID Convention’]. 27. See, e.g., UNCITRAL Model Law on International Commercial Arbitration (as adopted in 1985 and amended in 2006) [hereinafter, ‘UNCITRAL Model Law’], Art. 19(1) (‘Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings.’); English Arbitration Act, 1996, §1(b) (‘[T]he

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address a variety of procedural issues. Sometimes (e.g., in the absence of an agreement of the parties), the arbitration law of the seat of the arbitration (the lex arbitri) will supply a number of applicable procedural rules by default.28 In the absence of an agreement of the parties on specific procedural issues or on the applicable arbitration rules generally, however, modern arbitration rules29 and laws30 generally grant the arbitral tribunal broad discretion in the conduct of the proceedings – limited only by the applicable mandatory rules of the lex arbitri, of which there are generally few.31 Indeed, one of the grounds for a refusal to recognise or enforce a foreign arbitral award under the New York Convention – which at the time of writing has been ratified by 157

28. 29.

30.

31.

parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest.’). United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 [hereinafter, ‘New York Convention’], Art. V.1(d). See infra, note 32 and accompanying text. See, e.g., ICC Arbitration Rules (2017), Art. 22(2) (‘In order to ensure effective case management, the arbitral tribunal, after consulting the parties, may adopt such procedural measures as it considers appropriate, provided that they are not contrary to any agreement of the parties.’); LCIA Arbitration Rules (2014), Art. 14.4 (‘Under the Arbitration Agreement, the Arbitral Tribunal’s general duties at all times during the arbitration shall include … a duty to adopt procedures suitable to the circumstances of the arbitration … ’) and Art. 14.5 (‘The Arbitral Tribunal shall have the widest discretion to discharge [its] general duties, subject to such mandatory law(s) or rules of law as the Arbitral Tribunal may decide to be applicable.’). See, e.g., UNCITRAL Model Law, Art. 19(2) (‘Failing [an agreement of the parties on the procedure to be followed by the arbitral tribunal in conducting the proceedings], the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.’); English Arbitration Act, 1996, ch. 23, § 34(1) (‘It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter.’). See, e.g., UNCITRAL Arbitration Rules (2013), Art. 1.3 (‘These Rules shall govern the arbitration except that where any of these Rules is in conflict with a provision of the law applicable to the arbitration from which the parties cannot derogate, that provision shall prevail.’); LCIA Arbitration Rules (2014), Art. 16.4 (‘The law applicable to the Arbitration Agreement and the arbitration shall be the law applicable at the seat of the arbitration, unless and to the extent that the parties have agreed in writing on the application of other laws or rules of law and such agreement is not prohibited by the law applicable at the arbitral seat.’); HKIAC Administered Arbitration Rules (2013), Art. 13.1 (‘Subject to these Rules, the arbitral tribunal shall adopt suitable procedures for the conduct of the arbitration in order to avoid unnecessary delay or expense, having regard to the complexity of the issues and the amount in dispute, and provided that such procedures ensure equal treatment of the parties and afford the parties a reasonable opportunity to present their case.’); ICDR International Arbitration Rules (2014), Art. 1.2 (‘These Rules govern the arbitration, except that, where any such rule is in conflict with any provision of the law applicable to the arbitration from which the parties cannot derogate, that provision shall prevail.’); SIAC Arbitration Rules (2016), Rule 27(n) (‘Unless otherwise agreed by the parties, in addition to the other powers specified in these Rules, and except as prohibited by the mandatory rules of law applicable to the arbitration, the Tribunal shall have the power to … determine the law applicable to the arbitral proceedings.’); SIAC Investment Arbitration Rules (2017), Rule 24(o) (‘Unless otherwise agreed by the parties, in addition to the other powers specified in these Rules, and except as prohibited by the mandatory rules of law applicable to the arbitration, the Tribunal shall have the power to … determine the law applicable to any aspect of the arbitration.’). See also ICC Arbitration Rules (2017), Art. 19 (‘The proceedings before the arbitral tribunal shall be governed by the Rules and, where the Rules are silent, by any rules which the parties or, failing them, the arbitral tribunal may settle on, whether or not reference is thereby made to the rules of procedure of a national law to be applied to the arbitration.’). See also, supra, note 30.

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States across the world – is that ‘the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place’.32 Different ground rules govern the procedural aspects of investment arbitrations conducted under the ICSID Convention, as ICSID arbitrations are insulated from national legal systems and do not have a seat, in the traditional sense. Thus, the ICSID Convention provides that, ‘[i]f any question of procedure arises which is not covered by [the ICSID Convention] or the [ICSID] Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question’.33 To date, however, this does not appear to have created any significant divergence between the manner in which ICSID tribunals deal with evidentiary matters such as adverse inferences, and the manner in which non-ICSID tribunals (in particular those ruling on international investment disputes) approach those issues. Different principles apply to the determination of the law applicable to the parties’ substantive claims and defences (or lex causae) in an international arbitration. Contractual matters are typically governed by the substantive law chosen by the parties.34 The parties’ choice of substantive law is most often found in the contract(s) that regulate(s) their legal relationship or, in the case of investment arbitration, in a bilateral or multilateral treaty or in an applicable domestic statute. Absent an agreement of the parties, most international arbitration rules and laws confer responsibility upon the tribunal for determining which law or rules of law apply to the merits of the dispute.35 Arbitrators and commentators differ on the choice-of-law rules, if any, that should apply in that scenario. Unless the parties agree otherwise, the arbitral tribunal may look to the choice-of-law rules that would apply in the domestic courts of the

32. New York Convention, Art. V.1(d). 33. ICSID Convention, Art. 44. See Campbell McLachlan, ‘Investment Treaty Arbitration: The Legal Framework’, in Albert Jan van den Berg (ed.), 50 Years of the New York Convention: ICCA International Arbitration Conference, ICCA Congress Series, Vol. 14 (2009), pp. 95, 105 (‘Art. 44 creates a self-contained regime for the lex arbitri, consisting (save as the parties otherwise agree) of the Convention and the Arbitration Rules which leaves no room for the application of the national law at the seat of the arbitration, which would otherwise be applicable.’). 34. See, e.g., UNCITRAL Model Law, Art. 28(1) (‘The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute. Any designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules.’); ICC Arbitration Rules (2017), Art. 21(1) (‘The parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate.’); UNCITRAL Arbitration Rules (2013), Art. 35.1 (‘The arbitral tribunal shall apply the rules of law designated by the parties as applicable to the substance of the dispute. Failing such designation by the parties, the arbitral tribunal shall apply the law which it determines to be appropriate.’); LCIA Arbitration Rules (2014), Art. 22.3 (‘The Arbitral Tribunal shall decide the parties’ dispute in accordance with the law(s) or rules of law chosen by the parties as applicable to the merits of their dispute. If and to the extent that the Arbitral Tribunal decides that the parties have made no such choice, the Arbitral Tribunal shall apply the law(s) or rules of law which it considers appropriate.’). See also SCC Arbitration Rules (2017), Art. 27(1); HKIAC Administered Arbitration Rules (2013), Art. 35.1; ICDR International Arbitration Rules (2014), Art. 31.1; SIAC Arbitration Rules (2016), Rule 31.1. 35. See supra, note 34.

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arbitral seat (i.e. those of the lex fori) or any other choice-of-law rules that it deems applicable, or it may consider that certain rules of law are directly applicable without referring to any particular choice-of-law rules.36 In addition, while ‘[g]enerally the applicable law will be the municipal law of a state’, ‘[s]ome legislation and arbitration rules authorize the selection of … non-national legal systems by referring to the selection of “rules of law” rather than “law”’.37 This possibility has given rise to spirited discussion (and some debate) regarding the concept of the so-called lex mercatoria and the applicability of general principles of law, amongst others.38 As with the law applicable to procedural matters, the analysis to determine the lex causae in ICSID arbitration must take into account the special features of the ICSID Convention. Absent agreement among the parties regarding the applicable law, Article 42(1) of the ICSID Convention provides that ‘the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on conflict of laws) and such rules of international law as may be applicable.’39 This language – which Rule 28.1 of the recently adopted Investment Arbitration Rules of the Singapore International Arbitration Centre (SIAC) mirrors to some extent40 – has generated intense debates concerning the relationship between international law and national law in ICSID arbitration, which are beyond the scope of this Chapter.41 These general principles regarding the law applicable to the procedure and that applicable to the substance of an international arbitration guide the present inquiry, without necessarily resolving it.

36. Note, however, that the UNCITRAL Model Law appears to mandate resorting to choice-of-law rules and to thereby exclude direct selection of the substantive law by the arbitral tribunal. UNCITRAL Model Law, Art. 28(2) (‘Failing any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.’). Compare with the arbitration rules referred to in note 34, supra. 37. Michael Pryles, ‘Reflections on Transnational Public Policy’, Journal of International Arbitration, Vol. 24, No. 1, p. 1 (2007). 38. See generally Michael Pryles, ‘Application of the Lex Mercatoria in International Commercial Arbitration’, Mealey’s International Arbitration Report, Vol. 18, No. 2, pp. 1-26 (February 2003). 39. ICSID Convention, Art. 42(1). 40. SIAC Investment Arbitration Rules (2017), Rule 28.1 (‘The Tribunal shall apply the law or rules of law designated by the Parties as applicable to the substance of the dispute. Failing such designation by the Parties, the Tribunal shall apply the law or rules of law which it determines to be appropriate, including any relevant national laws of any State, any relevant international treaties and custom and general principles of law.’). 41. See W. Michael Reisman & Mahnoush H. Arsanjani, ‘Applicable Law under the ICSID Convention: The Tortured History of the Interpretation of Article 42’, in Meg Kinnear et al. (eds.), Building International Investment Law: The First 50 Years of ICSID (2015), p. 3; Yas Banifatemi, ‘The Law Applicable in Investment Treaty Arbitration’, in Katia Yannaca-Small (ed.), Arbitration Under International Investment Agreements: A Guide to the Key Issues (2010), p. 191; McLachlan, supra note 33, pp. 95, 108-117. As Professor McLachlan has observed, however, ‘[f]rom the point of view of methodology, … the task of a tribunal in a non-ICSID investment treaty arbitration is in substance the same as in an ICSID case. Subject to the express terms of the treaty itself, including any applicable law provision, it must consider which issues are properly governed by host state law, and which by international law’. Id., pp. 116-117.

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Karyl Nairn QC, Timothy G. Nelson & Paula F. Henin THE LAW(S) APPLICABLE TO EVIDENTIARY INFERENCES IN INTERNATIONAL ARBITRATION

The analysis regarding the law applicable to evidentiary inferences in international arbitration is complicated by various factors. First, evidentiary matters raise both procedural and substantive issues which, as discussed in Section §10.02 above, requires resort to different sources of law and raises thorny issues of classification. Second, international arbitration laws and rules rarely address the issue of adverse inferences expressly,42 and tribunals seldom delineate their choice-of-law analysis (if any) in the context of adverse inferences. This Section addresses each point in turn.

[A]

Adverse Inferences: Procedural or Substantive?

The first difficulty in determining what law(s) apply/ies to evidentiary matters in general, and adverse inferences in particular, resides in their classification as either procedural or substantive matters. Different legal systems may characterise the same evidentiary rule as either procedural or substantive.43 Even within the same legal system, the task of characterising any given rule of evidence as either procedural or substantive can be fraught.44 Some evidentiary rules may be considered procedural, while others are considered substantive.45 For example, Anglo-American contract law jurisprudence includes a rule called the ‘parol evidence rule’, intended to exclude (in some instances) consideration of extra-contractual materials in interpreting the terms of a contract that encapsulates the entire agreement between the parties.46 Most authors concede, however, that this is not an ‘evidentiary’ rule, but a rule of substance to aid in the interpretation of a contract.47 As another example, Italian law characterises 42. See discussion in Section §10.04[A], infra. 43. Waincymer, supra, note 1, p. 749 (‘Different legal systems do not all classify evidentiary issues the same way. The common law tended to see them as procedural in nature, while some civilian systems treated them as substantive questions. Most now acknowledge the difficulties in classification, the possible dual nature of at least some evidentiary questions and the impact of particular circumstances on the ultimate proper classification.’). 44. This is illustrated, among others, by the debates in the United States concerning the identification of the rules that properly fall within the scope of the Erie doctrine (which, stated simplistically, this mandates that a federal court hearing state law claims must apply state substantive law, while applying deferring to the federal rules of procedure). Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). See, e.g., Jay Tidmarsh, ‘Procedure, Substance, and Erie’, Vanderbilt Law Review, Vol. 64, p. 877 (2011); Edward K. Cheng, ‘Erie and the Rules of Evidence’, Vanderbilt Law Review, Vol. 65, p. 231 (2011). 45. Waincymer, supra note 1, p. 749 (quoted supra note 43). 46. Joseph Chitty & Hugh G. Beale, Chitty on Contracts (32nd edn., 2008), Part IV, § 13-099; Arthur L. Corbin & Joseph M. Perillo, Corbin on Contracts (1993), Part III, § 25.2. This ‘rule’ is subject to qualifications and exceptions that are beyond the scope of this Chapter. 47. See, e.g., Corbin & Perillo, supra note 46, § 25.2; Chitty & Beale, supra note 46, Part IV, §§ 13-101, 13-102 (citing Law Commission Report, The Parol Evidence Rule (No. 154) (1986), CM.9700, para. 2.17); J.W. Carter, The Construction of Commercial Contracts (2013), § 8-04. See also Waincymer, supra note 1, p. 749 (‘The procedure/substance distinction may also be impacted upon by the presence or otherwise of certain substantive rights to information applicable between the parties or between the parties and public institutions. For example, each party in a joint venture will typically have a right to all accounts and perhaps to have them

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a number of evidentiary rules regarding the weight of certain types of evidence and the admissibility of witness evidence as substantive, with the consequence that those rules form part of the Italian lex causae.48 Thus, authors have reasoned: [S]ince these rules form part of the Italian lex causae they would arguably apply to arbitration proceedings insofar as Italian law is the applicable substantive law in the arbitration and provided that the parties have not directed the tribunal to derogate from them, either expressly or by reference to other, incompatible evidentiary rules. This would arguably be the case even if the seat of the arbitration is outside Italy. Moreover, since these rules relate to the taking of evidence governed by the c.p.c. [the Italian arbitration law], they should also apply to arbitration proceedings to which the evidentiary rules set forth in the c.p.c. apply.49

These examples also raise the question of what law (if any) should apply to the classification exercise. Arbitration rules and laws are silent on this issue, which therefore falls within a tribunal’s broad discretion to determine the law applicable to the matters to be determined in the arbitration. To the extent that the conflict-of-law analysis is influenced by the arbitral seat or the substantive law chosen by the parties to govern their dispute, however, they should guide the arbitrators’ discretion in determining that question. It appears to the authors of this Chapter that the arbitrators’ power to draw adverse inferences from the non-production of evidence, and the circumstances that justify drawing such inferences, are in the first instance procedural issues pertaining to the principles of evidence governing the case. Once an adverse inference is made, however, its consequences for the parties’ substantive claims and defences raise mixed issues of procedure and substance, with substance predominating, as we further explain in Section §10.05 below. This suggests that the process of drawing an adverse inference is potentially influenced by the lex arbitri, while its effects are governed primarily by the substantive law chosen by the parties or, in the absence of an agreement of the parties, by the law which the tribunal deems applicable to determine the parties’ substantive claims and defences. Yet, as this Chapter explains, the practical experience often suggests a different outcome. In fact, the arbitral seat and the parties’ choice of law are rarely the focus of discussions of adverse inferences.

[B]

The Limited Guidance Provided by the Traditional Sources of Law

The fact that tribunals rarely explicitly set out their choice-of-law reasoning (if any) when drawing an adverse inference, coupled with the silence of many arbitration laws

audited. Direct substantive provisions of this nature relating to evidentiary entitlements are quite distinct from general approaches to evidence pertaining to other substantive obligations. The distinction is not always clear-cut. Part of the complexity is that the substantive law will always indicate which facts are in issue. This will also be the case with certain specific contractual terms.’). 48. Ferdinando Emanuele, Milo Molfa, et al., Evidence in International Arbitration: The Italian Perspective and Beyond (2016), pp. 45-46. 49. Id., p. 47.

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and rules with respect to adverse inferences (further described below, in Section §10.04), also adds complexity to the present enquiry. Principles of evidence in international arbitration (such as they are) are primarily derived from general arbitral practice, which is essentially the product of party autonomy (in selecting a seat and procedural rules for their arbitration) and arbitral discretion. While the role of party autonomy and arbitral discretion can potentially result in a variegated and uncertain range of outcomes for users of the international arbitration system (particularly given the lack of a formal doctrine of precedent in international arbitration), a number of other factors, however, serve as a counterweight, adding predictability to the process. One is practical/empirical: international arbitration often occurs in the same major venues, with certain legal systems (e.g., England, New York, France, Switzerland or Singapore) being chosen in preference to others – thus lending some consistency to the process. This is reinforced by the fact that many leading arbitrators and practitioners are ‘repeat players’ with an adherence to perceived ‘best practices’. Both factors contribute to a certain (albeit imperfect)50 harmonisation of the manner in which tribunals approach evidentiary matters in international arbitration. ‘Soft law’ also plays a role. For example, the International Bar Association (‘IBA’)’s Rules on the Taking of Evidence in International Arbitration (the ‘IBA Rules on Evidence’ or ‘IBA Rules’), most recently updated in 2010, have been influential, and constitute a ‘soft law’ instrument that is frequently referred to by parties and tribunals alike. Parties may choose to refer to the IBA Rules on Evidence, as a whole or in part, as a set of rules binding upon the tribunal as the parties’ agreement, or as a ‘guide’ to evidentiary matters.51 Furthermore, some consider that the IBA Rules on Evidence are ‘accepted as a reflection of international arbitration practice even when they are not specifically adopted for a particular case’52 and therefore can guide the discretion of arbitrators even when they do not expressly refer to them by name.

50. See Ali & Sainati, supra note 4, p. 301 (describing the state of uncertainty concerning the effect of adverse inferences, and arguing that ‘[s]uch uncertainty is unsatisfactory, not only from the standpoint of the disputing parties, who are left with no choice but to hope for the rational exercise of arbitral discretion, but also from the standpoint of the desired objective of methodological precision in evidentiary analysis’). 51. It is reported that ‘[n]early half (48%) of the arbitrations known to [the respondents to a survey] worldwide referenced the Rules on Evidence’ and that ‘[i]n approximately 80% of those arbitrations in which reference was made to the Rules on Evidence, the arbitral tribunal consulted them on the basis that they represented non-binding guidelines’, while ‘[i]n the remaining 20% of instances, the Rules on Evidence were considered binding’. IBA Arbitration Guidelines and Rules Subcommittee, Report on the Reception of the IBA Arbitration Soft Law Products (September 2016), p. 4, ¶¶ 14, 16. 52. Greenberg & Lautenschlager, supra note 13, p. 48. The authors withhold comment on whether the IBA Rules indeed have been accepted as such in their entirety; as even the Commentary to the rules indicates, many of the principles stated therein are a product of conscious compromise. IBA, Commentary on the Revised Text of the 2010 IBA Rules on the Taking of Evidence in International Arbitration (2010), p. 3 (‘The IBA Rules of Evidence contain procedures initially developed in civil law systems, in common law systems and even in international arbitration processes themselves. Designed to assist parties in determining what procedures to use in their particular case, they present some (but not all) of the methods for conducting international arbitration proceedings.’).

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Notwithstanding their substantial contribution to the field of international arbitration, the IBA Rules on Evidence do not address the question of the law applicable to the process and consequences of drawing an adverse inference. This Chapter attempts to address this question.

§10.04

THE EMERGENCE OF A TRANSNATIONAL LEX EVIDENTIA OF ADVERSE INFERENCES?

The widespread use of adverse inferences across different legal systems, as touched on in Section §10.01 above, colours the pinpointing of the norms that guide and limit the drawing of adverse inferences by arbitral tribunals. This Section considers whether the authority of an arbitral tribunal to draw adverse inferences arises from a supranational lex evidentia, constrained only by very general limitations flowing from the law of the seat.

[A]

The Source of a Tribunal’s Power to Draw Adverse Inferences

Whether a tribunal has the power to draw an adverse inference is arguably a procedural question. It should therefore be answered, in the first instance, by reference to any express agreement of the parties (including through their choice of institutional or ad hoc arbitration rules, if any) and the rules of the lex arbitri. Yet, the majority of international arbitration rules and laws neither expressly allow, nor forbid, arbitrators to draw adverse inferences from the non-production of evidence; nor do they (a fortiori) provide detailed rules concerning the circumstances calling for such inferences, or their consequences.53 Similarly, many of the commonly

53. For instance, the UNCITRAL Model Law does not expressly refer to adverse inferences; however, Art. 25 (‘Default of a party’) provides that: ‘Unless otherwise agreed by the parties, if, without showing sufficient cause, … any party fails to appear at a hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the award on the evidence before it.’ (UNCITRAL Model Law, Art. 25(c)). See also Australian International Arbitration Act (1974, as amended in 2011 by Act No. 5), § 23B(2) (similar to the UNCITRAL Model Law); Brazilian Arbitration Act (1996, as amended in 2015 by Act No. 13.129), Art. 22(2) (in the context of witness evidence: ‘If a party fails, without good cause, to comply with a request to render personal testimony, the arbitrator or the arbitral tribunal shall give due consideration to such behaviour when issuing the award … .’); German Code of Civil Procedure (Zivilprozessordnung (ZOPO)), Book 10, § 1048(3) (‘Should a party fail to make an appearance at a hearing for oral argument, or should it fail to produce a document as evidence, the arbitral tribunal may continue the proceedings and may issue the arbitration award based on the insights it has obtained.’); Singapore International Arbitration Act, ch. 143A (as revised 2002) (adopting the UNCITRAL Model Law, including Art. 25(c)); Spanish Arbitration Act 60/2003 (as amended in 2011), Art. 31(c) (‘Any party fails to appear at a hearing or to produce evidence, the arbitrators may continue the proceedings and issue the award on the grounds of the evidence which has been adduced.’). Other laws are entirely silent on the issue. See French Code of Civil Procedure, Book IV, Title II (as amended in 2011 by Decree No. 2011-48); Italian Code of Civil Procedure, Book IV, Title VIII; OHADA Uniform Act on Arbitration (1999); Swiss Private International Law Act (1989, as amended in 2011), ch. 12; U.S. Federal Arbitration Act, 9 U.S.C. §§ 1-16,201-208,301-307 (2006).

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used arbitration rules do not expressly address the power of arbitrators to draw adverse inferences.54 The English Arbitration Act 1996 is one notable exception among the national arbitration statutes: Section 41 expressly provides that, unless the parties agree otherwise, an arbitral tribunal has the discretion to draw such adverse inferences as the circumstances justify upon a party’s failure to comply with a ‘peremptory order’.55 The Hong Kong Arbitration Ordinance, which is largely modelled on the English Arbitration Act 1996, contains similar provisions.56 In addition, an increasing number of arbitral rules now expressly allow tribunals to draw adverse inferences. For instance, Article 21.9 of the ICDR International Arbitration Rules (2014) expressly provides that ‘[i]n the event a party fails to comply with an order for information exchange, the tribunal may draw adverse inferences’;57 while Article 35(3) of the SCC Arbitration Rules (2017) provides that ‘[i]f a party, without good cause, fails to comply with any provision of, or requirement under, these Rules or any procedural order given by the Arbitral Tribunal, the Arbitral Tribunal may draw such inferences as it considers appropriate’.58 Even when the lex arbitri or arbitration rules do not expressly grant arbitrators the power to draw adverse inferences, however, logic dictates that international arbitrators do have that power, which derives from the arbitrators’ wide discretion in managing the proceedings, including in respect of evidentiary matters. Indeed, the most commonly used institutional and ad hoc arbitration rules all empower arbitral tribunals to ‘determine the admissibility, relevance, materiality and weight of the

54.

55. 56. 57.

58.

For a survey of Middle Eastern arbitration legislation relevant to adverse inferences, see Ali & Sainati, supra note 4, pp. 298-299 (‘Without directly addressing adverse inferences, the laws of Egypt, Jordan, Bahrain, and Tunisia implicitly vest tribunals with the power to draw adverse inferences through the adoption of provisions echoing the UNCITRAL Model Law … . Libyan, Iranian, Algerian and Lebanese arbitral laws provide expansive powers to arbitrators with regard to the taking of evidence, which could be broadly construed to include the ability to make adverse inferences. On the other hand, Iraqi and Kuwaiti laws remain silent on evidentiary questions, although Iraqi law implies that tribunals enjoy powers similar to domestic courts.’). See, e.g., ICC Arbitration Rules (2017); LCIA Arbitration Rules (2014); SIAC Arbitration Rules (2016); SIAC Investment Arbitration Rules (2017) (all of which are entirely silent on the issue). As with the UNCITRAL Model Law, the UNCITRAL Arbitration Rules do not refer to adverse inferences by name but do provide that: ‘If a party, duly invited by the arbitral tribunal to produce documents, exhibits or other evidence, fails to do so within the established period of time, without showing sufficient cause for such failure, the arbitral tribunal may make the award on the evidence before it.’ UNCITRAL Arbitration Rules (2013), Art. 30.3 (also adopted by the CRCICA Arbitration Rules (2011); see id., Art. 30.3). See also HKIAC Administered Arbitration Rules (2013), Art. 26.3 (containing similar language). English Arbitration Act, 1996, ch. 23, §41. Hong Kong Arbitration Ordinance (Cap. 609) (AO), 2011, §53. ICDR International Arbitration Rules (2014), Art. 21.9. See also, generally, id., at Art. 20.7 (‘The arbitral tribunal may allocate costs, draw adverse inferences, and take such additional steps as are necessary to protect the efficiency and integrity of the arbitration’.). See also, AAA Commercial Arbitration Rules (2013), Rule 23 (‘The arbitrator shall have the authority to issue any orders necessary … and to otherwise achieve a fair, efficient and economical resolution of the case, including, without limitation: … (d) in the case of willful non-compliance with any order issued by the arbitrator, drawing adverse inferences … ’); BCDR-AAA Draft Arbitration Rules (2016), Arts 13.14 and 20.11 (expressly granting tribunals the power to ‘draw adverse inferences’ in the event a party ‘fails to comply with an order for information exchange’). SCC Arbitration Rules (2017), Art. 35(3).

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evidence’.59 The SIAC Arbitration Rules also clarify that ‘[t]he Tribunal is not required to apply the rules of evidence of any applicable law in making such determination’.60 Several arbitration rules also expressly allow tribunals to order the production (or inspection) of evidence61 and to take note of, or even sanction, any party’s noncompliance with its procedural directions and orders.62 The same is true of the majority of national arbitration laws, which contain language sufficiently broad implicitly to give a tribunal discretion as to whether and how to draw adverse inferences.63

59. UNCITRAL Arbitration Rules (2013), Art. 27.4. See also HKIAC Administered Arbitration Rules (2013), Art. 22.2; ICDR International Arbitration Rules (2014), Art. 20.6; SIAC Arbitration Rules (2016), Rule 19.2; SIAC Investment Arbitration Rules (2017), Rule 16.2; SCC Arbitration Rules (2017), Art. 31(1); ICSID Arbitration Rules (2013), Rule 34(1). See also ICC Arbitration Rules (2017), Art. 25(1) (‘The arbitral tribunal shall proceed within as short a time as possible to establish the facts of the case by all appropriate means.’); LCIA Arbitration Rules (2014), Art. 22.1(vi) (‘The Arbitral Tribunal shall have the power … to decide whether or not to apply any strict rules of evidence (or any other rules) as to the admissibility, relevance or weight of any material tendered by a party on any issue of fact or expert opinion; and to decide the time, manner and form in which such material should be exchanged between the parties and presented to the Arbitral Tribunal.’). 60. SIAC Arbitration Rules (2016), Rule 19.2; SIAC Investment Arbitration Rules (2017), Rule 16.2. 61. ICC Arbitration Rules (2017), Art. 25(5) (‘At any time during the proceedings, the arbitral tribunal may summon any party to provide additional evidence.’); UNCITRAL Arbitration Rules (2013), Art. 27.3 (‘At any time during the arbitral proceedings the arbitral tribunal may require the parties to produce documents, exhibits or other evidence within such a period of time as the arbitral tribunal shall determine.’); LCIA Arbitration Rules (2014), Art. 22.1(iv)-(v); SCC Arbitration Rules (2017), Art. 31(3) (‘At the request of a party, or exceptionally on its own motion, the Arbitral Tribunal may order a party to produce any documents or other evidence that may be relevant to the case and material to its outcome.’); HKIAC Administered Arbitration Rules (2013), Art. 22.3 (‘At any time during the arbitration the arbitral tribunal may allow or require a party to produce documents, exhibits or other evidence that the arbitral tribunal determines to be relevant to the case and material to its outcome. The arbitral tribunal shall have the power to admit or exclude any documents, exhibits or other evidence’.); ICSID Arbitration Rules (2006), Rule 34(2) (‘The Tribunal may, if it deems it necessary at any stage of the proceeding: (a) call upon the parties to produce documents, witnesses and experts; and (b) visit any place connected with the dispute or conduct inquiries there.’); ICSID Convention, Art. 43 (‘Except as the parties otherwise agree, the Tribunal may, if it deems it necessary at any stage of the proceedings, (a) call upon the parties to produce documents or other evidence, and (b) visit the scene connected with the dispute, and conduct such inquiries there as it may deem appropriate.’); ICDR International Arbitration Rules (2014), Art. 20.4 (‘At any time during the proceedings, the tribunal may order the parties to produce documents, exhibits, or other evidence it deems necessary or appropriate.’); SIAC Arbitration Rules (2016), Rules 27(d), (f), (h) and (o); SIAC Investment Arbitration Rules (2017), Rules 24(d), (f), (h) and (p). 62. See, e.g., SIAC Arbitration Rules (2016), Rule 27(l) (giving the Tribunal the power ‘to impose such sanctions as the Tribunal deems appropriate’ in relation to the failure or refusal of any party to comply with the Rules or the Tribunal’s orders or directions, including in evidentiary matters); SIAC Investment Arbitration Rules (2017), Rule 24(m) (containing the same provisions as the SIAC Arbitration Rules); ICSID Arbitration Rules (2006), Rule 34(3) (‘The parties shall cooperate with the Tribunal in the production of the evidence and in the other measures provided for in paragraph (2). The Tribunal shall take formal note of the failure of a party to comply with its obligations under this paragraph and of any reasons given for such failure.’). 63. See, e.g., UNCITRAL Model Law, Art. 19 (‘(1) Subject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings. (2) Failing such agreement, the arbitral tribunal may, subject to the provisions of this Law, conduct the arbitration in such manner as it considers appropriate. The power conferred upon the arbitral tribunal includes the power to determine the admissibility, relevance, materiality and weight of any evidence.’); Australian International Arbitration Act

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Thus, ‘[a]n arbitral tribunal’s power to draw adverse inferences is well established as a matter of international arbitration practice. There is a wealth of authoritative academic support for that power and a wealth of arbitral awards’.64 Some have even suggested, relying on the decision of the International Court of Justice in the Corfu Channel case,65 that the power to draw adverse inferences is a general principle of law.66 The soft law reflects (without necessarily further clarifying) this state of affairs. The IBA Rules on Evidence expressly provide, in Articles 9(5) and 9(6), that an arbitral tribunal may, in certain circumstances, infer from a party’s non-production of evidence that ‘such evidence would be adverse to the interests of that Party’.67 However, the IBA Rules provide only limited guidance regarding the circumstances in which such adverse inferences are appropriate. Article 9(5) provides: If a Party fails without satisfactory explanation to produce any Document requested in a Request to Produce to which it has not objected in due time or fails to produce any Document ordered to be produced by the Arbitral Tribunal, the Arbitral Tribunal may infer that such document would be adverse to the interests of that Party.

Rule 9(6) complements Rule 9(5): If a Party fails without satisfactory explanation to make available any other relevant evidence, including testimony, sought by one Party to which the Party to whom the request was addressed has not objected in due time or fails to make available any evidence, including testimony, ordered by the Arbitral Tribunal to be produced, the Arbitral Tribunal may infer that such evidence would be adverse to the interests of that Party.

Thus, the IBA Rules cover only a limited number of issues. First, they state that adverse inferences may be drawn from the non-production of documents as well as

64.

65. 66. 67.

(1974, as amended in 2011 by Act No. 5), §23B (clarifying that ‘[n]othing in this provision affects any other power which the arbitral tribunal or a court may have in relation to the refusal or failure’ of a party to produce evidence when required to do so under a subpoena issued under subsection 23(3)); French Code of Civil Procedure, Art. 1464 (‘Unless otherwise agreed by the parties, the arbitral tribunal shall define the procedure to be followed in the arbitration. It is under no obligation to abide by the rules governing court proceedings. … ’) and Art. 1467 (‘The arbitral tribunal shall take all necessary steps concerning evidentiary and procedural matters. The arbitral tribunal may call upon any person to provide testimony. Witnesses shall not be sworn in. If a party is in possession of an item of evidence, the arbitral tribunal may enjoin that party to produce it, determine the manner in which it is to be produced and, if necessary, attach penalties to such injunction.’). For a survey of arbitration laws in the Middle East, see Ali & Sainati, supra note 4, and discussion supra note 53. Greenberg & Lautenschlager, supra note 13, p. 44. See also, in investment treaty arbitration, Feldman v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award ¶ 178 (16 Dec. 2012); but see Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award ¶ 185 (6 May 2013) (questioning whether the ICSID Arbitration Rules – and in particular Rule 34(3) – allow an ICSID tribunal to draw adverse inferences from a party’s non-production of evidence). Corfu Channel Case, supra note 4. See, e.g., Baum, Elul & Swerdloff, supra note 13, pp. 221, 230 (‘[A] tribunal’s power to draw adverse inferences is considered widely accepted as a general principle of law.’). IBA Rules on Evidence, Art. 9(6).

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‘any other relevant evidence, including testimony’.68 Second, they provide that, procedurally, an arbitral tribunal may only draw an adverse inference against a party which has failed or refused to produce evidence where that party has either: (i) failed to object to the production of that evidence in due time, or (ii) been ordered by the tribunal to produce that evidence.69 Third, they state that adverse inferences may only be drawn from a party’s failure to produce evidence where that party has not provided ‘satisfactory explanation’ for that failure. Notwithstanding the lack of a doctrine of precedent (stare decisis) in international arbitration, tribunals and commentators often look to arbitral practice in search for additional guidance on the circumstances justifying the drawing of an adverse inference. In his 2006 study, one commentator distilled five basic principles from arbitral practice (including, in particular, the jurisprudence of the Iran-United States Claims Tribunal): (1) the party seeking the adverse inference must produce all available evidence corroborating the inference sought;

68. Ibid. 69. Whether this element (that the tribunal has ordered the production of evidence) is fully reflective of the legal consensus, or indeed exhaustive of all possible scenarios, is open to debate. In the United States system, for example, an ‘adverse inference’ may be drawn from the failure of a party to produce testimony on a critical issue, e.g., when an employee is within the control of a corporate plaintiff or defendant. See, e.g., Brink’s Inc. v. City of New York, 717 F.2d 700 (2d Cir. 1983), 707-710 (affirming the trial court’s decision to allow the jury to consider the employees’ refusal to testify and holding that the refusal was akin to a vicarious admission by Brink’s); RAD Services, Inc. v. Aetna Cas. & Sur. Co., 808 F.2d 271, 274-278 (3d Cir. 1986) (following Brink’s Inc., 717 F.2d 700; deciding that assertion of the Fifth Amendment by employees of Rad Services could be imputed to the corporation, despite the fact that the employees were not parties to the civil lawsuit; and stating that ‘[a]n employee’s self-interest would counsel him to exculpate his employer, if possible. The witness, as well, would know the facts about which he is called to testify since they relate to the scope of his employment. The employer, moreover, could rebut any adverse inference that might attend the employee’s silence, by producing contrary testimonial or documentary evidence.’); Iantosca v. Benistar Adminstrative Services, Inc., 567 Fed.Appx. 1 at *7 (1st Cir. 2014) (finding that invocation of silence by corporate officers permitted, but did not require, jury to draw inference that information withheld would have been unfavourable to corporation, where corporation operated as one officer’s alter egos, and other officer was first officer’s brother-in-law and only other natural person affiliated with corporation). This, however, might not be characterised as an adverse inference in its strictest sense (or as envisaged by the IBA Rules), but rather, an example where the practical evidentiary burden of ‘coming forward’ to refute a particular proposition has shifted to a party, but that party has failed to refute it. International arbitral jurisprudence and literature contain many acknowledgment of the ‘shifting’ burden (or ‘burden of coming forward’). See, e.g., Kardassopoulos v. Georgia; Fuchs v. Georgia, ICSID Case Nos. ARB/05/18 & ARB/07/15, Award ¶228 (3 Mar. 2010) (endorsing claimant’s submission that ‘the evidentiary burden may shift to the Respondent, for example where a claimant has made a prima facie evidentiary showing on a particular issue or where the Respondent interposes an affirmative defence’); Feldman Karpa v. Mexico, ICSID Case No. ARB(AF)/99/1, Award ¶177 (16 Dec. 2002) (‘If that party adduces evidence sufficient to raise a presumption that what is claimed is true, the burden then shifts to the other party, who will fail unless it adduces sufficient evidence to rebut the presumption.’) (quoting United States – Measures Affecting Imports of Woven Wool Shirts and Blouses from India, Adopted 23 May 1997, WT/DS33/AB/R, p. 14 (emphasis in original)). This strand of evidentiary principle is arguably distinct from the ‘adverse inference’ scenario covered in the IBA Rules on Evidence.

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(2) the requested evidence must be accessible to the inference opponent; (3) the inference sought must be reasonable, consistent with facts in the record and logically related to the likely nature of the evidence withheld; (4) the party seeking the adverse inference must produce prima facie evidence; and (5) the inference opponent must know, or have reason to know, of its obligation to produce evidence rebutting the adverse inference sought.70 In their empirical study of thirty-three ICC arbitral awards rendered between 2004 and 2010, Simon Greenberg and Felix Lautenschlager found that, despite a tendency to either skirt the issue altogether or to approach it through a fragmented analysis of the available tests, by and large, ICC tribunals were guided by this five-prong test in their approach to adverse inferences.71 It would appear from the foregoing discussion that, in practice, the law governing adverse inferences in international arbitration is primarily a-national, derived from general international arbitral practice, as shaped (at least in part) by the IBA Rules on Evidence. This assertion, however, must be qualified. In particular, when assessing whether a reasonable justification exists for a party’s non-production of evidence such that an adverse inference would or would not be appropriate, tribunals must also give regard to the applicable national laws (as well as any relevant contractual agreements) which otherwise prohibit or preclude that party from producing the relevant evidence, such as confidentiality or secrecy obligations or legal privileges.72 National laws regarding document retention may also be relevant. The rise of this international ‘lex evidentia’73 (with the above qualification) begs the question: does the law of the seat matter at all?

[B]

Limits to Arbitral Discretion: The Role of the Law of the Seat

The authority of arbitral tribunals to draw adverse inferences has not been undermined by national courts reviewing arbitral awards in annulment actions. Domestic courts have largely viewed a tribunal’s evidentiary judgment-calls, such as decisions to draw, 70. Sharpe, supra note 14, p. 551. For a more recent piece proposing a framework for adverse inferences in the context of international arbitrations involving a private party and a Middle Eastern state, see Ali & Sainati, supra note 4, pp. 312-314 (suggesting that an adverse inference analysis in such disputes can be reduced to four questions: (i) Is the inference necessary? (ii) Has the private party demonstrated that it has exercised all reasonable efforts to obtain the requested evidence? (iii) Is the non-production of the requested evidence justified? And (iv) Is the inference being drawn as narrowly as possible?). 71. Greenberg & Lautenschlager, supra note 13, p. 52. 72. See IBA Rules on Evidence, Art. 9.2(b), (e) and (f). In the context of arbitrations involving States, States commonly invoke special grounds for the non-production of evidence, such as deliberative process privilege or national security. 73. Charles N. Brower, ‘The Anatomy of Fact-Finding Before International Tribunals: An Analysis and a Proposal Concerning the Evaluation of Evidence’, in Richard B. Lillich (ed.), Fact-Finding Before International Tribunals (1992), pp. 147, 150 (‘[P]erhaps we are seeing the emergence of a lex evidentia that will embrace common principles for the evaluation of evidence by international tribunals’); Sharpe, supra note 14, p. 552.

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or not to draw, an adverse inference, as beyond the scope of post-award judicial review, as long as the tribunal otherwise complied with due process, the equality of the parties and the parties’ right to be heard.74 Similarly, to the authors’ knowledge (and at the time of writing), no ICSID ad hoc committee has ever questioned the authority of ICSID tribunals to draw adverse inferences.75 This is not to say that any decision couched under the guise of an ‘adverse inference’ will evade post-award court scrutiny entirely. A tribunal’s decision to draw, or not to draw, an adverse inference is a serious decision, and it should be the result of a cautious analysis of the circumstances of the case in the light of the requirements of fundamental due process. Failing that, the award may risk being annulled at the seat (or, under the ICSID Convention, by an ad hoc committee),76 and/or its recognition and enforcement abroad compromised.

74. See, e.g., CA Paris, Pôle 1 – Chambre 1, 28 February 2017, 15/06036 (France) (finding that the tribunal was within its powers to refer to Art. 9(5) of the IBA Rules on Evidence to draw an adverse inference from a party’s non-production of certain documents, even where the tribunal’s first procedural order referred to the IBA Rules on Evidence as non-binding guidance for the tribunal, and the tribunal did not warn the parties of its intent to rely on Art. 9(5) specifically during the course of the proceedings); Double K. Oil Products 1996 Ltd. v. Neste Oil OYJ [2009] EWHC 3380 (Comm) ¶ 49 (U.K.) (‘The inferences which [the international tribunal] drew, and did not draw, constitute part of its decision on the merits, and are not susceptible to challenge under [the English Arbitration Act, 1996].’); Demco Investments and Commercial SA and others v. SE Banken Forsakring Holding Aktiebolag [2005] EWHC 1398 (Comm) ¶ 27 (U.K.) (‘[Inferences] do not give rise to questions of law which arise out of the Award at all’); X. v. A., Swiss Federal Tribunal, Decision of 28 March 2007, ASA Bulletin, Vol. 25, No. 3, pp. 610, 610-617 (2007); United Mexican States v. Feldman, [2003] O.J. No. 5070 (Can. Sup. Ct.), affirmed (2005), 74 O.R. (3d) 180 (Can. C.A.) ¶ 58; Page Int’l Ltd. v. Adam Maritime Corp., 53 F. Supp. 2d 591, 597-598 (S.D.N.Y. 1999) (U.S.). 75. The two potential relevant grounds for annulment under the ICSID Convention are ‘manifest excess of powers’ and ‘serious departure from a fundamental rule of procedure’. ICSID Convention, Art. 52(1)(b), (d). See Michael Polkinghorne & Charles B. Rosenberg, Note, ‘The Adverse Inference in ICSID Practice’, ICSID Review, Vol. 30, No. 3, pp. 741, 746 (2015) (‘[A] losing party in an ICSID Convention arbitration may have grounds to annul an award on the basis that the tribunal “manifestly exceeded its powers” by incorrectly making an adverse inference or that such inference constituted a “serious departure from a fundamental rule of procedure”.’). See also Dogan v. Turkmenistan, ICSID Case No. ARB/09/9, Decision on Annulment ¶¶ 213-214, 217 (15 Jan. 2016) (finding that ‘the Respondent’s allegations that the Tribunal reversed the burden of proof and drew adverse inferences against it are unsubstantiated’ as, ‘[w]here the Tribunal mentions drawing certain inferences against the Respondent, they are made not in lieu of evidence before it but rather to corroborate the evidence on which it has relied’, and stating that, in any event, ‘the drawing of adverse inferences from the conduct of the Respondent and its failure to produce relevant evidence in its possession formed a part of the Tribunal’s appreciation and evaluation of evidence and is outside the Committee’s power of review’.). See generally Caratube Int’l Oil Co. v. Republic of Kazakhstan, ICSID Case No. ARB/08/12, Annulment Decision ¶ 258 (21 Feb. 2014) (‘[a] tribunal’s weighing of evidence and factual findings must stand, except if the errors of fact are so egregious, or the weighing so irrational, as to constitute independence causes of annulment’.). 76. See, e.g., Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No. ARB/03/25, Annulment Decision ¶¶ 245-46 (23 Dec. 2010) (finding that the tribunal ‘ought to have provided a further opportunity to the parties to submit evidence … [and] to make submissions thereon’, and that ‘[i]ts failure to do so underscore[d] the serious departure from a fundamental rule of procedure’).

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The 2008 decision of the Singapore High Court in the Dongwoo Mann + Hummel Co. Ltd v. Mann + Hummel GmbH is a helpful illustration of that risk.77 In that case, the claimant had lost in an arbitration against the respondent and sought to annul the arbitral award on the ground that it was in breach of natural justice. The claimant argued that the tribunal had deprived it of an opportunity to present its case when it declined to draw an adverse inference from the respondent’s refusal to produce certain technical documents on grounds of confidentiality. The Singapore High Court refused the claimant’s motion to set aside the award. It found that the respondent had given a justified reason, supported by evidence, for non-production of those documents (namely, confidentiality), and gave much weight to the fact that the parties had been given ample opportunity to plead the issue of whether or not an adverse inference should be drawn. Having complied with ‘natural justice’, the tribunal’s decision was a question of law and/or fact in which a court reviewing the award had no right to interfere. Some aspects of this decision can be contrasted with the approach of the Paris Court of Appeals in the recent Dresser Rand case, which gives a wide (indeed generous) berth to the tribunal’s evidentiary power to draw adverse inferences, even in the absence of formal submissions of the parties on the issue or of a tribunal order to produce the documents whose non-production led to the adverse inference.78 In Dresser Rand, the Court rejected a motion for partial annulment of an arbitral award brought, inter alia, on the ground that the tribunal’s decision to draw an adverse inference against Dresser Rand on the basis that their failure to produce certain documents, which the opposing parties had requested but the production of which the tribunal had not specifically ordered, constituted a breach of their right of defence and of the ‘principe de la contradiction’ (i.e. the adversarial principle). Dresser Rand further argued that the tribunal had not given them an opportunity to explain their reason for non-production or to submit arguments as to whether an adverse inference would be appropriate. The Court rejected those arguments and confirmed the award.79 These two decisions illustrate that, insofar as a tribunal’s decision on adverse inference may raise due process or excess of powers concerns at the annulment stage, the law of the seat of the arbitration is relevant. As a practical matter, the choice of seat has not proven outcome-determinative, as most national laws foreclose examination of the fact-finding process, so long as the arbitration comported with basic due process.80 Thus, as Michael Pryles has observed, ‘transnationally accepted standards must be

77. Dongwoo Mann + Hummel Co. Ltd v. Mann + Hummel GmbH [2008] SGHC 67 (Singapore), discussed in Greenberg & Lautenschlager, supra note 13, p. 55. 78. Dresser Rand, CA Paris, Pôle 1 – Chambre 1, 28 February 2017, 15/06036 (France). 79. The precedential value of this decision, however, should not be exaggerated, as the Court’s first holding (which was in itself dispositive of the matter) was that the adverse inference at issue had not been outcome-determinative for the tribunal’s relevant dispositif in the award, and therefore, the grounds invoked by Dresser Rand would not justify annulling the relevant sections of the award. Moreover, arbitrators should be mindful of the principle of non ultra petita when drawing an inference that has not been sought by any party. See New York Convention, Art. V(1)(c). 80. See, e.g., UNCITRAL Model Law, Art. 34(2)(a)(ii) and (iv); French Code of Civil Procedure, Art. 1520(3), (4) and (5); English Arbitration Act, 1996, §68(2).

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applied by arbitrators in their conduct of the arbitration’; ‘they must treat the parties equally, allow them to present their cases, decide in accordance with the evidence and be independent and impartial’.81 Those requirements form part of what certain authors have called the ‘transnational procedural public policy’ applicable to all international arbitrations regardless of seat.82 Conceivably, however, national law might dictate different standards of due process, namely, what procedural steps are required, as a matter of fairness, prior to an adverse inference being drawn, e.g., from a party’s non-production of evidence. For instance, the provisions of Section 41 of the English Arbitration Act 1996 and Section 53 of the Hong Kong Arbitration Ordinance expressly require that a tribunal issue a peremptory order against a party before it draws any adverse inference from that party’s non-production of evidence.83 Given those statutory provisions, a court in England or Hong Kong may have approached the Dresser Rand annulment case differently from the manner in which the Paris Court of Appeals decided it. That said, it is arguable that in different circumstances – for instance, had the adverse inferences been outcome-determinative on the relevant dispositive section of the award sought to be partially annulled in Dresser Rand – the Paris Court of Appeals itself would have decided the matter differently.84 Thus, at a minimum, and regardless of the seat of the arbitration, it is advisable that, ‘[w]here an arbitral tribunal is considering drawing an adverse inference it should warn the parties in advance and seek submissions on whether to do so’.85

§10.05

THE INFLUENCE OF CHOICE OF LAW ON THE SUBSTANTIVE CONSEQUENCES OF THE ADVERSE INFERENCE

Once a tribunal holds that an adverse inference is to be drawn from the failure of a party to produce specific evidence, the question arises: what are the consequences of that inference on the parties’ substantive claims and defences? As a leading practitioner has noted, ‘most arbitrators would be disturbed at the thought of deeming the burden of proof discharged by an inference’.86 However, ‘in appropriate circumstances, arbitrators do employ adverse inferences to enable parties to discharge their burdens of proof in the absence of evidence otherwise sufficient to make their cases’.87

81. Pryles, ‘Reflections on Transnational Public Policy’, supra note 37, p. 4. 82. Fernando Mantilla-Serrano, ‘Towards a Transnational Procedural Public Policy’, Arbitration International, Vol. 20, No. 4, p. 333 (2004). 83. English Arbitration Act, 1996, ch. 23, §41(7); Hong Kong Arbitration Ordinance (Cap. 609) (AO), 2011, §53(3)-(4). 84. See supra note 79. 85. Greenberg & Lautenschlager, supra note 13, p. 56. See also Van Houtte, supra note 10, pp. 195, 208 (‘It is advisable that the tribunal also give proper advance notice that an adverse inference will be sought.’). 86. Jan Paulsson, ‘Overview of Methods of Presenting Evidence in Different Legal Systems’, in Albert Jan van den Berg (ed.), Planning Efficient Arbitration Proceedings: The Law Applicable in International Arbitration, ICCA Congress Series No. 7 (1996), pp. 112, 118 (emphasis in original). 87. Sharpe, supra note 14, p. 550.

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As noted in Section §10.01, an adverse inference is a form of indirect or circumstantial evidence which the adjudicator may use to establish the existence of a specific fact in respect of which no direct evidence has been adduced. Arbitrators have wide discretion with respect to the weight they ascribe to that piece of indirect evidence in the context of all other available – direct and indirect – evidence.88 The tribunal should not exercise that discretion in a legal vacuum, however. First, the applicable substantive law determines the existence and the elements of the parties’ claims and defences, and therefore informs the relevance and materiality of an adverse inference on the overall substantive case. For example, an adverse inference may only be outcome-determinative if it bears on an element of the parties’ claim or defence for which there is no direct evidence, provided the other elements of the claim or defence are established. As an ICC tribunal seated in Paris explained, ‘an adverse inference with respect to one fact will not automatically be a substitute for all the other elements of a claim as to which a party bearing the burden of proof will have to provide sufficient and satisfactory evidence’.89 Second, either or both of the law of the seat and the applicable substantive law may be bear on the unresolved question as to whether it is appropriate to shift the burden of proof to the non-producing party as a result of the adverse inference. It is well established that, as a matter of principle, the burden of proving the underlying facts of a claim or defence rests with the party seeking to establish that claim or defence, regardless of that party’s formal position as claimant or respondent in the proceedings (actor incumbit probatio).90 Whether an adverse inference can or should have the effect of shifting the burden of proof to the non-producing party, however, is a matter of debate. Simon Greenberg and Felix Lautenschlager, for instance, argue that in cases involving what they call ‘proper adverse inferences’, i.e. cases ‘where the claimant’s case on a particular point is genuinely incomplete with regard to evidence’, ‘the burden of proof … may well be shifted to the respondent, but only with regard to the very specific fact in question’.91 In contrast, several commentators and tribunals insist that it would ‘rarely, if ever, be appropriate to shift the burden of proof from the party requesting the production of documents to the party ordered to produce the same’.92 Instead, they contend, the consequence of drawing an adverse inference is best characterised as a shift in the burden of production of the evidence (onus proponendi), 88. Van Houtte, supra note 10, p. 195. 89. Final Award in ICC Case No. 11770 (September 2004) (extract), published in ICC International Court of Arbitration Bulletin, Vol. 22 No. 2, p. 66, ¶ 41 (2011). 90. See UNCITRAL Arbitration Rules (2013), Art. 27.1 (‘Each Party shall have the burden of proving the facts relied on to support its claim or defence’); HKIAC Administered Arbitration Rules (2013), Art. 22.1 (‘Each party shall have the burden of proving the facts relied on to support its claim or defence.’). See also Final Award in ICC Case No. 12732 (February 2007) (extract), published in ICC International Court of Arbitration Bulletin, Vol. 22 No. 2, p. 76, ¶ 154 (2011) (‘It is well established that, as a matter of principle, the party asserting a fact or proposition bears the burden of proving it.’). 91. Greenberg & Lautenschlager, supra note 13, pp. 46-47. The ALI / UNIDROIT Principles of Transnational Civil Procedure (2004) support this characterisation, see ¶ P-21C (‘Drawing such inferences can be considered … a shifting of the burden of proof.’). 92. Final Award in ICC Case No. 11770 (September 2004) (extract), published in ICC International Court of Arbitration Bulletin, Vol. 22 No. 2, p. 66, ¶ 41 (2011).

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which can only occur once a party bearing the burden of proof establishes a prima facie case.93 Moreover, as noted above, the IBA Rules on ‘adverse inferences’ do not necessarily ‘cover the field’ of situations where the evidentiary burden (or practical burden of coming forward with evidence) shifts. Third, whether a claim or defence is deemed established by the tribunal will in turn depend on how the adverse inference, as a piece of indirect or circumstantial evidence relevant to one or more element(s) of the claim or defence, fares against the applicable standard of proof, i.e. the degree of evidence required to consider that element established. The question arises whether burden and standard of proof are matters of substantive law or procedural law, and what national law, if any, should apply to determine those issues. The majority of commentators appear to agree that those issues are substantive in nature and should therefore be governed by the applicable substantive law.94 One leading commentator has, however, identified two other approaches which are sometimes adopted in the arbitral practice – the application of the law of the seat and the application of ‘some international standard’ – and has advocated in favour of a flexible approach, broadly influenced by the lex arbitri and lex causae.95 Insofar as the law of the seat and substantive applicable law(s) influence the determination of the burden and standard of proof, therefore, they should inform the consequences of an adverse inference, once drawn, on the parties’ overall substantive case. While legal systems across the world are relatively consistent in their approach to the burden of proof, ‘[t]he expressions of the standard of proof in the civil and common law systems are not equivalent; their meaning and context are different; and the survey of practising lawyers shows a great variety of practice within the world’s legal

93. See Polkinghorne & Rosenberg, supra note 75, p. 742 (‘Properly applied, the adverse inference does not, according to modern parlance, shift a party’s burden of proof but rather alleviates the standard (or quantum) of proof by allowing the party to discharge its burden of proof using indirect or circumstantial evidence rather than direct or primary evidence’.) (emphases in original); Van Houtte, supra note 10, at pp. 552-553. 94. See, e.g., Waincymer, supra note 1, pp. 977, 981 (arguing that the ‘[a]pplicable substantive laws will commonly define or circumscribe the potential principles pertaining to the issues in dispute and will often allocate or qualify the burden and standard of proof’.); Michael J. Bond, ‘The Standard of Proof in International Commercial Arbitration’, Arbitration, Vol. 77, No. 3, pp. 304, 315 (2011) (‘the standard of proof is a matter for the law governing the contract and not mere procedure’.); Van Houtte, supra note 10, p. 196 (asserting that ‘[a]s regards the burden of proof (onus probandi), arbitrators, like judges, … are bound by the applicable law, i.e. substantive applicable law …’); Andreas Reiner et al., ‘The Standards and Burden of Proof in International Arbitration’, Arbitration International, Vol. 10, No. 3, p. 317 (1994). 95. Gary B. Born, International Commercial Arbitration (2014), p. 2315 (‘The better view is that the tribunal should allocate the burden of proof in the light of its assessment of the applicable substantive law and procedures adopted in the arbitration. In so doing, the tribunal need not apply the burden of proof rules of any specific jurisdiction, but can instead fashion specialized rules in light of the particular substantive issues and procedures at issue in a specific instance.’). See also Partial Award in ICC Case No. 12732 (February 2007) (extract), published in ICC International Court of Arbitration Bulletin, Vol. 22, No. 2, p. 76, ¶¶ 159-160 (2011) (considering, without deciding, the question whether the standard of proof is a procedural or substantive matter, and applying English law on the basis that it was both the law of the seat and the parties’ chosen substantive law in the case at hand).

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traditions’.96 In the context of bribery or corruption allegations, for instance, the standard of proof is hotly debated, and the determination of that evidentiary question may in some cases be outcome-determinative. Finally, choice of law and seat may have a more indirect and diffuse impact on the process of drawing an adverse inference. For instance, insofar as the seat and substantive law chosen by the parties may have an influence on the choice of counsel and arbitrators, the legal culture of these actors may well affect their general approach to adverse inferences (including the reasonableness of a party’s non-production of evidence) as well as the important questions of burden and standard of proof.97 However, given the universality of the concept of adverse inference, the impact can be expected to be less pronounced compared with approaches to evidence more deeply rooted in a particular legal tradition.

§10.06

CONCLUSION

The general lack of rules derived from applicable domestic laws limiting the arbitrators’ wide discretion with respect to evidentiary matters has given rise to an emerging transnational lex evidentia. This transnational lex evidentia (such as it is) potentially grants arbitrators wide discretion to draw adverse inferences, subject only to certain minimal procedural requirements guided by the fundamental requirements of the transnational procedural public policy with respect to issues such as the parties’ due process rights, equality and right to be heard. This is not to say that the law of the arbitral seat and choice of law have no role to play. Instead, the former will typically come into the mix as the guardian of the aforementioned norms of transnational procedural public policy, while the latter should play an important role in determining the impact of an adverse inference on the overall merits of each party’s case.

96. Bond, supra note 94, p. 317. 97. See Schwartz, supra note 2, p. 197; see also Van Houtte, supra note 10, p. 198 (‘The required standard of proof is often expressed by international arbitrators in terms of the jurisdiction from which they come.’).

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CHAPTER 11

Legal Criteria for Granting Relief in Emergency Arbitrator Proceedings: Where Are We Now and Where Do We Go from Here? Kap-You (Kevin) Kim & Bhushan Satish*

§11.01

INTRODUCTION AND SCOPE

Emergency Arbitrator proceedings (‘EA proceedings’) were first introduced by the ICDR in 2006, although older procedures with similar conceptual underpinnings, most notably the ICC’s Pre-Arbitral Referee Procedure and the NAI’s Summary Arbitral Proceedings, existed before that. With the increase in the use of EA proceedings, the relevance of examining the legal criteria applicable to the grant of emergency measures has come into sharp focus. Recent scholarship has amplified an oft-held concern amongst practitioners that there is little guidance on the legal criteria applicable to the granting of relief under EA proceedings (referred to as ‘emergency measures’ / ‘emergency relief’).1 Broadly, there

* Michael is an inspiring figure to many, and his contributions to the arbitration community have left an indelible mark on the understanding and practice of international arbitration. This chapter is an offering by two of his most ardent admirers and students examining an issue influenced by Michael’s intellectual leadership. The authors thank Chloe Doe and Grace Chung for research assistance, and express gratitude to Junu Kim, Kyongwha Chung, and Pem Chhoden Tshering for comments on earlier drafts. All errors remain the authors’ alone. The views expressed in this chapter are those of the authors and should not be regarded as the official or unofficial position of Bae, Kim & Lee LLC. 1. For example, see Patricia Shaughnessy, The Emergency Arbitrator, in Patricia Shaughnessy and Sherlin Tung (eds.), The Powers and Duties of an Arbitrator: Liber Amicorum Pierre A. Karrer, (Kluwer Law International 2017) (‘Shaughnessy & Tung’); Robert Sills, The Continuing Role of the Courts in the Era of the Emergency Arbitrator, in Albert Jan van den Berg (ed.), Legitimacy: Myths,

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appears to be consensus that the criteria applicable to Tribunal-ordered interim relief apply, in equal measure, to EA – ordered relief.2 The legal criteria applicable to interim measures appear to move towards an ‘international standard’, one which is unmoored to any domestic legal system, and has developed by accretion of arbitral practice and doctrine, and it appears that the contents of this international standard continue to undergo further refinement. This chapter seeks to explore the content of the said legal criteria and examine whether its direct transposition to EA proceedings is merited, concluding with suggesting an alternative legal criteria to be applied to EA proceedings and outlining some preliminary responses to expected counter-arguments. In the following sections, the basic framework of the EA proceedings is first outlined (Section §11.02). Next, this chapter examines the three elements which constitute the international standard for the granting of interim measures, i.e.: (i) urgency; (ii) prospect of success on merits; and (iii) the risk of irreparable harm or serious injury if the measure sought is not granted. In summarising the various sub-elements of the said criteria, this chapter outlines the inherent flexibility of the legal criteria in terms of the discretion given to the adjudicator (i.e., the Tribunal or EA, as the case may be) in according different weight to these various sub-elements in coming to a decision (Section §11.03). Finally, this chapter suggests that the EA’s exercise of its discretion must account for the structural peculiarities of the EA proceedings. For instance, the burden on the applicant (alternatively referred to as the ‘moving party’) to show a prima facie case on the merits can be lowered and, in appropriate cases, and so can be the standard of proof to evidence harm if the measure sought is not granted. In order to prevent abuse of this reduced standard, existing mechanisms in the EA’s toolkit such as seeking security and awarding damages for harm caused by wrongfully obtained emergency measures can be granted (Section §11.04).

§11.02

THE BASIC FRAMEWORK OF EA PROCEEDINGS

The objective of EA proceedings is to give parties an avenue to obtain interim relief pending the constitution of the Tribunal. Various institutional rules now provide for EA proceedings,3 and these provisions reflect a certain degree of uniformity in terms of the purpose, which these provisions seek to serve. At the same time, these provisions

Realities, Challenges, ICCA Congress Series, Volume 18 (Kluwer Law International 2015), p. 281; Edgardo Munoz, How Urgent Shall an Emergency Be–The Standards Required to Grant Urgent Relief by Emergency Arbitrators, 4 Y.B. on Int’l Arb. 43, 68 (2015) (‘Edgardo Munoz’); Kyongwha Chung, Prima Facie Case on the Merits in Emergency Arbitrator Procedure (Kluwer Arbitration Blog 2017). 2. Contra, Marc J. Goldstein, A Glance into History for the Emergency Arbitrator, 40 Fordham Int’l L.J. 779. 3. For example, 2017 Rules of Arbitration of the ICC (‘ICC Rules 2017’); 2016 Arbitration Rules of the Singapore International Arbitration Centre (‘SIAC Rules 2016’); 2014 ICDR International Arbitration Rules (‘ICDR Rules 2014’); 2012 Swiss Rules of International Arbitration (‘Swiss Rules 2012’); 2017 Arbitration Rules of the Stockholm Chamber of Commerce (‘SCC Rules 2017’); 2013 HKIAC Administered Arbitration Rules (‘HKIAC Rules 2013’) Rules; London Court of International Arbitration (‘LCIA Rules 2014’).

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retain some measure of difference on certain issues. Some of these issues include whether the EA proceedings can be initiated before the filing of the Request for Arbitration (‘RFA’),4 whether the parties can choose to opt-out of the EA proceedings,5 when the emergency decision ceases to bind the parties,6 and whether the EA can make ex parte preliminary orders.7 The EA proceedings involve highly compressed time schedules,8 result in decisions, which do not bind the Tribunal once constituted, and are not determinative of the merits of the underlying dispute. The emergency decision is subject to the enforcement hurdles common to interim measures; and in some instances might be treated differently from an interim measure because the EA, unlike an arbitral Tribunal issuing an interim order, might not qualify as a validly constituted Tribunal under the relevant applicable law. Most institutional rules converge on the understanding that the emergency decision is not binding on the Tribunal, which may modify, annul, or terminate it.9 This constitutes an important part of the architecture of EA proceedings because unlike Tribunal-ordered interim measures, the emergency decision can be reconsidered de novo by the Tribunal.10 This crucial characteristic, along with the short timeline under which the EA operates, constitutes the key takeaways of this section.

§11.03

THE THREEFOLD LEGAL CRITERIA FOR GRANTING EMERGENCY RELIEF IN INTERNATIONAL ARBITRATION

Much like interim measures, most institutional rules do not prescribe or detail the legal criteria applicable to the grant of emergency measures. As a result, the legal criteria applicable to interim measures are applied to the grant of emergency measures too. As for the legal criteria applicable to the grant of interim measures, various laws have been proposed to apply to this question. These include the law of the seat, and in this regard,

4. Institutional Rules such as the ICC Rules 2017, SCC Rules 2017, LCIA Rules 2014, and the Swiss Rules 2012 permit the appointment of the EA before the filing of the RFA. Others, including the SIAC Rules 2016, ICDR Rules 2014, allow the initiation of the EA proceedings only with or after the filing of the RFA. 5. For example, ICC Rules 2017, SIAC Rules 2016, ICDR Rules 2014, and Swiss Rules 2012. 6. See e.g. SIAC Rules 2016, Schedule 1, Art. 10; HKIAC Rules 2014, Schedule 4, Art. 19; SCC Rules 2017, Appendix III, Art. 9(4). 7. For example, SIAC Rules 2016, Schedule 1, Art. 8. 8. For instance, under the ICC Rules 2017, the EA is appointed within two days from receipt of the Application, appointment challenges are decided within three days of receipt of challenge application, the EA sets the procedural timetable within two days from transmission of file, and usually makes the decision within fifteen days from the date on which the file was transmitted to the EA (subject to the power of the ICC President to extend the time limit). See ICC Rules 2017, Appendix V, Arts 2(1), 3(1), 6(4). 9. For example, ICC Rules 2017, Art. 29(3); SIAC Rules 2016, Schedule 1, Art. 10. 10. Baruch Baigel, The Emergency Arbitrator Procedure under the 2012 ICC Rules: A Juridical Analysis, 31 J. Int’l Arb. 1, 17.

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reliance is placed on the UNCITRAL Model Law on International Commercial Arbitration (‘Model Law’), the (arbitration) law of the container contract or lex causae, and anational norms constituting an international standard.11 Although most institutional rules and arbitration legislations confirm the Tribunal’s power to grant interim measures,12 the applicable legal criteria is either left to the Tribunal’s discretion,13 which in turn is often guided by the Model Law, or the criteria prescribed is a derivative of the Model Law articulation.14 No national arbitration statute, other than the Model Law and its derivative statutes, prescribes any criteria for Tribunal-ordered interim measures.15 The requirements under the law of the seat, unless it contains mandatory norms concerning the grant of interim measures, can arguably be disregarded. Considering that the international standard is an expression of a general principle of procedure, sole reliance can be placed upon it.16 Once the Tribunal’s authority to grant interim measures is confirmed, there is no reason why parties’ choice of governing law(s) of the container contract or the arbitration agreement within, can be presumed to subject the parties to varying entitlements to interim relief. As a consequence, a direct examination of the international standard is sufficient. The content of the international standard is derived from doctrine and arbitral practice, codified albeit to arguably varying degrees of success in the Model Law, and the contents of which continues to evolve. The international standard envisages the application of three criteria,17 i.e.: (i) urgency; (ii) applicant’s prospects of success; and (iii) substantial harm to the applicant if the measure is not granted. A concern attached to ordering interim measures is that the relief granted should not lead to a prejudgment on the final decision on merits.18 This requirement appears

11. Gary B. Born, International Commercial Arbitration (2nd ed., Kluwer Law International 2014), p. 2463 (‘Gary Born 2014’). A detailed choice of law analysis on the applicable standard for granting interim measures can be found at Gary Born 2014, pp. 2463–2465. Other possible applicable laws include lex mercatoria, a combination of the lex causae and lex mercatoria, and the law of the jurisdiction where the interim measure is likely to be enforced. See Christopher Boog, The Laws Applicable To Interim Measures, in Franco Ferrari, Stefan Kröll (eds.), Conflict of Laws in International Arbitration, (Munich 2010), p. 409 (‘Boog 2013’). 12. For example, ICC Rules 2017, Art. 28(1); SIAC Rules 2016, Rule 30.1; Swiss Rules 2012, Art. 26; SCC Rules 2017, Art. 37; English Arbitration Act, 1996, Section 38; French Code of Civil Procedure, Art. 1468; Swiss Law on Private International Law, Art. 1468. 13. For example, ICDR Rules 2014, Art. 24(1). 14. For example, HKIAC Rules 2013, Art. 23(4). 15. Gary Born 2014, supra n. 11, p. 2463. 16. Jean Francois Poudret & Sebastien Besson, Comparative Law of International Arbitration (2nd ed., 2007), p. 537. 17. Gary Born 2014, supra n. 11, p. 2469. 18. John Lundstedt, SCC Practice: Emergency Arbitrator Decisions 1 January 2010 – 31 December 2013, Case No. 144/2010, http://www.sccinstitute.com/media/29995/scc-practice-2010-2013emergency-arbitrator_final.pdf (accessed 21 Sept. 2017) (‘SCC Practice 2010–2013’) (rejecting the applicant’s request to either direct specific performance or to rule on the validity of the termination of an agreement. The EA reasoned that ordering specific performance risked making a later award superfluous and ruling on the validity of the termination of the award at this stage was outside the EA’s scope. Notably, the EA demonstrated willingness to direct the responding party to provide the applicant with access to tools for service and maintenance under the contract in order to avoid the breaching of the applicant’s contracts with its customers).

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to be in direct opposition to the requirement of showing a reasonable possibility of success and hence is not taken into account by some Tribunals.19 The last of the three criteria contains an inbuilt balancing norm to determine whether the harm to the applicant substantially outweighs the harm likely to result to the responding party. Interim measures may be sought for various objectives, a representative (teleological) list of which is found in the Model Law and the UNCITRAL Arbitration Rules 2010.20 These include interim measures aimed at maintaining the status quo, preventing imminent harm or prejudice to the arbitral process, preserving assets, and preserving evidence. In the application of the legal criteria, the Model Law draws a distinction between interim measures which seek to fulfil the objectives listed, and measures in relation to the preservation of evidence. For the preservation of evidence, the dual requirements of serious harm and reasonable possibility of success apply ‘only to the extent the arbitral Tribunal considers appropriate’.21 In conclusion, the legal criteria for awarding emergency measures appear to be identical to those applicable to the grant of interim measures. The following three subsections explore in further detail, the content of these three criteria, and outline, in particular, the discretion granted to the EA in applying them.

[A]

Urgency

Urgency requires showing the risk of imminent harm,22 and in assessing this requirement the EA takes into account the time that it might take to constitute the Tribunal.23 Since the EA provisions exist to ensure that the applicant has access to remedies before the Tribunal is constituted, all the applicant would need to show is that there is a need for the requested measures before the constitution of the full Tribunal, especially because urgency is inherent in the very nature of emergency proceedings.24

19. For example, Partial Award in ICC Case No. 8113, 11(1) ICC Ct. Bull. 65 (2000). 20. UNCITRAL Model Law, Art. 17(2). For a broader category of Tribunal – ordered interim measures see Mika Savola, Interim Measures, Presentation at the 23rd Croatian Arbitration Days, 3–4 December 2015, pp. 4–6, http://arbitration.fi/wp-content/uploads/sites/22/2016/04/23cad-savola-interim-measures-and-emergency-arbitrator-proceedings.pdf (accessed 21 Sept. 2017). 21. UNCITRAL Model Law, Art. 17A(2); UNCITRAL Rules 2010, Art. 26.4. 22. There is some debate on whether urgency is a requirement, because some institutional rules (e.g. ICC Rules 2017) allow the Tribunal to order interim measures where ‘appropriate’ (as opposed to ‘necessary’). Notwithstanding the obvious response that such phraseology goes to the power of the Tribunal rather than the applicable standard for its exercise, this debate is moot in the instant case because emergency arbitrations can be, by definition, be initiated only in the presence of urgent circumstances. 23. Shaughnessy & Tung, supra n. 1, p. 346; e.g. Kompozit LLC v. Republic of Moldova, SCC Case No. EA 2016/095 (‘Kompozit v. Moldova’). 24. SCC Practice 2010–2013, supra n. 18, Case No. 10/2012. See also Distributor A (nationality not indicated) v. Manufacturer B (nationality not indicated), ICC Case No. 10596, Interlocutory Award, 30 Y.B. Comm. Arb. 66, 68 (‘Distributor A v. Manufacturer B’).

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The legal standard to be met in order to fulfil this criterion does not enjoy consensus in doctrine and practice, and will be explored in greater detail below. However, it bears mention that the decision as to which legal standard ought to apply appears to be within the EA’s discretion because all the various standards enjoy endorsement in arbitral practice. The determination of the applicant’s prospect of success involves an analysis of the two sub-elements, i.e.: (i) EA’s jurisdiction; and (ii) the applicant’s prospects of prevailing on the merits of the dispute.25 A determination of these two questions is required in order to prevent a party from seeking interim relief, where the party does not have any case on jurisdiction and/or merits, and where the relief is sought solely in order to gain a commercial advantage over the responding party. Notably, an analytical distinction might be drawn between showing the applicant’s prospect of success on the merits, and showing, on the other hand, the applicant’s entitlement to the specific right sought to be protected.26 However the practical value of this distinction, outside of the self-evident point that the right to be preserved is circumscribed by the applicant’s claims in the main dispute,27 is questionable. Both the requirements would have to be met in any case and presumably upon the application of the same standard because there would be no reason to use differing standards for the two. The first sub-element requires a prima facie finding on the basis for exercising jurisdiction.28 This standard can also be viewed as requiring the applicant to demonstrate a possible basis on which jurisdiction might be founded, and falls short of requiring the applicant to demonstrate a likelihood of success. Some hold the view that the bar to be met is so low that the enquiry must only ascertain whether there is a manifest lack of jurisdiction, in which case the Tribunal should not only reject the interim relief sought, but must also decline jurisdiction altogether.29 The standard of showing the existence of jurisdiction could also be higher. For instance, a showing of a ‘reasonable basis’ might be required30 if the interim measure

25. A v. Z, Order, 2 Apr. 2002, 21 (4) ASA Bulletin 810, 819 (‘A v. Z’). It is worth noting that identity of the applicant and the Claimant in the dispute do not necessarily coincide, and hence the Respondent too might seek to initiate emergency relief proceedings whilst reserving the right to challenge jurisdiction before the constituted Tribunal. 26. Víctor Pey Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2, Decision on the Request for Provisional Measures, 25 Sept. 2001, para. 46. 27. Plama Consortium Ltd. v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Order on Provisional Measures, 6 Sept. 2005, para. 40. 28. Georgios Petrochilos, Interim Measures under the Revised UNCITRAL Arbitration Rules 2010, 28(4) ASA Bulletin 878, 881 (‘Petrochilos’). 29. John Beechey & Gareth Kenny, How to Control the Impact of Time Running Between the Occurrence of the Damage and its Full Compensation: Complementary and Alternative Remedies in Interim Relief Proceedings, in Filip de Ly and Laurent Lévy (eds.), Interest, Auxiliary and Alternative Remedies in International Arbitration, Volume 5 Dossiers of the ICC Institute of World Business Law (International Chamber of Commerce 2008), pp. 89, 108. 30. Jason Fry, Simon Greenberg & Francesca Mazza, The Secretariat’s Guide to ICC Arbitration (ICC 2012), p. 291.

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sought is before a fully constituted Tribunal, where the responding party has challenged the jurisdiction of the Tribunal, and the decision on which challenge is pending while the Tribunal rules on the measure sought. However, if the standard of proof is higher for the sole reason that a decision on jurisdiction is pending before the Tribunal, then this also raises the question whether a specific challenge to jurisdiction raised before the EA also raises the standard.31 Further, ICSID Tribunals have held that the review procedure preceding the registration of an RFA by the ICSID Secretary-General does not automatically satisfy the instant criterion.32 However, in the case of commercial arbitration, whether the arbitral institution’s review of the applicant’s standing is determinative or at least persuasive for the purpose of showing prima facie existence of jurisdiction continues to remain an open question. This, in turn, is tied to the extent of the arbitral institution’s review. More particularly, whether the arbitral institution goes further than the scrutiny exercised in proceedings where no emergency relief is sought. Coming to the second sub-element of this criterion, it is not entirely clear as to how important a showing of the applicant’s prospect of success on the merits is. The test for this sub-element is not uniformly accepted or implemented, and it appears that arbitrators are allowed some leeway in exercising their discretion in deciding which test applies. One standard, also adopted by the Model Law and the UNCITRAL Rules, is that the applicant must show a ‘reasonable possibility’ of success on merits.33 EAs often view this determination as one requiring the review of the parties’ respective positions

31. In an SCC EA proceeding, the EA did not consider a challenge to jurisdiction to have heightened the standard of review. See SCC Practice 2010–2013, supra n. 18, Case No. 139/2010; see also Claimants 1-2 v. Respondents 1-16, Order No. 1, 2008’, 28 (1) ASA Bulletin 47 (although a jurisdictional challenge was pending before the Tribunal at the time of granting the interim measure, the fact that the underlying arbitration agreement referred to the Swiss Rules was held to be sufficient to support a prima facie finding on jurisdiction). There is the view that the EA must examine jurisdiction suo motu only when it is an ex parte proceeding. See Philipp A. Habegger, The Revised Swiss Rules of International Arbitration: An Overview of the Major Changes, 30 (2) ASA Bulletin 269, 305. 32. PNG Sustainable Development Program Ltd. v. Independent State of Papua New Guinea, ICSID Case No. ARB/13/33, Decision on the Claimant’s Request for Provisional Measures, 21 Jan. 2015, para. 119 (‘PNG v. Papua New Guinea’). Contra, Charles N. Brower & Ronald E.M. Goodman, Provisional Measures and the Protection of ICSID Jurisdictional Exclusivity Against Municipal Proceedings, 6 (2) ICSID Rev. 431, 456 (‘[T]he fact that the Secretary-General, in registering the Request for Arbitration, has found the dispute not to be “manifestly outside the jurisdiction of the Centre,” although not ipso jure determinative of the tribunal’s jurisdictional entitlement to act under Convention Article 47, must give rise to a presumption, theoretically rebuttable but in practical terms virtually immune to rebuttal that its jurisdiction exists prima facie.’). 33. Kompozit v. Moldova, supra n. 23; SCC Practice 2010–2013, supra n. 18, Case No. 139/2010; Anja Havedal Ipp, SCC Practice Note – Emergency Decisions Rendered 2015–2016, Case No. EA 2016/067, http://www.sccinstitute.com/media/194250/ea-practice-note-emergency-arbitratordecisions-rendered-2015-2016.pdf (accessed 21 Sept. 2017) (‘SCC Practice Note 2015–2016’); Lotta Knapp, Emergency Arbitrator Decisions Rendered in 2014, Case No. 2014/138, available at http://www.sccinstitute.com/media/62020/scc-practice-emergency-arbitrators-2014_final.pdf (accessed 21 Sept. 2017) (‘SCC Practice 2014’) (requiring a prima facie showing of a reasonable possibility of success on merits); see also SCC Practice 2010–2013, supra n. 18, Case No. 187/2010 (requiring a showing of a ‘probable cause’).

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on balance, i.e. determining whether the applicant shows that its case is more plausible than the responding party’s.34 This accords with Kaj Hobér findings made in a 2008 study, which found that a majority of participating arbitrators required that the degree of success required for a successful interim application was ‘more than likely’, i.e. more than 50%35 (although based only on a prima facie review).36 Another standard, a more liberal one, only requires the Tribunal to examine whether: (i) a reasonable case, assuming that the facts alleged are correct, was made on the facts pleaded; and (ii) if these facts might possibly lead the Tribunal to the conclusion that an award could be made in favour of the applicant.37 There have been various rearticulations of this standard, including suggestions that the applicant must only show that it is ‘possible’ that it will prevail on the merits,38 or that a claim ‘may prevail upon in the arbitration’,39 or that a claim only needs to be asserted as a theoretically existing right, as opposed to be proven in fact.40 It is clear that the review on merits only requires a prima facie assessment41 and that the Tribunal is only required to examine if the moving party has, prima facie, a legally protectable interest.42 Further, if the understanding is that this sub-element is only a threshold test and does not require making a finding on the degree of applicant’s possibility of success,43 then the threshold is arguably so low that if the relief is not granted on this ground then the final relief too ought to be capable of rejection on this ground alone. It is important that the EA be cognizant of the low threshold to be cleared. For, if the moving party is unable to meet even this low requirement then it stands to reason

34. SCC Practice 2015–2016, ibid., Case No. EA 2016/150. 35. Kaj Hobér, Interim Measures by Arbitrators, in Albert Jan van den Berg (ed.), International Arbitration 2006: Back to Basics?, ICCA Congress Series, Volume 13 (Kluwer Law International 2007), p. 735 (‘Kaj Hobér’). 36. Ibid., p. 736. 37. Sergei Paushok, CJSC Golden East Co. and CJSC Vostokneftegaz Co. v. Mongolia, UNCITRAL, Order on Interim Measures, 2 Sept. 2008, para. 55 (‘Sergei Paushok v. Mongolia’). 38. Jarrod Wong, The Issuance of Interim Measures in International Disputes: A Proposal Requiring a Reasonable Possibility of Success on the Merits, 33 Ga J. Int’l & Comp. L. 605, 616. 39. Patricia Shaughnessy, Interim Measures, in Ulf Franke, Annette Magnusson, et al. (eds.), International Arbitration in Sweden: A Practitioner’s Guide (Kluwer Law International 2013), p. 98. 40. Occidental Petroleum Corporation and Occidental Exploration and Production Company v. Republic of Ecuador, ICSID Case No. ARB/06/11, Decision on Provisional Measures, 17 Aug. 2007, para. 64 (‘Occidental v. Ecuador’). 41. For example, SCC Practice 2010–2013, supra n. 18, Case Nos 064/2010, 070/2011 (holding that the prima facie element was satisfied because Respondent’s pleadings did not contest the Claimant’s position that the Respondent owed the amount claimed). 42. Tethyan Copper Company Pty Limited v. Islamic Republic of Pakistan, Decision on Claimant’s Request for Provisional Measure, ICSID Case No. ARB/12/1, 13 Dec. 2012; Occidental v. Ecuador, supra n. 40, para. 64; Distributor A v. Manufacturer B, supra n. 24; SCC Practice 2015–2016, supra n. 33, Case No. EA 2016/046 (‘if there is no reasonable prospect of success (a “colorable claim”, one might say, which is more than a prima facie showing, which requires no evidence at all) then there is no tangible right deserving of protection, and any relief granted will upset rather than preserve the status quo.’ [emphasis supplied]). 43. Jeffrey Waincymer, Procedure and Evidence in International Arbitration (Kluwer Law International 2012), p. 626 (‘Waincymer’).

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that the EA’s finding on the applicant’s failure would have a prejudicial impact on the applicant’s case before the Tribunal. However the counter-argument is, if the right claimed is not apparent from a bare perusal of the undisputed evidence on record, and requires further review of the evidence, then awarding this relief falls outside the scope of the EA proceedings in the first place.44 As a result, a finding that the applicant failed to fulfil the second criteria does not necessarily result in prejudicing the applicant’s chances before the Tribunal, especially when additional new facts have been put on the record after issuance of the emergency decision. In any case, the point remains that if the EA applies the higher standard embodied in the first test, namely requiring the applicant to demonstrate a reasonable possibility of success on the merits, and reaches an unfavourable conclusion, then the implementation of this test risks prejudicing the applicant’s case before the Tribunal. As to which of the other alternative articulations, consisting of the lower standard(s), to apply is for the EA to decide, taking into consideration the circumstances of the case.

[C]

Risk of Substantial Harm

The harm test takes two dominant forms. This dual characterisation is not to say that there will not be cases which fall somewhere along the scale, the two ends of which are described above. The first standard requires the applicant to show economically irreparable harm, i.e. harm which cannot be remedied by damages, and where circumstances are such that the applicant’s rights might be lost forever if the EA does not intervene.45 This approach appears to be endorsed by the Model Law.46 The second standard is a more

44. In an SCC EA proceeding, the Claimant sought by way of an interim measure the right to conduct due diligence, which right was not supported by express provisions of the underlying contract. The EA held that in order to reach the Claimant’s conclusion that the right claimed was implicit in the contract, a review of evidence regarding the contractual history and interpretation would have been carried out – which exercise was outside the scope of the EA proceedings. See SCC Practice 2015–2016, supra n. 33, Case No. EA 2016/050. See also SCC Practice 2015–2016, supra n. 33, Case No. 2016/139 (holding that the claims turned on questions of contract interpretation and the measure could be granted only if the Claimant’s interpretation was more plausible than the Respondent’s.); SCC Practice 2015–2016, supra n. 33, Case No. EA 2016/150. 45. For example, X._________ SA v. Y. _______, BV 4A_582/2009, Swiss Federal Tribunal, (‘X v. Y’); A v. Z, supra n. 25, p. 819 (holding that the Claimant must establish ‘detriment resulting if no relief is granted could not easily be remedied (irreparable harm)’); SCC Practice 2015–2016, supra n. 33, Case No. EA 2016/067. 46. SCC Practice 2010–2013, supra n. 18, Case No. 139/2010 (where the EA, quoting the Model Law, held that the moving party ‘establish that the harm which is to be prevented by the interim measure is irreparable and of an urgent or imminent nature’); SCC Practice 2015–016, supra n. 34, Case Nos EA 2016/082, 2016/90; Kompozit v. Moldova, supra n. 23; TSIKinvest LLC v. The Republic of Moldova, SCC Case No. EA 2014/053; ICC Case No. 10596, Interlocutory Order, 30 Y.B. Comm. Arb. 66 (2005); Behring Int’l, Inc. v. Islamic Repub. of Iran, Interim and Interlocutory Award, 21 Jun. 1985, IUSCT Case No. ITM/ITL 52382-3, 8 Iran-US C.T.R. 238; PNG v. Papua New Guinea, supra n. 32, paras 109–110.

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tempered version of the first and only requires a prima facie showing of ‘serious’ or ‘substantial’ injury or prejudice caused by a delay in the adjudication of the claim.47 Behind the second standard is the recognition that most injuries arising out of commercial relationships can be adequately compensated by damages, and that mandating irreparability stricto sensu places an unfair burden on the applicant. Moreover, there might be an inverse relationship between the gravity of the harm and evidence demonstrable to show the imminence of the prejudice. That is, if the harm is indeed irreparable, i.e. not monetarily compensable, then economic indicators of harm would, by definition, be inapposite. Moreover, irreparability of harm might differ depending on the legal system in question. In legal systems, which believe that damages constitute adequate compensation, in such legal systems the likelihood of a finding of irreparability of harm, is low. Similarly, legal systems that support specific performance and view damages as inadequate might be more inclined towards making a finding on irreparability of harm.48 This approach reads in a test of reasonableness, under which the EA examines whether the possible injury caused by the measure to the responding party is out of proportion with the advantage derived by the applicant.49 This sub-element is also satisfied if it can be demonstrated that the rights of the parties ‘may be threatened by actions “capable of prejudicing the execution of any decision, which may be given by the tribunal”’.50

47. Gary Born 2014, supra n. 11, p. 2471; Berger & Klaus Peter, International Economic Arbitration (Kluwer Law and Taxation Principles 1993), p. 336 (‘Berger’); Julian Lew, Commentary on Interim and Conservatory Measures in ICC Arbitration Cases, 11(1) ICC Ct. Bull. 23, 28 (2000); David D. Caron et al., The UNCITRAL Arbitration Rules: A Commentary (OUP 2006), p. 537 (‘David Caron’); Petrochilos, supra n. 28, p. 883; SCC Practice 2015–2016, supra n. 33, Case No. EA 2016/142 (‘The emphasis should be on the requirement of irreparable harm to be prevented and of urgent or imminent nature of the measure sought. Interim measures should not be granted when the risk of irreparable harm is not imminent but remains remote or avoidable.… Irreparable harm means a harm which is irreparable by an award on damages. Substantial, but reparable, harm does not, as a rule, provide sufficient grounds for granting interim measures.’ [emphasis supplied]). Contra, Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Procedural Order No. 1, 29 Jun. 2009, para. 81 (‘[I]t is not essential that provisional measures be necessary to prevent irreparable harm, but that the harm spared the petitioner by such measures must be significant and that it greatly exceeds the damage caused to the party affected thereby’). See also PNG v. Papua New Guinea, supra n. 32. 48. Waincymer, supra n. 43, p. 625. It bears mention that many of the assumptions accompanying the common law notion of irreparable harm might not apply to commercial arbitration. Some of these assumptions include: (i) exceptions for damages which are not precisely measured in which cases such injury is not considered irreparable even where damages are available; and (ii) easy and ready enforcement of judgments. See David D. Caron, Interim Measures of Protection: Theory and Practice in Light of the Iran United States Claims Tribunal, 46 Zeitschrift Für Ausländisches Öffenliches Recht Und Völkerrecht (1986), pp. 465, 492, 493. 49. Berger, supra n. 47, p. 336. 50. David Caron, supra n. 48, p. 536.

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Arbitral practice indicates that both standards are used, as are those which fall somewhere in between the two,51 and there does not seem to be uniform practice in this regard.52 There is considerable variance in approach on the degree to which the applicant must prove that the injury is certain to occur. Tribunals are of the view that the applicant must establish the ‘existence of a sufficient risk that the grave or serious harm will occur if the provisional measures are not granted’.53 This standard can be distinguished from establishing the: (i) probability of harm; and (ii) existence of hypothetical harm,54 the former being too high a standard of evidence and the latter being too low.55 According to Gary Born the applicant must show a ‘material risk of serious injury’.56 Tribunals have articulated this standard as ‘reasonable probability [of] an impending injury’.57 51. SCC Practice 2015–2016, supra n. 33, Case No. EA 2016/046 (‘It is generally accepted that this need not rise to the level of “irreparable harm” as the term is used in some domestic legal systems. But it must normally be harm of more than a purely monetary nature – otherwise the tribunal can award compensation with interest that will cure the harm in due course without the need for interim intervention’.); Case No. EA 2016/82 (‘[I]n the present case the Claimant’s economic harm is confined and discrete, and there is no suggestion that it may economically ruin the Claimant.’ [emphasis supplied]); Distributor A v. Manufacturer B, supra n. 24, p. 72 (‘Therefore, any non marginal risk of aggravation of the dispute is sufficient to warrant an order for interim relief. Indeed, it would be foolish for the tribunal to wait for a foreseeable, or at least plausibly foreseeable, loss to occur, to then provide for its compensation in the form of damages (assuming that B is entitled to such damages, which is not the issue here), rather than to prevent the loss from occurring in the first place. Therefore, the fact that B may recover losses in the form of damages is no valid objection and does not preclude it from seeking provisional relief.’). 52. Not indicated (Turkey) v. Not indicated (Germany), ICC Case No. 8786, Interim Award, 19(4) ASA Bulletin 751, paras 12, 13; SCC Practice 2010–2013, supra n. 18, Case No. 070/2011; Contra, SCC Practice 2010–2013, supra n. 18, Case No. 010/2012 (holding that although the applicant had established likelihood of substantial harm, this did not meet the threshold of irreparable harm, since the harm contended was compensable by damages, interest and cost); SCC Practice 2014, Case No. 2014/171 supra n. 33 (observing that the applicant must show such urgency that ‘such that it needs to be established prima facie that, unless the order for interim relief is granted before such relief can be obtained from the arbitral tribunal, irreparable harm is likely to be caused to the requesting party’.). 53. PNG v. Papua New Guinea, supra n. 32, para. 111. 54. Occidental v. Ecuador, supra n. 40, para. 89 (‘Provisional measures are not meant to protect against any potential or hypothetical harm susceptible to result from uncertain actions. Rather, they are meant to protect the requesting party from imminent harm.’). 55. Yves Fortier, Interim Measures: An Arbitrator’s Provisional Views, in Arthur W. Rovine (ed.), Contemporary Issues in International Arbitration and Mediation: The Fordham Papers, (Brill 2009), p. 9 (distinguishing the precise scope of ‘might’, as whether indicating ‘possibly might’ or ‘might probably’, etc. by stating that the threshold definitely fell short of requiring a party to demonstrate likelihood of success). 56. Gary Born 2014, supra n. 11, p. 2469. 57. A v. Z, supra n. 25; SCC Practice 2010–2013, supra n. 18, Case No. 070/2011 (‘While the applicant certainly cannot be required to provide full proof of such action on the part of the respondent entity and its lack of any good faith motive, it will still need to provide a probable cause that such an improper intent is a driver of the particular conduct.’); SCC Practice 2014, supra n. 33, Case No. 2014/171 (holding that the Claimant’s plea of irreparable harm was not supported because no evidence was brought on record suggesting that the Respondent was in the process of stripping assets and that legitimate measures to improve the Respondent’s financial condition could not be assumed to cause harm.); SCC Practice 2015–2016, supra n. 33, Case No. EA 2015/002 (‘Interim relief by an emergency arbitrator will be justified only under circumstances in which claimants cannot be reasonably expected to await an interim decision by

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The standard of proof in demonstrating harm is akin to the standard for showing a prima facie likelihood of success.58 However likelihood of success itself varies in that some articulations only require a tenable case on the merits. Transposing this into the harm criterion indicates that there is at least an arguable case that the applicant only needs to show evidence that an argument of irreparable or grave harm is tenable (as opposed to various degrees of probability) or that the risk is ‘material’.59 Another aspect of the harm analysis is whether the harm caused to the applicant if the measure is not granted outweighs the prejudice to the responding party impacted by the interim measure.60 Additionally, Tribunals often take account another subelement, i.e. balance of convenience involving weighing the extent to which awarding the measure would cause hardship to one party over the other, and whether this imposition of hardship is fair.61 This sub-element forms the basis for the view that when the irreparability or seriousness of the harm is not established, then the Tribunal may apply a ‘proportionality test’ evaluating whether the imminent harm is so serious so as to justify the measure sought.62 Moreover, even after the emergency measure sought is granted, the application of this element might change, because the balance of convenience might shift by the time the Tribunal is constituted. Like showing prospect of success, this is a dynamic element and might constantly change through the course of the arbitration, which is to say that a review of the emergency measure granted might not be precipitated on this ground alone.

58. 59.

60. 61.

62.

the arbitral tribunal. Negative financial consequences for the period before such an interim decision may as a rule not suffice to establish irreparable harm. The situation is, however, different in case the financial consequences are accompanied by other aggravating circumstances.’ Apart from the financial loss arising from the impugned actions of the Respondent, the EA also took note of the risk of irreparable operational damage to the Claimant). Similarly, investment tribunals have held that where the non-grant of the measure results in not only economic harm but also the economic ruin of the applicant, such harm can be considered as irreparable. See Sergei Paushok v. Mongolia, supra n. 38, paras 78, 89; Chevron Corporation and Texaco Petroleum Company v. Republic of Ecuador, PCA Case No. 2009–23, Fourth Interim Award on Interim Measures, 7 Feb. 2013, para. 83. Waincymer, supra n. 43, 632; Julian D.M. Lew, Loukas A. Mistelis & Stefan M. Kröll, Comparative International Commercial Arbitration (Kluwer Law International 2003), pp. 601–604 (‘Lew, Mistelis & Kröll’). Gary Born 2014, supra n. 11, p. 2471; SCC Practice 2010–2013, supra n. 18, Case No. 187/2010 (concerning an SPA under which the Claimant had the right to hold a minimum level of shares and if the shareholding fell below this level, then this would trigger the Respondent’s obligation to transfer its shares. The Claimant notified the Respondent to transfer its shares to uphold the Claimant’s minimum guaranteed level of shareholding, subsequent to which the Respondent offered its shares to the company’s other shareholders and did not send this offer to the Claimant. The EA held that the Respondent’s offer to sell its shares to other shareholders was sufficient proof of the need for interim measures.). Gary Born 2014, supra n. 11, at p. 2470. For example, SCC Practice 2010–2013, supra n. 18, Case No. 010/2012 (taking into consideration the risk of civil and criminal sanctions against the Respondent and its officers if the measure sought was granted, and holding that this amongst other considerations shifted the balance of convenience in favour of the Respondent.); SCC Practice 2015–2016, supra n. 33, Case No. EA 2016/046 (‘If the negative impact of the requested relief is disproportionate to its benefit, then either the request must be declined or the relief redesigned to reduce the burden on the subject party.’). Berger, supra n. 48, p. 336.

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§11.04[A]

To conclude, of the threefold legal criteria detailed above, two criteria i.e.: (i) prospect of success; and (ii) risk of substantial harm, offer a range of inbuilt choices in their application. This flexibility in the application of the legal criteria, rather than evidencing a fissure or dissonance in jurisprudence, is better understood as constituting an integral part of the threefold criterion, and is demonstrative of the discretion given to the EA in exercising its power to grant emergency measures. Needless to add, the EA must take into account various factors including the nature of emergency relief sought and the relative hardship caused to the parties resulting from the EA’s decision. Some of these considerations have been explored in the next section. Further, the threefold legal criterion in their current form do not account for the architectural peculiarities of EA proceedings, principally because these tests evolved in the context of interim measures and have been applied ad hoc to the grant of emergency measures. The following section explores some additional factors, germinating from the structural characteristics of EA proceedings, which ought to be taken into account by the EA in allocating the weight to be given to the various elements of the legal criteria.

§11.04 [A]

TOWARDS A DIFFERENTLY WEIGHTED LEGAL CRITERIA The Why: Architectural Peculiarities of EA Proceedings

Given the considerable discretion left to the arbitrator(s) in applying the legal criteria discussed above when considering an application for interim measures, it is relatively incontrovertible that the arbitrator(s) must take into consideration reasonableness of such application in the circumstances.63 It is commonly accepted that the standard of proof for the three elements varies depending on the nature of relief sought, and in the same vein, on the balance of hardships. Onerous measures such as those requiring continued performance under a contract, unlike less onerous reliefs such as for preservation of evidence, require a higher standard of proof to be met.64 This explains

63. Gary Born 2014, supra n. 11, p. 2469-69. 64. Gary Born 2014, supra n. 11, p. 2467; Petrochilos, supra n. 28, p. 882; SCC Practice 2015–2016, supra n. 33, Case No. EA 2016/142 (‘[T]he threshold for a relief is certainly very high if the requested relief would cause severe harm or damage to the respondent.’) In this regard, the threefold categorisation of interim measures by the Swiss Federal Supreme Court is of some value. These three categories consist of: (i) conservatory measures with the objective of safeguarding the enforcement of the final award; (ii) regulatory measures, regulating or stabilising the parties’ relationship through the course of the proceedings; and (iii) interlocutory enforcement anticipatory measures aimed at obtaining enforcement on an interim basis of all or a portion of the claim on the merits. See X v. Y, supra n. 45. Some commentators are of the view that the tribunal should not feel constrained when applying interlocutory enforcement anticipatory measures and should be guided by the same legal criteria as applicable to any other interim measure. See Christopher Boog, Interim Measures in International Arbitration, in Manuel Arroyo (ed.), Arbitration in Switzerland: The Practitioner’s Guide, (Kluwer Law International 2013), p. 1358.

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the counter-norm of balancing any weakness in terms of the sufficiency of the other criteria is the examination of the balance of hardship and the harm to the parties if the measure is not awarded. As a result of the short timelines involved in emergency proceedings, there is a real risk that the applicant’s case for emergency measures falls somewhere between the two varying standards applicable to the criteria measuring both (i) the applicant’s possibility of success, and (ii) risk of substantial harm if the measure is not granted. Consequently, if the EA chooses to apply the higher standard for either or both of the two criterions, then the measure would be denied, and if the lower standard is applied then the measure would be granted. This focuses the enquiry on whether the EA should exercise its discretion to apply the lower standard and whether the existing mechanisms in international arbitration can be used to safeguard against abuse resulting from the application of the lower standard. In light of the architectural and functional dissimilarities between EA proceedings and interlocutory proceedings before a fully constituted Tribunal, often the EA is not in a similar position as the Tribunal to appreciate the dispute on merits, nor are the parties in a position to effectively assess their case and argue their position accurately at such an early stage. Similarly, the parties are not in a position to marshal evidence to prove substantial harm. The exercise of the EA’s discretion must account for these considerations in weighing the three elements constituting the legal criteria for granting emergency measures.65 EA proceedings are different from the Tribunal-administered interlocutory proceedings for the grant of interim measures, in at least the following four significant ways described below. One, the highly compressed time schedule, especially in light of the time limit imposed by institutional rules within which the EA is required to rule on the EA Application,66 is absent when it comes to deciding on interim relief applications before a Tribunal. As a result the EA does not have the benefit of time enjoyed by a fully constituted Tribunal in considering the dispute on merits and to appreciate the evidence on record. These temporal pressures exert their influence on the parties too, who are constrained to cobble up their case in haste. Two, the emergency decision can be reviewed de novo by the Tribunal, once constituted, and until the constitution of the Tribunal these measures can be reviewed upon request by the EA too.67 As a result any change in circumstance can be accounted for during the course of the proceedings.

65. Edgardo Munoz, supra n. 1. 66. ICC Rules 2017, Appendix V, Art. 6(4) (fifteen days); SCC Rules 2017, Appendix III, Art. 8(1) (five days); HKIAC Rules 2013, Schedule 4, Art. 12 (fifteen days); LCIA Rules 2014, Art. 9.8 (fourteen days). It is noteworthy that many institutional rules do not mandate that the decision by the EA be issued within a specific time limited. See SIAC Rules 2016, ICDR Rules 2014. 67. Most institutional rules expressly clarify that the Tribunal is not bound by the emergency decision and vest the EA with the authority to modify, terminate, or annul the emergency measure. See ICC Rules 2017, Art. 29(3); SIAC Rules 2016, Schedule 1, Art. 10; HKIAC Rules 2013, Schedule 4, Art. 18; ICDR Rules 2014, Art. 6(4); SCC Rules 2017, Appendix II, Art. 9(5).

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Three, many institutional rules forbid the EA from serving on the subsequently constituted Tribunal.68 This, coupled with the Tribunal’s power to review the emergency relief de novo removes any possibility of abuse resulting from applying differently weighted legal criteria in terms of the possible prejudice to the parties’ interests resulting from an incorrectly granted emergency measure. Four, there is a risk that an emergency decision which provides reasons for a finding on the applicant’s possibility of success or its risk of substantial harm, might adversely impact the applicant’s case before the fully constituted Tribunal. This is more so where the EA, in deciding a request for emergency measures, makes a finding on the applicant’s possibility of success. This can be contrasted with a hypothetical where the EA disregards the applicant’s prospects of success and concentrates on the applicant’s hardship. In this hypothetical, any ruling by the EA on the applicant’s failure to show substantial harm on evidence would not necessarily impact its case on the merits before the Tribunal. In particular, the fact that the assessment on merits comes from a third-party (i.e., the EA) might hold considerable persuasive value for the Tribunal in assessing the dispute on merits, especially in ‘hard cases’. As a corollary, the practical need to show that the EA made an incorrect assessment presents an unfair burden on the party seeking to vacate the emergency decision or on a party seeking to revive a previously dismissed emergency relief application.

[B]

The How: Reconsidering the Second and Third Criteria

Given this inherent structural differences between Tribunal awarded interim relief and emergency measures, the EA might consider reducing the weight accorded to the showing of the applicant’s prospect of success. Rather the focus could remain on the possibility of substantial harm to the applicant and the balance of hardship. In this regard it the provision under existing arbitral rules for ordering security from the applicant is potentially useful in offsetting the lack of evidence in the showing of irreparable harm.69 Security is usually ordered so that the responding party may be protected from any damage caused by the incorrect implementation of the interim measure.70 So, if the measure granted turns out to be an undue measure, which might be the case if the hardship argued is demonstrated to be incorrect on evidence, then

68. For example, ICC Rules 2017, Appendix V, Art. 2(6). Some institutional rules allow the EA to be appointed to the Tribunal upon the parties’ agreement. See ICDR Rules 2014, Art. 6(5). 69. Model Law, Article 17 E (‘(1) The arbitral Tribunal may require the party requesting an interim measure to provide appropriate security in connection with the measure. (2) The arbitral Tribunal shall require the party applying for a preliminary order to provide security in connection with the order unless the arbitral Tribunal considers it inappropriate or unnecessary to do so.’); LCIA Rules, Art. 25.1(a); Swiss Rules 2012, Art. 26(2). See Distributor A v. Manufacturer B, supra n. 24, p. 76 (refusing the responding party’s request for security on the ground that it failed to substantiate any risk of loss which might arise from the interim measure.). 70. Kaj Hobér, supra n. 36, pp. 736, 737; Georg von Segesser & Christopher Boog, Interim Measures, in Elliott Geisinger and Nathalie Voser (eds.), International Arbitration in Switzerland: A Handbook for Practitioners, (2nd ed., Kluwer Law International 2013), p. 118 (‘Von Segesser & Boog’).

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damages can be awarded from security obtained71 and might also go beyond the sums held in security.72 The Model Law states that the party obtaining the interim measure may be liable ‘for any costs and damages caused by the measure or order to any party’ where the Tribunal ‘later determines that, in the circumstances, the measure or the order should not have been granted’.73 The ordering of security would also have an impact on the ‘balance of convenience’ sub-element of the legal criteria because this might change the relative hardship faced by the parties by safeguarding the responding party’s interests.74 Consideration can be given to the counter-argument whether the applicant’s lack of funds alone should deprive it of the right to receive emergency relief.75 Moreover, as a natural extension of this argument one might ask if the existence of funds from the applicant entitles it to remedies that an applicant in the same position but without funds would not be granted? This brings into focus the due process rights of the applicant and how availability of funds to provide security impacts the applicant’s access to remedies. The legal basis for awarding damages to compensate for harm resulting from incorrectly awarded emergency measures, outside of the Model Law which specifically provides for this power, can be found in the arbitration agreement which obliges the parties to be truthful to the Tribunal and to act in good faith. Moreover, another reason justifying the lowering of the burden of proof is the existing requirement on the applicant to disclose adverse evidence in ex parte proceedings.76 The Model Law also gives the Tribunal the power to order any party to disclose a material change in circumstances on the basis of which the measure was requested or granted.77 An additional way of dealing with the applicant’s failure to marshal sufficient evidence of hardship (given that the applicant is operating under ‘urgent’ circumstances) is to shift the onus of proof to the responding party, by requiring that party to show contra evidence demonstrating that the hardship argued is not a reasonable possibility. In this fashion, a finding on hardship would be a result of balancing the evidence from the parties and not rest solely on the fulfilment of an absolute minimum threshold. However a factor to be taken into account in deploying this test is the inherent asymmetry between the applicant and the responding party, given that the applicant has more time than the responding party to prepare its evidence and application.

71. Von Segesser & Boog, ibid. 72. For example, Model Law, Article 17 G (‘The party requesting an interim measure or applying for a preliminary order shall be liable for any costs and damages caused by the measure or the order to any party if the arbitral Tribunal later determines that, in the circumstances, the measure or the order should not have been granted. The arbitral Tribunal may award such costs and damages at any point during the proceedings.’); Waincymer, supra n. 43, p. 639. 73. UNCITRAL Model Law Art. 17G; Art. 26(4) of the Swiss Rules. 74. Boog 2013, supra n. 13, p. 1362. 75. Contra, M. Wirth, Interim or Preventive Measures in Support of International Arbitration in Switzerland, 32 ASA Bull. 38 (2000). 76. Model Law, Art. 17(F)(2). 77. Model Law, Art. 17(F)(1).

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Other options before the EA might include giving some consideration to an affidavit from the moving party’s counsel testifying to the existence of the relevant elements of the legal criteria. Another option is to render the decision in a summary form without giving detailed reasons so that the losing party does not bear the burden to contest the reasons given by the EA on the strength of its case on merits before the Tribunal. This is of course not to say that the emergency decision ought to consider the applicant’s prospect of success sotto voce, rather the reliance placed on this element of the legal criteria must be kept to a minimum. Given the dynamic nature of this element, i.e. the appreciation of the applicant’s possibility of success might continuously change through the course of the proceedings, this element ought to be considered (assuming it is considered at all) only a threshold issue. This element could play a determinative role only when all other elements are coequal, in which case the fact of its role can be expressly noted and clarified in the emergency decision thereby giving the EA’s views its proper context. Any associated concern that this might open the floodgates to frivolous applications is addressed by the preliminary check already instituted by arbitral institutions which examine such applications before appointing the EA. Unlike the EA, the arbitral institution does not have to give a reasoned order on its decision to allow (or disallow) the application and in this sense relieves the losing party of the burden to craft an opposing argument before the Tribunal. It is accepted that the Tribunal may lift the measure if the basis for its grant are no longer in force.78 Nor is it disputed that emergency decisions are not binding on the Tribunal, and can be revisited by both, the EA as well as by the fully constituted Tribunal. The Tribunal retains the power to review the grant of interim measures upon an exceptional change of circumstances.79 Institutional rules contain little by way of setting the threshold to be met in order to review emergency measures. Whether the threshold to review emergency measures ought to be different from reviewing Tribunal-ordered interim measures is an open question, especially because the Tribunal ought to review the emergency relief de novo.80 Moreover, just because a certain relief is granted at a particular point in the proceedings, does not mean that it ought to be granted whenever sought. This is because the key element is the nature of potential harm if the relief is not granted, and the element of urgency is folded into this determination. Other elements such as possibility of success and balance of convenience are to be considered only when this key element changes.

78. Lew, Mistelis & Kröll, supra n. 58, pp. 606–607. 79. For example, Swiss Rules 2012, Art. 26(1). 80. Waincymer, supra n. 43, p. 639. Note that the de novo consideration of an interim measure is at variance with the test applied where an interim measure is reagitated before a Tribunal after the same measure has been rejected by a Court with parallel/complementary jurisdiction. See A v. Z, supra n. 25, pp. 816, 817 (‘It is not opportune to allow an applicant to repeat, against the will of the opposing party, costly and time consuming proceedings which the parties already went through before an other judicial body. There is no sufficient protective interest (Rechtsschutzinteresse) on the part of the applicant if the request is the same, the facts and evidence relied upon are essentially the same, the legal tests to be applied in deciding the matter are the same, and the principles of due process were observed in the first proceedings. Under these circumstances, it cannot reasonably be asked either from the arbitrators or from the applicant’s opponent to go through the same matter again.’).

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On a related note, if it is assumed that the showing of a reasonable prospect of success on merits is determinative in the granting of an emergency relief, then does the changing of this in favour of the responding party during the course of the arbitration, allow the responding party to have the emergency relief vacated? And more importantly, does this give rise to a claim for damages? It is arguable in such situations that damages can be awarded only when subsequent circumstances show that the undue measure obtained resulted from a serious wrongdoing such as a misrepresentation of hardship. This understanding is of some significance because in lowering the standard for showing a reasonable prospect of success for emergency proceedings, there is no unfairness caused to the parties on the basis that the standard would have been higher if the same relief was sought before a Tribunal. Lastly, it is open to the EA to fashion a reporting requirement in order to monitor the progress of the dispute for the period up until the constitution of the Tribunal. Once the Tribunal is constituted, the Tribunal may review the situation de novo.

§11.05

CONCLUSION

Often the legal criteria for granting relief in EA proceedings is equated with the criteria applied in Tribunal-granted interim measures. However, owing to the time constraints which Emergency Arbitrator proceedings take place under, the applicant risks not having access to evidence proving, to any reasonable degree of certainty, the risk of substantial harm if the measure is not awarded. Similarly, the EA is not always in a position to hear the Parities fully on the merits in order to make a reasonable determination of the applicant’s chances of prevailing on the merits of the dispute. This provides sufficient reason to rethink the extent to which the EA ought to consider the merits of the dispute. Accordingly, this chapter makes a case for the legal criteria for granting emergency relief to contain a discretionary inbuilt balancing norm according differential weight to the constitutional requirements in order to account for the architectural peculiarities of EA proceedings. This chapter demonstrates that the existing framework already gives the EA this discretion in applying the three constitutive elements of the legal criteria. The case for the application of the EA’s discretion in exercising this flexibility is especially compelling, considering that the applicant is often not in a position to conclusively prove the hardship caused. Not doing so might discourage parties from resorting to EA proceedings because this risks giving the EA an opportunity to opine on the merits of the dispute, which opinion might prejudice the view of the Tribunal and as a result affect the outcome of the dispute. Needless to add, existing procedural safeguards are sufficient to address concerns grounded on the increased risk of abuse resulting from lowering the standard for the grant of emergency measures. A representative list of these safeguards includes ordering security from the moving party, awarding damages to compensate for possible harm caused to the responding party as a result of an improperly awarded emergency measure, existence of review mechanisms before the fully constituted Tribunal, and implementing reporting mechanisms.

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The occasionally curious intersection of financing and jurisdiction in arbitration

§12.01

INTRODUCTION

Finance is the lifeblood of commerce, and since time immemorial those who engage in lending have required security prior to parting with their money. Today, how security is taken is a complex and highly sophisticated area of legal practice. However, regardless of such complexities, consistently one sees common threads in, for example, project financing whereby the lender takes charges (fixed and/or floating) and assignments of various kinds. Also, a common thread one sees is that English law tends to be often seen as the governing law to the financing documentation, even if the project itself and the participants have no connection of any kind to England. This short chapter discusses, from the perspective of English law, an intersection of the world of financing, particularly how security is taken, and the jurisdiction of an arbitrator. This intersection can give rise to unintended consequences, even if (as already noted) the governing law of the contract, the parties thereto, and the seat, have nothing whatsoever to do with England. The only connection, tenuous, but important, is via financing subject to English law. That connection can have significant jurisdictional consequences as will be discussed below.

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Klaus Reichert SC An Important Provision of English Statute Law1

The starting point is section 136(i) of the Law of Property Act 1925 (‘section 136(i)’), the relevant part of which is for present purposes: Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal thing in action, of which express notice in writing has been given to the debtor, … or other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice — (a) the legal right to such debt or thing in action; (b) all legal and other remedies for the same; and (c) the power to give a good discharge for the same without the concurrence of the assignor.

§12.02

SECTION 136(I) GENERALLY

Smith & Leslie describe2 the object of the section was to dispense with the necessity for joining the assignor as a party in an action to enforce an assignment, but only in those cases where the assignor’s presence was unnecessary and therefore inconvenient. They further describe the conditions which must be met in order for an assignment to fall within the ambit of the section: a. b. c. d.

§12.03

The assignment must be of a debt or other legal chose in action. The assignment must be absolute and not purport to be by way of charge only. The assignment must be in writing under the hand of the assignor. The debtor (or trustee or other person from whom the assignor would have been entitled to claim such debt or chose in action) must be given express notice in writing of the assignment.

SECTION 136(I) IN PRACTICE: A CAUTIONARY TALE

The English Court of Appeal examined section 136(i) of the Law of Property Act in the case of Bexhill UK Ltd v. Razzaq3 (‘Bexhill v. Razzaq’), and its outcome requires careful attention as, it will be seen, the consequences of an assignment may have serious jurisdictional effects. Giving judgment for the Court of Appeal Aikens LJ examined, in particular, the express terms of a contractual document (the ‘BB Debenture’), governed by English law, in order to decide whether, taken as a whole, those terms transferred ‘absolutely’ to a bank (Barclays) certain ‘things in action’ or whether the terms created an assignment by way of charge only. 1. The reference work is that by Marcus Smith QC and Nico Leslie, The Law of Assignment, 2nd edn., Oxford University Press, 2013, hereinafter ‘Smith & Leslie’. 2. Chapter 16 is devoted to section 136(i). 3. [2012] EWCA Civ 1376.

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The issue was a question of construction of the relevant document taken as a whole and Aikens LJ referred to an earlier judgment of Mathew LJ in Hughes v. Pump House Hotel Company4 for an explanation of the principle and the consequences of an assignment being ‘absolute’ or ‘by way of charge only’. In Hughes v. Pump House Hotel Company, Mathew LJ stated (at pp. 193-194): In every case of this kind, all the terms of the instrument must be considered; and, whatever may be the phraseology adopted in some particular part of it, if, on consideration of the whole instrument, it is clear that the intention was to give a charge only, then the action must be in the name of the assignor; while, on the other hand, if it is clear from the instrument as a whole that the intention was to pass all the rights of the assignor in the debt or chose in action to the assignee, then the case will come within s. 25 [of the Judicature Act, 1873], and the action must be brought in the name of the assignee.

The facts of Bexhill v. Razzaq are, in outline, as follows. Bexhill provided ‘premium credit funding’ to insurance brokers, which enabled those brokers to offer to their clients, insureds under insurance policies, the facility to pay their annual insurance premiums by instalments, rather than in one, annual, lump sum. Razzaq traded as an insurance broker and controlled RSA Premium Credit Limited (‘RSA’). That company was used by Razzaq to provide premium credit facilities for his clients, the insureds. Clients of Razzaq would enter into a credit premium agreement with RSA, whereby RSA funded the immediate payment of the full annual insurance premium and the client insureds would then repay the annual premium amount to RSA in instalments over the year. In order that RSA could fund the payment of the whole annual premium ‘up front’ to the insurer whilst its clients repaid the amount of the premium to RSA in instalments, RSA would borrow the necessary funds from Bexhill. Bexhill entered into a ‘Facility Agreement’ with RSA (‘the Bexhill FA’), to which Razzaq was also a party as ‘guarantor’. Bexhill did not itself fund the sums it advanced to RSA under the Bexhill FA. Instead Bexhill, in turn, drew on a facility arrangement with Barclays Bank PLC (‘Barclays’), which had been concluded on 20 March 2002 more than four years prior to the Bexhill FA. The Barclays-Bexhill Facility Agreement (‘BBFA’) was intended to cover arrangements such as those between Bexhill and RSA. Bexhill had assigned to Barclays, pursuant to the BB Debenture: all its right title and interest in this [Bexhill FA] including all the rights and remedies in connection with the Finance Agreements [between RSA and its clients] and all proceeds and claims arising from this Agreement.

Within the Bexhill FA there was a letter from Bexhill to RSA, which recorded that, by the BB Debenture, Bexhill had:

4. [1902] 2 KB 190.

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assigned to Barclays Bank PLC … all its present and future right, title and interest in and to the [Bexhill FA] … including all rights and remedies in connection with the [Bexhill FA] and all proceeds and claims arising from the [Bexhill FA].

The letter also stated that Bexhill ‘irrevocably authorises and instructs [RSA] from time to time’, among other things, ‘ … to hold sums from time to time due and payable by you to us under the [Bexhill FA] to the order of [Barclays]’; and ‘ … to comply with the terms of any written notice or instructions in any way related to or purporting to relate to the [BB Debenture], the sums payable to [borrowers of funds from RSA] or the debts represented thereby, which you receive from time to time from [Barclays] without any reference to or further authority from [Bexhill] … ’. The letter also stated that, by execution of the Bexhill FA, RSA acknowledged in favour of Barclays that RSA accepted ‘ … the instructions and authorisations contained in this notice’ and that RSA undertook ‘ … to act in accordance with and comply with the terms of this notice’. The letter was signed by Razzaq on behalf of RSA, and a copy was sent to Barclays. There was also a debenture in place as between Bexhill and Razzaq, but that is not of concern for present purposes. Of particular relevance to the issue of the nature of the assignment are the terms of the BB Debenture. Insofar as these are recorded in the judgment of Aikens LJ, they are as set out in the following paragraphs. By clause 2 of the BB Debenture, Bexhill covenanted to pay or discharge on demand ‘the Secured Obligations’ as defined, ‘ … as and when they fall due’. ‘Secured Obligations’ meant ‘ … (i) all indebtedness, liabilities and obligations which now or at any time hereafter may be due, owing or incurred in any manner whatsoever to [Barclays] … by [Bexhill] … .’. Under the heading ‘Assignments by [Bexhill]’ clause 3.1 of the BB Debenture provides: (1)As a continuing security for the payment of the Secured Obligations … [Bexhill] assigns and agrees to assign absolutely in favour of [Barclays] all of [Bexhill’s] rights, title, interest and benefit in the Receivables. (2)As a continuing security for the payment of the Secured Obligations, [Bexhill] hereby with full title and guarantee assigns and agrees to assign absolutely in favour of [Barclays] all of its rights, title, interest and benefit in and to each Relevant Contract and all collateral and rights thereunder.

The term ‘Receivables’ was defined in clause 1.1 of the BB Debenture as follows: Receivables means: (i) all present and future book and other debts, rentals, royalties, fees, VAT and monetary claims and all other amounts recoverable or receivable by [Bexhill] from other persons or due or owing to [Bexhill] (including, but not limited to, the Qualifying RF Receivables and all other amounts payable to [Bexhill] under the [Bexhill FA] and the Retail Financier Assignments) whether actual or contingent and whether arising under contract or in any other manner whatsoever; (ii) the benefit of all rights and remedies relating to any of the foregoing including, without limitation, claims for damages and other remedies for non-payment of the same, all entitlements to interest, negotiable instruments, guarantees, indemnities, Encumbrances, reservations of property rights, rights of

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tracing and unpaid vendor’s liens and similar associated rights; and (iii) all proceeds of any of the foregoing.

By clause 3.3 of the BB Debenture, which was headed ‘Notice of Assignment’, Bexhill undertook as follows: Immediately upon execution of this Deed (and immediately upon the obtaining of any Insurance or the execution of any Relevant Contract after the date of this Deed) [Bexhill] shall in respect of each Relevant Contract, deliver a duly completed notice of assignment to each other party to that Relevant Contract (with a copy to [Barclays]), and use its best endeavours to procure that each such executes and delivers to [Barclays] an acknowledgement, in each case in the respective forms set out in schedule 2 (Forms of notice to and acknowledgement by party to Relevant Contract or in such other form as [Barclays] shall agree); … …

Clause 3.2 of the BB Debenture was subtitled ‘Fixed Charges given by [Bexhill]’. By this clause, Bexhill charged and agreed to charge in favour of Barclays, ‘by way of first fixed charge’ all its ‘ … right, title, interest and benefit in and to the Collection Account … .’. By clause 3.2.13, Bexhill charged and agreed to charge ‘to the extent not effectively assigned under clause 3.1.1 by way of first fixed charge all of the Receivables’. Under clause 3.4 of the BB Debenture, which was entitled ‘Floating Charge’, Bexhill charged all its ‘present and future assets and undertaking … which is not effectively charged by way of first fixed mortgage or charge or assigned’ to Barclays by way of a first floating charge, by way of continuing security for the payment of the Secured Obligations. Clause 5 of the BB Debenture provided as follows: (1) [T]his Debenture shall be in addition to … any other security which [Barclays] may at any time hold for any of the Secured Obligations … and (2) [T]his Debenture shall remain in full force and effect as a continuing security until [Barclays] shall have certified in writing that the Secured Obligations have been discharged in full.

By clause 7.1.2 of the BB Debenture, Bexhill agreed to execute a legal assignment ‘in such form as [Barclays] may reasonably require over all or any of the Receivables and give notice of such assignment to the relevant Debtors and/or [QRFS]’. Under clause 11.1 of the BB Debenture, Bexhill undertook to ensure that all payments received under ‘Bexhill Facility Agreements’ were paid directly into the Collection Account. Bexhill also undertook to ‘collect all other Receivables in the ordinary course of trading as agent for [Barclays]’ and immediately upon receipt ‘pay directly all monies which it may receive in respect of the Receivables into the Collection Account or such other account as [Barclays] may from time to time direct’, but in the meantime to hold all monies so received in trust for Barclays. Clause 13 of the BB Debenture placed severe limitations on what Bexhill could do with any sums deposited in the Collection Account. Thus, Bexhill could not withdraw any amount unless consent had been given by Barclays in accordance with the terms

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of clause 13.2. Even if consent was given, amounts standing to the credit of the Collection Account had to be applied in the order set out in that clause before any withdrawal by Bexhill could take place. Effectively, Barclays had complete control over the sums credited to the Collection Account which had to be established by Bexhill in accordance with the BBFA. As already noted, the sums credited to the Collection Account had themselves been collected by Bexhill acting, expressly, as agent for Barclays. Bexhill was not collecting Receivables on its own account. Clause 16.1 of the BB Debenture states that ‘ … the security constituted by this Debenture shall become immediately enforceable upon the occurrence of an Event of Default which is continuing unremedied and unwaived … ’. It also provided that ‘ … after the security constituted by this Debenture has become enforceable, [Barclays] may in its absolute discretion enforce all or any part of this security in such manner as it sees fit’. The background to the case itself involved a claim by Bexhill to recover from Razzaq sums repayable under the Bexhill FA. Razzaq opposed the claim on various grounds. At first instance, the judge HHJ Simon Brown QC apparently held that (a) Bexhill had assigned absolutely to the Bank its right to sue Razzaq on the charge, but (b) Bexhill was nonetheless entitled to sue Razzaq under the charge as agent of Barclays. On appeal, Aikens LJ examined the nature of the ‘assignments’ created by clause 3 of the BB Debenture, and, therefore, the right of Bexhill to sue Razzaq. As a preliminary remark on the nature of the assignments, Aikens LJ said: it is important to recall the effect of an assignment of a right, whether or not it is a statutory legal assignment. The assignee becomes either the legal or beneficial owner of the thing in action and its benefits. He does not become a party to any contract or deed which contains or gives rise to the right. and Whether a particular instrument creates an ‘absolute’ assignment or an assignment ‘by way of charge only’ is a question of construction of the relevant instrument taken as a whole.

The prism through which Aikens LJ viewed the arrangements as between Bexhill and Barclays was the clear language of assignment found in clause 3.1.1 of the BB Debenture (….assigns and agrees to assign absolutely in favour of [Barclays] all of its rights…. in the Receivables). He came to a preliminary conclusion that there was an absolute assignment. He then adopted the approach of examining the other provisions in the BB Debenture to ascertain whether they would modify that preliminary conclusion. Of considerable importance for Aikens LJ was the fact that Bexhill was to collect payments from RSA as agent for Barclays and, then, immediately upon receipt pay directly those monies into the ‘Collection Account’ or such other account as Barclays may from time to time direct. Aikens LJ also attached importance to the requirement for notification of assignment to other parties which the BB Debenture required of Bexhill. Both these points weighed in favour of the preliminary conclusion which Aikens LJ had arrived at, namely that the charge was absolute.

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Aikens LJ did not consider the provisions of the BB Debenture as regards enforcement, or various contingent events relating to the security created, as detracting from his preliminary conclusion. He distinguished between enforcement (in the event of a default), and the creation of the security which had already occurred. A right of enforcement in the event of default did not give the assignment concerned the attributes of an assignment by way of charge only. In short, Aikens LJ held that the BB Debenture was an absolute assignment, and not one by way of charge only. The consequences were held to be the following: (a) the Charge and the right to sue Mr Razzaq on it are the subject of an absolute assignment which operates in equity in favour of Barclays; (b) Bexhill does not have the right, as sole claimant, to sue Mr Razzaq on the Charge, either on its own behalf or as agent for Barclays; (c) if the claim against Mr Razzaq is to be pursued, an application to join Barclays to the action must be made; and (d) any such application will be remitted to the judge to determine.

As can be readily appreciated, in the arbitration context, consequence (c) of Bexhill v. Razzaq would be problematic. Although not referred to in Bexhill v. Razzaq, a differently constituted Court of Appeal in Raiffeisen Zentralbank Osterreich AG v. An Feng Steel Co. Ltd. & Ors [2001] EWCA Civ 68, had previously considered a deed of assignment whereby the respondent purported to ‘assign absolutely and unconditionally’ all their rights and interest in certain insurances and undertook to give notice of assignment to insurers. In the leading judgment, Mance LJ (as he then was) found that section 136 of the Law of Property Act was not applicable on the facts of that case, because, among other things, there was no assignment of the whole benefit of the insurance cover and therefore no absolute assignment. The Court of Appeal did, however, observe that a provision for release of security at the end of the period of the loan does not prevent a charge from being absolute. Mance LJ put it as follows: I also accept that, for the purposes of section 136, an assignment is not prevented from being absolute by virtue of the fact that it may have been entered into for the purpose of security and may (as here) be subject to an equity of redemption, in the form of a provision for reassignment on repayment of the loan.

The conclusion to be drawn from this statement is such a clause in an assignment which provides for reassignment upon repayment is not determinative against a charge being absolute; but is also not determinative in the opposite direction.

[A]

Some Preliminary Conclusions Arising from the English Case Law

These are: a. The threshold requirement for the applicability of section 136 is whether or not the assignment is absolute.

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b. Ascertaining whether an assignment is absolute is a matter of interpretation of the relevant document in its proper context. c. An assignment, even if absolute, is not a novation. The assignee does not take the place of the assignor in the underlying contract. Section 136 does not involve itself with novations. d. Specified conditions for the future enforcement of security (such as a default by the assignor) are not an indication of an assignment by way of charge only as the security has already been created. Enforcement is a separate matter from the creation of a security. e. Notification to the debtor of an assignment is an important factor pointing to such assignment being absolute. f. A clause for reassignment back to the assignor at the end of the security period is not a bar to an absolute assignment. g. The perspective of the debtor is both practical and legally important. To whom does it pay the money, the assignor or the assignee? How does it know what to do?

[B]

What Does Any of This Matter for an International Arbitration?

The answer is: rather a lot, particularly where there has been financing, specifically project financing. If a party involved in a large project has given complex security based on English law to secure financing, and, as is very often the case, the counterparty is notified of any assignments contained in those security documents, it should never be assumed that section 136(i) does not apply. That is the lesson contained in Bexhill v. Razzaq. Specifically, large and complex project contracts in the international context often contain arbitration clauses, and if a claim arises, a respondent might well be advised to check through its records to see whether it was ever notified of an assignment from its counterparty. While the main contract may well be subject to the law of the place of the project, if English law governs the security documentation, the respondent might further be well advised to identify whether, as a matter of English law, the proper interpretation of such security results in an absolute assignment rather than a charge only. If the assignment is an absolute one, as a matter of English law, and, further, such assignment covers the choses in action pursued in the arbitration, then that claimant no longer owns those claims. Whether such an outcome is described as jurisdiction or standing may well depend on the seat of arbitration, but it may not necessarily matter that much. If a claimant no longer owns a cause of action, or a prayer for relief, how can such a claimant be awarded that relief? The answer is likely to be no. This may not have been the intention of the drafters of the security documentation, but as was demonstrated by Bexhill v. Razzaq, unintended consequences can flow from financiers looking to give themselves maximum protection.

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A final suggestion would be for any claimant, which knows that it has given extensive security for its financing of, for example, a project, to check whether or not it should have its lead banker included as a claimant at the outset, or also ensure that the point is thrashed out in correspondence with the putative respondent prior to initiation of the arbitration.

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The Singapore International Arbitration Centre (SIAC) opened its doors in 1991 and received two cases that first year. In the barnstorming twenty-five years that followed, SIAC has emerged as a global institution of influence with an annual docket of administered cases matched by only a handful of institutions. Looking back at this history, the defining year may well have been 2008 when the Minister of Law for Singapore, K Shanmugam, showing his usual wisdom by recognizing the need to internationalize this regional institution, approached Dr Michael Pryles and requested that he serve as the Chairman of SIAC alongside other leading lights in international arbitration.1 He accepted and SIAC has never looked back. Leading publications recognize Dr Pryles as, among countless other commendations, ‘a level above the rest’,2 a ‘star’3 and ‘up there in the stratosphere when it comes to arbitrators’.4 Singapore celebrates his contributions a bit more personally with the award of Pingat Bakti Masyarakat for his public service to Singapore, a medal worn on the left side of the outer garment suspended by a ribbon,5 which would be, quite appropriately, close to his heart. Dr Pryles’ standing as one of the most highly regarded individuals in arbitration is the product of a lifetime of achievement that truly runs the vocational gamut. It is this diversity of experience and accomplishment that places Dr Pryles perfectly to unpack

1. Ministry of Law Singapore, Opening Address by Minister for Law, K Shanmugam, at SIAC Congress 2016; https://www.mlaw.gov.sg/content/minlaw/en/news/speeches/opening-add ress-by-minister-for-law--k-shanmugam--at-siac-congre.html (accessed 1 May 2017). 2. Who’s Who Legal 2006. 3. Who’s Who Legal, Commercial Arbitration 2010. 4. Chambers Asia Pacific 2012. 5. Pingat Bakti Masyarakat (The Public Service Medal) Rules 1996, Rule 6 (29 Jul. 1996), (G.N. No. S 337/96).

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some of the most challenging issues in international arbitration. His 1997 article Choice of Law Issues in International Arbitration,6 penned during his former double-hat role of professor and law firm partner, shows his unique blend of commercial sensibility and academic rigour, which allows him to navigate the law in a manner that is accessible for all arbitration stakeholders. It is therefore unsurprising that Dr Pryles was able to, at a relatively early stage in the scholarship, identify the choice of law issues that arbitrators must wrangle to decide increasingly complex disputes. During the course of his analysis, Dr Pryles touched on the limits to party autonomy and recognized that difficult questions may arise when a choice of law is struck down on the basis of contravention of public policy, that is, musing as to ‘which public policy is applicable and whether an arbitrator is bound by any States, or perhaps transnational, concepts of public policy’.7 He further queried ‘whether an arbitrator is obliged or justified in giving effect to mandatory provisions of non-designated laws’.8 Twenty years have passed since Dr Pryles posed these questions and the answers remain elusive. This contribution seeks to: (i) account for some of the competing opinions and considerations in the application of mandatory rules of law that have developed since the early elucidation of this issue; and (ii) suggest guidelines by way of a hierarchy of considerations that may assist arbitrators in deciding when to consider or apply mandatory rules of law over and above the agreement of the parties.

§13.01

PARTY AUTONOMY AND MANDATORY RULES OF LAW

Party autonomy is a basic and guiding principle of international arbitration. International arbitration conventions,9 the UNCITRAL Model Law on International Commercial Arbitration (Model Law),10 national laws,11 and the rules of international arbitral institutions12 affirm the parties’ freedom to select the substantive law or rules of law applicable to their dispute. Putting this principle at its most plain, Article 19 of the Model Law provides that ‘[s]ubject to the provisions of this Law, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings’. Article 28(1) of the Model Law further stipulates that ‘[t]he arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute’. 6. Michael Pryles, Choice of Law Issues in International Arbitration, 63(3) The Journal of the Chartered Institute of Arbitrators, 200, 200 (1997). 7. Ibid., at 207. 8. Ibid. 9. See, e.g., European Convention on International Commercial Arbitration, Art. VII(I); 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Art. 42. 10. UNCITRAL Model Law, Art. 28(1). 11. See, e.g., Swiss Law on Private International Law, Art. 187(1); France’s Code of Civil Procedure (as amended by Decree No. 2011-48), Art. 1511; Arbitration Law of the People’s Republic of China 1994, Art. 8; Indonesian Law on Arbitration 1999, Art. 56; Indian Arbitration and Conciliation Act 1996, s. 28(1)(b). 12. See, e.g., UNCITRAL Rules 2013, Art. 35(1); ICC Rules 2017, Art. 21(1); SIAC Rules 2016, Rule 31(1); SIAC Investment Arbitration Rules 2017, Rule 28(1); LCIA Rules 2014, Art. 22(3); SCC Rules 2017, Art. 27(1).

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Party autonomy, however, is not absolute and the parties’ choice of law may yield to possible constraints placed by mandatory rules of law. The question of when relevant mandatory rules of law which were not chosen by the parties should be considered or applied is the more difficult proposition. The silence of international arbitration conventions and national arbitration laws in this regard has unfortunately resulted in conflicting views. For the purposes of particularization in this contribution and without purporting to be an encompassing or exhaustive definition, a mandatory rule of law shall be defined as a rule of a state which imposes requirements on a party or parties in a relationship regardless of the applicable law of that relationship. Commonly cited examples of mandatory rules of law include competition laws, currency controls laws, environmental protection laws, measures of embargo, blockade or boycott, and laws designed to protect parties presumed to be in an inferior bargaining position.13

[A]

Mandatory Rules of the Proper Law

It is well accepted, and the authors agree, that arbitrators should generally apply relevant mandatory rules of law found in the parties’ agreed law of the contract in deciding a dispute.14 This practice comports with the arbitrator’s duty to respect party autonomy and apply the law chosen by the parties, which naturally includes the mandatory rules of that law. There are, however, some exceptions to this basic principle. For instance, arbitrators should not be required to apply the mandatory rules found in the proper law of the contract when these contradict transnational public policy such as a rule that would allow uncompensated expropriation or condones racial or religious discrimination.15 Arbitrators must also appreciate the overall legal framework of the dispute to avoid the mechanical application of mandatory rules of law, and instead examine if such rules are in fact applicable to international disputes and not meant for domestic matters.16 Therefore, save for certain exceptions, there is a general consensus that arbitrators, in appropriate circumstances, should generally apply the mandatory rules of the law chosen by the parties. Widening the aperture slightly, the nub of the debate, it seems, rests on the question of whether parties are able to ‘contract out’ of any undesirable mandatory provisions of their chosen law. There are two broad views on this point. The argument in the affirmative for party autonomy rests on the proposition that if parties expressly wish to exclude the application of a mandatory rule of law, arbitrators must not only 13. Pierre Mayer, Mandatory Rules of Law in International Arbitration, 2(4) Arbitration International, 274, 275 (1986). 14. Yves Derains, Public Policy and the Law Applicable to the Dispute in International Arbitration, in Comparative Arbitration Practice and Public Policy in Arbitration 227, 255 (Pieter Sanders, T.M.C. Asser Instituut eds., Kluwer Law and Taxation Publishers 1987). See also, Pierre Mayer, Mandatory Rules of Law in International Arbitration, 2(4) Arbitration International, 274, 281 (1986). See also, Andrew Barraclough & Jeff Waincymer, Mandatory Rules of Law in International Commercial Arbitration, 6(2) Melbourne Journal International Law, 205, 222 (2005). 15. Gary B. Born, International Commercial Arbitration vol. 2, 2708 (2nd ed. Wolters Kluwer 2014). 16. S.M. Hyder Razvi, Mandatory Rules of Law in International Business Arbitration, 3(2) The Lahore Journal of Economics, 35, 45 (1998).

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respect this choice but are required to do so under the principle of party autonomy.17 Proponents of this view further aver that if arbitrators were to go beyond the four corners of their party-given mandate, it would have the effect of undermining the will of the parties to protect a public policy to which the arbitrators are not guardians.18 This approach seems to be validated from a practical standpoint given that the ultimate effect would be the same if the parties selected a law that did not contain the undesirable mandatory rule from the outset.19 The authors take the opposite view. Allowing parties to ‘contract out’ and avoid mandatory rules or public policy provisions of their chosen law under the guise of party autonomy takes the parties’ freedom of choice a step too far, and beyond the reach of legitimate sovereign and public interest regulation. Parties’ freedom of choice is not absolute and must be balanced against other competing interests such as equally important general principles of law.20 Taken to the extreme, support for this proposition may well strike at the very foundation of arbitration, particularly if the outcome of an arbitrator’s decision were to adversely affect national interests. Even if it is accepted arguendo that arbitrators are not guardians of the public order, they nevertheless should have a sense of duty to respect state public policy for the survival of international arbitration as an institution.21 Arbitration does not operate in a vacuum and the parties and the arbitrators are not the only stakeholders. If states start to feel threatened by the creep of party autonomy, these same states could limit the scope of arbitrability, or deny it altogether.22 Switching vantage points, in cases where parties fail to select the proper law, and the arbitral tribunal makes the selection for them, either through conflicts rules, or by directly choosing the appropriate substantive law, arbitrators almost always apply the chosen law’s mandatory rules. This approach makes sense and accords with the authors’ analysis above. As discussed earlier, this choice of law, whether by agreement of the parties or in the discretion of the arbitral tribunal, should come part and parcel with the application of mandatory rules of that law.

17. Pierre Mayer, Mandatory Rules of Law in International Arbitration, 2(4) Arbitration International, 274, 283-284 (1986). See also Yves Derains, Public Policy and the Law Applicable to the Dispute in International Arbitration, in Comparative Arbitration Practice and Public Policy in Arbitration 227, 255 (Pieter Sanders, T.M.C. Asser Instituut eds., Kluwer Law and Taxation Publishers 1987). 18. Pierre Mayer, Mandatory Rules of Law in International Arbitration, 2(4) Arbitration International, 274, 283-284 (1986). 19. Okezie Chukwumerije, Choice of Law in International Commercial Arbitration, 184 (Praeger 1994). See also Yves Derains, Public Policy and the Law Applicable to the Dispute in International Arbitration, in Comparative Arbitration Practice and Public Policy in Arbitration 227, 244 (Pieter Sanders, T.M.C. Asser Instituut eds., Kluwer Law and Taxation Publishers 1987). 20. Abdul F. Munir Maniruzzaman, International Arbitration and Mandatory Public Law Rules in the Context of State Contracts: An Overview, 7(3) Journal of International Arbitration, 53, 54 (1990). 21. Pierre Mayer, Mandatory Rules of Law in International Arbitration, 2(4) Arbitration International, 274, 285-286 (1986). 22. Andrew Barraclough & Jeff Waincymer, Mandatory Rules of Law in International Commercial Arbitration, 6(2) Melbourne Journal International Law, 205, 214 (2005).

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Mandatory Rules of Law Outside the Proper Law

More controversial and nuanced issues take shape when the relevant mandatory rules of law are derived from a legal order outside the chosen law of the parties or what is commonly termed as ‘foreign mandatory rules’. Some take the view that arbitrators can only apply the law chosen by the parties as they are bound by the parties’ will. Others are wary of the uncertainty that the imposition of foreign mandatory rules would cause to parties if they were not able to predict the rules applicable to their dispute.23 Dr Pryles, for his part, recognized the possibility of fundamental unfairness in international contracts where the parties do not designate the governing law and the contract ends up subject to the laws of a particular state.24 There are many voices, however, that accept and recognize that there are laws outside the proper law that may trump the parties’ chosen law in certain circumstances. These intervening foreign mandatory rules may be found in the: (i) laws of the place of arbitration; (ii) laws of the place of performance; (iii) personal laws of the parties; (iv) laws of the place of enforcement of the award; and (v) transnational public policy.

[1]

Laws of the Place of Arbitration

The place of arbitration is not only a source of procedural laws affecting the arbitration process but also a possible source of substantive law. While it is settled that the law of the place of arbitration governs the procedural aspects of international arbitral proceedings, it is less clear how this might apply to issues of substantive law. Some arbitrators refuse application of substantive mandatory laws of the seat reasoning that they have no forum in the same way as national courts do and therefore do not owe strict allegiance to the laws of the place of arbitration.25 Some other arbitrators automatically apply the substantive mandatory rules of the lex arbitri on the assumption that arbitrators derive their powers from the law of the seat.26 In ICC Case No. 5946 (1990),27 the arbitral tribunal denied a claim for punitive or exemplary damages, stating that these ‘are considered contrary to Swiss public policy, which must be respected by an arbitral tribunal sitting in Switzerland even if the arbitral tribunal must decide a dispute according to a law that may allow punitive or exemplary damages’.28 Certain pieces of legislation, albeit not applicable to international arbitration, also support the application of foreign substantive mandatory rules. For instance,

23. S.M. Hyder Razvi, Mandatory Rules of Law in International Business Arbitration, 3(2) The Lahore Journal of Economics, 35, 47 (1998). 24. Michael Pryles, Choice of Law Issues in International Arbitration, 63(3) The Journal of the Chartered Institute of Arbitrators, 200, 201 (1997). 25. Okezie Chukwumerije, Choice of Law in International Commercial Arbitration, 182 (Praeger 1994). 26. Andrew Barraclough & Jeff Waincymer, Mandatory Rules of Law in International Commercial Arbitration, 6(2) Melbourne Journal International Law, 205, 223 (2005). 27. Final Award in ICC Case No. 5946 of 1990. 28. International Council for Commercial Arbitration, Yearbook Commercial Arbitration vol. XVI-1991, 113 (Albert Jan van den Berg ed., Kluwer Law and Taxation Publishers 1991).

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the 1980 Convention on the Law Applicable to Contractual Obligations (Rome Convention) explicitly recognizes the application of mandatory rules of the forum over the law of the contract.29 Similarly, Regulation (EC) No. 593/2008 of 17 June 2008 (Rome I Regulation), which replaces the Rome Convention, recognizes the ‘overriding mandatory provisions of the law of the forum’.30 Both the Rome Convention and the Rome I Regulation recognize the primacy of public policy (ordre public) of the forum.31 The authors suggest that care must be taken in applying the substantive mandatory rules of law of the seat, other than those relating to the arbitrator’s power to grant reliefs or remedies, which undeniably is a matter within the lex arbitri. Parties sometimes choose the arbitral seat precisely because it has no connection to them or their transaction or dispute. The application of mandatory laws of a seat, where it has been chosen for purposes of neutrality or procedure, therefore may run counter to the parties’ intent and legitimate expectations. It therefore behooves arbitrators to take into consideration not only the parties’ intent in choosing the seat but also a state’s true interest behind its laws. The arbitral seat’s regulatory interest might only be aimed at its domicile or conduct occurring only within its territory, and otherwise has no interest in the outcome of any dispute.

[2]

Law of the Place of Performance

While the seat of arbitration may bear no relevance to the parties’ transaction or dispute, the same could not be said of the place of performance. The authors are of the view that the place of performance may have relevant regulatory concerns closely connected to the transaction or dispute, the application of which may not be simply left to the parties’ agreement. The applicability of foreign mandatory rules which have a close connection to the parties, their transaction, or dispute, is supported by the Draft Recommendations on the Law Applicable to International Contracts, which suggest that arbitrators have the discretion to apply mandatory rules of a foreign state if the parties or the contract have a close connection to that jurisdiction, insofar as under its law those rules must be applied notwithstanding the law applicable to the contract.32 This view is echoed in some civil and common law jurisdictions as expressed in the Rome Convention,33 Rome I Regulation,34 and the US Restatement (Second) Conflict of Law.35

29. 30. 31. 32. 33.

Rome Convention, Art. 7(1). Rome I Regulation, Art. 9(2). Rome Convention, Art. 16; Rome I Regulation, Art. 21. ICC Draft Recommendations, Art. 9. Rome Convention, Art. 7(1) provides that ‘mandatory rules of the law of another country with which the situation has a close connection, if and in so far as, under the law of the latter country, those rules must be applied whatever the law applicable to the contract’. 34. Rome I Regulation, Art. 9(3) provides that ‘overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful’. 35. Restatement (Second) Conflict of Laws, s. 187(2)(b) provides that ‘application of the law of the [forum’s choice of law rule] would be contrary to a fundamental policy of a state which has a

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Other arbitrators, however, do not share this view. In ICC Award No. 1399 (1967),36 the arbitrators refused to displace the proper law of the contract (French law) with the law of the place where the goods in dispute were to be imported even if the parties’ contract had the indirect object of circumventing Mexican customs law. Respectfully, the authors do not agree with the decision made by this arbitral tribunal. The better and more commercial view may be that if parties intend for a contract to be performed in a particular place, the underlying assumption must be that the performance would comply with local regulations, even if these provincial requirements were not considered as transnational public policy. By way of practical example, many joint ventures and investments require compliance with the local regulations of the intended place of performance. These mandatory requirements may come in different forms such as prohibitions on the class of acts or activities, imposition of taxes on certain activities, services or goods, restriction on use or ownership of land, and employment of local staff or minimum local content. To decide otherwise may place arbitrators in the position of post hoc deciders of the conduct of business transactions and may serve to sanction unauthorized behaviour in that state. It should also be noted that violations of such rules, even if not against transnational public policy, may still attract penal sanctions.

[3]

Personal Laws of the Parties

The authors subscribe to the view that applicable mandatory rules of law that are found in the personal laws of one or both parties, ought to apply regardless of the parties’ choice of law. Personal laws come into play most typically with respect to issues on capacity to enter and create a valid agreement. The parties’ chosen law, which forms part of the agreement, finds no relevance if the basis of the enquiry was whether a valid agreement, in the first place, was reached. In this connection, Article V(1) of the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) provides that ‘[r]ecognition and enforcement of the award may be refused … only if … (a) The parties to the [arbitration] agreement were, under the law applicable to them, under some incapacity.’ In this sense, personal laws, even if outside the contemplation of parties and their choice of law, should still apply as a matter of right and to ensure the eventual enforceability of the arbitral award. Personal law may also intervene and trump party autonomy on the merits of the dispute. In a 2016 SIAC Award,37 the arbitral tribunal dealt with the issue of whether the chosen law (Singapore law) prohibits an arbitral tribunal from granting a statutory relief under the personal law (Italian law) of one of the parties. The Claimant argued that the ‘mandatory’ nature of Article 1751 under Italian law (a mandatory statutory right created for agents, to enable them to make indemnity claims against their

materially greater interest than the chosen state in the determination of the particular issue and which, under the [forum’s choice of law rule] of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties’. 36. Final Award in ICC Case 1399 (1967). 37. Unreported (2016).

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principals wherever the principal may be situated) could not override the express choice of law clause in the arbitration agreement. In denying the Claimant’s claim, the arbitral tribunal found that it was bound to apply the Italian mandatory personal law when deciding the Respondent’s indemnity claim. The arbitral tribunal reasoned, inter alia, that the principle of party autonomy in the choice of the law applicable to the agreement finds its limits when juxtaposed with mandatory laws to which a party or the parties may be subject to.

[4]

Laws of the Place of Enforcement

Some arbitrators consider the application of mandatory rules of law that pertain to the public policy of the place of enforcement as another source of law to be considered when deciding the merits of the dispute. This is typically done with a forward-thinking view to compliance with Article V(2)(b) of the New York Convention which stipulates that recognition and enforcement may be refused if the award violates the public policy of the forum where enforcement is sought. This is also consistent with the general requirement under many sets of institutional rules that the arbitral tribunal ‘shall make every reasonable effort to ensure the fair, expeditious and economical conclusion of the arbitration and the enforceability of any Award’.38 Others caution against attaching undue weight to enforceability concerns. For one, the New York Convention does not define ‘public policy’ and there is no consensus as to whether the policy refers to international or domestic public policy.39 Questions as to whether a domestic mandatory rule falls within the relevant definition of public policy may also come into play.40 Second, there may be significant challenges in applying the mandatory rules of the place of enforcement in multi-jurisdictional cases. It is untenable to hold that the arbitral tribunal has the duty to anticipate or become informed of and to apply the mandatory rules of each and every potential place of enforcement. This may also raise issues of jurisdiction if not submitted on by the parties. Further, where the mandatory rules of multiple potential places of enforcement stand in conflict, it would be equally inappropriate for the arbitral tribunal to, in essence, decide on the enforcement jurisdiction that the successful party will be able to pursue by choosing to apply the mandatory provisions of one state and not another. The authors prefer a hybrid approach. Arbitrators will do well to give due regard to the enforceability of the award and this starts by ensuring the procedural sanctity of the arbitration to avoid any grounds for a challenge at the enforcement stage. However, caution and care should not extend to examining, as an overriding consideration, whether the decision on the merits will stand at the place of enforcement. The manner in which the enforcement regime defines or delineates its public policy is not within the competence of the tribunal. If at all, the arbitral tribunal’s concern on issues of public

38. SIAC Rules 2016, Rule 41.2. 39. Andrew Barraclough & Jeff Waincymer, Mandatory Rules of Law in International Commercial Arbitration, 6(2) Melbourne Journal International Law, 205, 215 (2005). 40. Ibid.

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policy should be limited to the subject matter arbitrability that applies under the substantive law of the contract and the lex arbitri of the seat.

[5]

Transnational Public Policy

A wide number of commentators support the view that transnational (truly international) public policy may apply regardless of any conflicting mandatory rule or principles of party autonomy.41 These rules are likened to mandatory customary international law or jus cogens, which represent values that transcend the rules of any national system and are so essential that no state or party can contract out of them.42 Transnational public policy is thought to reflect the fundamental values, the basic ethical standards, and the enduring moral consensus of the international business community.43 Examples of transnational public policy include prohibitions against agreements to perform criminal acts, supplying arms to terrorist groups, bribery, and contracts contrary to morality and bonos mores, among others. However, the argument can be made that arbitrators cannot depart from the law expressly selected by the parties to apply transnational public policy. Dr Pryles contends that recognition of the existence of a transnational public policy, which is not founded on a directly applicable law but on wider considerations of appropriateness, ‘could undermine the contractual certainty upon which international transactions depend and confer on arbitrators a policy function which might well be regarded as inappropriate for private dispute resolvers’.44 Proponents of this view also raise concerns over difficulty in establishing a principle’s universality and the degree of acceptance required before a principle becomes ‘truly international’.45 While Dr Pryles’ position is undoubtedly sensible, the authors take the view that transnational public policy is a concept that would be difficult not to identify as it involves principles that are commonly recognized by political and legal systems around the world. Based on the foregoing analysis, any arbitrator not moved to guard public policy at the expense of party autonomy, must surely be duty-bound to, at the very least, uphold the most fundamental values of society.

§13.02

AN ATTEMPT TO GET IT RIGHT

Many able minds have sought a solution on the correct balance to be struck between mandatory rules and party autonomy but it remains a maze of majority and minority

41. Okezie Chukwumerije, Choice of Law in International Commercial Arbitration, 193 (Praeger 1994). 42. Ibid. 43. Pierre Lalive, Transnational (or Truly International) Public Policy and International Arbitration, in Comparative Arbitration Practice and Public Policy in Arbitration, ICCA Congress, Series No. 3, 258, 285-286 (Pieter Sanders ed., Kluwer Law International 1987). 44. Michael Pryles, Reflections on Transnational Public Policy, 24(1) Journal of International Arbitration, 1, 5 (2007). 45. Andrew Barraclough & Jeff Waincymer, Mandatory Rules of Law in International Commercial Arbitration, 6(2) Melbourne Journal International Law, 205, 219 (2005).

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opinions. The discussion in the first part of this contribution, while not exhaustive, highlights the disagreement amongst many scholars and practitioners. Today, the defining question still stands: how do arbitrators get the right law in the right place? There are commentators who have very helpfully provided suggestions and guidelines to arbitrators who are faced with the task to adjudicate the clash between state interests and party autonomy.46 Of particular interest to the authors is Barraclough and Waincymer’s suggested list of considerations that arbitrators may take into account when deciding whether to apply mandatory rules of law.47 While Barraclough and Waincymer lay out their suggested considerations without recommendation of superiority, attributing importance to each factor may be helpful in resolving the current puzzle whereby arbitrators may, divorced of any guiding principles, apply mandatory rules of law on the opaque and relatively unsatisfactory ‘case by case basis’. Dr Pryles identified this problem in 1997, writing, ‘… the law governing various aspects of an arbitration, and indeed the substantive liabilities of the parties themselves, should have an international currency or acceptability. How to achieve this is the real challenge for the future.’48 This section suggests that, to solve this challenge, arbitrators should consider the application of mandatory rules in accordance with a hierarchy of considerations. Each of the considerations described is not equal; therefore, arbitrators should, to the extent possible, evaluate the considerations relevant to application or non-application in order of importance. Broadly, arbitrators should prioritize, in order: (i) party autonomy; (ii) justice; (iii) consistency; (iv) sovereign support; (v) state legal expansionism; (vi) efficiency; (vii) enforceability; and (viii) arbitrators’ discretion/self-interest.

[A]

Party Autonomy

Application of the mandatory rules of law which is necessarily included in the law chosen by the parties is consistent with the principle of party autonomy. Application of foreign mandatory rules of law, on the other hand, must be construed strictly. The principle of party autonomy should be foremost regarded by arbitrators and be given priority to the extent practicable. Party autonomy should remain the guiding principle49 and general rule.50 If arbitration as a system and arbitrators were to eschew and disregard the principle of party autonomy there would be little to differentiate

46. See, e.g., Marc Blessing, Impact of the Extraterritorial Application of Mandatory Rules of Law on International Contracts Swiss Commercial Law Series vol. 9, 63-65 (Nedim Peter Vogt ed., Helbin & Lichtenhahn 1999). 47. Andrew Barraclough & Jeff Waincymer, Mandatory Rules of Law in International Commercial Arbitration, 6(2) Melbourne Journal International Law, 205, 211-217 (2005). 48. Michael Pryles, Choice of Law Issues in International Arbitration, 63(3) The Journal of the Chartered Institute of Arbitrators, 200, 209 (1997). 49. Alan Redfern & Martin Hunter, Law and Practice of Commercial Arbitration, 315 (4th ed., Sweet & Maxwell, 2004). 50. Asha Kaushal, Reconciling the Public Interest: Third-Party Participation, Confidentiality and Privacy in NAFTA Chapter 11 Arbitrations 9(6) International Arbitration Law Review, 172, 183 (2006).

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arbitration from national court litigation. Further, arbitrators would be going against the express will of the parties that empower their position.

[B]

Justice

It may be said that justice is best served by honouring the agreement of the parties. This is true only insofar as the parties’ contractual choices of law do not harm third parties nor offend related public policies. Party autonomy is not absolute. Arbitrators must also give way to other compelling considerations such as when it is evident that arbitration is being used to perpetuate fraud or circumvent laws. Arbitrators not only have the duty to act fairly towards the parties, but must also ensure that they do not aid and abet in wrongdoings or prejudice the interest of society and of the international community. This consideration is ranked high because of the wide impact arbitral decisions may have. The reality remains that international arbitration does not operate in a vacuum and there are various stakeholders that may be affected with the outcome of the dispute.

[C]

Consistency

Predictability is important in any legal regime to maintain credibility. Though arbitration does not rely on a system of precedent, there is an expectation of consistency among arbitral awards on the premise of the standard application of law. Clarity as to when and which mandatory rules of law should apply in certain circumstances would aid in standardization and promotion of consistency. Parties rely on such predictability when negotiating terms, including the arbitration agreement and, after a dispute has arisen, when crafting their arguments. An absence of consistency among arbitral awards might result in parties being unwilling to take the ‘chance’ of arbitration and push them to national courts, which does aim for consistent application of law.

[D]

Sovereign Support

If arbitrators are not thought to be guardians of the public policy then it should be uncontroversial to position these deciders as guardians of arbitration as an institution. Good arbitrators make the system work and the survival and growth of arbitration, in part, rests in their hands. Arbitrators, who do not exercise their adjudicative mandate in a just manner, taking into consideration the bigger ecosystem in which arbitration is placed, will likely contribute to its downfall. Where a state therefore has only reluctantly agreed to the arbitrability of disputes regarding certain subject matters, an arbitral tribunal should take care to apply the mandatory rules of that state in that subject matter.51 Areas of law in which states are most sensitive to the application of mandatory provisions have been identified as: ‘competition laws; currency controls; 51. Okezie Chukwumerije, Choice of Law in International Commercial Arbitration, 183 (Praeger 1994). See Mitshubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985).

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environmental protection laws; measures of embargo, blockade, or boycott; or laws failing in the category of legislation designed to protect parties presumed to be in an inferior bargaining position, such as wage-earners or commercial agents’.52 Arbitral tribunals should approach such sensitive subject matters with care, applying mandatory provisions such that reluctant states do not restrict the arbitrability of the subject matter. Even outside of sensitive subject matters, if states begin to feel that arbitral tribunals are not applying mandatory rules of law to the contravention of their public policy, states could pull sovereign support from arbitration.

[E]

State Legal Expansionism

State legal expansionism is of lesser priority, as it has the potential to politicize the institution of arbitration. State legal expansionism is the concept that ‘if states believe their interests can be protected in arbitration by mandatory rules, they may be encouraged to enact further mandatory rules.’53 That is, if arbitral tribunals were to automatically assume the applicability of mandatory rules, states may produce more mandatory rules to apply as a means of indirect regulation. This argument, by design, assumes a sort of sinister behaviour on the part of states. If arbitral tribunals were to begin to base their decision on whether to apply mandatory rules based primarily on a consideration of state legal expansionism, it would amount to a policy stance by the arbitral community. Arbitral tribunals should be wary of assuming such a policy position to keep the host state in check. Further, states are increasingly supportive – rather than antagonistic – towards arbitration. Arbitration provides an additional means of easing the burden on the national court system and often delivering more satisfactory results to commercial entities that prefer to craft their own binding dispute resolution process. The concept of state legal expansionism assumes a tension between the national court and arbitration that does not always exist. States are as likely to support arbitration within their jurisdictions as to purposefully create hurdles to make arbitration more difficult. Therefore, the consideration of state legal expansionism – in essence, whether or not arbitral tribunals should be cognizant of discouraging additional mandatory rules – should not overly be factored into an arbitral tribunal’s decision on the application of mandatory rules.

[F]

Efficiency

Arbitration as a process was intended to be a faster and more affordable alternative to national court litigation.54 Efficiency in speed and cost remains a priority for arbitral institutions and for arbitral tribunals, in an effort to maintain the commercial demand 52. Pierre Mayer, Mandatory rules of law in international arbitration, 2(4) Arbitration International, 274, 275 (1986). 53. Andrew Barraclough & Jeff Waincymer, Mandatory Rules of Law in International Commercial Arbitration, 6(2) Melbourne Journal International Law, 205, 212 (2005). 54. Gary B. Born, International Commercial Arbitration vol. 1, 84 (2nd ed. Wolters Kluwer 2009).

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for arbitration. However, as stakes in dispute have increased, as document production has become increasingly expansive, and as cases have become more technical, necessarily, arbitral tribunals have given more thorough consideration and canvassing of all possible issues, increasing the time and cost of arbitration.55 The decreasing efficiency of arbitration is not, therefore, primarily attributable to the application or non-application of mandatory rules. Nevertheless, until there is standardization and harmonization on the application of mandatory rules, arbitral tribunals will take additional time to consider such issues which may result in additional sluggishness in the arbitral process. Should arbitrators refuse to decide mandatory rules issues, there is also a concern that arbitration will become inefficient if arbitrators refer these questions to courts.56

[G]

Enforceability

The consideration of enforceability is one of the least important considerations for the reasons stated earlier. The New York Convention does not define ‘public policy’ and the manner in which the enforcement regime outlines its public policy is not within the competence of the tribunal. There may also be significant challenges in anticipating and being informed of mandatory rules of every potential place of enforcement in multi-jurisdictional cases. To the extent that an arbitral tribunal can foresee in what state the award is likely to be enforced, however, the arbitral tribunal would be wise to consider whether the application or non-application of the mandatory rules of that state would result in an enforceable award.57

[H]

Arbitrators’ Discretion/Self-Interest

The above seven considerations are, in some way, considerations of the parties’ or host state’s interest; the least important consideration for the arbitral tribunal is neither of parties’ nor a state’s interest, but a matter of the arbitrators’ self-interest. Arbitrators may have an interest in prioritizing party autonomy over mandatory rules, as doing so is more likely to satisfy commercial parties and perpetuates arbitration and their continued employment as arbitrators.58 A consideration of arbitrators’ discretion implies that an arbitral tribunal may decide in favour of their own professional opportunities or ease of workload instead of the first principles of arbitration. Therefore, in evaluating the potential application of mandatory rules, arbitrators’ discretion is far and away the least weighty consideration.

55. Ibid., at 85-6 (2nd ed. Wolters Kluwer 2009). 56. Andrew Barraclough & Jeff Waincymer, Mandatory Rules of Law in International Commercial Arbitration, 6(2) Melbourne Journal International Law, 205, 213 (2005). 57. Pierre Mayer, Mandatory Rules of Law in International Arbitration, 2(4) Arbitration International, 274, 276 (1986). 58. Andrew Barraclough & Jeff Waincymer, Mandatory Rules of Law in International Commercial Arbitration, 6(2) Melbourne Journal International Law, 205, 213 (2005).

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As with many things in arbitration, particularly in the Asia-Pacific Region, Dr Pryles has both sparked and set the tone for the most pressing issues of the day. Dr Pryles’ work some twenty years ago and his incisive questions that give weight to the many competing considerations, makes clear that the limits to party autonomy are among the most difficult and intellectually challenging issues confronting arbitrators. While it is beyond the scope of this article to attempt a comprehensive evaluation of this issue, this survey of the scholarship over the intervening years shows that a body of consistent principles regarding the party autonomy versus mandatory rules debate has yet to be established. Attempts have been made to develop guiding principles, methods, or suggested approaches, and a progressive harmonization is slowly coalescing to the view that some mandatory rules should apply regardless of the agreement of the parties. The authors agree that party autonomy, as a linchpin of arbitration, should be upheld to the greatest possible extent. The authors also subscribe to the view that mandatory rules and public policy could, in certain circumstances, override party autonomy. An arbitrator therefore has the responsibility and obligation to walk the delicate tightrope of protecting party autonomy and respecting state interest. The authors find Barraclough and Waincymer’s list of considerations particularly helpful in this regard. While it may be difficult to provide specific rules on when and which mandatory rules and public policies to apply in any given case, hierarchical considerations may aid in the decision making process. Dr Pryles is sui generis and nimble enough to decide these difficult questions of law and policy without a set of guiding principles or an arbitration roadmap. For the rest of us, the hope can only be to add to the ongoing discourse and slowly formulate answers to the questions that Dr Pryles would typically solve shortly after the close of proceedings.

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Intra-EU BITs: Competence and Consequences Lord (Peter) Goldsmith QC, PC & Boxun Yin*

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INTRODUCTION

Are intra-EU bilateral investment treaties (‘BITs’) compatible with European Union (‘EU’) law? This short question has been addressed by commentators and arbitral tribunals for over a decade. It will shortly fall to be considered by the Court of Justice of the European Union (‘CJEU’). The question, however, must be unpacked. At the outset, we leave to one side the question of substantive incompatibility: that question has already been the subject of much discussion.1 Rather, this chapter will focus on the following two questions.

* The views expressed in this chapter are the views of the authors, and are neither the views of Debevoise & Plimpton LLP nor of its clients. The authors would like to thank Peter Bates and Alice Hallewell, Trainee Associates based in Debevoise’s London office, for their research assistance. 1. See, e.g., Stephan Wilkes and Chloë Edworthy, The Future of Intra-European Union BITs: A Recent Development in International Investment Treaty Arbitration against Romania and Its Potential Collateral Damage, 33.4 Journal of International Arbitration, 331-352 (2016); Dominik Moskvan, The Clash of Intra-EU Bilateral Investment Treaties with EU Law: A Bitter Pill to Swallow, 22.1 Columbia Journal of European Law, 101-138 (2015); Anne-Karin Grill and Sebastian Lukic, The End of Intra-EU BITs: Fait Accompli or Another Way Out? Kluwer Arbitration Blog (16 November 2016); Erhard Böhm and Marie-Christine Motaabbed, Investment Arbitration, The European Union and the Unloved BITs of its Member States, Austrian Yearbook on International Arbitration, 371-392 (2014); Jan Kleinheisterkamp, The Future of BITs of European Member States after Lisbon, 29.1 ASA Bulletin, 212-223 (2011). The question of substantive incompatibility has recently been discussed by tribunals in: I.P. Busta & J.P. Busta v. The Czech Republic, (Stockholm) Arbitration Case V 2015/014, Final Award, paras 113-118, 126-128 (10 March 2017) and Anglia Auto Accessories Limited v. The Czech Republic, (Stockholm) Arbitration Case V 2014/181, Final Award, paras 113-118, 126-128 (10 March 2017).

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First, who is entitled to adjudicate this question? The European Commission asserts that the EU’s judicial order2 has exclusive competence to do so, to the exclusion of arbitral tribunals, since it is a question of EU law (not international law or any other body of law), and since Articles 344 and 267 of the TFEU provide the EU’s judicial order with that exclusive competence. Arbitral tribunals have consistently rejected this, with the question now the subject of a preliminary reference to the CJEU.3 § 14.03 discusses the reasons for this divergence in views as between tribunals and the European Commission, and concludes that when the matter falls to be considered by the CJEU, it seems likely that the CJEU will accept the European Commission’s views in light of the CJEU’s own conception – based on its existing case law – of the primacy of the EU legal order in the international legal hierarchy. Whether this is correct, of course, is an entirely separate question. However, it is an important decision that may well have implications for all international agreements entered into by the EU – including, importantly, the treaty by which the United Kingdom withdraws from the EU.4 Second, what are the potential consequences of a finding by the CJEU of incompatibility? Such a conclusion would be a definitive exposition of the content of EU law from the EU’s apex judicial organ, and so § 14.04 considers the extent to which such a decision might be taken into account by arbitral tribunals, as well as possible consequences in terms of applications to set aside, and applications to enforce (both within and without the EU), in the event that a tribunal constituted under an intra-EU BIT nonetheless proceeds to issue an award.

§14.02

BACKGROUND

BITs between the current EU Member States have been in place for a number of decades.5 They mainly date to a time when these States were not part of the EU. Most of these BITs were negotiated and entered into force as part of the process of economic liberalisation of former Eastern European States in the late 1980s and early 1990s, in order to encourage and stimulate foreign investment into those States.6 They provide for certain minimum standards of treatment on the part of the host State in favour of investors that are nationals of the other Contracting Party to the BIT, and also a right on the part of such investors to invoke an international arbitral process against the host State in the event that there is a dispute about (among other things) compliance with these standards.

2. By this we mean the national courts and tribunals of the EU Member States and the Court of Justice of the European Union (the ‘CJEU’), as contemplated in Art. 267 of the Treaty on the Functioning of the European Union (the ‘TFEU’). 3. The Slovak Republic v. Achmea BV, Case C-284/16, Request for a Preliminary Ruling from Bundesgerichtshof (23 May 2016). 4. Under Art. 50 of the Treaty of the European Union (‘TEU’). 5. See, e.g., Ursula Kriebaum, The Fate of Intra-EU BITs from an Investment Law and Public International Law Perspective, ELTE Law Journal, 27, 27 (2015). 6. See, e.g., European Commission letter of 13 Jan 2006 as cited in Eastern Sugar B.V. v. The Czech Republic, SCC Case No. 088/2004, Partial Award, para. 119 (27 March 2007); Ioan Micula, Viorel Micula et al. v. Romania, ICSID Case No. ARB 05/20, Award, para. 324 (11 December 2013).

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At around the same time, many of these former Eastern European States also sought membership of the EU. Indeed, through the 1990s many of these States entered into association agreements7 with the then European Communities (the ‘EC’) and their then Member States, which laid the groundwork for closer cooperation and integration in preparation for accession. Many of these association agreements also included provisions on trade and investment.8 This process of economic liberalisation was by and large successful, to the point that many of these States acceded to the EU in 20049 and 2007.10 The issue of the validity of intra-EU BITs generally, and the validity of investorState dispute resolution mechanisms specifically, did not play any part (or at any rate any significant part) in the accession negotiations,11 even though the various association agreements included clauses on freedom of trade and investment.12 The lack of attention to the validity of investor-State arbitration clauses is even starker in the case of treaties containing such clauses to which the EU is itself a party, such as the 1994 Energy Charter Treaty.13 Nonetheless, the European Commission began taking a strong stance against the validity of intra-EU BITs not long after the accession of the former Eastern European States in 2004. It has argued that any obligations owed by EU Member States under intra-EU BITs are incompatible with, and are therefore superseded by, the provisions of the EU Treaties14 to which all EU Member States are party, and that intra-EU BITs have been impliedly terminated under Article 59 of the Vienna Convention on the Law of Treaties (the ‘VCLT’) because they relate to the same subject matter as the EU Treaties,

7. Also known as ‘Europe Agreements’. 8. See, e.g., Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and the Czech Republic, of the other part, OJ of 31.12.94 No L 360: 2-201, Arts 46, 61, 65, 72 and 74; Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and the Slovak Republic, of the other part, OJ of 31.12.94 No L 359: 2-201, Arts 46, 61, 65, 72 and 74. 9. In 2004, ten States became members of the EU – of these, eight came from Central and Eastern Europe (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia). The other two were Cyprus and Malta. 10. In 2007, Bulgaria and Romania acceded. 11. See, e.g., in relation to the Czech Republic, Rupert Joseph Binder v. The Czech Republic, UNCITRAL, Award on Jurisdiction, para. 59 (6 June 2007): ‘The status of the Czech-German BIT was not regulated in connection with [the Accession Treaty], and there is no indication that it was discussed during the negotiations on the Czech Republic’s accession to the EU.’; and in relation to Romania, Micula v. Romania, supra n. 6, para. 321. 12. See, e.g., in relation to the Czech Republic, the discussion in Eastern Sugar v. Czech Republic, supra n. 6, paras 143 et seq. 13. Article 26 of which provides for investor-State arbitration. Indeed, the European Commission has acknowledged that the EU had ‘played a key role in negotiating’ the Energy Charter Treaty: see European Commission’s submission dated 12 June 2009, as cited in Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, para. 4.99 (30 November 2012). See also Kriebaum, supra n. 5, 35. 14. We use the expression ‘EU Treaties’ as an umbrella term to describe the constitutive treaties of the EU and its predecessor organisations. The most recent incarnation of the EU Treaties is the Treaty of Lisbon, which entered into force in 2009 and which amended and renumbered the TEU and the TFEU.

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or do not apply under Article 30(3) of the VCLT since they are incompatible with a number of provisions in the EU Treaties.15

§14.03

COMPETENCE AND APPLICABLE LAW

Two important and related questions arise at this juncture: 1. what law should be applied to the question of compatibility; and 2. who is entitled to decide, and who (if any) is precluded from deciding, the question of compatibility? This section considers these two inter-related questions together. They have been answered in different ways as between the European Commission on the one hand, and arbitral tribunals on the other.

[A]

Different Perspectives

The European Commission’s position is that: 1. intra-EU BITs cover the same subject matter as, and are incompatible with, the EU Treaties;16 and 2. in any event: a. the question of compatibility involves questions of EU law;17 b. EU law has primacy over any other body of law, including international law; and c. any dispute on the application and interpretation of EU law: i. may only be determined by the EU judicial system, i.e. by the national courts of EU Member States, and by the EU courts; and

15. These provisions include: the prohibition on State aid (Arts 107–109 of the TFEU); the prohibition on discrimination within the EU, inter alia since EU Member States that are not party to BITs are at a disadvantage (Art. 18 of the TFEU); the guarantee of the right of establishment and free movement of capital, which covers the field with respect to the protection of intra-EU investments throughout the EU (TFEU, Title IV, see especially, Arts 49-55 and 63-66); and the EU’s common commercial policy (Arts 3(1)(e) and 207(1) of the TFEU). The European Commission has argued these points, inter alia, in US Steel Global Holdings I B.V. (the Netherlands) v. The Slovak Republic, UNCITRAL, PCA Case No. 2013-6, the European Commission’s amicus curiae brief (15 May 2014) see, e.g., paras 20-23 and 31-32. 16. See, e.g., European American Investment Bank AG (EURAM) v. The Slovak Republic, UNCITRAL, PCA Case No. 2010-17, the European Commission’s observations to the Tribunal, page 2 (13 October 2011); US Steel v. Slovak Republic, ibid., the European Commission’s amicus curiae brief, paras 20-23; Ioan Micula, Viorel Micula et al. v. Romania, ICSID Case No. ARB 05/20, the European Commission’s Written Submission before the Ad Hoc Committee for Annulment, para. 100 (9 January 2015). 17. See, e.g., EURAM v. Slovak Republic, ibid., the European Commission’s observations, pages 3-4.

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ii. may not be determined outside the EU judicial system, thereby excluding arbitral tribunals or any other mechanism for dispute resolution.18 The European Commission’s position has been energetically asserted and unfaltering, although it has somewhat evolved since the issue first arose in around 2006. Since that time, the European Commission has: 1. actively intervened in pre-existing proceedings, including: a. in arbitral proceedings in which an investor (who is a national of an EU Member State) has sought to invoke breach of standards guaranteed by an intra-EU BIT against another EU Member State;19 and b. in enforcement proceedings brought by a successful investor in the domestic courts of an EU Member State,20 and in the domestic courts of a non-EU Member State;21 and 2. deployed its own enforcement powers against EU Member States, outside the scope of existing proceedings brought by investors, including: a. by issuing infringement proceedings and ‘reasoned opinions’ against the Netherlands, Romania, Austria, Sweden and Slovakia;22 b. by engaging in administrative dialogues with the other EU Member States with intra-EU BITs on foot;23 and c. by issuing a suspension injunction24 against Romania ordering it not to pay out the Micula award.25 While the European Commission’s position on substantive incompatibility has been reasonably consistent over time, it has not always taken such a hard line on the issue of the primacy of EU law and on the exclusive competence of the EU’s judicial order on the question of compatibility with EU law.

18. Articles 267 and 344 of the TFEU. See, e.g., EURAM v. Slovak Republic, ibid., the European Commission’s observations, pages 3-4; US Steel v. Slovak Republic, supra n. 15, the European Commission’s amicus curiae brief, paras 35-38; Micula. v. Romania, supra n. 16, the European Commission’s Written Submission before the Ad Hoc Committee for Annulment, paras 87-89 and 97-98. 19. Eastern Sugar v. Czech Republic, supra n. 6, para. 119; Eureko v. Slovak Republic, UNCITRAL, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability and Suspension, paras 175-196 (26 October 2010). 20. See, e.g., Ioan Micula et al. v. Romania and the European Commission [2017] EWHC 31 (Comm). 21. See, e.g., Micula v. Romania, US District Court Southern District of New York, Case No. 1:15-mc-00107-LGS, 2015 WL 463180 (5 August 2015), upheld in Ioan Micula et al. v. the Government of Romania, United States Court of Appeals for the Second Circuit (104 F. Supp. 3d 42 (D.D.C. 2015); Micula v. Romania, US District Court of Columbia, Case No. 1:14-cv-600, 2015 WL 2354310 (18 May 2015). 22. European Commission Press Release, http://europa.eu/rapid/press-release_IP-15-5198_en.htm (18 June 2015). 23. Ibid. 24. European Commission Decision on State Aid, SA.38517 (2014/C) (ex 2014/NN), 30 March 2015. 25. Micula v. Romania, supra n. 6.

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Thus, in a letter submitted to the Tribunal in Eastern Sugar v. Czech Republic on 13 January 2006,26 the European Commission said: [I]f the dispute concerns an investor-to-state claim under a BIT, the legal situation is more complex. Since Community law prevails from the time of accession, the dispute should be decided on [the] basis of Community law. … However, it may be argued that the private investor could continue to rely on the settlement procedures provided for in the agreement until formal termination of the BIT if the dispute concerns facts which occurred before accession. The primacy of Community law should in such instance be considered by the arbitration instance. The primacy of EU law and its definite interpretation by the European Court of Justice would not necessarily preclude a legal instance (arbitration) in another jurisdiction arriving at a different conclusion, even in an international agreement between two Member States. (emphasis added)

Indeed, in 2010 in Oostergetal v. Slovak Republic, the Tribunal observed (in the course of concluding that intra-EU BITs were compatible with the EU Treaties) that the European Commission had not initiated infringement proceedings against any EU Member States, and that in any event the European Commission did not have a ‘conclusive position’ on the question.27 Shortly after that award, the European Commission’s position hardened significantly. In written observations submitted to the Tribunal in Eureko v. Slovak Republic, the European Commission asserted before a Tribunal (seemingly for the first time) that the CJEU had exclusive competence to decide such matters, and that EU law had primacy.28 The Tribunal rejected these arguments, concluding as follows: first, that EU law is not necessarily supreme: while it ‘may have a bearing upon the scope of rights and obligations under the BIT in the present case’, the question of its place in the hierarchy of legal rules arises only at the merits not jurisdiction stage;29 and second, that the European judicial institutions do not have a monopoly over the interpretation of EU law: The argument that the ECJ has an ‘interpretative monopoly’ and that the Tribunal therefore cannot consider and apply EU law is incorrect. The ECJ has no such monopoly. Courts and arbitration tribunals throughout the EU interpret and apply EU law daily. What the ECJ has is a monopoly on the final and authoritative interpretation of EU law: but that is quite different.30

26. Cited in Eastern Sugar v. Czech Republic, supra n. 6, para. 119. 27. Jan Oostergetal and Theodora Laurentius v. The Slovak Republic, UNCITRAL, Decision on Jurisdiction, paras 108-109 (30 April 2010). 28. Eureko v. Slovak Republic, supra n. 19, paras 177-180. 29. Ibid., paras 279 and 288-289. 30. Ibid., para. 282. See also EURAM v. Slovak Republic, PCA Case No. 2010-17, Award on Jurisdiction, paras 248-267 (22 October 2012); Electrabel v. Hungary, supra n. 13, paras 4.146-4.166; RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction, para. 80 (6 June 2016). For the European Commission’s position, see, e.g., EURAM v. Slovak Republic, supra n. 16, the European Commission’s observations, page 3; US Steel v. Slovak Republic, supra n. 15, the European Commission’s amicus curiae brief, para. 34.

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The respective positions of the European Commission and of various tribunals have largely reflected this dichotomy.31 Why is this so? It may be unsurprising (as a matter of practicality) that each is essentially defending its own territory, but that does not properly explain the position as a matter of principle. Ultimately, it is a matter of perspective which has largely, if not exclusively, dictated the outcome.32 As the Tribunal in Eureko v. Slovak Republic observed: Just as the Court of Justice of the European Communities has held that its own perspective is dictated by the treaties that established it, so the perspective of this Tribunal must begin with the instrument by which and the legal order within which consent originated.33

That was an UNCITRAL arbitration seated in Frankfurt, Germany, and so it was arguable that EU law formed part of the lex loci arbitri. That argument may hold far less sway in the context of an ICSID arbitration.34 As the Tribunal in Electrabel v. Hungary – an ICSID arbitration – observed: [T]his tribunal is placed in a public international law context and not a national or regional context. Moreover, this ICSID arbitration does not have its seat or legal place of arbitration in Hungary or elsewhere in the European Union. Such an arbitral seat could trigger the application of the lex loci arbitri and give rise to the jurisdiction of the local courts in regard to the arbitral process, including challenges to the award. This ICSID arbitration is a dispute resolution mechanism governed exclusively by international law. As a result of the Tribunal’s international status under the [Energy Charter Treaty] and the ICSID Convention, several of the [European] Commission’s submissions cannot be taken into account in this arbitration, because they are based on a hierarchy of legal rules seen only from the perspective of an EU legal order applying within the EU, whereas this Tribunal is required to operate in the international legal framework of the [Energy Charter Treaty] and the ICSID Convention, outside the European Union.35 (emphasis added)

The Tribunal therefore concluded that it is ‘the international setting … from which it necessarily derives its perspective’.36 Similarly, in RREEF Infrastructure v. Spain, the Tribunal said that in the case of any inconsistency, it ‘would have to insure the full application of its ‘constitutional’ instrument, upon which its jurisdiction is founded … if there must be a ‘hierarchy’ between the norms to be applied by the Tribunal, it must be determined from the perspective of public international law, not of

31. See, e.g., the discussion at Kriebaum, supra n. 5, 28-34. 32. See, e.g., Hanno Wehland, The Enforcement of Intra-EU BIT Awards: Micula v. Romania and Beyond, 17 Journal of World Investment & Trade, 942, 944 (2016). See also Magdalena Lickova, European Exceptionalism in International Law, 19.3 European Journal of International Law, 463, 468 (2008): ‘Their validity is by definition confined to the boundaries of the legal order that has engendered them, whether European or international.’ 33. Eureko v. Slovak Republic, supra n. 19, para. 228. 34. It would be subject to the applicable law provision in Art. 42 of the ICSID Convention (1965). 35. Electrabel v. Hungary, supra n. 13, para. 4.112. 36. Ibid., paras 4.119 and 5.37.

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EU law’.37 Moreover, ‘[t]his would be the case even were this to be the source of possible detriment to EU law. EU law does not and cannot “trump” public international law’.38 By contrast, the European Commission has considered the question from the perspective of EU law, concluding that intra-EU BITs are ‘contrary to Union law, incompatible with provisions of the Union Treaties and should therefore be considered invalid’.39 In circumstances where there is not a mutually accepted hierarchy of legal orders, this difference in perspective is perhaps inevitable. If so, the conflict could be intractable. The principal issue is this: why should the question of compatibility with the EU Treaties be a matter of exclusive competence for the CJEU, an institution that takes an unapologetically EU-centric viewpoint? Many have argued that intra-EU BITs and the EU Treaties are instruments constituted under public international law, providing for different dispute resolution mechanisms. Under the principle of compétencecompétence, the Tribunal should decide this question for itself. Moreover, in arbitrations seated in an EU Member State (e.g., under the UNCITRAL Rules or the SCC Rules), there should be no concern regarding incompatibility, because they are placed under the control of the courts of the seat and ultimately the CJEU, under the Eco Swiss principle.40 And in the ICSID context, while the arbitration is constituted under public international law, its existence on a transnational plane without a controlling seat should arguably be respected. On the other hand, the European Commission would argue that the validity of a provision in an intra-EU BIT providing for investor-State arbitration depends on its compatibility with the EU Treaties and that the question of compatibility falls logically within the exclusive competence of the CJEU and the EU legal order under Article 344 of the TFEU. And when viewed from a public law perspective, investor-State arbitrations are constituted on the public law plane,41 and have the potential to carry broader public law implications. Accordingly, supporters of that view might consider it more appropriate for a standing court to be considering such questions. How this is to be resolved is an open question. It will shortly fall for consideration by the CJEU. As the EU’s principal judicial organ, it is open to it to chart a different course from that of the European Commission and reconcile this conflict, by accepting that intra-EU BITs can be reconciled with the legal order constituted by the EU Treaties, or by accepting that its competence is not exclusive. However, as explained below, its 37. RREEF v. Spain, supra n. 30, para. 75. 38. Ibid., para. 87. 39. European Commission Decision on State Aid, supra n. 24, para. 128; EURAM v. Slovak Republic, supra n. 16, the European Commission’s observations, page 5; US Steel v. Slovak Republic, supra n. 15, the European Commission’s amicus curiae brief, para. 49. 40. Cf. Matthew Parish, International Courts and the European Legal Order, 23.1 European Journal of International Law, 141, 147-148 (2012). 41. Yassin Abdullah Kadi and Al Barakaat International Foundation v. Council and Commission, Joined cases C-402/05 P and C-415/05 P, ECR I-06351 (ECJ, 3 September 2008). This is in contrast with arbitrations involving private parties: cf. Eco Swiss China Time Ltd v. Benetton International NV, ECR I-3055, Case C-126/97 (1999).

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jurisprudence suggests that it will defend its own status as the guardian of the EU Treaties and of EU law, as well as the supremacy of the EU’s legal order over other legal orders. Whether and if so to what extent tribunals and national courts accept this position is a different matter entirely.42

[B]

The CJEU and Its Case Law

In March 2016, Germany’s Federal Supreme Court (the Bundesgerichtshof) stayed proceedings to set aside the award handed down by the Tribunal in Eureko v. Slovak Republic43 and referred three preliminary questions to the CJEU regarding whether the EU Treaties preclude investor-State arbitration in intra-EU BITs on the basis of Article 344 of the TFEU, Article 267 of the TFEU, and/or the prohibition on discrimination under Article 18 of the TFEU.44 The jurisprudence of the CJEU (and its predecessor institutions), however, suggests that the CJEU would likely continue to defend the supremacy of the EU legal order and the exclusive competence of the CJEU, and thereby preclude investor-State arbitration in intra-EU BITs.

[1]

Opinion 1/91 – The EEA Court

The first in this line of authorities – Opinion 1/91 – concerns the proposed establishment of a court (the ‘EEA Court’) pursuant to the creation of the European Economic Area (the ‘EEA’).45 The European Commission had sought an opinion from the ECJ on whether this aspect of the draft EEA agreement relating to the creation of the EEA was compatible with the Treaty establishing the European Economic Community (the ‘EEC Treaty’).46 The ECJ concluded that the new EEA Court was incompatible with the EEC Treaty because the jurisdiction proposed to be conferred on the EEA Court was ‘likely adversely to affect the allocation of responsibilities defined in the Treaties and, hence, the autonomy of the Community legal order’.47 Moreover, while the EC had competence to submit to the decisions of a court pursuant to an international agreement to which the EC is a party, the fact that the EEA Court was empowered to interpret identically worded EC rules on free movement and competition (albeit in the context of

42. This was considered by the tribunal in WNC Factoring Ltd (United Kingdom) v. The Czech Republic, PCA Case No. 2014-34, Award, para. 311 (22 February 2017). 43. Eureko v. The Slovak Republic, UNCITRAL, PCA Case No. 2008-13, Final Award (7 December 2012). 44. Slovak Republic v. Achmea, supra n. 3. 45. The parties to the EEA were the EC, each of the then EC Member States, the EFTA States, and Liechtenstein (which would later become an EFTA State). 46. Treaty Establishing the European Economic Community, Art. 219 (1958), the predecessor provision to the present Art. 344 of the TFEU. 47. Opinion 1/91, ECR I-6079, para. 35 (ECJ, 14 December 1991). The jurisdiction proposed to be conferred which the ECJ found objectionable was the jurisdiction to rule on the respective competences of the EC and the EC Member States as regards the matters governed by the provisions of the draft EEA agreement: see para. 34.

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the EEA) posed a threat to interpretative harmony and therefore to ‘the very foundations of the Community’.48

[2]

Opinion 1/92 – The EFTA Court

The ECJ’s concern as expressed in Opinion 1/91 was addressed by having the EFTA States49 – none of which were members of the then EC – enter into a separate agreement establishing a court (the ‘EFTA Court’) to settle disputes as between themselves with respect to the interpretation of EEA law.50 The EFTA Court was subject to the ECJ’s juridical control, since it would be required to interpret the law in conformity with the ECJ’s rulings, with any inconsistency to be settled first by a Joint Committee51 (the decisions of which would not affect the case law of the ECJ),52 and second by the ECJ itself.53 It is only where the issue in dispute did not involve the interpretation of provisions identical in substance to corresponding rules of EC law that the EFTA States could refer the question to binding arbitration.54 In Opinion 1/92, the ECJ concluded that this revised court system was compatible because the Joint Committee did not affect the binding nature of the ECJ’s case law, nor was the autonomy of the EC legal order threatened since the ECJ retained competence to give binding final rulings on interpretation of provisions which are identical to provisions of EC law.55 With respect to arbitration, the ECJ concluded that this was compatible because there was an express exclusion of competence with respect to the interpretation of provisions which were identical to provisions of EC law, and in any event was only available to the EFTA States and not to the EC Member States.56

[3]

Opinion 1/00 – The Joint Committee for the European Common Aviation Area

The ECJ’s reasoning in Opinion 1/92 was reflected in Opinion 1/00, where the ECJ held that the proposed agreement establishing a European Common Aviation Area between the EC on the one hand and a number of non-Member States57 on the other was compatible with the EC Treaty. That proposed agreement also provided for a similar

48. Ibid., paras 46, 71. 49. The EFTA States are Iceland, Norway, Switzerland and Liechtenstein. However, Switzerland did not accede to the EEA Agreement and is therefore not subject to the EFTA Court’s jurisdiction. 50. Opinion 1/92, ECR I-02821, para. 4 (ECJ, 10 April 1992). 51. The Joint Committee would be composed of representatives of the Contracting Parties to the EEA agreement. 52. Opinion 1/92, supra n. 50, para. 6. 53. Ibid., para. 9. 54. Ibid., para. 10. 55. Ibid., para. 35. See also Parish, supra n. 40, 145, in which the author observes that the revision to the EFTA Court system to make it compliant with the ECJ’s decision in Opinion 1/91 rendered it ‘politically neutered’. 56. Opinion 1/92, supra n. 50, para. 36. 57. Bulgaria, the Czech Republic, Estonia, Hungary, Iceland, Latvia, Lithuania, Norway, Poland, Romania, the Slovak Republic and Slovenia.

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Joint Committee58 which would be required to make decisions in conformity with the ECJ’s case law,59 but which would not affect the ECJ’s case law.60 Additionally, the ECJ was ultimately responsible for providing binding rulings on the legality of decisions taken by EU institutions, whether by reference from the Joint Committee or from the national courts of EC Member States.61 Opinions 1/92 and 1/00 were the last (and indeed only) instances where the ECJ has held that a proposed court system did not threaten the ECJ’s exclusive competence under what is now Article 344 of the TFEU. Since then, the ECJ (and later the CJEU) has asserted that exclusive competence.

[4]

The MOX Plant Dispute

The MOX Plant proceedings illustrate this well. In 2001, the Republic of Ireland commenced arbitral proceedings against the United Kingdom under the United Nations Convention on the Law of the Sea (‘UNCLOS’) alleging that the United Kingdom was in breach of a number of provisions of UNCLOS arising out of the discharge of radioactive materials in the course of the operation of the MOX Plant in the United Kingdom into the Irish Sea. The arbitration raised a number of EC law questions, including whether the competence of the EC Member States over certain provisions of UNCLOS had been transferred to the EC, and whether the interpretation and application of UNCLOS (with regard to EC Member States) fell within the ECJ’s exclusive jurisdiction.62 The Tribunal recognised that since these issues concerned the ‘internal operation of a separate legal order … to which both of the Parties to the present proceedings are subject’, they fell to be ‘determined within the institutional framework of the European Communities’.63 This was the case even if the parties were to agree on the scope and effects of applicable EC law, since that was a matter for the ECJ.64 Accordingly, bearing in mind considerations of comity, and bearing in mind the undesirability of two conflicting decisions on the same issue,65 the Tribunal decided to suspend its proceedings as there was a real possibility that the ECJ might be seised of these questions of EC law.66 The European Commission then brought proceedings before the ECJ against Ireland for commencing arbitral proceedings in violation of Article 292 of the EC (now Article 344 of the TFEU). The ECJ held that the substantive provisions of UNCLOS relied upon by Ireland fell within the scope of EC competence, and therefore within the

58. 59. 60. 61. 62. 63. 64. 65. 66.

Again, constituted by representatives of the Contracting Parties. Opinion 1/00, ECR I-03493, para. 39 (ECJ, 18 April 2002). Ibid., para. 44. Ibid., paras 24-25, 33, 44. Ireland v. United Kingdom, Order No. 3, Suspension of Proceedings on Jurisdiction and Merits, and Request for Further Provisional Measures, para. 26 (Permanent Court of Arbitration, 24 June 2003). Ibid., para. 24. Ibid., para. 21. Ibid., para. 28. See also Nikolaos Lavranos, The MOX Plant and Ijzeren Rijn Disputes: Which Court is the Supreme Arbiter?, 19 Leiden Journal of International Law, 223-246 (2006).

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EC legal order.67 Since it was a dispute between two EC Member States, Article 292 of the EC was engaged so as to fall within the ECJ’s exclusive jurisdiction.68 The ECJ held that the mere fact that UNCLOS was an international treaty did not deprive it of exclusive competence; the only relevant question was whether the dispute concerned the interpretation and application of EC law.69 In any event, there was no need for conflict because Article 282 of UNCLOS expressly contemplated that parties might use a dispute resolution mechanism provided for under ‘a general, regional or bilateral agreement’.70 Two features of these proceedings are particularly noteworthy. The first is in relation to the basis of the Tribunal’s decision to suspend its own proceedings. While its principal reasons were as stated above, it is noteworthy here that both Ireland and the United Kingdom had agreed (in the course of the arbitral proceedings) that if the ECJ were to conclude that the dispute fell within its exclusive jurisdiction, then the Tribunal’s own jurisdiction would be precluded entirely, by virtue of Article 282 of UNCLOS.71 Accordingly, in the absence of such agreement, the Tribunal may well have been less ready to suspend its own proceedings. The second is that the ECJ considered that it was enough to engage Article 292 of the EC where a question of EC law might fall to be considered by the Tribunal, even though Ireland had given a formal assurance that it would not call on the Tribunal to examine or appraise whether the United Kingdom had breached any rule of EC law.72 This indicates a very broad conception of EC law that the ECJ considers requires protection within the EC legal order and a very strong conception of the ECJ’s own role in defending that legal order, even though the arbitration would have posed no threat and would not have contributed to the ECJ’s case law, carried no binding precedential value, and (even though it concerned matters of public international law) was essentially a private matter in which no other State (let alone an EC Member State) had any real interest.

[5]

Kadi

Kadi and Al Barakaat International Foundation v. Council and Commission73 (‘Kadi’) concerned the ECJ’s perception of the relationship between the EC and the international legal order. In 2001, the Sanctions Committee (constituted by a United Nations Security Council resolution)74 designated Mr Kadi and the Al Barakaat International Foundation as being involved with terrorism and issued sanctions requiring all States to freeze their

67. The EC was said to have exclusive competence because of its own accession to UNCLOS: Commission v. Ireland, Case C-459/03, para. 126 (ECJ, 30 May 2006). 68. Ibid., para. 128. 69. Ibid., para. 132. 70. Ibid. 71. Ireland v. United Kingdom, supra n. 62, para. 22. 72. Commission v. Ireland, supra n. 67, paras 154-155. 73. Kadi v. Council and Commission, supra n. 41. 74. United Nations Security Council Resolution 1267 (15 October 1999).

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assets. The European Commission implemented this shortly thereafter, with the European Council adopting Regulations adding Mr Kadi75 and the Al Barakaat International Foundation76 to the list of names annexed to an existing Regulation77 which froze the funds of any person or entity listed in that annex.78 At issue was whether the EC instruments which implemented the Security Council resolutions were subject to judicial review for compliance with fundamental rights. This raised the question of the relationship between the international legal order under the United Nations (the ‘UN’) and the EC legal order. The Court of First Instance held that under international law, all EC Member States were bound to respect the primacy of their obligations under Article 103 of the United Nations Charter, which entailed the overriding obligation to implement resolutions of the Security Council.79 Additionally, it held that this did not contravene the EC Treaty, since the United Nations Charter was a pre-existing treaty within the meaning of the then Article 307 of the EC (now Article 351 of the TFEU).80 Accordingly, the Court of First Instance held that it did not have jurisdiction to review the lawfulness of Security Council resolutions under EC law, subject to assessing compliance with jus cogens norms.81 The ECJ rejected this internationalist approach. Instead, it took as its starting point that the EC was based on the rule of law as set out in the EC Treaty, its constitutional charter.82 The EC legal order was a self-contained, autonomous legal order which cannot be affected by an international agreement.83 Within that legal order, the ECJ was empowered and indeed required to assess the lawfulness of EC instruments in light of the principles of the EC legal order.84 The mere fact that the EC instrument sought to implement a Security Council resolution did not mean that it was immune from judicial review.85 While EC measures must be interpreted in light of relevant rules of international law,86 and while the EC must respect international law and pre-existing treaties under Article 307 of the EC, this ‘may in no circumstances permit any challenge to the principles that form part of the very foundations of the Community legal order’.87 The ECJ’s obligation to review the validity of EC instruments is ‘a constitutional guarantee stemming from the EC Treaty as an autonomous legal system which is not to be prejudiced by an international agreement’.88 This would have

75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88.

Commission Regulation (EC) No. 2062/2001 (19 October 2001). Ibid. Commission Regulation (EC) No. 467/2001 (6 March 2001). Over time, new Security Council resolutions were passed, which were implemented by the EC through new Commission Regulations. However, it is not necessary for present purposes to recite these measures. Kadi v. Council and Commission, supra n. 41, para. 74. Ibid., para. 75. Ibid., paras 86-88. Ibid., para. 281. Ibid., paras 282, 285. Ibid., para. 299. Ibid., para. 300. Ibid., para. 291. Ibid., para. 304. Ibid., para. 316.

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been the case even if the UN system had provided for a system of judicial review at the UN level, since this was outside the EC’s internal legal order.89 The effect of this was that the ECJ took a strongly dualist approach to the implementation of international law obligations, in contrast with the monist approach of the Court of First Instance.90 Moreover, the ECJ strongly defended the autonomy of the EC legal order. Indeed, it went so far as to assert that while international law might well have primacy over secondary EC law, that primacy did not extend to primary EC law.91 As a creature of public international law, one might have expected the ECJ to show some sympathy for the supremacy of the international legal order.92 Instead, on the first occasion on which the ECJ had to address its place in the international legal hierarchy, it strongly asserted the supremacy of the EC’s own internal values and primary laws within the EC system.93

[6]

Opinion 1/09 – Patents Court

This Opinion concerned whether the proposed Patents Court system was compatible with the TFEU.94 The background is that the patents regime was governed by the European Patent Convention of 1973, of which thirty-eight States (including all EU Member States) were party. By that Convention, the European Patent Office would grant European patents pursuant to a common procedure; however this patent would break down into a bundle of national patents, each governed by the relevant domestic law. By the late 2000s, the EU, its Member States, and certain third States had reached a draft agreement on a new patents system.95 This new system was intended to create a patents regime allowing for the creation of EC patents with a unitary and autonomous character with equal effect throughout the EU, along with a court with jurisdiction to hear actions relating to European and EC patents. The court system envisaged a new Patents Court with exclusive jurisdiction to apply the law (including EU law) with regard to certain patent matters, with national courts having jurisdiction in respect of other matters. The ECJ would retain juridical control over the new Patents Court through a binding preliminary reference procedure.96 The ECJ began by emphasising that the EU Treaties had ‘established a new legal order’, sui generis in its nature, possessing its own institutions and with EU Member

89. Ibid., para. 321. 90. See, e.g., Gráinne de Búrca, The European Court of Justice and the International Legal Order After Kadi, 51 Harvard International Law Journal, 1, 22-23 (2010). 91. Kadi v. Council and Commission, supra n. 41, paras 307-308. 92. de Búrca, supra n. 90, 2. 93. Ibid., 42. 94. Opinion 1/09, ECR I-01137, (ECJ, 8 March 2011). 95. Draft Agreement on the European and Community Patents Court and Draft Statute, Council Document 7928/09 (23 March 2009). 96. Ibid., Art. 48.

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States and nationals subject to it.97 Accordingly, the starting point was that ‘it is for the national courts and tribunals and for the Court of Justice to ensure the full application of European Union law…’,98 and that it was in this context in which the compatibility of the proposed Patents Court, a court ‘outside the institutional and judicial framework’ of the EU,99 fell to be assessed. The CJEU ultimately held that this was incompatible with the TFEU.100 It held that the vesting of the Patents Court with exclusive jurisdiction in certain patent matters necessarily divested the national courts of EU Member States of that jurisdiction.101 That divestment would deprive the national courts of EU Member States of the power to request preliminary rulings from the CJEU on matters which are the subject of the Patents Court’s exclusive jurisdiction,102 and in so doing would ‘alter the essential character’ of the powers conferred by the EU Treaties on the EU’s judicial institutions.103 The CJEU concluded that this was impermissible, since ‘the tasks attributed to the national courts and to the Court of Justice respectively are indispensable to the preservation of the very nature of the law established by the Treaties’.104 This Opinion further reinforced the CJEU’s broad conception of the EU legal order, along with its narrow conception of the institutions permitted to defend it.105 While the CJEU is of course ‘indispensable’ to preserving the correct interpretation of the EU Treaties, it is less clear why the national courts of EU Member States are similarly indispensable. It is even less clear why a court system like the Patents Court established by agreement of all EU Member States and the EU, and subject to the CJEU’s juridical control through a binding preliminary reference procedure, cannot serve that function.106 Indeed, the new proposed Unified Patent Court system simply treats the Unified Patent Court as ‘a court common to the Contracting Member States and as part of their judicial system … as any national court, in accordance with Article 267 TFEU in particular’.107 It would be surprising if such a deeming provision were sufficient to satisfy the CJEU’s conception of the centrality of national courts in the EU judicial system. However, it does not appear that this question has been tested before the CJEU.

97. 98. 99. 100. 101. 102. 103. 104. 105.

106. 107.

Opinion 1/09, supra n. 94, para. 65. Ibid., para. 68. Ibid., para. 71. Interestingly, however, the CJEU held that the Patents Court would not have conflicted with Art. 344 of the TFEU, since the former related to disputes between individuals, whereas the latter applied to disputes submitted by EU Member States. See ibid., para. 63. Ibid., para. 72. Ibid., paras 79-80. Ibid., para. 89. Ibid., para. 85. See Nikolaos Lavranos, Is an international investor-to-state arbitration system under the auspices of the ECJ possible? 13 (2011), http://ssrn.com/abstract=1973491 (accessed 26 April 2017). See also Roberto Baratta, National Courts as ‘Guardians’ and ‘Ordinary Courts’ of EU Law: Opinion 1/09 of the ECJ, 38.4 Legal Issues of Economic Integration, 297-320 (2011). Of course, it was also proposed to be established by agreement with third countries which are parties to the European Patent Convention. Those parties are now no longer involved in the Unified Patent Court system, in order to reduce the perceived threat to the EU legal order. Agreement on a Unified Patent Court (16351/12), Art. 21. See also the preamble, para. 7.

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Lord (Peter) Goldsmith QC, PC & Boxun Yin Opinion 2/13 – European Court of Human Rights

In 2013, the European Commission requested the CJEU to provide an Opinion on whether a proposed agreement (‘Draft Accession Agreement’) for the EU to accede to the European Convention for the Protection of Human Rights and Fundamental Freedoms (the ‘ECHR’) was compatible with the EU Treaties. The EU has a chequered history of attempting to accede to the ECHR. Over two decades ago, the ECJ decided that the then EC had no competence to accede to the ECHR.108 Subsequently, the member States of the Council of Europe entered into Protocol No. 14 to the ECHR, which expressly provided that ‘the [EU] may accede to the [ECHR]’.109 The EU Member States also addressed this specifically in the Treaty of Lisbon, which expressly provided that ‘the Union shall accede to the [ECHR]. Such accession shall not affect the Union’s competences as defined in the Treaties’.110 The Draft Accession Agreement, therefore, was a fresh attempt for the EU to accede to the ECHR. In assessing whether the Draft Accession Agreement was compatible with the EU Treaties, the CJEU’s starting point was that the EU Treaties had established a ‘new legal order’,111 and that EU law (which stemmed from the EU Treaties as ‘an independent source of law’)112 enjoyed autonomy not only ‘in relation to the laws of the Member States’ but also ‘in relation to international law’.113 The EU’s judicial system was established, therefore, to ‘ensure that the specific characteristics and the autonomy of that legal order are preserved’, and to ‘ensure consistency and uniformity in the interpretation of EU law’.114 The question for the CJEU, therefore, was whether the Draft Accession Agreement threatened or otherwise adversely affected the ‘essential character’ of its powers, in order to ascertain whether it would have an ‘adverse effect on the autonomy of the EU legal order’.115 The CJEU ultimately concluded that the Draft Accession Agreement did pose such a threat to the EU legal order. This was because:

108. Opinion 2/94, ECR I-01759, (ECJ, 28 March 1996). 109. Protocol No. 14 to the ECHR was adopted on 13 May 2004 and entered into force on 1 June 2010. See also Art. 59(2) of the ECHR. 110. Article 6(2) of the TEU (1 December 2009). See also: Art. 218(6)(a)(ii) and (8) of the TFEU, which provides for the procedure for the European Council to adopt the Draft Accession Agreement; Protocol (No. 8) of the TEU and TFEU, which provides that the Draft Accession Agreement ‘shall make provision for preserving the specific characteristics of the Union and Union law’ (Art. 1), ‘shall ensure that accession of the Union shall not affect the competences of the Union or the powers of its institutions’ (Art. 2), and that it shall not ‘affect’ Art. 344 of the TFEU (Art. 3); and the Declaration on Art. 6(2) of the TEU adopted by the Intergovernmental Conference, which provides that the EU’s accession ‘should be arranged in such a way as to preserve the specific features of Union law’ and that the ‘regular dialogue between the [CJEU] and the [ECtHR] … could be reinforced when the [EU] accedes to [the ECHR]’. 111. Opinion 2/13, para. 157 (CJEU, 18 December 2014). 112. Ibid., para. 166. 113. Ibid., para. 170. 114. Ibid. 115. Ibid., para. 183.

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1. It would have allowed the European Court of Human Rights (the ‘ECtHR’) – as opposed to the CJEU itself – to decide questions of EU law, in at least three ways: a. First, Article 53 of the ECHR (which allowed parties to the ECHR to lay down higher standards of protection of fundamental rights than those provided for in the ECHR itself) was inconsistent with Article 53 of the Charter of Fundamental Rights of the EU (the ‘Charter’) (which limited that power only to the extent that it did not compromise the primacy, unity and effectiveness of EU law).116 By failing to provide explicitly for a mechanism to assess compliance with Article 53 of the Charter, by implication the ECtHR would have power to assess the extent to which a particular measure intended to provide a higher standard of human rights protection would compromise the primacy, unity and effectiveness of EU law.117 The CJEU considered that such a power on the part of the ECtHR would adversely affect the autonomy of the EU legal order. b. Second, the CJEU considered that the ability under the ECHR for EU Member States to check whether another EU Member State (and indeed the EU, post-accession) has observed fundamental rights was inconsistent with the obligation of mutual trust under EU law.118 c. Third, the CJEU considered that the ability of the highest national courts of EU Member States to request that the ECtHR give advisory opinions119 risked allowing EU Member States to circumvent the preliminary ruling procedure under Article 267 of the TFEU, thereby adversely affecting the autonomy and effectiveness of the latter procedure and, in turn, the EU legal order.120 2. The ability for disputes between EU Member States (and disputes between EU Member States and the EU) to be brought before the ECtHR was incompatible with the CJEU’s exclusive competence over EU law under Article 344 of the TFEU.121 This was premised on the CJEU’s conclusion that the ECHR would itself form an ‘integral part of EU law’ upon the EU’s accession.122 3. The ability of the ECtHR to make binding decisions where a Contracting Party applies to become a co-respondent would require the ECtHR to make an assessment of EU law rules on the division of powers between the EU and its Member States, and the criteria on attributability of an act or omission said to give rise to a violation of the ECHR. The CJEU held that that assessment of EU law principles, along with the ECtHR’s ability to hold only one co-respondent

116. 117. 118. 119.

Ibid., para. 189. Ibid., para. 157. Ibid., para. 194. Pursuant to Protocol No. 16 to the ECHR, which was signed on 2 October 2013 by the member States of the Council of Europe. The CJEU considered that it did not matter that the Draft Accession Agreement did not provide for the EU’s accession to Protocol No. 16: ibid., para. 197. 120. Ibid., paras 196-199. 121. Ibid., paras 201-214. 122. Ibid., paras 180, 204.

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liable for the violation – would interfere with the division of powers between the EU and its Member States.123 4. The procedure for prior involvement of the CJEU where EU law is at issue in a case brought before the ECtHR was insufficiently robust, since it did not allow the EU to be ‘fully and systematically informed’ of such a pending case,124 and since it did not allow the CJEU to rule on a question of interpretation of secondary law (as distinct from primary law).125 5. The ability of the ECtHR to review acts adopted in the context of the Common Foreign and Security Policy would impermissibly confer jurisdiction on an international court outside the framework of the EU, in circumstances where the CJEU does not have such ability.126 The Draft Accession Agreement was an extensively negotiated suite of documents which had been debated and redrafted at length. Its compatibility with the EU Treaties had been supported not only by formal observations submitted by twenty-four EU Member States, but also by the European Commission, the European Parliament and the European Council.127 Moreover, the EU Treaties themselves expressly contemplated (and indeed required) the EU’s accession to the ECHR. However, the CJEU, in assessing compatibility with the EU Treaties, was not concerned with facilitating accession. Instead, it adopted a defensive position having conceived of its role as the primary guardian of the EU Treaties, concerning itself with whether the ECHR posed a threat to the EU legal order.128 This conception has serious consequences not only for the EU but for other actors that engage with the EU, since it could well come at the expense of amicable relations with other legal orders and at the expense of future development of the existing EU legal order unless achieved through amendment of the EU Treaties.129

[8]

Implications of CJEU Case Law

This line of authorities, if followed, suggests that the CJEU would likely consider that investor-State arbitration in intra-EU BITs (and quite possibly investor-State arbitration

123. Ibid., paras 215-225, 229-235. See Inga Daukšiene and Simas Grigonis, Accession of the EU to the ECHR: Issues of the co-respondent mechanism, 1 International Comparative Jurisprudence, 98-105 (2015). 124. Opinion 2/13, supra n. 111, para. 241. 125. Ibid., paras 242-247. 126. Ibid., paras 249-257. 127. Ibid., paras 108-109. The EU Member States that had submitted formal observations were Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Italy, Cyprus, Latvia, Lithuania, Hungary, the Netherlands, Austria, Poland, Portugal, Romania, the Slovak Republic, Finland, Sweden and the United Kingdom. 128. See Daukšiene and Grigonis, supra n. 123, 102-103 (2015). 129. S. Douglas-Scott, ‘Opinion 2/13 on EU accession to the ECHR: A Christmas bombshell from the European Court of Justice’ U.K. Constitutional Law Blog (24 December 2014), http:// ukconstitutionallaw.org (accessed 26 April 2017).

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against an EU Member State under the ECT) would be contrary to the EU Treaties and therefore impermissible under EU law. This is for three reasons. First, whether a matter falls within the CJEU’s exclusive competence depends on whether it is a question of EU law. This line of authorities130 suggests that the CJEU will likely take a broad view of what constitutes EU law, extending beyond primary to secondary law. Additionally, the CJEU is likely to consider the anterior exercise of assessing whether something falls within or without the EU’s competence as itself giving rise to a question of EU law, since that would involve (among other things) assessing the proper allocation of competence under the EU Treaties. Second, the CJEU has strongly promoted a view of the EU legal order as autonomous and stand-alone. It has consistently defended that legal order from incursion by other legal orders, whether those legal orders are partly overlapping regional legal orders,131 or the international legal order as a whole.132 Third, in each of these cases the CJEU has strongly defended a conception of itself as the guardian of the EU Treaties, and therefore as the defender of the current EU legal order. Thus, any threat – even a possible threat – to the autonomy of that legal order, or to the CJEU’s position as the guardian of that legal order, would likely be considered by the CJEU to be incompatible with the EU Treaties.133 Each of these considerations arguably applies in intra-EU BIT cases.134 While it may be debatable whether intra-EU BITs are inconsistent with substantive secondary EU law, it is likely that the CJEU would consider that only it can decide that question, since it would consider that that is itself an EU law question. Whether that is correct, and whether it is appropriate for the CJEU to take that view, is a different question and is outside the scope of this chapter. But if the CJEU were to take that view, then it is likely to follow logically that it would consider it incompatible with the EU legal order for an arbitral tribunal constituted under an intra-EU BIT – another dispute resolution body – to consider that question. One qualification to that might be the text of Article 344 of the TFEU itself. That provides only that Member States undertake not to submit a dispute concerning the interpretation or application of the EU Treaties to any method of settlement other than as provided in the EU Treaties. As States are only respondents to intra-EU BIT disputes, it is arguable that they are not submitting the dispute to the tribunal. Additionally, the

130. In particular, Opinion 1/91, supra n. 47 and Commission v. Ireland, supra n. 67. 131. As in Opinion 1/91, supra n. 47, Opinion 1/92, supra n. 50, Opinion 1/00, supra n. 60, Opinion 1/09, supra n. 94, Opinion 2/13, supra n. 111. See, e.g., Nikos Lavranos, New Developments in the Interaction between International Investment Law and EU Law, 9 The Law and Practice of International Courts and Tribunals, 409-441 (2010). 132. Commission v. Ireland, supra n. 67; Kadi v. Council and Commission, supra n. 41. 133. Commission v. Ireland, supra n. 67. More recently, in the course of assessing the nature of the EU’s competence to enter into a proposed free trade agreement with Singapore, the CJEU considered that it was: ‘not appropriate to examine whether the dispute settlement regime laid down [in the] envisaged agreement fulfils the criteria set out by those other opinions [referring to Opinion 1/91, Opinion 1/09 and Opinion 2/13], in particular the criterion relating to the autonomy of EU law’. See Opinion 2/15, para. 301 (CJEU, 16 May 2017). 134. See, e.g., Lavranos, supra n. 105, 10.

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obligation is expressed to be limited only to States, and does not appear, on its face, to extend to individual investors. While these textual considerations might tend against incompatibility, the CJEU is arguably more likely to consider – in light of the line of authorities recounted above – the question of whether there is an overall threat to the EU legal order of which it is guardian. That would likely lead to a result that favours the CJEU’s own exclusive competence, to the exclusion of arbitral tribunals constituted under intra-EU BITs.

[9]

Implications for Brexit?

This line of authorities raises an interesting question regarding the breadth of the CJEU’s conception of EU law, and the CJEU’s perception of the exclusivity of its own competence to decide questions of EU law. The CJEU has constantly reiterated that any international agreement concluded by the EU would, by virtue of Article 216(2) of the TFEU, be binding upon the EU and its Member States, and ‘would therefore form an integral part of EU law’.135 The treaty pursuant to which the United Kingdom would withdraw from the EU (‘Brexit Treaty’) would likely be one such international agreement, since Article 50(2) of the TEU expressly provides that the EU would ‘negotiate and conclude’ the agreement with the withdrawing State, and that the agreement would be negotiated in accordance with Article 218(3) of the TFEU.136 If the Brexit Treaty is an international agreement for the purpose of Article 216(2) of the TFEU, then: 1. The Brexit Treaty would, based on the CJEU’s case law, ‘form an integral part of EU law’.137 2. The interpretation and application of provisions of the Brexit Treaty would, in turn, be a matter of EU law. 3. As EU law, the CJEU may consider it to be within its exclusive competence.138 Alternatively, in a ‘Hard Brexit’ situation,139 then the EU Treaties ‘shall cease to apply’ to the United Kingdom.140 While the effect of this within the United Kingdom would arguably be a matter of domestic law, the effect of this in terms of the United Kingdom’s residual relations with the EU and with its Member States (and indeed the residual relations as between United Kingdom nationals on the one hand, and the EU, 135. See, e.g., Commission v. Ireland, supra n. 67, paras 82-84; Opinion 2/13, supra n. 111, para. 180. 136. Article 218 falls within Part V, Title V of the TFEU, which is headed ‘International Agreements’. Title V also includes Art. 216(2) which, as explained, is the basis upon which the CJEU has concluded that international agreements form an integral part of EU law. 137. See, e.g., Opinion 2/13, supra n. 111, para. 180. 138. See Arts 267 and 344 of the TFEU. 139. By this we mean where a Brexit Treaty is not concluded within two years (or such other period as may be agreed between the United Kingdom and the European Council) of the United Kingdom’s notification under Art. 50(2) of the TEU. 140. Article 50(3) of the TEU.

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its Member States and their nationals on the other, and vice versa) would, arguably, be a matter of EU law. If so, then any disputes relating to the effect of Article 50(3) would similarly fall within the CJEU’s exclusive competence, at least in the eyes of the CJEU. The United Kingdom has indicated that it intends to ‘bring an end to the jurisdiction of the CJEU’.141 Whether and to what extent that succeeds is an open question. However, the United Kingdom would certainly not wish to allow the terms of its withdrawal (whether or not reduced in the form of a Brexit Treaty) to become subject to the CJEU’s jurisdiction, let alone the exclusive jurisdiction. One option might be for the Brexit Treaty to contain a dispute resolution clause nominating an arbitral mechanism;142 however, that is unlikely to be acceptable to be EU. What about the International Court of Justice (‘ICJ’)? While the ICJ might well be politically possible,143 legally there would be significant difficulties for at least the following reasons. First, only States (not intergovernmental organisations)144 may be parties in cases before the ICJ.145 Additionally, it is arguably not possible for an EU Member State to represent the EU (or indeed all the EU Member States) before the ICJ on a representative basis.146 Second, the ICJ is only open to parties to the ICJ Statute,147 and the EU is not a party. In any event, it may not be enough even if the United Kingdom and the EU (i.e., the European Commission, the European Council, the European Parliament and all the remaining EU Member States) were to agree on a dispute resolution mechanism other than the CJEU. This is because – based on the CJEU’s existing case law described above – it is arguable that the CJEU might consider such a clause to be incompatible with its exclusive competence and therefore with the EU legal order. It would be particularly brave of the CJEU to arrive at such a decision, especially where the mechanism nominated is the ICJ (assuming this option is possible, notwithstanding the above). However, Kadi suggests that the CJEU would defend its own competence over even that of the international legal order.

141. See Policy Paper, The United Kingdom’s exit from, and new partnership with, the European Union, section 2.3 (2 February 2017). 142. See ibid., sections 2.4-2.10. 143. The ICJ has competence in ‘all cases which the parties refer to it and all matters specially provided for … in treaties and conventions in force’: Art. 36(1) of the Statute of the International Court of Justice (‘ICJ Statute’). 144. Although the Court may receive information from international organisations pursuant to Art. 34(2) of the ICJ Statute. 145. Article 34(1) of the ICJ Statute. Indeed, Kolb argues that this is an imperative provision that cannot yield to a contrary agreement or be waived or disregarded by the Court itself: see Robert Kolb, The International Court of Justice, 273 (Perry (trans.), Hart Publishing 2013). See generally the discussion in Pierre-Marie Dupuy, The Statute of the International Court of Justice, A Commentary, 585-605 (Zimmerman, Tomuschat, Oellers-Frahm and Tams (eds.), 2nd edn., Oxford 2012). 146. See Kolb, ibid., 259-276, especially at 269-271. 147. Article 35(1) of the ICJ Statute.

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The United Kingdom Government would be well-advised to consider fully how best to reduce the risk that the CJEU might make a finding of incompatibility. It may be that the only way would be to amend the EU Treaties – while this would be theoretically possible, politically it would be a process fraught with difficulty. In the meantime, the United Kingdom may wish to take an active position in the Eureko/Achmea preliminary reference before the CJEU, so as to ensure that the CJEU is fully aware of the potential wide-ranging consequences of its decision.

§14.04

CONSEQUENCES

Some have argued that such a decision by the CJEU could well have significant consequences.148 If so, investors in pending arbitrations, and investors considering pursuing arbitrations under intra-EU BITs might need to consider (1) the extent to which a tribunal would take into account the CJEU’s decision in assessing (and indeed reassessing) whether it has jurisdiction;149 (2) the possibility that they might be faced with applications to set aside, assuming an EU arbitral seat; and (3) any possible obstacles in enforcing any award handed down, both in an EU Member State, and outside the EU.150

[A]

To What Extent Should Tribunals Take into Account the CJEU’s Decision?

Tribunals would have to decide whether, and if so the extent to which, they consider and take into account the CJEU’s decision. Parties may try to argue that relevant factors might include the following. First, while the CJEU is the EU’s apex court, and binds all EU Member States under the EU Treaties,151 it might be said that the effect of that upon the obligations of EU Member States under existing intra-EU BITs is a separate question. Second, tribunals have held that they are not themselves bound by the CJEU. Tribunals have regard to a variety of sources of law. One of those sources could well be the CJEU. Much would depend on the nature and quality of the CJEU’s reasoning, and possibly the extent to which the CJEU applies EU law as distinct from public

148. See: Wehland, supra n. 32; Kriebaum, supra n. 5; Markus Burgstaller, ‘Chapter 15: Recognition and Enforcement of ICSID Awards: The ICSID Convention and the European Union’ in Crina Baltag, ICSID Convention after 50 Years: Unsettled Issues, 407-426 (Kluwer Law International, 2016); Teis Tonsgaard Anderson and Steffen Hindelang, The Day After: Alternatives to Intra-EU BITs, 17 The Journal of World Investment & Trade, 984-1014 (2016); Clemens Wackernagel, The Twilight of the BITs? EU Judicial Proceedings, the Consensual Termination of Intra-EU BITs and Why that Matters for International Law, Beiträge zum Transnationalen Wirtschaftsrecht, Heft 140 (2016). 149. Wackernagel, ibid., 9-10. 150. Wehland, supra n. 32; Burgstaller, supra n. 148. 151. Articles 267 and 344 of the TFEU; Opinion 1/91, supra n. 47, paras 61, 65.

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international law. As the CJEU is authoritative on matters of EU law and on the interpretation of the EU Treaties in relation to EU Member States, those States might seek to argue that it is difficult for a tribunal applying EU law not to at least consider the view of the CJEU in relation to EU law questions.152 Conversely, if the CJEU’s decision is based on public international law, a tribunal might well consider that it has more scope to depart, since the CJEU’s interpretation of public international law principles is not authoritative, whether as a matter of EU law or as a matter of public international law.153 If a tribunal considers that EU law is not applicable at all,154 then it might well completely ignore the CJEU’s decision. Investors might also seek to argue that simply because the CJEU has the power to interpret EU law, this does not necessarily mean it has the power (or indeed expertise) to interpret a BIT to determine whether it gives rise to question of EU law.155 Third, much would depend on the scope of the CJEU’s decision. There is a whole range of issues that it is not likely to consider, including the possible continued effect of sunset clauses in intra-EU BITs.156

[B]

Set-Aside, Revision and Annulment

If a tribunal declines to follow the CJEU’s decision, then the conflict could well persist through the set-aside and enforcement stages. The question of setting aside an intra-EU BIT award would only arise in non-ICSID cases.157 If the arbitral seat is in the EU,158 then the set-aside court would presumably be bound by the CJEU’s decision by virtue of Article 267 of the TFEU.159 It has been argued that the possible grounds for setting aside the award might be on the basis of lack of jurisdiction and breach of public policy.160 If the arbitral seat is outside the EU, then the set-aside court would not be bound as such by the CJEU’s decision. The extent to which a non-EU set-aside court takes into account the CJEU’s decision is a matter for the law applying to that set-aside court.161

152. Wackernagel, supra n. 148, 9-10. 153. Ibid. 154. See, e.g., the discussion on applicable law with respect to an ICSID arbitration in Electrabel v. Hungary, supra n. 13, Part IV. 155. Wackernagel, supra n. 148, 9-10. See also: Burgstaller, supra n. 148, 414-415. 156. See, e.g., Wilkes and Edworthy, supra n. 2, 345; Moskvan, supra n. 1, 113. 157. ICSID awards cannot be the subject of set-aside proceedings. We address revision under Art. 51 of the ICSID Convention and annulment under Art. 52 of the ICSID Convention below. 158. As in Achmea B.V. v. The Slovak Republic, UNICITRAL, PCA Case No. 2008-13. 159. Article 344 of the TFEU; Opinion 1/91, supra n. 47, paras 61, 65. 160. See generally Wehland, supra n. 32, 950-956. 161. Ibid., 956-957.

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In ICSID cases, attempts might be made to use the CJEU’s decision as a basis for revision162 or annulment163 under the ICSID Convention (so long as the relevant time limits are satisfied). However, that would require a Tribunal or an Annulment Committee to consider itself bound by the CJEU’s decision, which has not been the practice to date.

[C]

Enforcement

The question of enforcement arises in both ICSID and non-ICSID cases. In non-ICSID cases, recognition and enforcement of an award under Article III of the New York Convention might be subject to the defences under Article V:164 (1) If the enforcement court is in an EU Member State, then the respondent State might seek to use the CJEU’s decision as a basis to refuse the enforcement of an award. It has been argued that possible grounds under Article V of the New York Convention might include: – the arbitral agreement is not valid under the applicable law or under the law of the country where the award was made: Article V(1)(a); – the subject matter is not capable of settlement by arbitration under the law of the country where recognition and enforcement is sought: Article V(2)(a); and/or – the recognition or enforcement of the award would be contrary to public policy of the country where recognition and enforcement is sought: Article V(2)(b).165 (2) If the enforcement court is in a non-EU Member State, then the extent to which that court takes into account the CJEU’s decision as a basis for refusing enforcement is a matter for the law of the place of enforcement.166

162. Article 51(1) of the ICSID Convention provides that either party may request revision ‘on the ground of discovery of some fact of such a nature as decisively to affect the award, provided that when the award was rendered that fact was unknown to the Tribunal and to the applicant and that the applicant’s ignorance of that fact was not due to negligence’. Whether this article can be invoked would likely depend on whether the CJEU’s decision should properly be characterised as a question of ‘fact’ as a matter of the requisite applicable law analysis. It may well be possible to reopen intra-EU BIT awards that were handed down three years before the date of the CJEU’s decision, since Art. 51(2) provides that any request for revision ‘shall be made within 90 days after the discovery of such fact and in any event within three years after the date on which the award was rendered’. 163. Article 52(1) of the ICSID Convention provides that applications for annulment may be made on the basis of at least one of five grounds: (a) that the Tribunal was not properly constituted; (b) that the Tribunal has manifestly exceeded its powers; (c) that there was corruption on the part of a member of the Tribunal; (d) that there has been a serious departure from a fundamental rule of procedure; or (e) that the award has failed to state the reasons on which it is based. 164. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). 165. Wehland, supra n. 32, 950-955; Pietro Ortolani, Intra-EU Arbitral Awards vis-à-vis Article 107 TFEU: State Aid Law as a Limit to Compliance, 6 Journal of International Dispute Settlement, 118, 128-131 (2015). 166. Wehland, ibid., 956-957.

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In ICSID cases, the self-contained regime of enforcement under the ICSID Convention applies, rather than the New York Convention. There is therefore a greater level of automaticity that is supposed to apply with regard to ICSID awards.167 Article 54 of the ICSID Convention provides, after all, that ‘[e]ach Contracting State shall recognise an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State’.168 However, again it would be necessary to consider separately the position of EU Member States and non-EU Member States: – In an EU Member State,169 there is a possibility that such an award might be inconsistent with the CJEU’s decision (depending on the CJEU’s reasoning). If so, it might be said that this could give rise to a conflict between the State’s obligations under the ICSID Convention and under the EU Treaties. Under EU law (as interpreted by the CJEU decision), the latter prevails. It is also worth noting that the European Commission, in its submission before the Tribunal in Micula v. Romania, considers that the ICSID Convention does not form part of the EC legal order.170 Additionally, the European Commission may well seek to prevent EU Member States from satisfying the award, pursuant to mechanisms such as suspension injunctions,171 although it is not presently clear whether the European Commission would extend this to non-State aid cases. In any event, the CJEU’s decision would likely complicate efforts to enforce an ICSID award in an EU Member State.172 – If the investor seeks to enforce in a non-EU Member State, then that State would be bound only by the ICSID Convention, and not by the CJEU’s decision.173 While comity might possibly require that State to take into account the CJEU’s decision, many consider that the State would be bound to implement the ICSID Convention and enforce the ICSID award, since it is only the ICSID Convention that applies.174 Depending on the scope of the CJEU’s decision, the respondent EU Member State might consider that it is precluded from satisfying the award under EU law. If so, the investor would need to proceed to execution. Under Articles 54(3) and 55 of the ICSID Convention, execution is governed by the law of the State in which execution is sought,

167. See, e.g., Kriebaum, supra n. 5, 34; Markus Burgstaller, supra n. 148, 409-410; Kai Struckmann, Genevra Forwood, Aqeel Kadri, Investor-State Arbitrations and EU State Aid Rules: Conflict or Co-existence, 2016.2 European State Aid Law Quarterly, 258, 259-260 (2016). 168. Article 54 of the ICSID Convention (1965). 169. Save for Poland, which is not a Contracting Party to the ICSID Convention. 170. Micula v. Romania, supra n. 6, para. 336. 171. For example, the European Commission Decision on State Aid, supra n. 24, issued in relation to the Micula award, ibid., para. 336. 172. Wehland, supra n. 32, 957-962; Burgstaller, supra n. 148, 410-415; Jan Kleinheisterkamp, The Next 10 Year ECT Investment Arbitration: A Vision for the Future – From a European Law Perspective, 7 LSE Law, Society and Economy Working Papers, 7 (2011); Christian Tietje and Clemens Wackernagel, Outlawing Compliance? – The Enforcement of intra-EU Investment Awards and EU State Aid Law, 41 Policy Papers on Transnational Economic Law, 2, 9 (2014). 173. Assuming that the enforcement State is a Contracting Party to the ICSID Convention. 174. Wehland, supra n. 32, 962.

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Lord (Peter) Goldsmith QC, PC & Boxun Yin subject always to the respondent State’s immunity from execution. How any execution process unfolds would vary on a case-by-case basis.

If the State refuses to enforce an ICSID award on the basis of overriding EU law, then it would be for the State of which the investor is a national to pursue a claim in diplomatic protection under Article 27(1) of the ICSID Convention, or commence proceedings before the ICJ under Article 64 of the ICSID Convention.175 Whether the investor’s State would (or indeed could) do so, in circumstances where it is bound by EU law, is a different question.

§14.05

CONCLUSION

The clash of legal orders arises largely out of the dual, sui generis nature of EU law.176 On the one hand, EU law is a construct arising out of the EU Treaties, and is therefore part of public international law. Indeed, Article 3(5) of the TEU expressly provides that the EU ‘shall contribute to … the strict observance and the development of international law, including respect for the principles of the United Nations Charter’. On the other hand, by virtue of the EU Treaties, EU law is directly applicable in EU Member States, and has supremacy within the internal legal order of those States on matters falling within the scope of EU competence. As Advocate-General Maduro said in Kadi, EU law is ‘un ordre juridique interne d’origine internationale’.177 It is ironic, therefore, that a creature of public international law has asserted supremacy over public international law. It is open to the CJEU to reconcile these two apparently conflicting positions. However, its longstanding jurisprudence suggests that it is unlikely to do so. Any decision by the CJEU which asserts exclusive competence to decide the question of the validity of intra-EU BITs will have significant implications. It would have an effect on the scope of EU law, on the matters which are said to fall within the CJEU’s exclusive competence, and on the CJEU’s own status as the guardian of the EU legal order. It would be a precedent that bears careful study by anyone intending to enter into international agreements with the EU, including the United Kingdom as it contemplates the structure and content of the Brexit Treaty, and in particular its dispute resolution mechanism.

175. See, e.g., Burgstaller, supra n. 148, 416. It may be that other ICSID Contracting Parties (other than the investor’s State) may also be entitled to commenced proceedings before the ICJ, on the basis of the ‘common interest’ of all Contracting States to the ICSID Convention that the enforcement provisions of Arts 53-54 be complied with: see, e.g., Struckmann, Forwood and Kadri, supra n. 167, 262. 176. See, e.g., AES Summit Generation Limited and AES-Tisza Erömü Kft. v. Republic of Hungary, ICSID Case No. ARB/07/22, Award, para. 7.6.6 (23 September 2010); EURAM v. Slovak Republic, supra n. 30, paras 69-71. 177. Opinion of Advocate General Maduro in Case C-402/105, ECR I-6351, para. 21 (2008), as cited in Electrabel v. Hungary, supra n. 13, para. 4.118.

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§15.01

INTRODUCTION

Increased cross-border commerce in the twentieth century has resulted in a proliferation of contracts, foreign investment laws, and investment treaties governing relations between investors and host States. Invariably, multiple dispute settlement mechanisms are available to resolve all or part of a controversy arising under these instruments. While this may sound ideal, the plethora of dispute settlement options can create systemic inefficiency, where disputes based on the same fact situation are decided in multiple fora, by different decision-makers, with different procedures and remedies, and incurring increased cost and time. Most concerning, this situation raises the specter of inconsistent outcomes in cases dealing with essentially the same problem. Ultimately, too many conflicting decisions arising from like circumstances could defeat the overall predictability, credibility, and effectiveness of investment dispute settlement.1 * The views and opinions expressed in this chapter are solely those of the authors and do not bind any institution they are affiliated with. ** The authors are grateful to Gonzalo Flores and Francisco J. Grob Duhalde for valuable comments and discussions on the manuscript, as well as to Morgane Guyonnet for her research assistance. Responsibility for error of omissions remains solely with the authors. 1. Various authors have considered the causes, scope, and effect of inconsistent investment awards. See, for example, Bernardo M. Cremades and Igancio Madalena, Parallel Proceedings in International Arbitration, Arbitration International 24(2) 507-539 (2008); August Reinisch, The Use and Limits of Res Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute Settlement Outcomes, The Law and Practice of International Courts and Tribunals 3(1) 37-77 (2004); Katia Yannaca-Small, Parallel Proceedings, in The Oxford Handbook of International Investment Law, 1008-1048 (Peter Muchlinski, Federico Ortino & Christoph Schreuer eds., 2008); Robin F. Hansen, Parallel Proceedings in Investor-State Treaty Arbitration: Responses for Treaty-Drafters, Arbitrators and Parties, The Modern Law Review 73(4) 523-550 (2010); Charles N. Brower and Jeremy K. Sharpe, Multiple and Conflicting International Arbitral Awards, JWIT 4(2) 211-222 (2003); N.

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Recognizing the inefficiency and potential unfairness of this situation, numerous treaties have adopted provisions that reduce the potential for cases arising out of the same measure to proceed in multiple fora. For example, many investment treaties require a claimant to exhaust local remedies2 or pursue local remedies in the host state for a certain period3 before resorting to international arbitration, to waive their right to pursue a single claim in parallel fora simultaneously,4 or to elect one dispute resolution forum to the exclusion of others (e.g.,: fork in the road or no U-turn clauses).5 Some treaties have adopted limitation bars that require disputes to be initiated within a prescribed period after the alleged breach.6 States have also recognized the importance of clear and specific treaty drafting to mitigate the potential for divergent treaty interpretation. Techniques such as binding treaty interpretations by Contracting States7 and State participation in proceedings concerning treaty application and interpretation8 complement these efforts. A number of procedural mechanisms address the potential for inconsistent awards by requiring adjudication of like claims together. Some States have established claims commissions that have exclusive jurisdiction over a specific event.9 While this effectively avoids multiple fora and inconsistent awards, it requires the commitment of both the home and host State and may require significant funding and infrastructure. There has also been academic discussion of class claims, where a representative claimant would arbitrate a matter on behalf of a defined (but unnamed) class of claimants.10 To date no investment rules have offered a class claims mechanism.11

2. 3. 4. 5. 6. 7. 8. 9.

10.

11.

Gallagher, Parallel Proceedings, Res Judicata and Lis Pendens: Problems and Possible Solutions, in Pervasive Problems in International Arbitration, 329-356 (Loukas Mistelis & Julian D.M. Lew eds. The Hague Kluwer International, 2006). For example, Albania-Lithuania BIT (2007), Art. 8(2); China-Côte d’Ivoire (2002), Art. 9(3). For example, Argentina-UK BIT (1990), Arts. 8(1) and 8(2). For example, North America Free Trade Agreement (hereinafter “NAFTA”), Chapter 11, Art. 1121(2)(b). Comprehensive Economic and Trade Agreement [hereinafter “CETA”], Art. 8.24. For example, Energy Charter Treaty [hereinafter “ECT”], Art. 26(3)(b)(i). For example, CETA, Art. 8.19.6. For example, NAFTA, Art. 1131; CETA, Art. 8.31.3. For example, NAFTA, Art. 1128; CETA, Art. 8.38.2. See, for example, the Iran-United States Claims Tribunal, established pursuant to the Algiers Accord of Jan. 19, 1981, by the Islamic Republic of Iran and the U.S. to resolve certain claims by national of one State Party against the other State Party and certain claims between the State parties; see also the Eritrea-Ethiopia Claims Commission, established on Dec. 12, 2000, by the Governments of Eritrea and Ethiopia to decide through binding arbitration claims for loss, damage or injury by one Government against the other, and by nationals of one party against the Government of the other party; see also, the General Claims Commissions, established on Sept. 8, 1923, by Mexico and the U.S. to adjudicate claims by citizens of either country for losses suffered due to the acts of one government against the national of the other. For the possibility of class investment arbitrations, see Mariel Dimsey, The Resolution of International Investment Disputes: Challenges and Solutions, (Ingebord Schwenzer ed.), 202-224 (Eleven International Publishing, 2008); Stacie I. Strong, Mass Procedures in Abaclat v. Argentine Republic: Are They Consistent With the International Investment Regime?, https://papers. ssrn.com/sol3/papers.cfm?abstract_id=2083219 (last accessed May 25, 2017). Class arbitration procedures have been promulgated in some commercial dispute contexts: see, for example, American Arbitration Association (hereinafter “AAA”) Supplementary Rules for Class Arbitration effective Oct. 8, 2003; JAMS Class Action Procedures, effective May 1, 2009. See also, Francisco Blavi and Gonzalo Vial, Class Actions in International Commercial Arbitration, Fordham International Law Journal 39(4) 791-827 (2016).

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The mechanisms used most frequently to avoid inconsistent awards in investment disputes have been: (1) initiation of a single proceeding by two or more claimants; (2) joinder of necessary parties; and (3) consolidation of claims. This article addresses consolidation of claims in the ICSID context, noting the extent to which cases have been consolidated in practice and discussing some of the pertinent considerations for the current ICSID Rules amendment process.

§15.02

WHAT IS CONSOLIDATION?

Consolidation is the joinder of two or more proceedings that have been commenced separately before different tribunals.12 It involves the merger of related cases after two (or more) individual cases have been initiated.13 In this respect, consolidation differs from multiparty claims which involve two or more claimants jointly initiating a single proceeding against the same Respondent on the basis of the same or different instruments of consent. Numerous multiparty cases have been commenced at ICSID where more than one party asserts rights based on the same factual circumstances in a single claim.14 As long as each individual participating in the claim meets the applicable jurisdictional requirements, there is no bar to registering such cases.15 Similarly, a claim by multiple parties can be initiated under the ICSID Additional Facility Rules. Consolidation can always be effected voluntarily where parties consent to consolidate their individual cases into a single case. Voluntary consolidation relies on the consent of the parties and does not require special procedural rules, though it may benefit from an express procedural framework. Alternatively, consolidation may be “mandatory” when it is ordered on the basis of criteria in a treaty or by operation of arbitration rules. In this scenario, consolidation does not require an additional specific consent of all parties because such consent is included in the election of the relevant treaty or law as a basis for dispute settlement.

12. Gabrielle Kaufmann-Kohler, Laurence Boisson de Chazournes, Victor Bonnin and Makane Moïse Mbengue, Consolidation of Proceedings in Investment Arbitration: How Can Multiple Proceedings Arising from the Same or Related Situations Be Handled Efficiently, ICSID Review—Foreign Investment Law Journal 21 59, 64 (2006). 13. Lara Pair, Consolidation in International Commercial Arbitration the ICC and Swiss Rules, 9 (Eleven International Publishing, 2012). 14. See Noble Energy Inc. and Machala Power Cía. Ltd. v. Republic of Ecuador and Consejo Nacional de Electricidad (ICSID Case No. ARB/05/12); Flughafen Zürich A.G. and Gestión e Ingeniería IDC S.A. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB/10/19). 15. In particular, the jurisdictional requirements are found in Arts. 25 and 36 of the ICSID Convention. See Berk Demirkol, Does an Investment Treaty Tribunal Need Special Consent for Mass Claims, Cambridge Journal International & Comparative Law 612, 613 (2013); Antonio R. Parra, Desirability and Feasibility of Consolidation: Introductory Remarks, ICSID Review 21(1) 132, 133 (2006).

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Chrysoula Mavromati & Meg Kinnear THE ARGUMENTS FOR AND AGAINST CONSOLIDATION

The arguments for and against consolidation are relatively clear, although not simple to reconcile. In many respects, these arguments oppose systemic interests with individual case interests. On the positive side of the ledger, consolidation has systemic benefits by making arbitration more cost and time effective. Assuming cases are sufficiently connected, there will almost always be greater efficiency in consolidating them and having a single set of pleadings, witnesses, counsel, and argument.16 Efficiency in this respect can also be aligned with fairness and access to justice.17 For example, by reducing cost and time, consolidation could offer small and medium sized investors with fewer assets, as well as States with limited resources, the opportunity to participate in proceedings at a reasonable cost. From this point of view, consolidation levels the playing field between the parties to the proceedings. The other systemic benefit from consolidation is increased consistency in decision-making. It is obvious that a single tribunal deciding cases on a consolidated basis will apply similar logic and that outcomes will be consistent.18 This is important to ensure cases serve as reliable guidance for prospective disputing parties, to maintain the credibility of investment arbitration and to incentivize compliance with awards. Consolidation may also promote better decision-making by reducing the possibility of factual errors because “the arbitrators are presented with a more complete set of facts or a wider perspective from which to draw their conclusions.”19 The quest for consistency and predictability is particularly important in a system where issues of public importance may be at stake and the demand for finality permits little or no review of questions of law or fact.20 Consolidation, therefore, may increase the predictability and consistency of arbitral awards, and thus increase overall confidence in investment arbitration. On the negative side of the ledger, mandatory consolidation can deprive a party of various attributes of arbitration and may be perceived by both claimants and respondents as disadvantageous. This concern does not arise where consolidation is voluntary and based on the consent of all parties concerned. Such an agreement is a legitimate expression of the principle of party autonomy.21 According to Steingruber, “[t]he advantage of a de facto consolidation is that it is respectful of parties’ consent 16. Kaufmann-Kohler et al., supra n. 12, at 83, Yannaca-Small, supra n. 1, at 1039-1040. 17. Pair, supra n. 13, at 13. 18. E. Gaillard, Consolidation of Arbitral Proceedings and Court Proceedings, in Complex Arbitrations Perspectives on their Procedural Implications, Special Supplement—ICC International Court of Arbitration Bulletin, 35, 36 (2003). 19. Yannaca-Small, supra n. 1, at 1044; see also Julie C. Chiu, Consolidation of Arbitral Proceedings and International Commercial Arbitration, Journal International Arbitration 7(2) 53, 60 (1990). 20. Article 52 of the ICSID Convention limits annulment relief to specific and narrow grounds. Likewise, review of non-ICSID awards before national courts at the seat of arbitration is normally available on limited grounds, as is resisting recognition and enforcement of an award on the basis of Article V of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. 21. Hanno Wehland, The Coordination of Multiple Proceedings in Investment Treaty Arbitration, 111 (Oxford University Press, 2013); Yannaca-Small, supra n. 1, at 1042-1043.

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with regard to the method of dispute resolution, and their choice as to who they want to arbitrate with.”22 However, where consolidation can be ordered despite the objections of one or more parties, questions of fairness and consent may be raised. Some argue that consolidation contradicts the fundamental principle of party autonomy, and thus it should not be imposed on a reluctant party. The effect of consolidation on party autonomy has been discussed on two occasions under Article 1126 of the North America Free Trade Agreement (NAFTA), although with different conclusions. In the Canfor consolidation, the Consolidation Tribunal held that consent to consolidation was given by consenting to arbitration under Chapter 11 of NAFTA, and so no issue of party autonomy was raised.23 To the contrary, the Corn Products Consolidation Tribunal held that party autonomy and consent to consolidate was “a relevant consideration to be taken into account in the interpretation and application of Article 1126.”24 That Tribunal rejected a request to consolidate, holding that: “[t]he opposition of three out of the four parties to the consolidation of the cases was for the consolidation tribunal a relevant consideration in evaluating the fairness of the proposed consolidation.”25 Some parties believe that consolidation places them at a strategic disadvantage. For example, in a consolidated case, co-claimants must agree on a common strategy, the selection of arbitrators, the schedule, identification of witnesses, the presentation of evidence, and the legal argument to be made.26 They also risk the presentation of the case being weakened by the factual circumstances of co-claimants. Respondents may also dislike consolidation, preferring that each claimant individually meet the case presented. For example, in two arbitrations brought against the Czech Republic by Central European Media (CME) and its ultimate majority shareholder Ronald S. Lauder, both effectively dealing with the same facts, the Respondent did not agree to a de facto consolidation of the two proceedings.27 Claimants and respondents may also worry that consolidation will adversely affect their freedom to pursue review of a tribunal award and their freedom to select applicable rules. Tribunals may also be concerned about the management of a consolidated case. In the Corn Products case, the Consolidation Tribunal decided against consolidation of the disputes in part due to concerns about protecting sensitive commercial information required from the co-claimants who were zealous competitors in the same market.28 In many cases, these kinds of difficulties can be addressed through case management 22. Andrea M. Steingruber, Consent in International Arbitration, 13.151 (Oxford University Press, 2012). 23. Canfor Corp. v. United States, Tembec v. United States & Terminal Forest Products Ltd v. United States, (UNCITRAL) Order of the Consolidation Tribunal (Sept. 7, 2005), [hereinafter “Canfor Consolidation Order”], para. 78. 24. Corn Products Int’l v. Mexico, ICSID ARB/(AF)/04/1 and Archer Daniels Midland Co. & Tate & Lyle Ingredients Americas, Inc. v. Mexico ICSID ARB/(AF)/04/5, Order of the Consolidation Tribunal (May 20, 2005) [hereinafter “Corn Products Consolidation Order”], para. 12. 25. Ibid. 26. Kaufmann-Kohler et al., supra n. 12, at 83. 27. Ronald S. Lauder v. The Czech Republic (UNCITRAL), Final Award of September 3, 2001, para. 173, available at: https://www.italaw.com/sites/default/files/case-documents/ita0180.pdf (last accessed on May 25, 2017). 28. Corn Products Consolidation Order, supra n. 24, paras. 8-9.

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techniques. For example, the Canfor Tribunal held that confidentiality should not be “in and of itself a reason not to consolidate”29 and that confidential information could be protected through other means such as protective orders or the imposition of confidentiality undertakings.30 Such considerations demonstrate that where proceedings are consolidated, there should be ample room for the tribunal to tailor the proceedings to the specific circumstances.

§15.04

THE BASIS FOR CONSOLIDATION AT ICSID

The ICSID Convention, the ICSID Arbitration Rules, and the ICSID Additional Facility Rules do not have express provisions on consolidation.31 The drafters of the ICSID Convention contemplated multiparty proceedings during the negotiation of the Convention although it was not extensively discussed.32 At the Third Annual Meeting of the ICSID Administrative Council in 1969, then Secretary-General Aron Broches discussed the Secretariat’s intention to develop rules for multiparty procedures.33 However, no special rules were ever proposed. Some commentators argue that Article 26 of the ICSID Convention provides a basis for mandatory consolidation.34 According to this view, the fact that consent to arbitration under the Convention is “to the exclusion of any other remedy” means that only one procedure may be pending in relation to a given dispute. As a result, once the parties have given their consent to ICSID arbitration, they could no longer seek relief from another national or international forum. To similar effect, some commentators argue that an express consolidation rule is not required at ICSID because a tribunal may always exercise its inherent powers under Article 44 of the ICSID Convention to order

29. Canfor Consolidation Order, supra n. 23, para. 145. 30. Ibid., para. 143. 31. The UNCITRAL Arbitration Rules do not contain a consolidation provision either. The topic was discussed during the 46th session of the UNCITRAL Working Group on 5-9 February 2007, but was not adopted due to concerns about flexibility and fairness, especially in non-administered arbitrations. See A/CN.9/616 available at: http://www.uncitral.org/uncitral/en/commission/ working_groups/2Arbitration.html (last accessed on May 25, 2017). 32. See History of the ICSID Convention, Documents Concerning the Origin and the Formulation of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Vol. II, 400, 413. 33. Address by A. BROCHES, Secretary-General, to the Third Annual Meeting of the ICSID Administrative Council (Sept. 29, 1969): “… as I observed at our meeting last year, many significant international investment arrangements involve more than just two parties, and for these it would be desirable to insert into the related agreements provisions for the settlement of multipartite disputes. At that time, I suggested that it might be useful to promulgate special Regulations and Rules to facilitate such proceedings, but pending such a step by this Council we are now formulating a set of Special Consent Clauses that parties could insert into multipartite investment contracts.” 34. Antonio Crivellaro, Consolidation of Arbitral and Court Proceedings in Investment Disputes, in Parallel State and Arbitral Procedures in International Arbitration, 79, 87-89 (B.M. Cremades and J.D. Lew eds.); Dimsey, supra n. 10, at 127-128; Jan Ole Voss, The Impact of Investment Treaties on Contracts Between Host States and Foreign Investors, 298-301 (Martinus Nijhoff Publishers, 2011).

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consolidation.35 In particular, the second sentence of Article 44 of the ICSID Convention provides that “[i]f any question of procedure arises which is not covered by this Section or the Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question.”36 Neither Article 26 of the Convention nor Rule 44 have been used as the basis for mandatory consolidation at ICSID, and the majority view is that absent an express consolidation provision, an ICSID Tribunal cannot consolidate against the wishes of the parties.37

§15.05

EXAMPLES TO DATE

The absence of an express consolidation rule has not prevented ICSID cases from being consolidated where the parties consent to do so. The ICSID Secretariat has encouraged voluntary consolidation in like cases and has coordinated such consolidation, constituting tribunals of the same composition for cases that share a common legal and factual background.38 The Tribunal in CMS v. Argentina highlighted the importance of party consent for consolidation by observing that “the Centre has made every effort possible to avoid a multiplicity of tribunals and jurisdictions, but [that] it is not possible to foreclose rights that different investors might have under different arrangements.”39 The scope of such consolidation has been different in each case, with the nature of joint procedures being tailored to the specific case. Among the procedures to be coordinated in a consolidated case are the pleadings, how to address arguments specific to

35. Christopher F. Dugan, Don Wallace, Jr., Noah Rubins, Borzu Sabahi, Consolidation under Relevant Arbitration Rules or Treaties, in Investor-State Arbitration, 186 (Oxford University Press, 2008); Kaufmann-Kohler, supra n. 12, at 93; Yuval Shany, Consolidation and Tests for Application: Is International Law Relevant?, ICSID Review-Foreign Investment Law Journal 21(1) 135, 142 (2006). 36. Likewise, Art. 17(1) of the UNCITRAL Rules provides that: […] the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate, provided that the parties are treated with equality and that at an appropriate stage of the proceedings each party is given a reasonable opportunity of presenting its case. The arbitral tribunal, in exercising its discretion, shall conduct the proceedings so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties’ dispute.

37. Christoph Schreuer, The ICSID Convention A Commentary, 131 (2nd ed, 2009). See Shany, supra n. 35, at 142 who argues that arbitral tribunals are not likely to exercise these powers because “even courts operating in national systems supported by relatively strong institutional backing are often reluctant to order consolidation; and such reluctance would be even greater in the international sphere where tribunals are institutionally weaker and the premium placed on party autonomy is generally higher.” 38. Parra, supra n. 15, at 133; see also Carolyn B. Lamm, Hansel T. Pham and Alexandra K. Meise Bay, Consent and Due Process in Multiparty Investor-State Arbitrations, in International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer, 54, 66-68 (C. Binder, U. Kriebaum, A. Reinisch and S. Wittich eds., Oxford University Press, 2009); Bernard Hanotiau, Complex Arbitrations: Multiparty, Multicontract, Multi-issue and Class Actions, 188-191 (Kluwer Law international, 2005); Ben W. Hamida, Consolidation of Investment Disputes, Gazette du Palais, 30, 32 (2006). 39. CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction (Jul. 17, 2003), para. 86.

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individual claimants (e.g., jurisdictional bars), presentation of evidence, and whether there will be one award or multiple awards. The first example of consolidation at ICSID was in respect of Alcoa Minerals of Jamaica Inc. v. Jamaica,40 Kaiser Bauxite Co. v. Jamaica,41 and Reynolds Jamaica Mines Ltd. v. Jamaica.42 The Jamaican government had granted each of the claimants’ long-term concessions to mine bauxite in Jamaica. These agreements contained a “no further tax” undertaking that Jamaica would not impose taxes on the investors other than those originally agreed to in their contracts. The contracts offered ICSID arbitration, based on Jamaica’s ratification of the ICSID Convention in 1966. On May 8, 1974, Jamaica notified ICSID in accordance with Convention Article 25(4) that any “legal dispute arising directly out of an investment relating to minerals or other natural resources” would not be subject to ICSID jurisdiction.43 Shortly thereafter, Jamaica introduced a production levy to be paid on all bauxite extracted in Jamaica on or after January 1, 1974. In light of these events, the three investors submitted requests for arbitration under their respective investment contracts. The Secretary-General registered the three requests separately on June 21, 1974. Each of the Claimants appointed the same arbitrator. However, Jamaica did not participate in the appointment process. The tribunal was eventually established by the Chairman of the Administrative Council pursuant to Article 38 of the ICSID Convention. After consulting with the Claimants, the Chairman appointed the same persons in all three Tribunals and designated one of them as President. The disputes were jointly heard by that tribunal, which rendered three separate decisions on jurisdiction and competence. The cases were ultimately settled, and the proceedings were discontinued before issuing a final award.44 In Salini v. Morocco45 and Consortium RFCC v. Morocco,46 two sets of Claimants brought disputes under the Italy-Morocco Bilateral Investment Treaty (BIT) with respect to claims arising out of highway construction agreements each had entered with Morocco. The requests for arbitration were filed on June 13, 2000 and June 28, 2000 respectively. In light of the common factual and legal background, the ICSID Secretariat recommended that the two tribunals be identically composed. The two sets of Claimants were represented by different counsel. Pleadings and hearings were conducted separately and two separate decisions on jurisdiction were rendered, both reaching the same conclusions.

40. Alcoa Minerals of Jamaica, Inc. v. Jamaica, ICSID Case No. ARB/74/2, Preliminary Award (Jul. 6, 1975), Yearbook of Commercial Arbitration (1979) 206. 41. Kaiser Bauxite v. Jamaica, ICSID Case No. ARB/03/22, Award, 6 July 1975, 1 ICSID Rep. 296 (1993). 42. Reynolds Jamaica Mines Ltd and Reynolds Metals co v. Jamaica, (ICSID Case No. ARB/74/4), Order taking note of the discontinuance of the proceedings 1977. 43. Jamaica’s ratification of the ICSID Convention in 1966 was made without sector-specific notifications. 44. See ICSID Eleventh Annual Report 1976/1977, p. 4. 45. Salini Costruttori SpA and Italstrade SpA v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction (Jul. 23, 2001) 42 ILM 609 (2003). 46. Consortium RFCC v. Kingdom of Morocco, ICSID Case No. ARB/00/6, Award (Dec. 22, 2003), 20 ICSID Rev.—FILG 391 (2005).

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A number of arbitrations arising out of the Argentine Government’s measures to deal with the financial crisis of 2001 were voluntarily consolidated. Ultimately close to fifty disputes were filed against Argentina by foreign investors, in particular by foreign owned utilities with local concessions complaining about “pesification” and a freeze on utility tariffs.47 Most of these disputes were filed at ICSID, although some were adjudicated under the UNCITRAL Rules. In Sempra Energy International v. Argentina48 and Camuzzi International v. Argentina,49 the parties agreed to constitute a single tribunal to hear their claims. The Claimants were shareholders in the same gas distribution companies but had filed separate requests for arbitration under the U.S.-Argentina and Belgium-Luxemburg Economic Union-Argentina BITs, respectively. The parties agreed that the tribunal would comprise one co-arbitrator appointed jointly by Sempra and Camuzzi, one co-arbitrator appointed by the Argentine Republic, and a President of the Arbitral Tribunal appointed by the Secretary-General of ICSID.50 At the first session, it was agreed that that the parties could submit consolidated memorials combining the Sempra and Camuzzi claims; the arguments of the Argentine Republic regarding both claims were also consolidated into a single pleading.51 The Tribunal heard the claims together but issued two different decisions on objections to jurisdiction. The proceedings were held jointly until after the hearing on the merits, when Camuzzi suspended its arbitration. The Tribunal, therefore, only rendered an award in the Sempra case. In Pan American v. Argentina,52 a first set of claimants (Pan American Energy LLC and BP Argentina Exploration Company) filed a joint request for arbitration under the U.S.-Argentina BIT on May 22, 2003. Half a year later, on December 17, 2003, a second set of claimants (BP America Production Company, Pan American Sur SRL, Pan American Fueguina SRL and Pan American Continental SRL) filed a request against Argentina. The second set of Claimants asked that their case be considered jointly with the first set of Claimants on the basis that the two cases were “substantially identical and concerned investments in the hydrocarbon industry” and that both claimed breach of the U.S.-Argentina BIT, international law and Argentine law due to economic measures introduced by Argentina.53 In March 2004, the disputing parties agreed that an identically composed Tribunal should hear both cases and that the cases should be

47. See Lucy Reed, Scorecard of Investment Treaty Cases Against Argentina Since 2001, published at Kluwer Arbitration Blog on March 2, 2009, available at: http://kluwerarbitrationblog.com/ 2009/03/02/scorecard-of-investment-treaty-cases-against-argentina-since-2001/ (last accessed on May 25, 2017). 48. Sempra Energy International v. Argentine Republic (ICSID Case No. ARB/02/16), Award of the Tribunal (Sept. 28, 2007) [hereinafter “Sempra Award”]. 49. Camuzzi International S.A. v. Argentine Republic (ICSID Case No. ARB/03/7), Decision of the Arbitral Tribunal on Objections to Jurisdiction (Jun. 10, 2005). 50. Sempra Award, supra n. 48, para. 5. 51. Ibid., para. 9. 52. Pan American Energy LLC and BP Argentina Exploration Company v. Argentine Republic (ICSID Case No. ARB/03/13) [“hereinafter Pan America v. Argentina”]. 53. Pan American v. Argentina, Decision on Preliminary Objections, (Jul. 27, 2006), para. 3, available at: https://www.italaw.com/cases/808 (last accessed May 25, 2017).

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consolidated.54 The parties agreed that the two cases would form one set of proceedings and that the Tribunal would issue a single decision on jurisdiction for both proceedings.55 Eventually the parties reached a settlement and the proceedings were discontinued. In three ICSID arbitrations filed on April 17, 2003 relating to disputes over water supply and sewage service concession contracts, the parties agreed to set up identically composed Tribunals to hear all cases.56 A fourth case was submitted to ICSID for administration under the UNCITRAL Rules.57 The disputes were initiated by foreign shareholders in three Argentine companies, alleging violations of the ArgentinaFrance, Argentina-Spain, and Argentina-UK BIT. The first two BITs offered ICSID arbitration but the Argentina-UK BIT only provided for UNCITRAL arbitration. Argentina consented to have the UNCITRAL case administered by the ICSID Secretariat and to be decided by the same tribunal. The Aguas Cordobesas case (ICSID Case No. ARB/03/18) was settled and discontinued by agreement of the parties under Arbitration Rule 43(1). The Tribunal rendered a single award with respect to the Suez (ICSID Case No. ARB/03/19) and AWG (UNCITRAL) cases, and rendered a separate award in Suez (ICSID Case No. ARB/03/17) a few months later.58 The last set of cases that were consolidated in the context of the Argentine crisis were the Electricidad Argentina S.A. and EDF International S.A. v. Argentine Republic59 and EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic.60 Claimant EDFI and its locally incorporated subsidiary, Electricidad Argentina S.A., filed a Request for Arbitration against Argentina on May 16, 2003, alleging violations of the France-Argentina BIT (1991) with respect to a transmission and distribution of electricity concession agreement. A second Request for Arbitration was filed one month later, on June 16, 2013, by EDFI and SAUR. Both Requests were registered together on August 12, 2003. Given that the claims underlying both Requests “largely mirror[ed] each other in all material aspects,” the ICSID Secretariat recommended that a common tribunal be constituted to address both

54. Ibid., paras. 1-4. 55. Ibid., para. 7. 56. Suez, Sociedad General de Aguas de Barcelona S.A. and Interagua Servicios Integrales de Agua S.A. v. Argentine Republic (ICSID Case No. ARB/03/17); Aguas Cordobesas S.A., Suez, and Sociedad General de Aguas de Barcelona S.A. v. Argentine Republic (ICSID Case No. ARB/03/18); Suez, Sociedad General de Aguas de Barcelona S.A. and Vivendi Universal S.A. v. Argentine Republic (ICSID Case No. ARB/03/19). 57. AWG Group Ltd v. The Argentine Republic, UNCITRAL Rules Arbitration. 58. ICSID Case No. ARB/03/19 and ICSID Case No. ARB/03/17 have been subject to annulment review separately. The application for annulment of ICSID Case No. ARB/03/19 was denied by the ad hoc Committee that was constituted under Art. 52(3) of the ICSID Convention (Decision on Argentina’s Application of Annulment, May 5, 2017). The application for annulment of ICSID Case No. ARB/03/17 is still pending at the time this chapter was written. 59. Electricidad Argentina S.A. and EDF International S.A. v. Argentine Republic, ICSID Case No. ARB/03/22. 60. EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23.

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proceedings.61 All parties involved agreed to a common tribunal to adjudicate both cases. Shortly thereafter, the parties to Electricidad (ICSID Case No. ARB/03/22) agreed to suspend the proceedings in order to negotiate a settlement.62 The Tribunal, therefore, only rendered one award in EDF (ICSID Case No. ARB/03/23). The consolidations in the Argentine cases in particular have raised some of the challenges, advantages and disadvantages of voluntary consolidation. Each of the consolidated sets of cases required tailor-made procedures for the handling of evidence, legal argument, jurisdictional objections, schedules, confidentiality, and the issuance of awards. This is usual case management and while it may be challenging with multiple cases, it is certainly achievable, especially where the parties cooperate in these decisions. The most difficult issue that has arisen from the Argentine cases stems from the fact that several different (consolidated) tribunals were constituted for these cases. As a result, some of the legal findings were dealt with by differently composed tribunals. Commentators have noted that these tribunals issued conflicting reasons on issues such as the effect of MFN clauses, the meaning of necessity, the cooling off period and FET.63 Similarly, commentators have noted that when these cases were referred to annulment tribunals, some adopted different views.64 Among the lessons from the Argentine example are the importance of consolidating whole sets of cases, across different rules and investment treaties. Outside the Argentine crisis context, a number of cases filed with ICSID were voluntarily consolidated in recent years. The Gemplus v. Mexico65 and Talsud v. Mexico66 claimants simultaneously filed requests for arbitration on August 10, 2004. The Gemplus claim involved three parties suing under the France-Mexico BIT. Talsud was an Argentine company suing under the Argentina-Mexico BIT. Gemplus and Talsud were part of a consortium bidding on a concession to run Mexico’s National Vehicle Registry. Following the constitution of the Tribunal, the parties agreed the cases would be determined by the same tribunal and would be heard and dealt with together to the extent practicable.67 The Respondent challenged jurisdiction with

61. EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. Argentine Republic, ICSID Case No. ARB/03/23, Award (Jun. 11, 2012) footnote 1, available at: https://www.italaw.com/sites/default/files/case-documents/ita1069.pdf (last accessed on May 25, 2017). 62. ICSID Case No ARB/03/22 was discontinued on Mar. 28, 2017, pursuant to ICSID Arbitration Rule 44. 63. For an overview of the concerns about consistency arising from the Argentine cases, see Jose Alvarez and Gustavo Topalian, The Paradoxical Argentina Cases, World Arbitration & Mediation Review 6(3), 491-543 (2012). 64. José E. Alvarez, The Public International Law Regime Governing International Investment Law, 260-284 (Hague Academy of International Law, 2011). 65. Gemplus, S.A., SLP, S.A. and Gemplus Industrial, S.A. de C.V. v. United Mexican States (ICSID Case No. ARB(AF)/04/3). 66. Talsud, S.A. v. United Mexican States (ICSID Case No. ARB(AF)/04/4). 67. Gemplus, S.A., SLP, S.A. and Gemplus Industrial, S.A. de C.V. and Talsud, S.A. v. United Mexican States (ICSID Cases Nos. ARB (AF)/04/3 & ARB (AF)/04/4), Award (Jun. 16, 2010), paras. 1-15, 1-23.

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respect to the Gemplus claimants and disputed liability, causation and compensation claimed by all Claimants.68 The parties agreed to a single award in the two cases.69 The consolidation of Kardassopoulos v. Georgia70 and Fuchs v. Georgia71 is another instance of voluntary consolidation where the same tribunal heard two cases together and rendered a single award for both cases. The disputes were brought under the Georgia-Greece BIT and the Energy Charter Treaty (ECT) by two investors who were shareholders in the same company. The investors alleged breaches of an agreement to construct and operate pipelines transporting oil from the Caspian Sea through Georgia to the Black Sea. The Kardassopoulos request was registered by ICSID on October 3, 2005. Mr. Fuchs submitted a request for arbitration a year and a half later, which was registered on July 16, 2007. In the meantime, the Tribunal in Kardassopoulos had been constituted on February 27, 2006 and had held a first session in May 2006. On September 12, 2007, the Parties jointly requested that the Tribunal constituted in the Kardassopoulos arbitration also hear and decide the Fuchs claim and that the two arbitrations be heard together.72 The Tribunal heard and decided an objection to jurisdiction ratione materiae and ratione temporis with respect to the Kardassopoulos claim,73 and rendered a single award on the merits for both cases on March 3, 2010. Two identically composed Tribunals were also constituted to hear the von Pezold v. Zimbabwe74 and Border v. Zimbabwe75 disputes. The Claimants had brought separate, multiparty claims under the Zimbabwe-Germany and Zimbabwe-Switzerland BITs respectively, alleging unlawful expropriation of their agricultural properties in Zimbabwe. The Von Pezolds submitted their Request for Arbitration on June 11, 2010, while Border submitted its Request for Arbitration half a year later, on December 3, 2010.76 The von Pezold v. Zimbabwe Tribunal was constituted on December 9, 2010. Shortly thereafter, the parties to both arbitrations agreed that the Border v. Zimbabwe Tribunal would be identically composed with that of the von Pezold arbitration.77 Pursuant to an agreement by the parties, a Joint First Session was held in London on February 7, 2010.78 During the Joint First Session of the two Tribunals, the parties confirmed that the two Tribunals were properly constituted.79 It was also agreed, following the Claimants’ procedural approach, that the cases would be heard together but would not be formally consolidated; that the Claimants would submit joint pleadings, but would also identify those issues that were distinct for each Claimant; 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79.

Ibid., para. 1-53. Ibid., para. 1-16. Ioannis Kardassopoulos v. Georgia (ICSID Case No. ARB/05/18). Ron Fuchs v. Georgia (ICSID Case No. ARB/07/15). Ioannis Kardassopoulos and Ron Fuchs v. The Republic of Georgia (ICSID Case Nos. ARB/05/18 and ARB/07/15), Award (Mar. 3, 2010), paras. 11-12. Ibid., para. 16. Bernhard von Pezold and others v. Republic of Zimbabwe (ICSID Case No. ARB/10/15) (hereinafter “von Pezold v. Zimbabwe”). Border Timbers Limited, Timber Products International (Private) Limited, and Hangani Development Co. (Private) Limited v. Republic of Zimbabwe (ICSID Case No. ARB/10/25). von Pezold v. Zimbabwe (ICSID Case No. ARB/10/15), Award (Jul. 28, 2015), paras. 9, 13. Ibid., para. 16. Ibid., para. 17. Ibid., paras. 19, 20.

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that each witness statement and expert report would explicitly state whether it applies to one case or the other; and that the Tribunal would render two separate awards, although it would still be able to discuss the two arbitrations in any award or procedural order as a single set of proceedings where possible.80 At the stage of the costs submissions, the Tribunal invited the parties to confirm their respective positions regarding the issuance of a single award or separate awards.81 The Claimants requested separate awards “[g]iven that the arbitrations were never formally consolidated,”82 while the Respondent asked for a single award. The Respondent argued that in view of the “single-mass nature of submissions, issues and oral debate, there is no reasonably reliable manner to accurately distinguish the quantum of costs and fees in two separate awards.”83 The Tribunal eventually decided to render two separate awards, recognizing that although the matters arose from substantially the same events, many of the claims were argued on different bases and required separate treatment.84 In Churchill Mining v. Indonesia and Planet Mining v. Indonesia,85 the parties in two different arbitrations agreed that the dispute would be adjudicated by the same tribunal in one consolidated ICSID proceeding. Churchill’s Request for Arbitration was filed on May 22, 2012, while Planet Mining’s Request was filed a month later, on June 22, 2012. The two Claimants alleged breaches of the Indonesia-UK BIT and the Australia-Indonesia BIT, respectively, relating to the revocation of mining licenses in Indonesian coal ventures. Shortly after registration of the two cases, the parties to both disputes agreed that the two disputes would be heard in a consolidated case.86 During the common session that was held to this effect, the parties agreed on all elements of the consolidated procedure except whether the tribunal would render one or two awards, which was left to be decided at a later stage.87 The Tribunal commented that it “endorses the parties’ procedural choice which it agrees achieves the most reasonable, cost-effective, and fair result for all the parties under the circumstances.”88 The Tribunal eventually rendered one award for both Claimants. In BSG v. Guinea,89 the initial claim was brought by BSG UK against Guinea on August 1, 2014, alleging the unlawful taking of BSG’s mining investments in Guinea.90 BSG UK’s claim was consolidated with a claim brought by BSG Ltd. Guinea and BSG

80. Ibid., para. 22. 81. Bernard von Pezold and Others v. Republic of Zimbabwe (ICSID Case No. ARB/10/15) and Border Timbers Limited, Morder Timpers International (Private) Limited, and Hangani Development Co. (private) Limited v. Republic of Zimbabwe, Procedural Order No. 13 (Dec. 23, 2014), para. 4. 82. Ibid., para. 5 (citing to the Claimants’ submission para. 64). 83. Ibid., para. 6 (citing to the Respondent’s submission para. 40). 84. Ibid., paras. 7-12. 85. Churchill Mining PLC and Planet Mining Pty Ltd v. Republic of Indonesia (ICSID Case Nos. ARB/12/14 and 12/40) [hereinafter “Churchill and Planet Mining v. Indonesia”]. 86. Churchill and Planet Mining v. Indonesia, (ICSID Case Nos. ARB/12/14 and 12/40), Award (Dec. 6, 2016) para. 7. 87. Churchill and Planet Mining v. Indonesia, Procedural Order (Mar. 18, 2013), para. 1.3.4. 88. Ibid., para. 1.2. 89. At the time of writing this chapter, the case is still pending. 90. BSG Resources Limited, BSG Resources (Guinea) Limited and BSG Resources (Guinea) SÀRL v. Republic of Guinea (ICSID Case No. ARB/14/22), formerly BSG Resources Limited v. Republic of

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Guinea against Guinea on October 13, 2015 under ICSID Case No. ARB/14/22, keeping the first case’s ICSID reference and registration number.91 The parties agreed to the full consolidation of the two cases, including that any decision and award in the consolidated case would address both cases.92 Most recently, the parties to the ICSID Case Lao Holding v. Laos (II)93 and the ad hoc arbitration Sanum v. Laos (II)94 agreed to have the same tribunal hear the two cases together and run the proceedings in tandem in the interests of efficiency and cost.95 The arbitrations related to claims under the Laos-Netherlands BIT and the China-Laos BIT, respectively. They arose out of the Government’s alleged breach of a previously concluded settlement agreement among Lao Holding, its wholly owned subsidiary Sanum and the Government of Laos, concerning expropriation of a casino in which Sanum held an 80% stake and the discriminatory imposition of taxes on the Claimant.96 The parties to both disputes agreed that ICSID would administer both arbitrations under the Additional Facility Rules.97

§15.06

MANDATORY CONSOLIDATION UNDER TREATY PROVISIONS

The consolidations noted above were voluntary, and not pursuant to any procedural rule or treaty provision. ICSID has also had experience with mandatory consolidation under the NAFTA. In these cases, consolidation was effected (or not) based on a treaty provision giving tribunals discretion to order consolidation. Article 1126 of the NAFTA was among the first provisions to include consolidation in an investment treaty. Consolidation under Article 1126 is mandatory, in that it does not require the agreement of all of the parties to the dispute. Rather, the potential for consolidation under Article 1126 is consented to by initiating a claim under Chapter 11 of NAFTA.98

91.

92. 93. 94. 95. 96.

97. 98.

Guinea BSG Resources (Guinea) Limited and BSG Resources (Guinea) SARL v. Republic of Guinea (ICSID Cases Nos. ARB/14/22 and ARB/15/46). The case is still pending at the time of writing of this chapter. BSG Resources Limited, BSG Resources (Guinea) Limited and BSG Resources (Guinea) SÀRL v. Republic of Guinea (ICSID Case No. ARB/14/22), Procedural Order No. 5, paras. 1.2.1-1.2.2. The second case was discontinued on the same date the consolidation was effected, in accordance with ICSID Arbitration Rule 43(1). Id., Procedural Order No. 5, para. 8.1. Lao Holdings N.V. v. Lao People’s Democratic Republic (ICSID Case No. ARB(AF)/16/2). Sanum Investments Limited against the Lao People’s Democratic Republic (II). Lao Holdings N.V. v. Lao People’s Democratic Republic (ICSID Case No. ARB(AF)/16/2), Procedural Order No. 1 (May 16, 2017), para. 25.1. For details about the Lao Holding and Sanum saga see http://www.prnewswire.com/newsreleases/lao-holdings-nv-files-legal-actions-related-to-expropriation-and-planned-sale-of-savan -vegas-casino-against-the-lao-government-and-san-marco-capital-partners-llc-300264187.html (last accessed May 19, 2017). Procedural Order, para. 25.1. Canfor Consolidation Order, supra n. 23, paras. 78-80; Henri C. Alvarez, Arbitration Under the North American Free Trade Agreement, Vol. 16 No. 4, 393, 414-415; (2000). Antonio Crivellaro, supra n. 34, at 106.

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The purpose of Article 1126 is to ensure procedural economy and avoid inconsistent results.99 Article 1126 is most likely to be invoked in situations where a single state measure has given rise to multiple claims by multiple investors. However, it cannot be construed as allowing for the consolidation of different claims made by the same investor.100 The procedure under Article 1126 is relatively simple. Where one or more NAFTA Chapter 11 claims have a question of law or fact in common, any disputing party can ask the Secretary-General of ICSID to establish a consolidation tribunal.101 Article 1126 does not vest the Secretary-General with any discretion concerning the parties’ request.102 The consolidation tribunal is composed of arbitrators from the NAFTA roster, and to the extent not available from that roster, from the ICSID Panel of Arbitrators.103 The consolidation tribunal can stay the individual proceedings while considering whether to consolidate.104 It has discretion to consolidate claims that have a question of law or fact in common if consolidation is in the interests of fair and efficient resolution of the claims.105 The consolidation tribunal must hear the parties before making this decision, and can decide to assume jurisdiction over all or part of the claims or to determine one or more of the claims if this would assist in the resolution of the others.106 Article 1126 requires the consolidated claims to be conducted pursuant to the UNCITRAL Arbitration Rules (presumably because Canada and Mexico were not ICSID members when NAFTA was signed).107 Arbitrator Henri Alvarez has noted the novelty of Article 1126: The idea of the appointment of a “super tribunal” to consolidate claims on a mandatory basis is novel and bold. Although mandatory consolidation is not widely accepted in private commercial arbitration, it makes good sense in the case of Chapter 11 of NAFTA, which is not the usual private, consensual context of international commercial arbitration.108

The first application pursuant to NAFTA Article 1126 was filed by Mexico in relation to claims submitted by three American producers of high-fructose corn syrup arising from the imposition of a 20% excise tax on soft drinks. Corn Products International had first requested arbitration proceedings on October 21, 2003, while 99. Id., Canfor Consolidation Order, paras. 73-76, 130-133; Crivellaro, supra n. 34, at 103. 100. See Pope & Talbot, Inc. v. Canada, Award Concerning the Motion by the Government of Canada Respecting the Claim based upon Imposition of the “Super Fee” (Aug. 7, 2000). See also Meg N. Kinnear, Andrea K. Bjorklund and John F.G. Hannaford, Article 1126—Consolidation, in Investment Disputes Under NAFTA: An Annotated Guide to NAFTA Chapter 11, Supplement No. 1, 1126-10 (March 2008); Bernardo M. Cremades and Ignacio Madalena, Parallel Proceedings in International Arbitration, Arbitration International, Vol. 24, No. 4 507, at 533. 101. NAFTA, Art. 1126(3). 102. Compare with Art. 33(3) of the U.S. Model BIT (2012), where the Secretary-General may reject a request if it is “manifestly unfounded.” 103. NAFTA, Art. 1126(5). 104. NAFTA, Art. 1126(9). 105. NAFTA, Art. 1126(2). 106. Ibid. 107. Kinnear et al., supra n. 100, at 1126-7 and 1126-8. 108. Henri C. Alvarez, supra n. 98, at 413-414.

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Archer Daniels Midland Co. and Tate & Lyle Ingredients Americas, Inc. filed a request almost a year later, on August 4, 2004. On September 8, 2004, Mexico submitted a detailed request for consolidation. Subsequently Mexico and the Claimants agreed on the composition and mandate of the Consolidation Tribunal that would rule on Mexico’s request.109 The Consolidation Agreement also stipulated that should consolidation be ordered, the disputing parties would agree on the composition of the tribunal that would hear the consolidated cases, and that the consolidated proceedings would be governed by the ICSID Additional Facility Arbitration Rules.110 A consolidation tribunal was constituted on April 8, 2005 by the Secretary-General in consultation with the parties. The Consolidation Tribunal refused to consolidate the two cases. Although it found that the claims shared questions of law or fact in common, it ruled that consolidation would not be in the interests of a fair and efficient resolution of the claims. The Consolidation Tribunal was especially concerned about the fact that the claimants were market competitors and found that the need for complex confidentiality measures to protect sensitive business information rendered consolidation “extremely difficult.”111 The second NAFTA request for consolidation was filed by the United States (U.S.) on March 7, 2005, with respect to three separate cases submitted by Canadian investors Canfor Corp., Terminal Forest Products Ltd, and Tembec Inc. The claimants were softwood lumber producers alleging losses from American countervailing duty and antidumping measures imposed on their products. In its request for consolidation, the U.S. contended that common issues of law and fact called for consolidation. The Consolidation Tribunal was constituted by the ICSID Secretary-General and held a hearing on June 16, 2005. On September 7, 2005, the Tribunal granted the request for consolidation. After determining that the claims in question had many questions of law and fact in common, the Tribunal went on to consider whether consolidation was “in the interests of fair and efficient resolution of the claims.”112 In doing so, the Tribunal focused on three factors: (i) time; (ii) costs; and (iii) avoidance of conflicting decisions. With respect to the first factor, the Consolidation Tribunal observed that no tribunal had yet issued a decision on jurisdiction and so the consolidation was timely.113 As to the second factor, it concluded that consolidated proceedings would be less costly for the U.S. than undertaking three separate arbitrations, and that the cost for each of the Claimants would increase “but not excessively.”114 Finally, the Consolidation Tribunal held that in light of the numerous common questions of law and fact, there was a risk of conflicting awards if the cases were not consolidated.115

109. Confirmation of Agreement of the Disputing Parties Regarding Consolidation, dated Apr. 8, 2005. See Corn Products Consolidation Order, supra n. 24, para 2. 110. Ibid., para. 2. 111. Ibid., para. 8. 112. Canfor Consolidation Order, supra n. 23, paras. 207-208. 113. Ibid., paras. 210-214. 114. Ibid., paras. 215-216. 115. Ibid., para. 217.

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The Canfor Consolidation Tribunal was not hindered by confidentiality concerns or the absence of consent to consolidation. It found that consent to Chapter 11 arbitration included consent to consolidation. The Consolidation Tribunal also held that “confidentiality is not a factor to be taken into account when considering ‘the interests of fair and efficient resolution of the claims,’ save for exceptional cases where consolidation would defeat efficiency of process or would infringe the principle of due process enunciated in Article 1115 of the NAFTA.”116 Finally, consolidation in the NAFTA context has not always been effected by virtue of Article 1126, as evidenced by the Canadian Cattlemen for Fair Trade v. U.S. case.117 In that case, 109 different notices of arbitration were filed between March 16, 2005 and June 2, 2005, by Canadian nationals in the beef and cattle business, who alleged that U.S. measures applied to Canadian-origin livestock and beef products as a result of concerns about bovine spongiform encephalopathy breached NAFTA Chapter 11.118 The Claimants organized themselves into a group called “Canadian Cattlemen for Fair Trade” and agreed with the Respondent U.S. to the informal consolidation of their claims before a single tribunal.119 The consolidation agreement was memorialized in Procedural Order No. 1.120 The case was eventually dismissed on the basis of jurisdictional objections submitted by the U.S. relating to the location and nationality of the claimants.121

§15.07

OTHER TREATY CONSOLIDATION PROVISIONS

More than ninety investment treaties concluded after the NAFTA have included consolidation provisions similar or identical to Article 1126. Like Article 1126, the vast majority of these treaties do not require that the disputing parties specifically consent to consolidation. Instead, they permit a party to apply for consolidation and a consolidation tribunal that determines whether to grant the order on the basis of criteria set out in the investment treaty. Only a small number of treaties require specific consent to consolidation.122 The majority of these provisions require that the claims to be consolidated share a “question of law or fact in common.” They may impose further criteria, such as the claims arise “out of the same events or circumstances” and/or that

116. Ibid., para. 218. 117. See “Cases Regarding the Border Closure due to BSE Concerns,” U.S. Department of State, Office of the Legal Advisor, http://www.state.gov/s/l/c14683.htm (last accessed May 19, 2017). 118. Canadian Cattlemen Claims—De Boer, et al (Can.) v. United States, UNCITRAL, Award on Jurisdiction (Jan. 28, 2008). 119. Id., para. D-6. 120. Canadian Cattlemen Claims, Procedural Order No. 1 of October 20, 2006, para. 4, available at https://www.state.gov/documents/organization/75549.pdf (last accessed May 25, 2017). 121. Canadian Cattlemen Claim, Award of Jurisdiction supra n. 118, Section K. 122. See, for example, New Zealand-China FTA (2008); China-Mexico BIT (2008); Malaysia-New Zealand FTA (2009); Japan-Peru FTA (2011); Mexico-Bahrain BIT (2012); New Zealand—Taiwan FTA (2013).

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consolidation serve the “interest of fair and efficient resolution of the claims.”123 Some treaties, especially the ones concluded by Mexico, also require that the tribunal find the claims are “in relation to the same investment” and an absence of “harm” or “serious harm” from consolidating, in addition to common legal or factual questions.124 Usually these treaties stipulate that the request for consolidation be made to the Secretary-General of ICSID, who must establish a tribunal within a certain time, generally thirty or sixty days after receipt of the request. The new investment agreements concluded by the European Union require that the consolidation request be submitted to the President of the Tribunal, reflecting the investment court model adopted in these treaties.125 The 2012 U.S. Model BIT additionally vests the SecretaryGeneral with screening powers over the request for consolidation. The applicable test for screening is that the consolidation request is not “manifestly unfounded.”126 The consolidation provision in the Chile-Japan EPA also grants the ICSID Secretary-General additional screening powers to consider whether the consolidation requirements in the treaty are met.127 With respect to the nomination of arbitrators to the consolidation tribunal, there are two main approaches in recent treaty-drafting. The first approach provides that all arbitrators be appointed by a neutral authority, usually the ICSID Secretary-General, following the NAFTA model.128 In several cases, treaties identify a specifically established FTA-roster and/or the ICSID Panel of Arbitrators from which the arbitrators or at least the presiding arbitrator must be selected.129 Generally, there must be one national from each party, but the presiding arbitrator cannot be a national of either party. The second approach, which is found mainly in investment treaties concluded by the U.S., requires that each party appoint one arbitrator and that the Secretary-General of ICSID appoint the presiding arbitrator and any other arbitrator not appointed by a party.130 The parties are free to select a co-national, but the presiding arbitrator must not be national of either party.

123. See U.S. Model BIT (2012), Art. 33(6). This has served as a boilerplate for a number of investment treaties that the U.S. has signed with other countries. 124. For example, Mexico-Switzerland BIT (1995), Art. 6(2) and 6(3); Mexico-Netherlands BIT (1995), Art. 7(2) and 7(3); Mexico-Argentina BIT (1996), Art. 4(2) and 4(3); Mexico-Germany BIT (1998), Art. 15(2) and 15(3); Mexico-Italy BIT (1999), Art. 5(2) and (3); Mexico-Korea BIT (2000), Art. 11(2) and (3); Mexico-Czech Republic BIT (2002), Art. 13(2) and (3); MexicoBahrain BIT (2012), Art. 14(2), etc. 125. CETA, Art. 8.43.4. See also EU-Vietnam FTA (agreed text as of January 2016), Chapter II, Section III, Art. 33(2). 126. See U.S. Model BIT (2012), Art. 33(3). 127. Chile-Japan EPA (2007), Art. 101(3). 128. This trend may be particularly found in investment treaties signed by Canada e.g., CanadaRepublic of Korea FTA (2014), Art. 8.28(5); Canada-Nigeria BIT (2014), Art. 28(3); CanadaTanzania BIT (2013), Art. 27(5), etc. 129. See, e.g., Chile-Republic of Korea FTA (2003), Arts. 10.28(4) and 10.30(5); Panama-Taiwan FTA (2003), Arts. 10.25(4) and 10.27(5); Canada-Chile FTA (1996), Arts G-25(4) and G-27(5); NAFTA, Art. 1124(4) and 1126(5). 130. See U.S. Model BIT (2012), Art. 33; U.S.-Republic of Korea FTA (2007), Art. 11.25(4) and 11.25(5); U.S.-Singapore FTA (2003), Art. 15.24(4) and 15.24(5).

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Most treaties provide that the consolidation tribunal be established and conduct its proceedings under the UNCITRAL Arbitration Rules, likely to account for circumstances where a disputing party cannot meet the requirements of the ICSID Convention or Additional Facility. This provision can be modified with consent of the disputing parties.131 These treaties usually give the consolidation tribunal power to stay the individual proceedings pending a decision on consolidation. As to the scope of consolidation, this can cover all claims (“total consolidation”) or one or more of the claims (“partial consolidation”). Some treaties also give the consolidation tribunal the power to instruct a previously constituted tribunal to assume jurisdiction over all or any part of the claim.132 Finally, most treaties allow a claimant not named in a consolidation request to apply to the consolidation tribunal to join in the consolidated proceedings.

§15.08

CONSOLIDATION UNDER COMMERCIAL ARBITRATION RULES

A number of commercial arbitration rules include consolidation provisions. To the extent that they are available for investment cases, they may offer a vehicle to consolidate investment cases.133 Usually, these rules allow consolidation if the parties agree. In addition, they typically allow a tribunal or appointing authority to order consolidation where the claims are made under the same arbitration agreement; or under different but compatible arbitration agreements, the arbitrations raise common questions of fact or law, and the relief arises out of the same transaction or legal relationship. Some rules also provide for certain factors to be considered by the consolidating authority in deciding whether to consolidate, such as the stage of the proceedings at which consolidation is sought, whether tribunals are constituted in the separate proceedings, and whether consolidation would serve the efficiency and expeditiousness of the proceedings.134 However, in practice, mandatory consolidation is still the exception rather than the rule in commercial cases, and we have been unable to find a published consolidation of investment claims under commercial arbitration rules.

131. See Corn Products Consolidation, where the disputing parties agreed that if a consolidation order was issued, all proceedings of the consolidation tribunal would be governed by the ICSID Additional Facility Rules. 132. For example, U.S. Model BIT (2012), Art. 33(6)(c); U.S.-Uruguay BIT (2005), Art. 33(6)(c); U.S.-Peru FTA (2006), Art. 10.25(6)(c); Nicaragua-Taiwan FTA, Art. 10.25(6)(c); U.S.Colombia FTA (2006), Art. 10.25(6)(c); Australia-Chile FTA (2008) Art. 10.26(6)(c); ColombiaPanama FTA (2013), Art. 14.25(6)(c); New Zealand-Republic of Korea FTA, Art. 10.29(6)(c). 133. See, e.g., Hong Kong International Arbitration Centre Administered Arbitration Rules (effective as of Nov. 1, 2013), Art. 28; China International Economic and Trade Arbitration Commission Arbitration Rules (Jan. 1, 2015), Art. 19; International Centre for Dispute Resolution Arbitration Rules (effective as of Jun. 1, 2014), Art. 8; Singapore International Arbitration Centre Arbitration Rules (effective as of Aug. 1, 2016), Art. 8; International Chamber of Commerce Arbitration Rules (effective as of Mar. 1, 2017), Art. 10; Stockholm Chamber of Commerce Arbitration Rules (hereinafter “SCC”) (effective as of Jan. 1, 2017), Art. 15. 134. See, e.g., SCC Arbitration Rules, Art. 15(2); ICC Arbitration Rules, Art. 10(c).

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In October 2016 ICSID advised that it would be considering amendments to the current ICSID arbitration rules, with the goal of modernizing these rules. It has sought State and public comment on potential amendments and will issue working papers on various topics in 2018.135 Whether States decide to address voluntary or mandatory consolidation in the ICSID amendment process is still an open question. It goes without saying that the outcome of such a discussion is unknown. As ICSID’s experience to date demonstrates, the current rules provide the flexibility to consolidate voluntarily. However, it might be useful to include an express rule or practice note affirming the ability to consolidate with party consent, providing a procedure for this and affirming the capacity of the consolidating tribunal to make corollary orders. The more difficult question is whether to introduce a rule that allows for consolidation against the wishes of a disputing party. While there are evident systemic benefits from an efficiency and predictability perspective, many commentators believe mandatory consolidation could deprive parties of the flexibility and party autonomy that are hallmarks of arbitration. As one commentator has noted, “it would be difficult to sustain a general pro-consolidation rule, either as a matter of positive law, or as a matter of policy, since the parties (especially “repeat players” in arbitration proceedings) might be reluctant to cooperate over time with arbitral procedures that compel them to litigate in undesirable proceedings.”136 Any consideration of a consolidation rule for ICSID will likely have to grapple with some complex issues. For example: – What criteria would govern whether to consolidate? Criteria could include the existence of common factual or legal questions, the likelihood of time and cost savings, and the potential for inconsistent awards or double recovery absent consolidation. Case-specific considerations might also be relevant, for example the effect of consolidation on the procedural rights of disputing parties, the ability to protect confidential information in a consolidated case, and the effect of consolidation on the capacity of the disputing parties to fully make or defend their case. – Who would decide whether to consolidate? Most treaties require a separate consolidation tribunal to be constituted to decide whether to order consolidation. If this option is chosen, questions arise as to how to select and constitute the consolidation tribunal. For example, it might be possible to have a standing consolidation tribunal that could quickly be tasked with this decision. – Can consolidation be partial or full? Consolidation provisions usually allow for full or partial consolidation. This seems sensible as the scope of the consolidation order will depend on the extent of overlap among the relevant cases. 135. More information regarding the Amendment of ICSID’s Rules and Regulations is available at: https://icsid.worldbank.org/en/Pages/about/Amendment-of-ICSID-Rules-and-Regulations .aspx. 136. Shany, supra n. 35, at 141.

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However, where there is a partial consolidation, thought needs to be given to the timing and jurisdiction of the consolidated case and the individual cases. Capacity for other parties to join the consolidated action—Could other parties be permitted to join the consolidated case or to merge their ongoing case in another forum with the consolidated case? This would depend on the extent to which there were common issues of fact or law, but might also depend on pragmatic considerations such as the stage of the proceedings and the impact of joinder on the consolidated case. On the other hand, given that the goal of consolidation is to have a single decision on a question, joinder of similarly situated parties makes sense. Could cases under the ICSID Convention, ICSID Additional Facility, and UNCITRAL Rules be merged into a single consolidated case, and if so, what rules would be applicable to the consolidated case? This raises a host of questions. While the systemic benefits of consolidation suggest cases should be joined regardless of the applicable procedural rules, there may be cases where only certain rules are available. A related question is whether the choice of rules might have an impact on the proceedings. To give one example, proceedings under the ICSID Additional Facility and UNCITRAL Rules are liable to interim review in the seat of arbitration whereas proceedings under the ICSID Convention cannot be reviewed except under the annulment provisions in the Convention. How would this affect consolidated cases? Effect on treaty consolidation provisions—Generally express treaty provisions take precedence over procedural rules, and hence if a treaty includes a consolidation process, it would likely apply rather than an ICSID consolidation rule. Interplay with other ICSID rules—Parties would have to consider the application of other aspects of the applicable procedural rules to a consolidated case. For example, could there be challenges to the consolidation tribunal? Could a party argue under Rule 41(5) that a consolidated claim is manifestly without legal merit? Could a party to a consolidated proceeding seek a provisional order? There are a number of such considerations which might ultimately be for the tribunal seized of the consolidated claim to decide, but these must be considered in the design of a consolidation provision. The number of awards and effect of a consolidated award. One question in consolidations to date has been whether a single award is issued or whether multiple awards are issued. Multiple awards may be required where different fact findings are needed depending on the claimant in question. However, this might result in a finding by a consolidation tribunal being subject to review or annulment while the same ruling is not challenged in a related case.

CONCLUSION

Consolidation of cases is one of the many procedural tools that can contribute to cost and time savings in international investment cases and to the creation of a cohesive

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jurisprudence. At the same time, consolidation can impinge on party autonomy in the presentation of the case and is not always favored by individual claimants or respondents. It will be interesting to follow the discussion of stakeholders as this issue is raised in the context of the ICSID arbitration system.

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The Chimera of Admissibility in International Arbitration Michael Hwang SC & Lim Si Cheng

And Why We Need to Stop Chasing It

§16.01

INTRODUCTION

Admissibility is a chameleonic term with different usages in different contexts.1 In the Rules of Arbitration of the International Chamber of Commerce, ‘admissibility’ refers to the admissibility of a challenge of an arbitrator on the ground of lack of impartiality or independence.2 In common law countries, ‘admissibility’ denotes the admissibility of evidence in court.3 Over the last few decades, a new usage of admissibility has emerged in investment treaty arbitration, whereby admissibility is used to refer to the admissibility of a claim before an arbitral tribunal. This usage has become one of the most energetically debated issues in international arbitration today. The growing understanding in investment treaty arbitration is that an arbitral tribunal may dismiss or stay the arbitral proceedings if a party objects to the admissibility of the claim and the tribunal is satisfied that the claim is inadmissible.4 But before the tribunal determines admissibility, it must first be satisfied that the

1. Case concerning the Northern Cameroons (Cameroon v. United Kingdom) (Preliminary Objections) [1963] ICJ Rep 15, 28. 2. Article 14 ICC Arbitration Rules 2017. 3. Some common law countries have also codified the rules of admissibility of evidence. For example, see the Evidence Act (Chapter 97) of Singapore. 4. See generally L Gouiffès and M Ordonez, ‘Jurisdiction and admissibility: are we any closer to a line in the sand?’ (2015) 31(1) Arbitration International 107; A Newcombe, ‘The Question of Admissibility of Claims in Investment Treaty Arbitration’ (Kluwer Arbitration Blog 3 February 2010) http://bit.ly/2yDKEI3 accessed 10 October 2017.

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objecting party has made an objection to admissibility as opposed to jurisdiction. In this regard, the conventional wisdom is that there is a distinction between these two concepts. Jurisdiction refers to the power of the tribunal to hear the claim, while admissibility refers to whether it is appropriate for the tribunal to hear the claim, notwithstanding that the tribunal has jurisdiction.5 To determine if an objection relates to jurisdiction or to admissibility, the critical test is whether the objection is attacking the tribunal or the claim (the ‘“tribunal versus claim” test’).6 If it is attacking the tribunal, it is an objection to jurisdiction, and the tribunal must proceed to consider if the tribunal has jurisdiction on the facts of the case. If it is attacking the claim, it is an objection to admissibility, and the tribunal must go on to determine if the claim is admissible on the facts. Proponents of the concept of admissibility of claims admit that a finding of lack of jurisdiction and a finding of inadmissibility lead to the same result, which is that the tribunal withholds itself from examining the merits of the claim.7 They acknowledge that classifying objections under jurisdiction or admissibility would appear pointless if the facts lead to the same outcome either way. However, they argue that the distinction between the two concepts is significant for at least the following three reasons. First, a tribunal can review its jurisdiction proprio motu, but not the admissibility of a claim.8 Second, a tribunal which finds it lacks jurisdiction is obliged to dismiss the case while a tribunal which finds the claim is inadmissible is permitted to stay the proceedings.9 Third and most important, an award may be annulled by the relevant controlling authority on the basis of lack of jurisdiction, but not on the basis of inadmissibility of the claim.10 A decision that the tribunal has jurisdiction to hear the case is therefore reviewable while a decision that the claim is admissible is not. Our views in the light of the discussion above are as follows: (a) The starting point is that the reviewability of a tribunal’s decision depends on whether or not the objection is jurisdictional. A tribunal which wishes to classify the objections of an objecting party should do so according to this distinction. So the only question which the tribunal should be asking itself is whether the objection, if factually proven, would impinge upon the consent of the objecting party to arbitrate, so as to amount to a jurisdictional objection. For this purpose, the ‘tribunal versus claim’ test is an inadequate test, because 5. Waste Management, Inc v. United Mexican States, ICSID Case No ARB(AF)/98/2, Dissenting Opinion of Keith Highet [2000] para. 58. 6. J Paulsson, ‘Jurisdiction and Admissibility’ in G Aksen et al (eds), Global Reflections on International law, Commerce and Dispute Resolution (ICC Publishing 2005) 616. 7. F Santacroce, ‘Navigating the Troubled Waters Between Jurisdiction and Admissibility: An Analysis of Which Law Should Govern Characterisation of Preliminary Issues in International Arbitration’ (2017) 33(1) Arbitration International 1, 2. A lack of jurisdiction prevents the tribunal from deciding all issues, including admissibility: see D Williams, ‘Jurisdiction and Admissibility’ in P Muchlinski, F Ortino and C Schreuer (eds), The Oxford Handbook of International Investment Law (OUP 2008) 919; C Santulli, Droit du contentieux international (Montchrestien 2005) para. 255; Santacroce, id., 9. 8. Z Douglas, The International Law of Investment Claims (CUP 2009) 141-142. 9. Santacroce (n 7) 2. 10. Paulsson (n 6) 603.

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it does not tell us how to identify if an objection is targeting the tribunal or the claim. We should discard the test and open our minds to alternative methods which may be better at identifying if consent is affected. For example, if the State respondent argues that a precondition in its offer to arbitrate in the bilateral investment treaty (‘BIT’) has not been fulfilled, the better method would be for the tribunal to interpret the offer to arbitrate to determine if the State respondent intended the precondition to be a condition to its consent to arbitrate, so as to impose an obstacle to the tribunal’s jurisdiction pending its fulfilment. (b) If the tribunal forms the view that the objection is jurisdictional, the body of rules which concern jurisdiction will apply11 and the tribunal must go on to determine if it has jurisdiction on the facts of the case in accordance with those rules. On the other hand, if the tribunal forms the view that the objection is not jurisdictional, but relates to the procedure of the arbitration, the applicable legal rule will be the provision which confers on the tribunal the discretion to conduct the proceedings in such manner as it considers appropriate,12 including the power to stay or dismiss the proceedings where the circumstances warrant such a course of action. So if the objection is not jurisdictional and it relates to the procedure of the arbitration, the tribunal has the discretion to stay or dismiss the proceedings if it finds that there are sufficient reasons to do so. (c) In reality, a decision on what proponents call ‘admissibility’ is simply one such decision on the procedure of the arbitration taken by the tribunal in the exercise of its discretion over the procedure of the arbitration. When tribunals determine ‘admissibility’, they take into account the same factors of procedural fairness and efficiency which tribunals take into account when making any other procedural decision during the course of the arbitration in the exercise of their discretion. Even the International Court of Justice (the ‘ICJ’), whose Rules of Court recognise the concept of admissibility, makes its decisions on admissibility on the basis of considerations of procedural fairness and efficiency. So the real question which needs to be asked is whether there is any pressing need to carve out a class of procedural decisions to call them decisions on ‘admissibility’. Framed as such, the question must 11. For ICSID arbitrations, the applicable rules are Rule 41 ICSID Arbitration Rules 2006 and Arts 25 and 41 ICSID Convention. For UNCITRAL arbitrations, the applicable rule is Art. 23 UNCITRAL Arbitration Rules 2013. Similar provisions appear in other arbitral institutional rules: see Rule 28 SIAC Arbitration Rules 2016; Rule 25 SIAC Investment Arbitration Rules 2017; Art. 23 LCIA Arbitration Rules 2014; Art. 19 HKIAC Administered Arbitration Rules 2013; and Art. 23 PCA Arbitration Rules 2012. See also Art. 16 UNCITRAL Model Law on International Commercial Arbitration 2006 (the ‘Model Law’). 12. For ICSID arbitrations, the applicable rule is Rule 19 ICSID Arbitration Rules 2006 read with Art. 44 ICSID Convention. For UNCITRAL arbitrations, the applicable rule is Art. 17(1) UNCITRAL Arbitration Rules 2013. Similar provisions appear in the rules of other arbitration institutions: see Art. 23 SCC Arbitration Rules 2017; Art. 22 ICC Arbitration Rules 2017; Rule 19.1 SIAC Arbitration Rules 2016; Rule 16.1 SIAC Investment Arbitration Rules 2017; Art. 14.5 LCIA Arbitration Rules 2014; Art. 13.1 HKIAC Administered Arbitration Rules 2013; and Art. 17(1) PCA Arbitration Rules 2012. See also Art. 19(2) Model Law.

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be answered in the negative, because there is nothing to be gained from inventing labels. The legal rules which apply to investment treaty arbitral proceedings do not even refer to the concept of admissibility of claims, so there is good reason not to import the concept into the realm of investment treaty arbitration. (d) Tribunals in investment treaty arbitration should therefore stop the chase for the chimera of admissibility and disentangle themselves from this unhelpful label. Tribunals should only bear in mind that they have the power to stay or dismiss the proceedings if the non-jurisdictional objection relates to the procedure of the arbitration. The discussion above applies equally to commercial arbitration, so tribunals in this field should also resist the temptation to adopt this label. We are relieved to note that tribunals in commercial arbitration have avoided picking up the phrase of ‘admissibility of claims’ so far. (e) There is another misconception which tribunals in general need to avoid, and to explain this point we must call upon the following example for assistance. A party raises an objection which amounts to a substantive defence, such as an exemption clause, a restricted remedies clause or an illegality clause. The party says, ‘my objection will be dispositive of the whole case or a significant part of the case if the tribunal rules in my favour, so please take the shortcut and hear my objection in advance of the evidentiary hearing’.13 The tribunal deliberates if the objection can be tried as a stand-alone issue with no or minimal factual disputes, so that it can be disposed of in a relatively short time with the benefit of saving time and costs for the arbitration. The tribunal accepts that it can be so tried and arranges to hear the objection ahead of the evidentiary hearing. The tribunal hears the objection, rules in favour of the objecting party and dismisses the proceedings. This decision is sometimes described by lawyers as a decision on ‘admissibility’. They call it a decision on admissibility, because they understand it to refer to any decision which takes the shortcut to dispose of the arbitration at an early stage and avoid the scenic route of running through all the possible defences. This is a mistake, because the decision is properly speaking a decision on the merits of the case, which the tribunal exercised its case management discretion14 to hear at a 13. In some cases, this request is framed as a request for early dismissal, as provided for in certain arbitration institutional rules. See for example: Rule 29 SIAC Arbitration Rules 2016, Rule 26 SIAC Investment Arbitration Rules 2017 and Rule 41(5) ICSID Arbitration Rules 2006. Common law countries provide similar rules for court proceedings: see for example Order 14 of the Rules of Court of Singapore and Part 24 of the English Civil Procedure Rules. 14. This discretion has already been referred to in n 12. The tribunal has the discretion to take the shortcut and hear the issue as a preliminary matter, or reserve the issue for the main evidentiary hearing, because the shortcut is essentially a case management decision for the tribunal. The position is similar in the field of jurisdictional challenges. Here, although most national laws (and certainly Model Law countries) require tribunals to hear a challenge to jurisdiction and make a ruling on that challenge, Art. 16(3) of the Model Law allows a tribunal to rule on a challenge to jurisdiction either as a preliminary question or in an award on the merits. A challenge on the ground of lack of jurisdiction may therefore be tried ahead of the evidentiary hearing, or alternatively joined to and heard together with the merits at the evidentiary hearing.

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preliminary stage15 on the basis that the objection would dispose of the arbitration altogether or significantly reduce the matters to be argued at the evidentiary hearing if the objection were to be tried in advance. A decision on a substantive issue must be regarded as a decision on the merits, even if it is taken at a preliminary stage. The remainder of this chapter will be structured as follows. In section §16.02, we look at the sphere of investment treaty arbitration, focusing on arbitration in the International Centre for Settlement of Investment disputes (‘ICSID’). We identify that the ICSID Convention and Arbitration Rules do not make reference to a separate concept of admissibility of claims. We then look at how the concept of admissibility came to be endorsed as a separate concept by a substantial number of ICSID tribunals, despite the fact that the ICSID Convention does not recognise the concept. We then argue that tribunals should simply be concerned with whether or not the objection is jurisdictional, and that the ‘tribunal versus claim’ test is inadequate for this purpose. To argue this, we use the example of the objection which complains of the nonfulfilment of preconditions in the State respondent’s offer to arbitrate. We chose to use an example rather than to make the argument in the abstract, because we considered that this approach will better facilitate the understanding of the reader. In section §16.03, we look at the sphere of ICJ proceedings, identifying that the ICJ Rules of Court expressly recognise the concept of admissibility of claims. We examine how the ICJ has understood and applied this concept, demonstrating that the ICJ understands admissibility to involve the weighing of considerations of procedural fairness and efficiency, having regard to the interests of the parties and the judicial function of the ICJ.

§16.02 [A]

ICSID ARBITRATION The Legal Framework

The ICSID Convention furnishes three sets of rules in relation to jurisdiction. First, it defines the jurisdiction of the ICSID. Article 25(1) of the ICSID Convention provides that the jurisdiction of the ICSID ‘shall extend to any legal dispute arising directly out of an investment, between a Contracting State… and a national of another Contracting

In common law countries, there are similar provisions which confer broad discretionary powers on courts over case management, which allow courts to decide if there are any issues which can suitably be tried as preliminary issues. See Order 33 Rule 2 of the Rules of Court of Singapore and Part 3.1(2) of the English Civil Procedure Rules. For cases before the English Commercial Court, see para. D8.8 of the Commercial Court Guide. See A Colman, V Lyon and P Hopkins, The Practice and Procedure of the Commercial Court (6th edn., Informa 2008) 87: ‘The parties should, in advance of the case management conference, consider whether there are any issues which can usefully be isolated and tried as preliminary issues.’ See also section 8 of the Technology and Construction Court Guide and paras 21.27-21.28 of the Chancery Guide. 15. This point has similarly been made by Paulsson (n 6) 607.

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State, which the parties to the dispute consent in writing to submit to the Centre’. The effect of Article 25(1) is to impose three jurisdictional requirements:16 (a) Jurisdiction ratione materiae: There must be a legal dispute arising directly out of an investment. (b) Jurisdiction ratione personae: The parties to the dispute must consist of a Contracting State on the one hand and a national of another Contracting State on the other. (c) Consent: The parties to the dispute must have consented in writing to submit the dispute to the ICSID.17 Consent is established if (a) the parties enter into an investment agreement containing a compromissory clause18 or (b) the host State offers to submit the dispute through arbitration in legislation or a bilateral or multilateral investment treaty and the investor accepts the offer.19 Second, the ICSID Convention lays down a procedure for parties to challenge the jurisdiction of the ICSID before the tribunal.20 Article 41(1) decrees that the tribunal ‘shall be the judge of its own competence’. Article 41(2) states that the tribunal shall decide any objection by a party that the dispute is not within the ICSID’s jurisdiction, or for other reasons is not within the Tribunal’s competence,21 and that the tribunal shall decide ‘whether to deal with it as a preliminary question or to join it to the merits of the dispute’.22

16. Williams (n 7) 871. 17. Ibid., 871. 18. C Schreuer, ‘Consent to Arbitration’ in P Muchlinski, F Ortino and C Schreuer (eds), The Oxford Handbook of International Investment Law (OUP 2008) 832-833. 19. Ibid., 833-851. The author considers also the possibility of consent under Most-Favoured-Nation Clauses at pages 851-855. 20. Outside the ICSID regime, for arbitrations seated in countries which adopt the UNCITRAL Mode Law, Art. 16(3) of the Model Law provides a procedure for a party to appeal to the supervisory court against a positive jurisdictional ruling by the tribunal. 21. The ICSID Convention does not define ‘competence’: Abaclat and Others v. The Argentine Republic, ICSID Case No ARB/07/5, Decision on Jurisdiction and Admissibility (4 August 2011) para. 245; V Heiskanen, ‘Ménage à trois? Jurisdiction, Admissibility and Competence in Investment Treaty Arbitration’ (2013) ICSID Review 1, 1. Nor does academic literature shed much light on its meaning. C Schreuer et al., The ICSID Convention: A Commentary (2nd edn., CUP 2009) 531 argue that jurisdiction refers to the requirements set out in Article 25 ICSID Convention, while competence refers to the narrower issues confronting a specific tribunal, such as its proper composition or lis pendens. Heiskanen, id., 5-6 contends that jurisdiction is a general concept which refers to the tribunal’s jurisdictional field ratione temporis, personae or materiae, while competence is a specific concept which refers to the tribunal’s competence in a particular case. None of these elucidations are enlightening: see Paulsson’s comments in Paulsson (n 6) 604 and 608. The better view is that jurisdiction and competence are one and the same: G Zeiler, ‘Jurisdiction, Competence and Admissibility of Claims in ICSID Arbitration’ in C Binder et al (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (OUP 2009). This accords with the practice by tribunals of using ‘jurisdiction’ and ‘competence’ interchangeably: Schreuer et al., id., 532. 22. The general provisions of Art. 41 are supplemented by Rule 41 ICSID Arbitration Rules.

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Third, the ICSID Convention provides a procedure for the annulment of an award for want of jurisdiction. Article 52(1) enables a party to request for the annulment of an award on the ground that ‘the Tribunal has manifestly exceeded its powers’.23 On the other hand, the term ‘admissibility’ does not appear anywhere in the ICSID Convention or the ICSID Arbitration Rules.24 There is no definition of admissibility,25 no procedure for a party to object to admissibility,26 and no procedure for a party to make a request for the annulment of an award on the ground of inadmissibility of the claim.27

[B]

The Experience of ICSID Tribunals: Overview

The absence of the term ‘admissibility’ did not stop many States respondents from taking their chances. As early as the 1990s, States respondents began to label a number of their objections as ‘admissibility objections’ when making jurisdictional objections pursuant to Rule 41 of the ICSID Arbitration Rules.28 When the tribunals encountered these objections, they responded in several different ways. Some tribunals used the terms ‘jurisdiction’ and ‘admissibility’ interchangeably in their decisions, suggesting 23. The ground of ‘manifest excess of powers’ includes the situation where a tribunal exceeds its jurisdiction and where the tribunal fails to exercise a jurisdiction it does have: Schreuer et al. (n 21) 938. The situation is the same outside the ICSID regime for arbitrations seated in Model Law countries. Art. 34(2)(a)(i) and 34(2)(a)(iii) of the Model Law enable a party to apply for the setting aside of an award on the basis of excess of jurisdiction. 24. There is also no mention of admissibility of claims in the Model Law or in the rules of any arbitration institution in the world. Nor is there any such mention in the UNCITRAL Arbitration Rules: see Methanex Corporation v. United States of America, UNCITRAL, Partial Award (7 August 2002) para. 107. 25. Schreuer et al (n 21) 86; Heiskanen (n 21) page 2; Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, ICSID Case No ARB/07/26, Decision on Jurisdiction (19 December 2012) para. 126; ˙I çkale ˙I ns¸aat Limited S¸irketi v. Turkmenistan, ICSID Case No ARB/10/24, Partially Dissenting Opinion of Professor Philippe Sands QC (8 March 2016) para. 8; Ambiente Ufficio S.P.A. and Others v. The Argentine Republic, ICSID Case No ARB/08/9, Decision on Jurisdiction and Admissibility (8 February 2013) para. 572. 26. As argued in n 21 supra the ICSID Convention only provides a challenge procedure for jurisdiction and competence, which are to be regarded as one and the same. Consistent with this position, we do not agree with the assertion in Bureau Veritas, Inspection, Valuation, Assessment and Control, BIVAC B.V. v. The Republic of Paraguay, ICSID Case No ARB/07/9, Decision of the Tribunal on Objections to Jurisdiction (29 May 2009) para. 52, The Rompetrol Group N.V. v. Romania, ICSID Case No ARB/06/3, Decision on Respondent’s Preliminary Objections on Jurisdiction and Admissibility (18 April 2008) para. 112 and Abaclat (n 21) para. 245 that Art. 41 covers objections to admissibility as well. 27. As discussed in n 23, the ICSID Convention provides for the ground of ‘manifest excess of powers’, which enables the Committee to review a decision on jurisdiction. There is no mention in Schreuer et al (n 21) of the ability of the Committee to review a decision on ‘admissibility’ under this ground. See for example: Abaclat (n 21) para. 247(ii). We therefore disagree with the tribunal’s view in Urbaser (n 25) para. 117 and Consorzio Groupement L.E.S.I. – DIPENTA v. People’s Democratic Republic of Algeria, ICSID Case No ARB/03/08, Award (10 January 2005) section II para. 2 that Art. 52 enables the Committee to review a decision on admissibility. 28. In some instances, the parties would agree at the end of the jurisdictional hearing that the decision would cover both admissibility and jurisdictional objections: see for e.g., Consorzio (n 27) section II para. 1; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S¸. v. Islamic Republic of Pakistan, ICSID Case No ARB/03/29, Decision on Jurisdiction (14 November 2005) para. 59.

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that they were oblivious to the distinction between the two terms or were determined to avoid a debate on the distinction.29 Others doubted the relevance of the term ‘admissibility’ in the ICSID regime, but relented to using it in the remaining parts of their decisions.30 But there was a third group of tribunals which believed that there was a distinction between ‘admissibility’ and jurisdiction, and that the respondent could raise objections to ‘admissibility’, notwithstanding the absence of the term ‘admissibility’ in the ICSID Convention and the Arbitration Rules. These were the tribunals which proceeded to evaluate the respondent’s classification, or, where the respondent failed to classify its objections, to classify the respondent’s objections for themselves.31 As a result, a wide variety of objections were classified as objections to ‘admissibility’. These included objections to the tribunal hearing the claim in the light of a dispute resolution clause in the contract between the parties providing for domestic litigation;32 objections to the tribunal hearing multiple claimants in one proceeding;33

29. Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No ARB/03/3, Decision on Jurisdiction (22 April 2005) para. 196; Camuzzi International S.A. v. The Argentine Republic, ICSID Case No ARB/03/2, Decision on Objections to Jurisdiction (11 May 2005) paras 96-98; Sempra Energy International v. The Argentine Republic, ICSID Case No ARB/02/16 (11 May 2005) paras 107-109 (unusually, in Camuzzi and Sempra, it was the claimant which classified the issue as going to admissibility which should be decided at the merits phase). In Bayindir (n 28) para. 87, the tribunal simply examined Pakistan’s objections without distinguishing between admissibility and jurisdictional objections. 30. Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, ICSID Case No ARB/01/3, Decision on Jurisdiction (14 January 2004) para 33: ‘The distinction between admissibility and jurisdiction does not appear to be necessary in the context of the ICSID Convention, which deals only with jurisdiction and competence.’ CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No ARB/1/8, Decision of the Tribunal on Objections to Jurisdiction (17 July 2003) para. 41: ‘The arguments that the parties have put forth involve a number of questions of admissibility and jurisdiction. The distinction between admissibility and jurisdiction does not appear quite appropriate in the context of ICSID as the Convention deals only with jurisdiction and competence.’ In Ioan Micula and Others v. Romania, ICSID Case No ARB/05/20, Decision on Jurisdiction and Admissibility (24 September 2008) para. 63, the tribunal recognised that the helpfulness of the distinction in the ICSID regime was often disputed. In Pan American Energy LLC and BP Argentina Exploration Company v. The Argentine Republic, ICSID Case No ARB/03/13, Decision on Preliminary Objections (27 July 2006) para. 54, the tribunal recognised that the distinction was ‘somewhat controversial’. 31. Ioan Micula (n 30) para. 53; Abaclat (n 21) para. 231; SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No ARB/02/6, Decision of the Tribunal on Objections to Jurisdiction (29 January 2004) para. 94; Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No ARB/05/07, Decision on Jurisdiction and Recommendation on Provisional Measures (21 March 2007) para. 77. 32. See for example SGS v. Philippines (n 31) para. 154. 33. See for example Abaclat (n 21) para. 492. In Saipem (n 31), an objection to ‘admissibility’ was made on the basis that the claim constituted an ‘abuse of process’. The tribunal did not expressly state that ‘abuse of process’ was a ground for inadmissibility, but it appeared to accept this principle when it reasoned that there was no abuse of process on the facts: see paras 154-158. A Newcombe considers that ‘abuse of process’ is a ground for inadmissibility and that a tribunal may dismiss the proceedings on this basis: see A Newcombe, ‘Investor Misconduct and Investment Treaty Arbitration: Mapping the Terrain’ (Kluwer Arbitration Blog 25 January 2010) http://bit.ly/2xtgSbf accessed 10 October 2017. He considers that the following cases support this position: Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No ARB/03/24, Award (27 August 2008); Robert Azinian, Kenneth Davitian and Ellen Baca v. The United Mexican States, ICSID Case No ARB(AF)/97/2, Award (1 November 1999); and World Duty Free Company Limited v. The Republic of Korea, ICSID Case No ARB/00/7, Award (4 October 2006).

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and objections to the tribunal hearing a counterclaim on the ground that it did not arise directly out of the subject matter of the dispute, as required by Article 46 of the ICSID Convention and Rule 40 of the ICSID Arbitration Rules.34 Of these objections, there was one objection which generated a disproportionate level of controversy, which we shall elaborate on in the following passages. That objection related to the non-fulfilment of preconditions in the dispute resolution clause of the relevant BIT prior the commencement of the arbitration, which we shall call the ‘BIT precondition objection’.

[C]

The Experience of ICSID Tribunals: The BIT Precondition Objection

As discussed, the jurisdiction of the ICSID is established by the written consent of the investor and the host State to submit the dispute to the ICSID. The consent of the parties is usually established when the host State makes a standing offer in the dispute resolution clause of a BIT to submit to ICSID arbitration, and the investor accepts that offer by making a Request for Arbitration pursuant to Article 36 of the ICSID Convention. In some BITs, the dispute resolution clause contains a straightforward offer, so consent is readily established when the investor accepts the offer. In other BITs, the offer is less straightforward, because the clause may specify preconditions to the offer. If the investor does not fulfil those preconditions and goes on to make a Request for Arbitration, the question that arises is whether the non-fulfilment defeats the jurisdiction of the tribunal, so as to require the tribunal to dismiss the claim. This is a highly contentious issue over which tribunals are deeply divided.35 The situation has been described by two commentators as a ‘dismal swamp’.36

[1]

The Story of the Swamp

In the earliest cases on this matter,37 the reasoning of the tribunals was generally sparse. In Tecnicas v. Mexico, the tribunal took the view that the claimant’s failure to submit a claim within three years of receiving notice of the alleged violation of the BIT (as required by the dispute resolution clause) did not go to jurisdiction.38 In SGS v. Pakistan, the tribunal took the view that the precondition of a twelve-month consultation period was ‘directory and procedural rather than as mandatory and jurisdictional

34. Antoine Goetz and others v. Republic of Burundi, ICSID Case No ARB/01/2, Award (21 June 2012) para. 283. See A Steingruber, ‘Antoine Goetz and others v. Republic of Burundi: Consent and Arbitral Tribunal Competence to Hear Counterclaims in Treaty-based ICSID Arbitrations’ (2013) 28(2) ICSID Review 291 for a commentary on the case. 35. Ambiente (n 25) para. 571; Williams (n 7) 919. 36. G Born and M Šc´ ekic´ , ‘Pre-Arbitration Procedural Requirements: “A Dismal Swamp”’ in D Caron et al (eds), Practising Virtue: Inside International Arbitration (OUP 2015) 227. 37. There were also non-ICSID investment treaty arbitration cases which considered this issue in the late 1990s and early 2000s. See for example Ethyl Corporation v. The Government of Canada, UNCITRAL, Award on Jurisdiction (24 June 1998) and Ronald Lauder v. The Czech Republic, UNCITRAL, Final Award (3 September 2001). 38. Técnicas Medioambientales TECMED S.A. v. The United Mexican States, ICSID Case No ARB(AF)/00/2, Award (29 May 2003) para. 73.

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in nature’.39 In Enron v. Argentina, the tribunal took the view that the precondition of a six-month negotiation period was ‘very much a jurisdictional one’, such that non-compliance ‘would result in a determination of lack of jurisdiction’.40 None of these tribunals provided reasons for their views. The trend was not an absolute one, as there were several cases in which tribunals fervently sought to justify their views. In Maffezini v. Spain,41 Article X(2) of the Argentina-Spain BIT provided that, if the dispute ‘cannot be settled within six months following the date on which the dispute has been raised by either party, it shall be submitted to the competent tribunal of the Contracting Party in whose territory the investment was made’. Article X(3)(a) went on to say that the dispute ‘may be submitted to international arbitration in any of the following circumstances: a) at the request of one of the parties to the dispute, if no decision has been rendered on the merits of the claim after the expiration of a period of eighteen months from the date on which the proceedings referred to in paragraph 2 of this Article have been initiated’. The tribunal held that the claimant’s failure to submit the case to the Spanish courts deprived the ICSID of jurisdiction for two reasons. First, it was likely that the States parties to the BIT wanted to give their courts an opportunity to vindicate the international obligations guaranteed in the BIT, albeit within a prescribed time limit (the ‘purposive argument’).42 Second, to interpret Article X(2) in any other way would deprive the Article of its meaning (the ‘effet utile argument’).43 Another tribunal which endeavoured to justify its view was the tribunal in Bayindir v. Pakistan. Article VII of the Turkey-Pakistan BIT provided that: 1. Disputes between one of the Parties and an investor of the other Party, in connection with his investment, shall be notified in writing, including a detailed information, by the investor to the recipient Party of the investment. As far as possible, the investor and the concerned Party shall endeavour to settle the disputes by consultations and negotiations in good faith. 2. If these disputes cannot be settled in this way within six months following the date of the written notification mentioned in paragraph 1, the dispute can be submitted, as the investor may choose, to: (a) the International Centre for Settlement of Investment Disputes (ICSID) set up by the ‘Convention on Settlement of Investment Disputes Between States and nationals of other States’; [in case both Parties become signatories of this Convention] […] provided that, if the investor concerned has brought the dispute before the courts of justice of the Party that is a party to the dispute and a final award has not been rendered within one year.

39. SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction (6 August 2003) para. 184. 40. Enron (n 30) para. 88. 41. Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No ARB/97/7, Decision of the Tribunal on Objections to Jurisdiction (25 January 2000). 42. Ibid., para. 36. 43. Ibid., para. 36. The formalism and purposive arguments would be applied by the tribunal in the later case of Burlington Resources Inc. v. Republic of Ecuador, ICSID Case No ARB/08/5, Decision on Jurisdiction (2 June 2010) paras 314-315.

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The tribunal held that the notice requirement did not constitute a prerequisite to jurisdiction, because requiring the claimant to file a new Request for Arbitration and restarting the proceeding would benefit no one.44 Moreover, since Pakistan made no proposal to engage in negotiations with the claimant, it would be formalistic and would not serve to protect the legitimate interests of the parties to prevent the commencement of arbitration proceedings until six months later.45 Hence, the failure to allow the six-month waiting period to elapse did not deprive the tribunal of jurisdiction.46 The tribunal’s understanding was therefore that a precondition would not go to jurisdiction if it were to be formalistic in the circumstances to insist on compliance (the ‘formalism argument’). The common characteristic of Maffezini and Bayindir is that the tribunals provided reasons for their views but did not go further to provide a wider framework for tribunals to apply to determine if a precondition went to jurisdiction. They did not contemplate the larger issue of how a tribunal could ascertain if the non-fulfilment of a precondition would deprive the ICSID of jurisdiction. This gap in academic literature did not last for long, however, because in 2005, an influential essay was published by Jan Paulsson, who argued that the way forward was for tribunals to characterise the issue as one of jurisdiction or admissibility.47 If the respondent’s objection took aim at the tribunal, it amounted to an objection to jurisdiction; but if it took aim at the claim, it amounted to an objection to admissibility.48 In the context of preconditions, the suggestion by Paulsson would have therefore been that tribunals should decide if the non-fulfilment amounted to an attack against the claim or the tribunal. If it attacked the claim, it should be regarded as an admissibility issue, and should not be seen as an obstacle to the tribunal’s jurisdiction. Paulsson concluded: Following this lodestar will make it easy to classify objections in many cases, and should make it easier in all. Timeliness issues, or conditions precedent such as participating in a conciliation attempt, pose no problem. The same goes for contentions of extinctive prescription; waiver of claims; mootness; or absence of a legal dispute or of an indispensable third party. There is even less difficulty with issues of ripeness à la SGS v. Philippines.49

Paulsson’s essay would catapult into the arbitration universe and provide ICSID tribunals a ready-made lodestar to determine the consequences of non-fulfilment of preconditions. But like most novel ideas, the lodestar did not gain immediate traction, and it took some time before it permeated the vocabulary of the investment treaty arbitration community. In Telefónica v. Argentina, the tribunal used the two terms interchangeably, when it held that ‘inadmissibility of the claim would result in the Tribunal’s temporary lack of jurisdiction, that is until the condition of the Claimant having submitted its claims to the courts of Argentina as the host State and not having 44. 45. 46. 47. 48. 49.

Bayindir (n 28) para. 100. Ibid., para. 102. Ibid., para. 95. The tribunal in SGS v. Pakistan (n 39) hinted a similar reasoning in para. 184. Paulsson (n 6). Ibid., 614-617. Ibid., 616. Newcombe (n 4) also takes the view that ‘laches – or unwarranted delay in making a claim – might appropriately be viewed as a bar to the admissibility of a claim’.

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obtained a decision on the merits within eighteen months would not had been satisfied’.50 In TSA v. Argentina, the tribunal rehashed the formalism argument in Bayindir to argue that only three of the eighteen-month domestic litigation period remained at the time of the tribunal’s decision, such that it would be highly formalistic to reject the claim for want of jurisdiction.51 In another case, Wintershall v. Argentina, the tribunal reasoned that Article 10(2) of the Argentina-Germany BIT imposed an obligation as opposed to an option to submit to domestic courts, so it could not be described as a ‘mere defect of form’.52 Even if it was procedural, the tribunal said that procedural obstacles could go to jurisdiction if they were so worded.53 Previous ICSID decisions which dealt with waiting periods for consultation or negotiation were irrelevant, because the present case involved a domestic litigation waiting period.54 On the facts, the dispute resolution clause was worded in such a way that the respondent’s consent to ICSID Arbitration was conditioned upon a claimant first submitting his dispute to submit to the Argentine courts. Wintershall did not discuss Paulsson’s essay, and it displayed an acute sensitivity to the wording of the dispute resolution clause. The importance of this text-sensitive approach will be highlighted below.55 If Wintershall avoided pronouncing on the nature of preconditions of consultation and negotiation, Murphy v. Ecuador56 tackled the issue head-on. The tribunal ruled in Murphy that the stipulated requirement of consultation and negotiation did not go to jurisdiction, because it did not constitute a ‘procedural rule’ as it was a mandatory rule which obliged the parties to endeavour to negotiate.57 The decision of the tribunal suggests that it understood the test to be whether the precondition was a ‘procedural’ or ‘mandatory’ one, with only the latter going to jurisdiction.58 This is an odd distinction, because all procedural rules are ‘mandatory’ in some sense as well. A procedural rule which requires a man to queue up for a movie ticket if he wishes to purchase one is a rule which mandates him in a limited sense to join the queue. It may not be a ‘full’ mandatory rule in the sense that it obliges him to queue for the ticket irrespective of whether he wishes to purchase the ticket, but it is mandatory in the sense that it obliges him to queue if he wishes to purchase the ticket. 50. Telefónica S.A. v. The Argentine Republic, ICSID Case No ARB/03/20, Decision of the Tribunal on Objections to Jurisdiction (25 May 2006) para. 93. 51. TSA Spectrum de Argentina S.A. v. Argentine Republic, ICSID Case No ARB/05/5, Award (19 December 2008) para. 112. 52. Wintershall Aktiengesellschaft v. Argentine Republic, ICSID Case No ARB/04/14, Award (8 December 2008) para. 139. 53. Ibid., para. 143. 54. Ibid., paras 146-153. 55. The textual argument was also employed by in Impregilo S.p.A. v. Argentine Republic, ICSID Case No ARB/07/17, Award (21 June 2011) paras 89-91. 56. Murphy Exploration and Production Company International v. Republic of Ecuador, ICSID Case No ARB/08/4, Award on Jurisdiction (15 December 2010). 57. Ibid., para. 149. 58. This test has unfortunately gained some acceptance in the arbitration universe since. See for instance: Impregilo v. Argentina (n 55) para. 91; Hochtief AG v. The Argentine Republic, ICSID Case No ARB/07/31, Separate and Dissenting Opinion of J. Christopher Thomas, Q.C. (7 October 2011) para. 42; and Ambiente Ufficio S.p.A. and Others v. The Argentine Republic, ICSID Case No ARB/08/9, Dissenting Opinion of Santiago Torres Bernárdez (2 May 2013) para. 416.

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Be that as it may, the influence of Paulsson’s essay manifested itself in 2011, when two well-known cases arose for decision. In Abaclat v. Argentina, the tribunal ruled by a majority that the negotiation and domestic litigation waiting periods went to admissibility rather than jurisdiction, because they conditioned the implementation of the host State’s consent as opposed to the host State’s consent per se.59 In Hochtief v. Argentina, the tribunal held by a majority that the condition of an eighteen month waiting period for domestic litigation was ‘a condition relating to the manner in which the right to have recourse to arbitration must be exercised – as a provision going to the admissibility of the claim rather than the jurisdiction of the Tribunal’.60 An inspection of the decisions in both cases reveals that neither tribunal sought to justify its position further.61 So the all-important question arises: how did these tribunals reach their positions at all?

[2]

The Moral of the Story

In our view, the tribunals reached their positions by applying the test in Paulsson’s essay.62 And because there was no guidance in academic literature as to when an objection targets the claim or the tribunal, the tribunals had to apply their instincts to make that determination. In the circumstances, instinct advised that the objection targeted the claim, so the tribunals ruled that the issue concerned admissibility as opposed to jurisdiction. But this is hardly a satisfactory form of decision-making, because it involves a veiled reliance on instinct which is sheltered from scrutiny as opposed to express reasoning. The main problem with the ‘tribunal versus claim’ test is that it is an ambiguous touchstone which opens the backdoor for surreptitious decision-making. It does not tell us how to identify if an objection is really targeting the tribunal or the claim.63 But there is another more fundamental objection, which is that tribunals should not even be classifying issues under ‘jurisdiction’ and ‘admissibility’ in the first place. Tribunals should simply be concerned with whether or not the issue is jurisdictional,

59. Abaclat (n 21) para. 496. 60. Hochtief AG v. The Argentine Republic, ICSID Case No ARB/07/31, Decision on Jurisdiction (24 October 2011) para. 96. 61. The lack of supporting reasons in the majority decision of Abaclat was noted by Georges Abi-Saab in his dissenting opinion: see Abaclat and Others v. The Argentine Republic, ICSID Case No ARB/07/5, Dissenting Opinion of Georges Abi-Saab (28 October 2011) paras 21-22. The lack of supporting reasons in the majority decision of Hochtief was noted by the tribunal in Urbaser (n 25) para. 113. 62. Samuel Wordsworth likewise considers that the majority’s approach ‘appears consistent with Jan Paulsson’s often-cited article on jurisdiction and admissibility’: see S Wordsworth, ‘Abaclat and Others v. Argentine Republic: Jurisdiction, Admissibility and Pre-conditions to Arbitration’ (2012) 27(2) ICSID Review 255, 257. 63. This point has similarly been expressed by L Velarde Saffer and J Lim, ‘Judicial Review of Investor Arbitration Awards: Proposals to Navigate the Twilight Zone Between Jurisdiction and Admissibility’ (2014) 8(1) Dispute Resolution International 85, 90-91. The authors showed how the ‘tribunal versus claim’ test could reasonably be applied to reach conflicting results on the same matter.

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since this is the yardstick on which the reviewability of the tribunal’s decision hinges.64 To determine if an objection is jurisdictional, we should discard the ‘tribunal versus claim’ test and go back to the first principle that jurisdiction is grounded upon the consent of the parties. If the State respondent imposes a condition to its consent, the condition must be satisfied, otherwise there is no consent and accordingly no jurisdiction. So the real question that needs to be asked is: does the precondition in the dispute resolution clause amount to a condition to the State’s consent? The answer to this question depends on an interpretation of the dispute resolution clause. And to interpret the clause, we must apply Article 31(1) of the 1969 Vienna Convention on the Law of Treaties, because the clause is located in a treaty. Article 31(1) provides that: ‘A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.’ So we need to look at the ordinary meaning of the clause in the light of its context, object and purpose to determine if the States parties to the BIT intended the precondition to be a condition to their consent to arbitrate.65 We should not rack our brains over whether the objection is directed against the claim or the tribunal. We should not agonise over whether the precondition is procedural, aspirational or mandatory in nature. We should only examine if the State has made that precondition a condition to its consent, by looking at the language of and context surrounding the dispute resolution clause to divine the true intentions of the parties to the BIT. That is the only enquiry that matters. There is nothing radical about our proposed approach. A similar approach has been advocated by Gary Born and Marija Šc´ekic´ in a book chapter in 2015.66 The ICJ has endorsed a similar approach in Armed Activities (DRC v. Rwanda)67 and applied the approach in CERD (Georgia v. Russia).68 There are also several indicators to suggest that ICSID tribunals post-Hochtief are veering towards this approach. In the first place, tribunals have begun to query the usefulness of admissibility in the ICSID regime:

64. See the discussion in section §16.02[A], which highlights the rules in the ICSID Convention and Arbitral Rules as well as the rules in the Model Law in n 23 which enable a party to request for the annulment of an award on the basis of lack of jurisdiction but not on the basis of inadmissibility of the claim. 65. One contextual factor that should be taken into consideration is Art. 26 of the ICSID Convention: ‘A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention.’ 66. Born and Šc´ ekic´ (n 36) 246: ‘In characterizing contractual procedural requirements, the better view is that the character of such requirements depends on the intentions of the parties with regard to specific issues (for example, allocation of competence, time at which procedural requirement must be satisfied)... Characterizing a particular procedural requirement depends ultimately on an interpretation of the parties’ contractual language and intentions.’ 67. Armed Activities on the Territory of the Congo (New Application: 2002) (Democratic Republic of the Congo v. Rwanda) (Jurisdiction and Admissibility) [2006] ICJ Rep 6, 39 [88]. 68. Application of the International Convention on the Elimination of All Forms of Racial Discrimination (Georgia v. Russian Federation) (Preliminary Objections) [2011] ICJ Rep 70, 125-130 [132]-[147]. Even the minority applied the same approach in this case: see the Joint Dissenting Opinion of President Owada, Judges Simma, Abraham and Donoghue and Judge ad hoc Gaja in ibid., 145-155 [14]-[38].

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Daimler v Argentina: ‘admissibility analyses patterned on domestic court practices have no relevance for BIT-based jurisdictional decisions in the context of investor-State disputes. In the domestic context, admissibility requirements are judicially constructed rules designed to preserve the efficiency and integrity of court proceedings. They do not expand the jurisdiction of domestic courts. Rather, they serve to streamline courts’ dockets by striking out matters which, though within the jurisdiction of the courts, are for one reason or another not appropriate for adjudication at the particular time or in the particular manner in question. All BIT-based dispute resolution provisions, on the other hand, are by their very nature jurisdictional’.69 (emphasis added) Urbaser v Argentina: ‘It is contended that jurisdiction is an element pertaining to the tribunal and not of a claim. Conversely, admissibility is an element of a claim but not one that pertains to a tribunal. Jurisdiction is fixed by treaty and cannot be altered by the parties to the dispute… Developing such categories may have theoretical appeal but adds nothing to the interpretation of the provisions on dispute resolution of BITs’.70 (emphasis added)

In the second place, tribunals have started to endorse this approach. In Urbaser v. Argentina, the tribunal emphasised the importance of interpretation, ruling that ‘even if such categories [of jurisdiction and admissibility] were to be adopted, which appears to be an extremely delicate proposition as a matter of comparative law, the question whether a particular legal issue falls in one and not the other is contingent on the meaning of the relevant provisions of the BIT. This latter consideration is all that matters’.71 In Phillip Morris v. Uruguay, the tribunal remarked that ‘Whether the domestic litigation requirement relates to jurisdiction or, rather, to admissibility or procedure depends on the interpretation of Article 10 of the BIT, based on the interpretative rules of the VCLT.’72 In the third place, tribunals have started to apply this approach, by discussing the ordinary meaning, object and purpose of the dispute resolution clause in question to determine if the precondition in the clause amounted to a condition to the State’s consent. For instance, in Urbaser v. Argentina, the tribunal discussed the relevant factors which influenced its view on the correct interpretation of the dispute resolution clause.73 It ultimately reasoned that the ‘the clear wording of the relevant provisions of [the dispute resolution clause] and the equally lucid suggestion as to its purpose that Respondent has advanced (to which Claimants did not object per se), lead to the

69. Daimler Financial Services A.G. v. Argentine Republic, ICSID Case No ARB/05/1, Award (22 August 2012) paras 192-193. 70. Urbaser (n 25) paras 112-113. 71. Ibid., para. 112. See also para. 125: ‘If the applicable provision on dispute resolution qualifies such condition as a requirement to be complied with before the tribunal can affirm its jurisdiction, the provision then must also pertain to jurisdiction. No theoretical assumption can remove from that condition its jurisdictional character merely by qualifying it pursuant to a legal fiction a condition of admissibility with the effect that any form of non-compliance could be waived or cured by acquiescence.’ 72. Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No ARB/10/7, Decision on Jurisdiction (2 July 2013) para. 138. 73. Urbaser (n 25) paras 130-149.

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conclusion that resort to domestic courts is a precondition to be met before resorting to international arbitration’.74 Finally, as one tribunal has pointed out,75 even Paulsson himself has conceded that preconditions could go to jurisdiction if they were so worded. Paulsson wrote: If an ephemeral arbitral tribunal is established under a treaty which contains requirements as to… their prior exhaustion of local remedies, the claims as such are perhaps subject to no impediment but the forum seized is lacking one of the elements required to give it life in the first place. For such a tribunal these are matters of jurisdiction.76

At the time of writing this chapter, the authors note that there has been at least one tribunal since Hochtief which has not applied this approach. That case is ˙I çkale v. Turkmenistan, in which the tribunal failed to consider the ordinary meaning, object and purpose of the dispute resolution clause when holding by a majority that the domestic litigation requirement conditioned the host State’s consent.77 According to the tribunal, the clause not only established the consent of the State parties to arbitrate, but also set out the procedure that an investor had to follow before it could invoke the State’s consent to arbitrate.78 The clause did not condition the consent but only conditioned the investor’s right to invoke that consent.79 Hence, the tribunal concluded that the precondition went to admissibility as opposed to jurisdiction.80 No reasons were given to justify the tribunal’s position.81 In fact, the parties were already in agreement that the precondition went to jurisdiction.82 The ˙I çkale decision is problematic because its interpretation directly contradicts a previous interpretation by another ICSID tribunal of the same dispute resolution clause.83 Professor Philippe QC, the

74. Ibid., para. 130. For other cases, see Daimler Financial Services A.G. v. Argentine Republic, ICSID Case No ARB/05/1, Award (22 August 2012) paras 180-183; Tulip Real Estate Investment and Development Netherlands B.V. v. Republic of Turkey, ICSID Case No ARB/11/28, Decision on Bifurcated Jurisdictional Issue (5 March 2013) paras 70-72; Kılıç ˙I ns¸aat ˙I thalat ˙I hracat Sanayi ve Ticaret Anonim S¸irketi v. Turkmenistan, ICSID Case No ARB/10/1, Award (2 July 2013) paras 6.2.6-6.2.9, 6.3.12. In another context, an ICSID tribunal applied this interpretative approach to determine if the dispute resolution clause in the UK-Indonesia BIT (which provided that a State party ‘shall assent’ to a request by an investor of the other State party to submit to the ICSID for arbitration) contained a standing offer of ICSID arbitration. Indonesia argued that it did not because the ‘shall assent’ clause did not provide for ‘automatic’ consent; the State had to perform a further act after the submission of a request by the investor for consent to be established. The tribunal applied an interpretative approach to hold that the dispute resolution clause contained a standing offer to arbitrate. See Churchill Mining Plc v. Republic of Indonesia, ICSID Case Nos ARB/12/14 and ARB/12/40, Decision on Jurisdiction (24 February 2014) paras 149-239. 75. Kılıç (n 74) para. 6.3.8. See also ˙I çkale (n 25) para. 10. 76. Paulsson (n 6) 616. 77. ˙I çkale ˙I ns¸aat Limited S¸irketi v. Turkmenistan, ICSID Case No ARB/10/24, Award (8 March 2016) para. 240. 78. Ibid., para. 241. 79. Ibid., para. 244. 80. Ibid., para. 247. 81. As noted by Professor Philippe Sands QC in ˙I çkale (n 25) para. 6. 82. ˙I çkale (n 77) para. 239. 83. See Kılıç (n 74) para. 6.3.15.

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dissenting arbitrator in ˙I çkale, has rightly criticised the majority approach.84 It is hoped that our proposed approach will contribute to the elucidation of this difficult issue of preconditions, as well as the correct approach to be followed by tribunals more generally to distinguishing between jurisdictional and non-jurisdictional issues, so as to reduce the number of incidences of tribunals falling prey to the alluring but ultimately deficient simplicity of the ‘tribunal versus claim’ test.

§16.03

ICJ PROCEEDINGS

We have argued in section §16.02 that tribunals which wish to classify objections should do so according to whether or not the objection is jurisdictional. The touchstone for this classification is whether the objection, if factually proven, would impinge upon the consent of the objecting party to arbitrate. In the context of the BIT precondition objection, this touchstone takes the form of the specific enquiry of whether the States parties to the BIT intended the precondition to be a condition to their consent to arbitrate on a true interpretation of the dispute resolution clause. What are the applicable legal rules when the tribunal forms a view on the nature of the objection? If the tribunal forms the view that the objection is jurisdictional, the body of rules which relate to jurisdiction will apply85 and the tribunal must proceed to determine if it has jurisdiction on the facts of the case in accordance with those rules. If the tribunal forms the view that the objection is not jurisdictional, but that it relates to the procedure of the arbitration, the applicable legal rules to the arbitral proceedings will usually confer on the tribunal the discretion to conduct the proceedings in such manner as it deems appropriate.86 This includes the power to stay or even dismiss the proceedings in appropriate circumstances.87 So if the non-jurisdictional objection relates to the procedure of the arbitration, the tribunal may stay or dismiss the proceedings if the circumstances require it to do so. A decision on ‘admissibility’ is therefore a decision on the procedure of the arbitration taken by the tribunal in the exercise of its discretion over case management. When tribunals determine ‘admissibility’, they take into consideration the same factors of procedural fairness and efficiency which tribunals take into account when making 84. ˙I çkale (n 25) paras 3-11. 85. For ICSID arbitrations, the applicable rules are found in Rule 41 ICSID Arbitration Rules 2006 and Arts 25 and 41 ICSID Convention. For UNCITRAL arbitrations, the applicable rules are located in Art. 23 UNCITRAL Arbitration Rules 2013. Similar provisions appear in the rules of other arbitral institutions: see Rule 28 SIAC Arbitration Rules 2016; Rule 25 SIAC Investment Arbitration Rules 2017; Art. 23 LCIA Arbitration Rules 2014; Art. 19 HKIAC Administered Arbitration Rules 2013; and Art. 23 PCA Arbitration Rules 2012. See also Art. 16 Model Law. 86. In the ICSID regime, the applicable legal rule is Rule 19 ICSID Arbitration Rules 2006 read with Art. 44 ICSID Convention. Outside the ICSID regime, there are numerous arbitration institutions whose rules confer such a discretion: see Art. 22 ICC Arbitration Rules 2017; Rule 19.1 SIAC Arbitration Rules 2016; Rule 16.1 SIAC Investment Arbitration Rules 2017; Art. 14.5 LCIA Arbitration Rules 2014; Art. 13.1 HKIAC Administered Arbitration Rules 2013 and Art. 17(1) PCA Arbitration Rules 2012. Ad hoc arbitration rules also confer such a discretion: Art. 17(1) UNCITRAL Arbitration Rules 2013. Even Art. 19(2) Model Law confers such a discretion on the tribunal in the absence of any agreement by the parties on the procedure to be followed. 87. SGS v. Philippines (n 31) para. 173.

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any other procedural decision during the course of the arbitration in the exercise of their discretion. In the absence of any reason to the contrary, we do not consider that there is any need to carve out a class of procedural decisions to call them decisions on ‘admissibility’.88 Indeed, admissibility is not a recognised concept in in most legal rules which may apply to the arbitration (e.g., ICSID Convention and ICSID Arbitration Rules for ICSID cases, UNCITRAL Arbitration Rules for UNCITRAL cases, etc.).89 Even the ICJ, whose Rules of Court refer to ‘admissibility’, makes its decisions on admissibility on the basis of considerations of procedural fairness and efficiency, illustrating the procedural and discretionary character of decisions on ‘admissibility’. The ICJ’s approach towards admissibility will now be further discussed in the passages below.

[A]

The Legal Framework

The Statute of the ICJ defines the jurisdiction of the ICJ90 but does not recognise a separate concept of admissibility. However, Article 79(1) of the Rules of Court of the ICJ recognises admissibility as a distinct concept from jurisdiction: Any objection by the respondent to the jurisdiction of the Court or to the admissibility of the application, or other objection the decision upon which is requested before any further proceedings on the merits, shall be made in writing as soon as possible, and not later than three months after the delivery of the Memorial. Any such objection made by a party other than the respondent shall be filed within the time-limit fixed for the delivery of that party’s first pleading. (emphasis added)

[B]

The ICJ’s Understanding of Admissibility

What then is the ICJ’s understanding of the concept of admissibility? The ICJ has a vague understanding of the concept of admissibility.91 Its expressed understanding is that ‘Objections to admissibility normally take the form of an assertion that, even if the Court has jurisdiction and the facts stated by the applicant State are assumed to be

88. This view is shared by Giovanni Alemanni and others v. The Argentine Republic, ICSID Case No ARB/07/8, Decision on Jurisdiction and Admissibility (17 November 2014) para. 259: ‘The question that remains therefore is whether there exist other conditions, over and above these more strictly “jurisdictional” ones, that can properly be invoked before an ICSID tribunal as grounds for it to decline to hear a case, even though the case falls within its “jurisdiction.” Whether any such ought usefully to be given the label of “admissibility” is open to question. The term, as Schreuer points out, is not used either in the Convention itself or in the Rules.’ 89. The authors are only aware of three arbitral institutions whose rules refer to the ‘admissibility of claims’. Those rules are the SIAC Investment Arbitration Rules 2017 (see Rule 25.2 and Rule 26.1), the ICDR International Arbitration Rules 2014 (see Art. 19(3)) and the SCC Arbitration Rules 2017 (see Art. 39(2)). 90. Article 36 of the ICJ Statute. 91. S Rosenne, The Law and Practice of the International Court 1920-2005, vol II (4th edn., Brill 2006) 848: ‘Neither the case law nor the writings of publicists display any certainty or unanimity over the categorization of preliminary objections. All that can be deduced from experience is that it is an individual matter to be appreciated in the light of all the circumstances of each case.’

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correct, nonetheless there are reasons why the Court should not proceed to an examination of the merits’ (emphasis added).92 What reasons does the ICJ accept as valid? The ICJ has never attempted to state the reasons it accepts as valid exhaustively. However, in Genocide (Croatia v. Serbia), the ICJ said that such reasons are ‘often of such a nature that the matter should be resolved in limine litis, for example where without examination of the merits it may be seen that there has been a failure to comply with the rules as to nationality of claims; failure to exhaust local remedies; the agreement of the parties to use another method of pacific settlement; or mootness of the claim’.93 In Phosphate Lands, the ICJ also recognised that delay was another possible valid reason, when it said that ‘even in the absence of any applicable treaty provision, delay on the part of a claimant State may render an application inadmissible’.94 The ICJ has yet to accept other reasons expressly beyond those stated above,95 so bringing the threads together, we can conclude that the ICJ has accepted at least the following reasons as valid in principle thus far: (a) (b) (c) (d) (e)

Mootness. Delay. Agreement of parties to use another method of pacific settlement. Non-compliance with rules of nationality of claim. Failure to exhaust local remedies.

Is there a common thread which runs through these grounds? The answer in our view is yes. Let us look at each of these grounds in further detail. 92. Case concerning Oil Platforms (Islamic Republic of Iran v. United States of America), (Judgment) [2003] ICJ Rep 161, 177 [29]. See also Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Croatia v. Serbia) (Preliminary Objections) [2008] ICJ Rep 412, 456 [120], where the ICJ explained that an objection to admissibility essentially ‘consists in the contention that there exists a legal reason, even when there is jurisdiction, why the Court should decline to hear the case, or more usually, a specific claim therein’. 93. Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Croatia v. Serbia) (Preliminary Objections) [2008] ICJ Rep 412, 456 [120]. 94. Although the ICJ inserted a crucial caveat: ‘It notes, however, that international law does not lay down any specific time-limit in that regard. It is therefore for the Court to determine in the light of the circumstances of each case whether the passage of time renders an application inadmissible.’ Certain Phosphate Lands in Nauru (Nauru v. Australia) (Preliminary Objections) [1992] ICJ Rep 240, 253-254 [32]. See also Armed Activities on the Territory of the Congo (Democratic Republic of the Congo v. Uganda) (Judgment) [2005] ICJ Rep 168, 267 [295] and Avena and Other Mexican Nationals (Mexico v. United States of America) (Judgment) [2004] ICJ Rep 12, 37-38 [44]. 95. Tomuschat lists the following grounds as valid grounds of inadmissibility: (a) substantiation of subject matter of application; (b) abuse of process; (c) power of representation; (d) waiver; and (e) lack of locus standi: C Tomuschat, ‘Article 36’ in A Zimmerman et al (eds), The Statute of the International Court of Justice: A Commentary (2nd edn., OUP 2012) 700-705. However, a preliminary survey of the ICJ cases relied upon by Tomuschat does not support this view. In most of these cases, the ICJ found that the objections had no factual basis, and did not expressly affirm that the objections would have been valid had they been factually supported. In particular, the case of South West Africa (Second Phase) [1966] ICJ Rep 6, 42-43 [74]-[76], does not support the conclusion that locus standi regarding the subject matter of the claim is a recognised ground for inadmissibility, because although the ICJ entertained the possibility that the issue went to admissibility, it did not definitively decide the matter.

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In respect of mootness, the ICJ’s jurisprudence shows that the ICJ will not exercise its jurisdiction if it considers that the dispute has been rendered academic by virtue of the development in the circumstances of the case.96 The chief reason for this is that, having regard to its judicial function to resolve disputes between States, it would not be a proper discharge of the ICJ’s duties if the circumstances render adjudication devoid of purpose.97 Two cases illustrate this point. In Northern Cameroons, the Republic of Cameroon sought a declaration from the ICJ that the UK violated the Trusteeship Agreement as the administration authority of the Northern Cameroons. The ICJ held that a declaration would be of little practical value, since the General Assembly had passed a resolution endorsing the plebiscites and deciding to terminate the Trusteeship Agreement (which Cameroons specifically emphasised it was not asking the ICJ to review) and Northern Cameroons had joined Nigeria.98 Hence, the ICJ found that the circumstances rendered adjudication devoid of purpose, and that it would be inconsistent with the judicial function of the ICJ to proceed to examine the merits.99 The ICJ accordingly found that it could not adjudicate upon the merits of Cameroon’s claim.100 In the Nuclear Tests cases,101 Australia and New Zealand brought claims against France seeking a declaration that France’s carrying out of atmospheric nuclear weapon tests contravened international law and an order against France to desist. The ICJ reasoned that, since France had given a legal undertaking to refrain from carrying out the tests, and since the objective of New Zealand and Australia had always been to bring about the termination of the tests, the objective had been fulfilled and the dispute had disappeared.102 Hence, the ICJ found that the claims no longer had any object and the ICJ was not called upon to give a decision thereon.103 In respect of delay, the ICJ’s case law indicates that the ICJ is primarily concerned with whether the party’s delay to bring (or add) a claim would result in prejudice. This attitude can be seen most visibly in Phosphate Lands.104 In this case, Nauru brought a claim against Australia regarding the rehabilitation of certain phosphate lands. Australia argued that Nauru achieved independence in 1968 but did not bring the claim 96. Northern Cameroons (n 1) 35: ‘The Court does not find it necessary to pronounce an opinion on these points which, in so far as concerns the operation or administration of the Trusteeship for the Northern Cameroons, can have only an academic interest since that Trusteeship is no longer in existence, and no determination reached by the court could be given effect to by the former Administering Authority.’ 97. Ibid., 38: ‘The Court must discharge the duty to which it has already called attention – the duty to safeguard the judicial function. Whether or not at the moment the Application was filed there was jurisdiction in the Court to adjudicate upon the dispute submitted to it, circumstances that have since arisen render any adjudication devoid of purpose. Under these conditions, for the Court to proceed further in the case would not, in its opinion be a proper discharge of its duties.’ 98. Ibid., 33. 99. Ibid., 38. 100. Ibid., 38. 101. Nuclear Tests (Australia v. France) (Judgment) [1974] ICJ Rep 253; Nuclear Tests (New Zealand v. France) (Judgment) [1974] ICJ Rep 457. 102. Nuclear Tests (Australia) (n 101) 270-272 [55]-[59]; Nuclear Tests (New Zealand) (n 101) 476-477, [58]-[62]. 103. Ibid. 104. Phosphate Lands (n 94).

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until twenty years later. Accordingly, the claim was not submitted within a reasonable time and was inadmissible.105 The Court rejected Australia’s claim on the basis that that Nauru did in fact raise the issue with Australia on several occasions prior to initiating ICJ proceedings.106 In these circumstances, the claim was not rendered inadmissible by passage of time.107 Crucially, the ICJ added after this that ‘[n]evertheless, it will be for the Court, in due time, to ensure that Nauru’s delay in seising it will in no way cause prejudice to Australia with regard to both the establishment of the facts and the determination of the content of the applicable law’ (emphasis added).108 By making this statement, the ICJ was suggesting that, if it later found that the delay prejudiced the opponent party, the ICJ would refuse to adjudicate over the claim. This demonstrates that the target concern of the ICJ in situations of delay is whether upholding the admissibility of the claim, notwithstanding the party’s delay, would lead to unwanted prejudice to the other party.109 In respect of agreement to use another method of pacific settlement, the ICJ has not elaborated on what this ground entails. However, Tomuschat argues that this refers to the situation where, ‘notwithstanding the general consent of the parties to dispute settlement by the Court, some other method applies in view of the specific case at hand’.110 Tomuschat continues to say that ‘Among the relevant clauses providing for other dispute settlement mechanisms one may mention Art. 55 of the European

105. 106. 107. 108.

Ibid., 253 [31]. Ibid., 254-255 [33]-[36]. Ibid., 254-255 [36]. Ibid., 254-255 [36]. See also Armed Activities (DRC v. Uganda) (n 94) 267 [295] where the ICJ held that, in the circumstances, ‘the long period of time between the events at stake during the Mobutu régime and the filing of Uganda’s counter-claims has not rendered inadmissible Uganda’s first counter-claim for the period prior to May 1997’. 109. The situation considered in this paragraph concerns the delay to bring a claim at all. Another type of situation of delay which may arise is when a party brings an additional claim in the later course of the proceedings which was not included in the original application. The ICJ has encountered such scenarios and has ruled that a new claim which cannot be considered as included in the original claim in substance would be inadmissible: Phosphate Lands (n 94) 265-266 [65]; Fisheries Jurisdiction (Spain v. Canada) (Jurisdiction) [1998] ICJ Rep 432, 448 [29]; Territorial and Maritime Dispute between Nicaragua and Honduras in the Caribbean Sea (Nicaragua v. Honduras) (Judgment) [2007] ICJ Rep 659, 695 [108]; Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo) (Merits) [2010] ICJ Rep 639, 656 [39]. And for the new claim to be included in the original claim in substance, it must have been implicit in the application or must arise directly out of the question which is the subject matter of that application: Phosphate Lands (n 94) 266 [67]. In these cases, the ICJ took into account Art. 40(1) of the ICJ Statute (which requires cases brought before the ICJ to indicate the subject of the dispute) and Art. 38(2) of the Rules of Court (which requires the application to specify the precise nature of the claim) to reach this proposition, but more significantly it extracted the underlying value of these provisions, which is that they were ‘essential from the point of view of legal security and the good administration of justice’: Phosphate Lands (n 94) 267 [69]; see also Société Commerciale de Belgique (Judgment) [1939] PCIJ Rep, Series A/B No 78, 173. These broad considerations are closely related to the consideration of prejudice, evidencing that the ICJ in this second scenario is also guided by factors of procedural fairness between the parties. Similar principles guide the ICJ when it is determining if a counterclaim fails to satisfy the ‘direct connection’ requirement in Art. 80 of the Rules of Court, so as to be inadmissible: see for example Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Order) [1997] ICJ Rep 243, 257-258 [30]-[31]. 110. Tomuschat (n 95) 701.

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Convention on Human Rights as well as Art. 344 of the Treaty of the Functioning of the European Union.’111 In other words, Tomuschat had in mind the situation where the parties have submitted, in addition to the compulsory jurisdiction of the ICJ, to another dispute resolution mechanism in relation to a specific area of international law, resulting in a jurisdictional overlap. In our view, although there is no institutional hierarchy under general international law to rank international courts,112 we agree with Tomuschat that the ICJ may legitimately hold a claim to be ‘inadmissible’ on the basis of a concern about the appropriateness of it exercising jurisdiction over a matter for which the parties have specifically selected another form of dispute resolution. The parties are likely to have intended the specific forum to be their first port of call, so it is only consistent with the judicial function of the ICJ to decline to exercise jurisdiction to give effect to this intention, even if the parties have yet to initiate the proceedings in the alternative forum. The analysis of the three grounds above indicates that, when the ICJ is addressing the ‘admissibility’ of the claim, it is not applying some abstract or highbrow concept of admissibility to the facts. Rather, the ICJ is simply exercising its ordinary powers over the conduct of the proceedings, having regard to its judicial function as well as to the interests of the parties in the fairness of the procedure and the final objective of resolving the dispute between the parties. So, whether there is delay, mootness or another applicable dispute resolution mechanism, the ICJ only has the following considerations in mind: what is procedurally fair between the parties, and how does the ICJ’s judicial function require it to respond? This will invariably involve a careful balancing exercise of all the relevant factors that may arise from the particular facts and circumstances of the case. But there is nothing mysterious about this exercise, and nothing novel about the ICJ’s approach. The ICJ is simply doing what a judicial body ordinarily does and is required to do. What about the grounds of ‘nationality of claim’ and ‘exhaustion of local remedies’? Do they have any bearing on our analysis above? The jurisprudence of the ICJ indicates that these two grounds are not of general application.113 Rather, they refer to the rules of customary international law which specifically apply when a State seeks to exercise diplomatic protection. The background is that there is a motley of customary international legal rules which concern the legal obligations owed by one State to another in respect of the treatment of nationals.114 And if a State wants to 111. Ibid. 112. Prosecutor v. Zejnil Delalic´, Zdravko Mucic´, Hazim Delic´ and Esad Landžo (‘Cˇ elebic´i Case’) (Appeal Judgment) IT-96-21-A, A Ch (20 February 2001) 9 [24]. 113. J Crawford, Brownlie’s Principles of Public International Law (8th edn., OUP 2012) 701: ‘the nationality of claims and exhaustion of local remedies rules were specifically developed in the context of diplomatic protection’. 114. Mavrommatis Palestine Concessions (Judgment No 2) [1924] PCIJ Series A No 2, 12: ‘It is an elementary principle of international law that a State is entitled to protect its subjects, when injured by acts contrary to international law committed by another State, from whom they have been unable to obtain satisfaction through the ordinary channels. By taking up the case of one of its subjects and by resorting to diplomatic action or international judicial proceedings on his behalf, a State is in reality asserting its own rights - its right to ensure, in the person of its subjects, respect for the rules of international law.’ This body of rules includes the rules of customary international law on the expulsion of aliens, which are still in the process of

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invoke the responsibility of another State for injuring its nationals, it must first comply with the rules of nationality of claims115 and exhaustion of local remedies116 under customary international law.117 So, when a State exercises diplomatic protection by instituting proceedings in the ICJ, and the ICJ rules that the claim is inadmissible because the applicant State has not complied with these rules, the ICJ is merely applying the rules of customary international law to the dispute in accordance with its judicial function.118 In other words, it is applying a specific concept of admissibility to the facts, unlike the balancing exercise involved in the first three grounds (which does not involve the application of a specific concept of admissibility). But that is only because customary international law has bestowed these rules upon the ICJ for the ICJ to apply when it comes to diplomatic protection. There are no such customary international legal rules for the first three grounds. So, in the absence of specific rules of law to give flesh to the bones of admissibility, the point remains that decisions of admissibility are decisions on procedure undertaken by the ICJ in the exercise its discretion over the conduct of the proceedings. The ICJ has no secret formula to determine if it should exercise its discretion or not. All it does is take into account the usual factors of procedural fairness and efficiency in the light of its judicial function, based on the particular facts and circumstances of the case.

§16.04

CONCLUSION

Our conclusions in the light of the above as follows: (1) In certain quarters of the international arbitration community, there are growing calls for the acceptance of a separate concept of admissibility in investment treaty arbitration and international arbitration more generally. (2) Our view is that these calls should not be heeded. A decision on admissibility is nothing more than a decision on the procedure of the arbitration undertaken by the tribunal in the exercise of its discretion, as ordinarily provided for in the legal rules which apply to the arbitral proceedings. There is no clear reason to mark out these decisions as decisions on ‘admissibility’. On the

115. 116. 117.

118.

development: ILC, ‘Report of the International Law Commission on the Work of its 66th Session’ (5 May–6 June and 7 July–8 August 2014) UN Doc A/69/10, 18. This is why the Draft Articles on the Expulsion of Aliens of 2014 ‘involve both the codification and the progressive development of fundamental rules on the expulsion of aliens’: ibid. Panevezys-Saldutiskis Railway (Judgment) [1939] PCIJ Rep Series A/B No 76, 16; Nottebohm Case (second phase) (Judgment) [1955] ICJ Rep 4, 13. Otherwise, the claim is inadmissible: Nottebohm Case, id., 16-17. Elettronica Sicula S.P.A. (ELSI) (Judgment) [1989] ICJ Rep 15, 42 [50]; Interhandel Case (Judgment) [1959] ICJ Rep 6, 27. Otherwise, the claim is inadmissible: ELSI, id., 46 [59]; Interhandel Case, id., 26. Note however that the rules on nationality of claims and exhaustion of local remedies are currently undergoing a codification process. See the Draft Articles on Diplomatic Protection of 2006 and the discussion of these Articles in ILC, ‘Report of the International Law Commission on the Work of its 58th Session’ (1 May–9 June and 3 July–11 August 2006) UN Doc A/61/10, 13-94. Nottebohm Case (n 115) 17.

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contrary, the term ‘admissibility’ does not appear in the legal rules which apply to the arbitral proceedings. The concept of admissibility of claims in international arbitration is therefore a chimera which we need to stop chasing. (3) We can discard the label of ‘admissibility’ and still have a clear understanding of the legal principles in play. The following statements accurately describe the legal principles without making reference to the term ‘admissibility’: (a) The reviewability of a tribunal’s decision depends on whether or not the objection is jurisdictional. (b) A tribunal that wishes to classify the objections of an objecting party should do so according to this distinction. (c) So the only question which the tribunal should be asking itself is whether or not the objection, if factually proven, would impinge upon the consent of the objecting party to the arbitration, so as to amount to a jurisdictional objection. (d) How to identify if consent is affected will depend on the type of objection at issue. For instance, if the objection is a BIT precondition objection, the best way to identify if consent is affected is to interpret the host State’s offer to arbitrate in the dispute resolution clause to determine if the State intended the precondition to be a condition to its consent to arbitrate. (e) If the tribunal forms the view that the objection is jurisdictional, the tribunal will have to go on to determine if it has jurisdiction on the facts of the case in accordance with the applicable rules on jurisdiction. (f) If the tribunal forms the opposite view that the objection is not jurisdictional, and that it concerns the procedure of the arbitration, the tribunal will have the discretion to stay or dismiss the proceedings where the circumstances require such a course of action, by virtue of the legal rules applicable to the proceedings which confer such a discretion. (g) The implication of the above is that the tribunal’s ability to dismiss the proceedings extends not only to jurisdictional objections, but also to non-jurisdictional objections regarding the conduct of the arbitration.

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CHAPTER 17

Res Judicata and the “Could Have Been Claims” Bernard Hanotiau

Res judicata has generated a lot of writings. Two of the fundamental questions which remain debated are the issues of its nature and scope. In the opinion of this author, there is a growing trend in favor of a broad, autonomous conception of res judicata which should also encompass the “could have been claims,” claims that could have been raised in a first arbitration, which were not, and are eventually invoked in a subsequent case.

§17.01

RES JUDICATA IN GENERAL

It is common ground that, subject to nuances, res judicata, or claim preclusion, means that, once adjudicated, a claim cannot be raised again. The conditions for such preclusion may vary from one country to the other, but the basic approach is substantially the same in most jurisdictions. Two fundamental principles underlie the doctrine of res judicata: the interest of the state that there be an end to litigation and the fact that no person should be sued twice for the same cause. The main purpose of the doctrine is to avoid repetitious and wasteful litigation.1 Res judicata is a principle of international law, and even a general principle of law within the meaning of Article 38(1)(c) of the Statute of the International Court of

1. P.R. Barnett, Res judicata, Estoppel and Foreign Judgments: The Preclusive Effects of Foreign Judgments in Private International Law (Oxford University Press, 2001) pp. 8-9 and references cited.

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Justice.2 It involves considerations of public policy and justice: “Deeply-rooted considerations of public policy underlie rules of preclusion in national (and international) law. . . . [T]hese policies focus on the injustice of permitting a party to relitigate the same claims and issues against an adversary in repeated proceedings, imposing both litigation costs and risks, as well as on the damage that such tactics cause to the credibility and resources of the legal system.”3 It is commonly accepted that arbitral awards also have res judicata effect. This is quite logical since “[o]ne of the fundamental objectives of international arbitration is to provide a final, binding resolution of the parties’ dispute. Essential to achieving this objective is the preclusive effect of arbitral awards: if parties are not bound by the awards made against them—either dismissing or upholding their claims or declaring their conduct wrongful or lawful—then those awards do not achieve their intended purpose and are of limited value.”4 If the principle of res judicata is accepted in all developed legal systems, its scope may vary from one system to another. In common law jurisdictions, the rules of preclusion are largely based on judicial authority and recognize two types of preclusion: claim preclusion (res judicata) and issue preclusion (collateral estoppel or issue estoppel). The notion of claim, which is subject to preclusion, is generally defined broadly: it includes all claims or rights of legal action that arise out of a single set of facts or single transaction.5 “This expansive conception of ‘claims’ has the effect of extending the preclusive effects of res judicata well beyond those claims that were actually litigated concerning a particular transaction in a prior litigation, to also reach claims that might have been litigated (but were not).”6 This kind of “expansive approach furthers the policy of finality that res judicata seeks to accomplish by virtue of focusing on the actual substantive and transactional configuration of the proceedings instead of relying on the narrow and formalistic mechanics that undermine the doctrine.”7 In civil law countries, the rules of preclusion are usually codified in statutes. They are often conceived more restrictively on the basis of a triple identity requirement: same parties, same claim and same legal grounds. However, even in France, which is an emblematic example of the classic triple identity test, the approach has begun to evolve in favor of a broader and more pragmatic approach, which would be less formalistic. In domestic litigation, the French Supreme Court has indeed decided that the doctrine of res judicata extends to all claims that could have been asserted in prior proceedings.8 This is the so-called principle of concentration.

2. B. Cheng, General Principles of Law as Applied by International Courts and Tribunals (London: Stevens & Sons, 1953, repr. Cambridge: Grotius, 1987) pp. 336-372 and authorities cited. 3. G. Born, International Commercial Arbitration (Wolters Kluwer, 2014), Volume II, p. 3734. 4. Id., p. 3733. 5. P.R. Barnett, supra note 1, pp. 8-9; Restatement (Second) Judgments § 1 (1982). 6. G. Born, supra note 3, p. 3735. 7. P.J. Martinez-fraga & H.J. Samra, The Role of Precedent in Defining Res Judicata in Investor-State Arbitration, 32 Northwestern J. of Int’l L. & Bus. 3 (2012) at 431. 8. Société G et A Distribution v. société Prodim, Rev. Arb., 2008, 461 (French Cour de cassation, 28 May 2008).

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§17.02

THE LAW APPLICABLE TO THE RES JUDICATA ISSUE

Doctrinal authorities identify several laws that may be relevant to the determination of the res judicata effect of an award: (i) the lex arbitri of the award whose effects are invoked; (ii) the lex arbitri of the arbitration where the res judicata objection is raised; (iii) the law governing the contract; (iv) the law governing the arbitration agreement; and (v) provisions in international conventions.9 A majority of authors and arbitrators consider that the question of which res judicata law to apply is a procedural question: “Because res judicata is a rule of evidence in common law jurisdictions, and is codified in procedural codes in civil law jurisdictions, the Committee is of the view that it is part of procedural law.”10 Because res judicata is a procedural question, the lex arbitri is relevant to determining the res judicata rules that should apply. Indeed, “the parties’ choice of arbitral seat is an indication of the juridical framework they expect to surround the arbitration.”11 The International Bar Association’s 2010 Guidelines for Drafting International Arbitration Clauses indicate in the same vein that “The place of arbitration is the juridical home of the arbitration. … While the place of arbitration does not determine the law governing the contract and the merits … it does determine the law (arbitration law or lex arbitri) that governs certain procedural aspects of the arbitration.”12 The awards published and the references to awards in doctrinal writings reveal, as pointed out by Dominique Hascher in his 2004 article on res judicata, “a predominant connection to the law of the seat as the law giving res judicata to an award rendered in a prior arbitration.”13

9. K. Hobér, Res Judicata and Lis Pendens in International Arbitration, 366 Recueil des Cours (Leiden/Boston, Martinus Nijhoff, 2014) p. 258; L.G. Radicati di Brozolo, Res judicata, in P. Tercier (ed.), Post Award Issues (ASA Special Series No. 38, 2011), p. 132. 10. ILA Interim Report on Res Judicata and Arbitration, 25 Arb. Int’l 35 (2009) at 65. 11. N. Rubins, The Arbitral Seat is No Fiction: A Brief Reply to Tatsuya Nakamura, 16 Mealy’s Int’l Arb. Rep’t 23 (2001) at 24. 12. Guidelines, at para. 21; the Guidelines further provide (at para. 44) that “By choosing the substantive law, the parties do not choose the procedural or arbitration law. Such law, absent a contrary agreement, is ordinarily that of the place of arbitration”; see also Ondrˇej Chvosta, The Potentially Applicable Systems of Law in Commercial and Investment Arbitrations: A Comparative Perspective, 22 Willamette J. Int’l L. & Disp. Resol. 1 (2014) at 3: “The law governing the arbitral proceedings—commonly referred to as lex arbitri or curial law—is almost always the law of the seat of arbitration. The seat of arbitration is best described as the ‘legal home’ of the arbitration. While it is true that the arbitration panel may meet, deliberate, and hold hearings in multiple countries, and thus the arbitration can take place in multiple locations geographically speaking, the seat of arbitration is but one. The selection of the seat is, therefore, of great importance because by choosing the seat, the curial law for the arbitration is chosen as well.” (references omitted). 13. “L’examen de la jurisprudence arbitrale met en valeur un rattachement dominant à la loi de procédure du siège pour conférer l’autorité de la chose jugée à une sentence prononcée au cours d’un précédant arbitrage…”; D. Hascher, “L’autorité de la chose jugée des sentences arbitrales”, Communication au Comité Français de Droit International Privé, 7 February 2001, Pedone, 18 (2004).

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Grigera Naón has also shown the importance of the law of the seat of the arbitration in the determination of res judicata.14 Luca Radicati di Brozolo has stated in the same line that “domestic courts and arbitral tribunals often do resort to domestic law to deal with the problem.”15 And Kaj Hobér, in his major study of res judicata, speaks about the “inclination of some tribunals to rely on the lex fori when interpreting and applying the principle of res judicata.”16 Gary Born draws the same conclusion, noting that “tribunals typically look[] to particular national law systems (generally, without analysis, that of the arbitral seat) for applicable preclusion principles.”17 A number of arbitral awards confirm the accuracy of this conclusion. For example, in an ICC award rendered in 1977, an arbitrator sitting in Paris decided on the res judicata effect of a prior award according to French and Belgian laws conceptions of res judicata. After having stated that the parties, in their submissions, had referred to Belgian law for the merits of the case, the arbitrator decided on the res judicata effect of a prior ICC award between the same parties, that “[a]s to the incidence of a French award on another dispute also submitted to an arbitrator deciding according to the will of the parties in Paris and - subject to article 11 of the ICC Rules - according to French procedural law, the arbitrator cannot depart from the French and Belgian conception, whatever the law governing the merits of the case.”18 Following the same line of reasoning, in an ICC award rendered in 1988, the arbitral tribunal, sitting in Geneva, decided that res judicata is a procedural question that had to be decided according to the procedural law applicable in Geneva.19 In 1989, another ICC arbitral tribunal decided that: It is frequently said that, in international arbitration proceedings, there is no forum whose law must be referred to and applied. Nevertheless, what is at issue here is the meaning and effect to be given to a Swiss arbitration award before this tribunal, the seat of which is in Paris, France, according to the determination of the Court of Arbitration, and any appeal of the present award would have to be filed in France. Accordingly, we apply French law to determine the effect to be given to the defences of res judicata and collateral estoppel of the prior Swiss arbitration award, and have further taken into account that the provisions of French law on this issue are entirely consistent with, and do not conflict with, either applicable Swiss law principles, or international arbitral precedents applying both civil law and common law provisions. It is obviously natural to look to the laws of France,

14. H.A. Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9 (2001) at 169-171. 15. L.G. Radicati di Brozolo, supra note 9, p. 130. 16. K. Hobér, supra note 9, p. 259. 17. G. Born, supra note 3, p. 3775. 18. “[S]’agissant d’une sentence française et de son incidence sur un autre litige également soumis à un arbitre statuant selon la volonté des parties à Paris et, sous réserve de l’article 11 du Règlement d’arbitrage de la C.C.I., à la loi de procédure française, l’arbitre ne peut pas s’écarter de la notion française et belge, quelle que soit d’ailleurs la loi applicable au fond du litige”; Awards in ICC Case N°s 2475 and 2762, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 (1990) pp. 325, 328. 19. Unpublished, the award is cited by D. Hascher, supra note 13, p. 17.

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particularly since the law of arbitration of France makes specific reference to the “res judicata” effects or “autorité de la chose jugée” of arbitration awards.20

In an ICC award rendered in 1994, a sole arbitrator, sitting in Zurich, also applied the law of the canton of Zurich to determine the res judicata effect of a prior award rendered in Zurich. The arbitrator applied that law taking into consideration the fact that the seat of both arbitrations was located in Zurich.21 In ICC Case No. 10574, an arbitral tribunal sitting in London rendered an award in 2000 looking only at English law to determine if it would grant a res judicata defense based on a prior U.S. federal court decision.22 The same year, a sole ICC arbitrator sitting in Spain had to decide a dispute between a Spanish company and two Swiss companies. The arbitrator found guidance on res judicata in the Spanish Code of Civil Procedure.23 In another award, rendered in 2002, concerning a dispute opposing an American party to a Swiss party, an arbitral tribunal sitting in Switzerland and composed of Markus Wirth, Gabrielle Kaufmann-Kholer and Franz Kellerbals decided that: “[I]t is settled law by now that an arbitral tribunal sitting in an international arbitration in Switzerland must apply the same rules as would a Swiss Court in matters of res judicata.”24 This case is expressly referred to in the International Law Association (ILA) Interim Report on Res Judicata and Arbitration.25 A final example (2007) of arbitrators applying domestic law to res judicata can be found in the decision of an arbitral panel sitting in Sweden under the UNCITRAL Arbitration Rules, in a dispute between an American and a Russian company. The tribunal considered that it was “bound to apply Swedish rather than international principles of res judicata applicable in international commercial arbitration.”26 In this case, the first arbitration had also been conducted in Sweden. Swedish law governed the merits. These arbitration cases demonstrate that international commercial arbitral tribunals apply domestic law to decide the res judicata issue.

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TOWARD A BROAD CONCEPTION OF RES JUDICATA

It is clear however that the international trend is in favor of a broad conception of res judicata. It seems indeed that “even when the issue is debated in a framework of continental legal systems there is a tendency to follow an approach which recognizes 20. Unpublished, the award is cited in H.A. Grigera Naón, supra note 14, p. 169; as pointed out by H.A. Grigera Naón, in this case, the arbitral tribunal also looked at another domestic law (Swiss law since the prior award had been rendered in Switzerland) and at international cases and international arbitration practice. Grigera Naón points out that “[t]he above case underlines the importance of the place of the arbitration to determine the effects within or in respect of arbitral proceedings localized in such place of other arbitral or court of law determinations” (id., at 171). 21. Unpublished, the award is cited by D. Hascher, supra note 13, p. 19. 22. Unpublished, the award is cited in H.A. Grigera Naón, supra note 14, p. 171. 23. ICC Award Case No. 13507, Yearbook Commercial Arbitration, Vol. XXXV, 158-67, (2000). 24. ASA Bulletin, vol. 21, no. 4, 810, 814 (2003). 25. ILA Interim Report on Res Judicata and Arbitration, 25 Arb. Int’l, 35 (2009) at 62. 26. Unpublished, the award is discussed in K. Hobér, supra note 9, p. 262.

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a fairly broad scope to the doctrine of res arbitrata”;27 the idea being to display a “constructive and non-formalistic approach to the issue, placing considerable emphasis on principles such as good faith, party autonomy and the scope and effects of the arbitration agreement, consistency and non-contradiction, estoppel, concentration of issues and claims, expectations of the parties, effet utile, efficiency and procedural economy and prohibition of procedural abuse.”28 The authors who support an international approach to res judicata in international arbitration favor a broad approach based “on the objectives and expectations of the parties’ arbitration agreement, and particularly their presumptive desire to resolve all of their disputes in a single, centralized proceeding.”29 They militate for “an autonomous and relatively broad approach to res judicata in relation to arbitral awards even before national courts, which would seem to go beyond the narrow and formalistic notions that traditionally apply in continental systems.”30 The 2006 Recommendations on Lis Pendens and Res Judicata and Arbitration adopted in Toronto by the ILA31 constitute an influential guide as to the international perception of res judicata. The ILA Report and Recommendations are the culmination of a four-year project which was commenced under the chairmanship of Professor Pierre Mayer in 2002 and has been continued under the chairmanship of Professor Filip De Ly. The International Commercial Arbitration Committee has over fifty members, leading scholars and practitioners, from all over the world. The application of res judicata as well as the various drafts of the Report have been discussed at yearly meetings of the Committee in Paris from 2002 to 2006. One of the studies which was taken into consideration by the ILA Committee was a study resulting from an in-depth analysis of all ICC awards which had to deal with the res judicata issue, completed by Dominique Hascher, formerly General Counsel of the ICC Court of Arbitration and now a member of the French Cour de Cassation.32 According to Dominique Hascher, the contemporary trend in international arbitration is an autonomous and flexible approach to res judicata. The application of the principle is more practical and intuitive than theoretical.33 He concludes that “[a]rbitrators may proceed, for res judicata, as they wish” and that “there should not

27. 28. 29. 30. 31.

L.G. Radicati di Brozolo, supra note 9, p. 138. Ibid. G. Born, supra note 3, p. 3777. L.G. Radicati di Brozolo, supra note 9, p. 135. International Law Association, Committee on International Commercial Arbitration, Final Report on Res Judicata and Arbitration, in Report of the Seventy-Second conference, Toronto, 2006, pp.186-204 (including Recommendations 1-7). 32. D. Hascher, supra note 13, p. 17 and following. 33. “L’examen des sentences qui vient d’être mené permet de vérifier que la règle de droit fait l’objet devant l’arbitre international d’une application plus pratique et intuitive que théorique”. Id., p. 24.

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be any obstacle that res judicata be determined by a rule specific to arbitration as it was suggested in several of the awards that have been analysed.”34 Following this approach, the ILA Report advocates an autonomous, transnational approach to res judicata in arbitration. The last interim report dated March 2004 stated that its purpose is “to give guidance to arbitrators, when faced with a prior judgement or award which is argued to be res judicata. Arbitral tribunals are not required to apply the same procedural rules as domestic courts and have greater freedom to apply procedural rules that are appropriate for international arbitration. For international arbitration, where arbitrations are often conducted under international rules and increasingly uniform laws, a globalized harmonised approach to res judicata would be commendable.”35 The interim report also pointed out that “the final report will address the question of whether international arbitration warrants a more autonomous approach, under which res judicata rules that apply to arbitral awards may be different from those rules of national law that apply to judgements, having regard to the distinguishing features of international arbitration such as its contractual foundation, party autonomy and internationalised procedures.”36 The ILA Committee has issued seven Recommendations which are directed “to arbitral tribunals, with a view to facilitate uniformity and consistency in the interpretation and application of provisions and principles concerning . . . the conclusive and preclusive effects of prior arbitral award.”37 They do not limit res judicata preclusion to situations where a claim has already been litigated. Recommendation No. 5 indeed provides that: “[a]n arbitral award has preclusive effects in the further arbitral proceedings as to a claim, cause of action or issue of fact or law, which could have been raised, but was not, in the proceedings resulting in the award, provided that the raising of any such new claim, cause of action or new issue of fact or law amounts to procedural unfairness or abuse.”38 Recommendation No. 5 is justified in part as follows: [P]olicy objectives of efficiency and finality can also be taken into account to protect respondents from being exposed to further arbitration if a claimant fails to raise claims, causes of action or issues of fact or law in prior proceedings. Also, there is a legitimate public interest in having an end to arbitration as well as an end to the supportive and corrective powers of domestic courts supervising and reviewing the arbitral process and assisting at the recognition and enforcement stage. The doctrines of procedural fairness and abuse, in the view of the Committee, provide an acceptable compromise regarding the private and public interests at stake. The open-textured nature of these doctrines give arbitral tribunals wide 34. “Les arbitres peuvent donc procéder, pour l’autorité de la chose jugée, comme ils l’entendent.” Id., p. 24 and “… il ne devrait guère y avoir d’obstacle à ce que l’autorité de chose jugée soit définie par une règle propre de l’arbitre, comme cela est suggéré dans plusieurs des sentences ci-dessus rapportées.” Id., p. 25. 35. ILA Interim Report on Res Judicata and Arbitration, supra note 25, pp. 35, 39. 36. Id., p. 64. 37. Report of the Seventy-Second Conference, supra note 31, p. 16. 38. Id., p. 20.

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powers to assess, on the basis of the specific circumstances of the case, whether there is a procedural unfairness and/or abuse.39

The ILA Recommendations thus favor a broad conception of res judicata such that claims that could have been raised in the proceedings resulting in the award may be barred in a second arbitration if they amount to procedural unfairness or abuse. They are also better understood if they are read together with the ILA Draft Memorandum prepared in September 2003 by Audley Sheppard and Filip De Ly, respectively Rapporteur and chairman of the ILA Committee.40 As the authors point out in their memorandum: International tribunals have also been aware of the risk that if they use too restrictive criteria of identity of “object” and “grounds,” the doctrine of res judicata would rarely apply: if only an exactly identical relief sought (object) based on exactly the same legal arguments (grounds) in a second case would be precluded as a result of res judicata, then litigants could easily evade this by slightly modifying either the relief requested or the grounds relied upon. Dodge speaks in this regard of the possibility of “claim splitting” in order “to avoid the res judicata effect of a prior award by seeking a different sort of relief or by raising new grounds in support of the same claim for relief.” This would be the case, for example, if in a typical investment dispute, involving allegations of fact amounting to expropriation, the investor first sought restitutio in integrum as relief from the host state and in a later litigation changed the “object” of his case requesting compensation.41

As further pointed out by the two authors, there are important policy arguments against the possibility of “claim splitting” which would render the purpose of res judicata, i.e., the finality of the results of dispute settlement, moot. With respect to “identical grounds,” the authors also conclude that a dispute may be considered a single identical dispute based on identical grounds where claims are based on two fairly different legal texts as long as they relate to the same factual background.42 The same approach has been advocated by Professor Pierre Mayer, the former Chairman of the ILA Arbitration Committee: For example, a party that introduced a claim for nullity of a contract for mistake, and failed, could wish to present the same claim on the basis of fraud or defective formalities. In French law, it is through the extension of the notion of “cause” . . . that courts sanction what Motulsky called the obligation to “concentrate the 39. International Law Association, supra note 25, p. 201. The taking into consideration of the concept of abuse of process in the application of the res judicata defense is a principle applied in England since the decision Henderson v. Henderson rendered in 1843 (1843 3 HARE 100, 67 E.R. 313). The rule set out in this case requires the parties, when a matter becomes a subject of litigation between them in a court of competent jurisdiction, to bring their whole case before the court so that all aspects of it may be finally decided once and for all. Conversely, it precludes a party in subsequent litigation from raising a claim or an issue which the party, by the exercise of due diligence, could and should have brought before courts in the earlier proceedings. The doctrine rests upon the inherent power of a court to prevent misuse of its procedures in the face of unfairness to another party. 40. ILA 2003 Draft Memorandum prepared by Audley Sheppard and Filip De Ly (September 2003). 41. Id., no. 3.62 (emphasis added). 42. Id., nos. 3.66-3.72.

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disputed matter” … In arbitration, one could consider, in the same spirit, and by interpretation of the reasonable intention of the parties to the arbitration agreement, that the party that seizes an arbitral tribunal of a certain claim loses its right to present to another arbitral tribunal not only that claim, as specifically formulated, but also any other claim that he could, and therefore should, in good faith have added to the former in the course of the same procedure.43

Finally, Sheppard and De Ly also pointed out in their analysis that the case law demonstrates a tendency to focus on the facts or the factual background of claims in order to determine whether disputes are different or identical. They concluded that identical facts play an important role in actual practice, even where the test of identity of issues remains theoretically limited to identical object and identical ground. Several cases referred to by Sheppard and De Ly are illustrative. For instance, in the Delgado case44 before a U.S.-Spanish Claims Commission, a claim for damages against Spain for seizure of property in Cuba was brought and denied by an arbitrator in 1876. Subsequently, another claim was brought by the same applicant for the value of the property seized. The defendant’s State moved to dismiss on the ground of res judicata. It argued that the “test of identity was not whether the measure of relief demanded, but whether the injury that formed the foundation of the claim, was the same in both cases.” The arbitrator held that the question of identity depended upon “whether new rights are asserted in [the second] claim.”45 Although the arbitrator accepted that the two claims did in fact relate to different grounds, it dismissed the new claims on res judicata grounds. He held that “even if the claimant did not at the time of the former case ask indemnity of the Commission for the value of the lands, the claimant had the same power to do so as other claimants in other cases where it has been done, and he cannot have relief by a new claim before a new umpire.”46 In the Machado case47 which was pleaded before the same Commission, the arbitrator followed the same line of reasoning. In a first case, damages arising from the seizure of a house had been claimed. In the second case, the claim was for restoration of the house as well as rent and damages for its detention. The arbitrator dismissed the second claim on res judicata grounds considering that both claims were identical. He said: “[T]he question whether this claim No. 129 is a new one, or the same as No. 3, does not depend upon whether the items included be the same in both cases, but that 43. “Par exemple, une partie qui a introduit une demande de nullité d’un contrat par erreur, et a échoué, pourrait vouloir présenter la même demande sur le fondement d’un dol ou d’un vice de forme. En droit français, c’est par l’élargissement de la notion de ‘cause’ … que l’on sanctionne ce que Motulsky a appelé l’obligation de ‘concentrer la matière litigieuse’ … Dans l’arbitrage, on pourrait considérer, dans le même esprit, et par interprétation de la volonté raisonnable des parties à la convention d’arbitrage, que la partie qui saisit un tribunal arbitral d’une certaine demande perd son droit à présenter à un autre tribunal arbitral non seulement cette demande, telle que précisément formulée, mais aussi toute autre demande qu’elle aurait pu, et donc dû, de bonne foi, rattacher à celle-ci au cours de la même instance.” P. Mayer, “Litispendance, Connexité et Chose Jugée dans l’Arbitrage International”, in Liber Amicorum Claude Reymond (LexisNexis, 2004) 185, 196. 44. J.B. Moore, International Arbitrations to Which the United States Has Been a Party (Spanish-U.S. Claims Commission, 1881) p. 2196. 45. Id., at 2199 (emphasis added). 46. Id., at 2199. 47. Id., at 2193.

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the test is whether both claims are founded on the same injury; that the only injury on which claim No. 129 is founded is the seizure of a certain house; that this same injury was alleged as one of the foundations for claim No. 3, and that in consequence, claim No. 129, as been part of an old claim, cannot be presented as a new claim under a new number.”48 With respect to identity of grounds, an arbitral tribunal under the 1982 UN Convention on the law of the sea (UNCLOS) in the Southern Bluefin Tuna case,49 had to determine whether a dispute about Japanese fishing practices was to be settled under the Convention for the Conservation of Southern Bluefin Tuna 1993 (CCSBT) or under UNCLOS. The CCSBT contains norms regarding total allowable catch. UNCLOS establishes more general norms regarding fisheries, conservation and management. The grounds under the two Conventions were totally different. In the course of assessing the character of the legal dispute at issue, the tribunal pronounced itself on the identity or nonidentity of the dispute over fishing practices. It regarded the two disputes as relating to the same issue or subject matter and thus to constitute just one dispute: [T]he parties to this dispute … are the same parties grappling not with two separate disputes but with what in fact is a single dispute arising under both Conventions. To find that, in this case, there is a dispute actually arising under UNCLOS which is distinct from the dispute that arose under the CCSBT would be artificial.50

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SHOULD RES JUDICATA COVER THE “COULD HAVE BEEN CLAIMS”?

Should res judicata cover the “could have been claims”? In my opinion, the answer should be affirmative. It is to be noted in the first place that this is already the case in the law of some jurisdictions. The law of New York, for example, applies a broad conception of the res judicata doctrine referred to as the “transactional” approach. Under this approach, res judicata not only bars claims that have been actually disputed in a first instance, but also claims that could have been litigated in the prior proceeding.51 48. Id., at 2194 (emphasis added). 49. Southern Bluefin Tuna case (Australia and New Zealand v. Japan), Award on Jurisdiction and Admissibility, 4 August 2000, 39 ILM 1359 (2000). 50. Id., at 1388, para. 54. 51. There is a considerable number of cases confirming this approach since Secor v. Sturgis, 16 N.Y. 548, 554 (1858). In 1929, Chief Judge Cardozo described the doctrine as follows: “[a] judgment in one action is conclusive in a later one, not only as to any matters actually litigated therein, but also as to any that might have been so litigated, when the two causes of action have such a measure of identity that a different judgment in the second would destroy or impair rights or interests established by the first.” Schuylkill Fuel Corp. v. B. & C. Nieberg Realty Corp., 250 N.Y. 304, 306-07 (1929). See also Stockton v. Ford, 59 U.S. 418, 420 (1855) (holding that the question presented in the current action was properly involved in the former case, and might have been there raised and determined. The neglect of the plaintiff to avail himself of it, even if it were tenable, furnishes no reason for another litigation). New York law has consistently applied the

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This is also to some extent the case of French law which, a priori, applies the triple identity test. Indeed, Article 1351 of the French Code of Civil Procedure establishes the conditions for res judicata in the following terms: “The force of res judicata obtains only with respect to what was the subject of the judgment. The subject of the petition must be the same; the petition must be based on the same cause; the petition must be between the same parties and lodged by or against them in the same capacity.” This phrasing clearly refers to a triple identity test. However, on the basis of this provision, French case law has developed a very broad approach to res judicata, which extends to the claims that could have been asserted in prior proceedings and have not been so submitted. It is called the “principle of concentration.” In this respect, the decision rendered by the French Cour de cassation on May 28, 2008 mentioned above52 does not at all constitute an isolated case. On the contrary, it is the confirmation of the landmark decision of the French Supreme Court rendered on July 7, 2006 in plenary session.53 Moreover, as mentioned in the communication of the Court on its website, this decision has been rendered “taking into consideration inter alia the answers given to the same question by important foreign systems.” And the Supreme Court’s jurisprudence was again confirmed in a 2012 decision.54 Professor Charles Jarrosson, one of the leading French scholars in the field of arbitration, and the General Editor of the prominent Revue de l’arbitrage, wrote about the French Supreme Court’s 2006 decision that “[t]his decision retained a conception of res judicata, which focuses on two of the three elements of the rule (identity of parties and of object). Today, indeed, it is the object of the claim, conceived as the result looked after that matters, much more than its cause, i.e. its legal ground.”55 Professor Jarrosson further submits that the principles applied by the French Cour de cassation in its 2006 decision “are even more welcomed in arbitration, above all international.”56 He refers inter alia to the existence in various laws—including English law—of the same principle of concentration, to the ILA recommendations, and to the doctrine of Hascher and Mayer, who emphasize the notions of good faith and interpretation of the will of the parties. Among civil law countries, the case of France is not isolated. One other very clear example of a broad conception of res judicata in a civil law jurisdiction is the case of Spain, as encompassed in Article 400 of the Spanish Ley Enjuiciamiento Civil (LEC).57

52. 53. 54. 55.

56. 57.

transactional analysis approach, which bars all claims arising out of a given transaction, occurrence or event, since Reilly v. Reid, 45 N.Y.2d 24, 28 (1978). Supra note 8. Cour de Cassation, 04-10.672, Arrêt no. 540 du 7 juillet 2006. Cass., fr. 12 April 2012, no. 11-14123. “Cette décision a retenu une conception de l’autorité de la chose jugée, qui se focalise sur deux des trois éléments de la règle (l’identité de parties et d’objet). Aujourd’hui en effet, c’est l’objet de la demande entendu comme le résultat recherché qui importe, bien, davantage que sa cause, c’est-à-dire son fondement juridique”; Ch. Jarrosson, L’autorité de chose jugée des sentences arbitrales, Procédures, 36 (2007). “L’application de cette règle est en effet encore mieux venue en matière d’arbitrage, surtout international,” Ch. Jarrosson, id. Article 400 reads as follows:

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In my view, such a broad conception that would bar claims that were actually decided and that could have been decided in a prior proceeding is in line with the expectations of the parties in international arbitration. Those expectations include the expeditious and efficient resolution of their dispute. In this respect, Mr. Stavros Brekoulakis correctly notes: While public concerns, such as the preservation of legal resources, are less relevant in the context of international arbitration than they are in national litigation, private considerations such as the need for commercial security resulting from the finality and repose of the dispute are critical for the interests and the expectations of the parties in international arbitration. Parties resort to arbitration to have their dispute finally resolved by the award. If the issues determined in the first award were open to a fresh determination, parties’ expectations of finality and repose of their dispute would be thwarted and the effectiveness of arbitration would be compromised.58

A broad approach of res judicata is, as correctly expressed by Gary Born, in line with the “objectives and expectations of the parties’ arbitration agreement, and particularly their presumptive desire to resolve all of their disputes in a single, centralized proceeding.”59 This is also, as mentioned above, the opinion of Professor Pierre Mayer, the former Chairman of the ILA Arbitration Committee.60 It is certain that the 2006 ILA Recommendations on Lis Pendens and Res Judicata and Arbitration61 constitute an influential guide as to the international perception of res judicata if an arbitral tribunal decides to apply an international standard. As noted above, the Recommendations do not limit res judicata preclusion to situations where a claim has already been litigated. The preclusion extends to “the further arbitral proceedings as to a claim, cause of action or issue of fact or law, which could have been raised, but was not, in the proceedings resulting in the award, provided that the raising of any such new claim, cause of action or new issue of fact or law amounts to procedural unfairness or abuse.”62

1. When the claims may be based on different facts or different bases or legal issues, they must be alleged by the party provided that they are known to it or that they may be usefully raised in the proceedings and may not later be raised in another proceeding. This is without prejudice to the provisions that allow for the filing of additional arguments or for the raising of new facts or elements, following the complaint and the defense’s response, in the forms and conditions provided by this code. 2. In accordance with the text of the previous paragraph, when the effect of lis pendens and res judicata is present, the facts and legal bases alleged in one dispute are considered to be identical to those that are alleged or could have been alleged in a prior case.

58. S. Brekoulakis, The Effect of an Arbitral Award and Third Parties in International Arbitration: Res Judicata Revisited, 16 Am. Rev. Arb. 177, 179-180. 59. G. Born, supra note 3, p. 3777. 60. See supra note 43. 61. Supra note 31. 62. Supra note 38.

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The ILA Recommendations therefore favor a broad conception of res judicata such that claims that could have been raised in the proceedings resulting in the award may be barred in a second arbitration if they amount to procedural unfairness or abuse. Analyzing the Recommendations, Mr. Radicati di Brozolo points out that “In spite of their being labeled as recommendations, the principles enunciated in the ILA’s instrument lend themselves to be applied as a set of rules, or of guidelines, that, if utilized consistently in arbitral practice, could bring about a good measure of uniformity and predictability in this area.”63 This approach is supported by many authors. In the area of public international law, Auguste Reinisch has expressed the opinion that: International tribunals have also been aware of the risk that if they use too restrictive criteria of identity of “object” and “grounds,” the doctrine of res judicata would rarely apply: if only an exactly identical relief sought (object) based on exactly the same legal arguments (grounds) in a second case would be precluded as a result of res judicata, then litigants could easily evade this by slightly modifying either the relief requested or the grounds relied upon. In this regard litigants may engage in “claim splitting” in order to “avoid the res judicata effect of a prior award by seeking a different sort of relief or by raising new grounds in support of the same claim for relief.”64

A similar reasoning can be found in the decision rendered in 2014 by an NAFTA tribunal in the Apotex case.65 The tribunal expressed the idea that the res judicata doctrine should not be applied too rigidly. In particular, it voiced concerns with the prospect of claim splitting: “The purpose of the res judicata doctrine under international law is to put an end to litigation; and it would thwart that purpose if a party could so easily escape the doctrine by ‘claim-splitting’ in successive proceedings.” The tribunal also reasoned that it is “impermissible to parse the two sets of claims in the two arbitrations, so as artificially to distinguish one case from the other” and that, “were it so easy to side-step the application of res judicata, the doctrine would be largely meaningless under international law.” The same concern is shared by leading international commercial arbitration experts. According to Gary Born, if an international standard is to be applied, this should be a broad one, derived from the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards: “The better view of the Convention is that it should permit parties only ‘one bite at the cherry’ (or apple), as required in developed common law preclusion systems. This analysis would entail a broader view of res judicata principles than ordinarily taken in some civil law jurisdictions, but that is appropriate in light of the New York Convention’s requirements and the objectives of the arbitral process.”66

63. L.G. Radicati di Brozolo, supra note 9, p. 148. 64. A. Reinisch, The Use and Limits of Res Judicata and Lis Pendens as Procedural Tools to Avoid Conflicting Dispute Settlement Outcome, 3 L & Prac. Intl Cts & Trbs 37 (2004) at 62 (citations omitted). 65. Apotex Holdings, Inc. v. United States of America (ICSID Case No. ARB (AF)/12/1) (NAFTA—Chapter 11) (Award, Aug. 25, 2014). 66. G. Born, supra note 3, p. 3745.

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The same approach is shared by Kaj Hobér in his substantial study on res judicata: “There is of course a risk that parties will engage in ‘claim splitting’ by trying to rely on a different legal ground in a subsequent dispute in support of a claim already raised in an earlier dispute. It would seem, however, that international tribunals have not allowed this to happen when the claims and the legal ground relied on in support thereof could have been raised in the earlier dispute.”67 For this reason, the author submits that “the identity requirement with respect to claims is not to be understood and applied in a formalistic sense. Just as in the case of international commercial arbitration, absolute identity is not usually required. If that were the case, parties could be encouraged to resort to so-called claim splitting. By splitting claims, parties could avoid the res judicata effect by raising a different, but very similar, claim in a following dispute.”68 It results from the above that there is a growing trend in international arbitration to recognize the emergence of an international autonomous standard of res judicata in relation to arbitral tribunals even before national courts. Moreover, there is an emerging consensus that this standard be conceived broadly, to include in its scope not only the claims that were already litigated, but also the “could have been claims.” I am certain that this conclusion will be welcomed by the great scholar and arbitrator that we celebrate in this Liber Amicorum, Professor Michael Pryles, a genuine internationalist, who has contributed by his practice, his writings and his activity within international institutions, to contribute in a substantial manner to the promotion and development of international arbitration.

67. Supra note 9, p. 305. 68. Id., p. 303.

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CHAPTER 18

The Substantive Rights of Parties in Arbitration: Voie Directe and Voie Indirecte* Doug Jones AO**

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INTRODUCTION

It is said that party autonomy is fundamental to international commercial arbitration; the freedom to choose the laws and rules of law that dictate the substantive rights and obligations of parties is at the crux of such autonomy. Often, however, tensions arise where parties neglect to make an express choice of law in their contractual agreements, leaving the tribunal to determine the applicable substantive law in accordance with either national procedural laws or the rules of the institution under which the arbitration is conducted. In proceedings which require determination of choice of law, it is not uncommon for there to be many points in contention relating to this issue. Indeed, the resolution of the choice of law issue may be as complex as the resolution of the actual substance of the dispute. Particular complications arise where multiple aspects of the arbitration are governed under different laws from multiple jurisdictions. In laying the foundation for this chapter, it is important to identify that arbitrations are usually concerned with two categories of laws, the first being the law

* ©2018, Doug Jones AO. ** Independent International Arbitrator, CArb (www.dougjones.info). The author gratefully acknowledges the assistance provided in the preparation of this chapter by my legal assistant, Jason Corbett. This chapter is an adaptation of my earlier published paper, ‘Choosing the Law or Rules of Law to Govern the Substantive Rights of the Parties - A Discussion of voie directe and voie indirecte’ (2014) 26 Singapore Academy of Law Journal 911.

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governing the substance of the dispute, and the second being the procedural law governing the arbitration (the ‘lex arbitri’). The former refers to those laws or rules of law governing the contract out of which the dispute arises. The applicable substantive law determines the legal rights and obligations of the parties. In particular, however, it may also affect the causes of action that may be advanced, the substantive remedies available, the types of damages recoverable, limitation defences, the calculation of the quantum of damages and even the burden of proof in some cases. The latter refers to the law of the seat – the place in which the arbitration is conducted for legal purposes. The lex arbitri affects not only the conduct of the arbitration proceedings, which may include factors such as the formation of the tribunal, requests for production of documents, the form of pleadings and evidence, and the manner of examination of witnesses, but it will also determine the availability and extent of curial support, including interlocutory relief, and the means for challenging a tribunal’s award. While some parties may choose the substantive and procedural laws to fall under a single legal system, it is also not uncommon for parties to choose different systems for the two categories. If a tribunal must determine the substantive law of a dispute, they are endeavouring to ascertain the applicable law or rules of law of the contract. They may be a single law of origin, or they may be made up by the laws of several nations, of transnational laws, international law principles, rules of international conventions and trade usages, among many others. Whilst the process by which the tribunal lead their analysis may be limited by the provisions of the lex arbitri, there are two recognised methodologies by which they determine the choice of law: voie directe and voie indirecte. This chapter seeks to explore these two concepts in turn. I will first lay out the background to voie directe and voie indirecte in terms of the functions of the approaches, and the circumstances in which they will be prescribed in proceedings. I will then, in the next two parts, consider both concepts in more detail, exploring the substance of the approaches and the elements relevant to a tribunal’s decision-making. Lastly, I will conclude the chapter with a suggestion in favour of voie indirecte, due to its relative certainty and more comprehensive testing.

§18.02 [A]

VOIE DIRECTE AND VOIE INDIRECTE Background and Prescription

Under the voie directe approach, the tribunal is empowered to select the law or rules of law applicable to the merits of the dispute directly. Elements the tribunal may consider include the contract, the factual matrix of the case, and the submissions of the parties. When using the direct application method, the arbitral tribunal should prioritise the law most relevant to the commercial circumstances of the case, that is, the law or rules

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of law which best suit the international transaction, taking into account the circumstances of each case. This method is directly prescribed under a variety of institutional rules,1 and under some national statutes.2 The voie indirecte approach is one of the oldest methods of determining the applicable law.3 Under voie indirecte, the tribunal must first determine the appropriate conflict of laws rule to apply, before ascertaining the appropriate substantive law of the dispute. The particular rule, of course, naturally varies across tribunals and the factual circumstances of each case. The terms of the instrument or rules from which the tribunal’s power is derived may give the tribunal a discretion to apply the conflicts rule it considers ‘applicable’ or ‘appropriate’.4 Conversely, the instrument may prescribe how the conflicts rule is to be ascertained by application of a particular jurisdiction’s choice of law rules or by application of the closest connection test (discussed shortly). In terms of prescription of voie indirecte, institutional and national rules do so in one of two ways, either by giving the tribunal the discretion to select a set of conflict of laws rules, or by prescribing the specific conflict of laws rule to be used. The UNCITRAL Model Law is an example of the former,5 which is significant given that a large number of national arbitration statutes give effect to, or are based on, the Model Law.6 Where the rules or statutes elect the specific conflicts rule to use, the closest connection test is most common,7 though a variety of the conflict of laws rules will be explored in this chapter. In practice and principle, there are many cases where the application of either a voie directe or voie indirecte method will lead to the same result. The chief difference between the methods is, after all, in the process by which the tribunal arrives at their decision, not in the decision itself. It has been noted, for example, that voie directe most often consists of finding a significant connecting factor between the contract and the

1. International Chamber of Commerce Rules of Arbitration 2012 (‘ICC Rules’), Art. 21; United Nations Commission of International Trade Law (‘UNCITRAL’) Arbitration Rules 2010, Art. 35(1); American Arbitration Association (‘AAA’) 2009 Rules, Art. 28(1); World Intellectual Property Organization (‘WIPO’) 2002 Arbitration Rules, Art. 59(a); Singapore International Arbitration Centre (‘SIAC’) 2013 Rules, r 27; London Court of International Arbitration (‘LCIA’) Arbitration Rules (1998), Art. 22.3; Australian Centre for International Commercial Arbitration (‘ACICA’) Arbitration Rules (2011), Art. 34; Arbitration Rules of the Stockholm Chamber of Commerce (2010), Art. 22(1); Vienna International Arbitral Centre Rules of Arbitration (2013), Art. 27(2). 2. For example, French Code of Civil Procedure, Art. 1511. 3. It can be traced back as far as the 1961 European Convention on International Commercial Arbitration, Art. VII(1). International Chamber of Commerce Rules of Arbitration 1975, Art. 13(3). 4. For example, 1961 European Convention on International Commercial Arbitration, Art. VII(1); the UNCITRAL Model Law on International Commercial Arbitration, Art. 28; English Arbitration Act 1996, s. 46 (c 23); New Zealand Arbitration Act 1996, Art. 28; Danish Arbitration Act 2005, s. 28. 5. UNCITRAL Model Law on International Commercial Arbitration, Art. 28(2). 6. For example, see English Arbitration Act 1996, s. 46(3); Singapore International Arbitration Act 2002, Art. 28(2). 7. Swiss Arbitration Law 2012, Art. 33; German Code of Civil Procedure, s. 1051(2); Japanese Arbitration Law 2003, Art. 36; Italian Code of Civil Procedure, Art. 834; Egyptian Arbitration Law 1994, Art. 39(2).

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law which the tribunal decides to apply.8 The similarities between this procedure and the ‘closest connection’ test under the conflicts rule (the first step in voie indirecte) are easily discernible. Further, in situations where a lex arbitri or institutional rule has prescribed voie directe but has omitted the particular factors to be taken into consideration in decision-making, it is always open to the tribunal to consider the same factors as they would in determining the appropriate conflicts rule, which often manifest into the rules themselves. In these circumstances, a similar conclusion is not unlikely. That is not to say, however, that there are no situations in which voie directe and voie indirecte will lead to the application of different laws. Where the tribunal is directed to apply a specific conflicts rule in a voie indirecte model, or are referred to particular factors under the voie directe model, it is foreseeable that a different outcome may arise.

[B]

The Need for Reasons

Irrespective of the similarities or disparities in the outcomes of both tests and regardless of which test is ultimately adopted by the tribunal, it is imperative that in all cases where choice of law is an issue in dispute, the tribunal provides detailed reasons for their decision. With respect to voie directe, this may take the form of a careful explanation of why the law determined to be applicable is the most appropriate law to decide the parties’ dispute. With respect to voie indirecte, this may take the form of a clear application of a conflict of laws rule. In general, a discussion of the implications of different approaches and results may also benefit parties and tribunals. In the case of voie directe, however, reasons are particularly important as the omission of a comprehensive, reasoned analysis of the path to the tribunal’s conclusion risks the tribunal’s conclusion being perceived as an arbitrary decision in favour of the most convenient or familiar law, or rule of law, for the arbitrators (e.g., the laws of the country of which the members of the tribunal are nationals). Under both approaches, reasons are also important for the enforceability of the award. In some cases the tribunal may be subject to an express duty to render a valid and enforceable award.9 In this regard, the tribunal should be cognisant of any potential issues arising out of the mandatory substantive laws which may be determined to be applicable, and should consider any public policy implications which may affect the enforceability of the award when determining the applicable substantive law.

8. Joshua Karton, ‘Party Autonomy and Choice of Law: Is International Arbitration Leading the Way or Marching to the Beat of its own Drummer?’ (2010) 60 University of New Brunswick Law Journal 32, 34. 9. For example, the ICC Rules, Art. 35(6).

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§18.03[B]

VOIE INDIRECTE IN PRACTICE

It is well within parties’ rights to specify a particular conflict of laws rule for the tribunal to apply in the lex arbitri in the event of a choice of law dispute. In the absence of such a specification, the applicable rules or the lex arbitri generally provide that the arbitral tribunal is to choose a conflict of laws rule that it deems ‘appropriate’ or ‘applicable’. Some of these rules will be explored below.

[A]

Rules of the Seat

Historically, many arbitral tribunals applied the conflict of laws system of the seat of arbitration. This approach has seen declining popularity, however, given that conventional commercial practice is to select the seat of the arbitration for reasons of neutrality, rather than for its specific legal system. As legal scholars have noted, ‘this trend was another aspect of the development of “delocalised arbitration,” which saw the mandatory application of the choice of law rules of the forum as an unnecessary fetter on party autonomy’.10 The same has been asserted in international arbitral awards. An ICC arbitral tribunal, for example, found that ‘the most authoritative present day doctrine and international arbitration jurisprudence admit that in determining the substantive law, the arbitrator may leave aside the application of the conflict rules of the forum’.11 That being the case, there are still few examples of this method being applicable, and parties should be wary on this when considering the question of seat.12

[B]

Most Closely Connected to the Dispute Test

Some national legislation and institutional rules require tribunals to apply the conflict of law rules of the State that they consider to be most closely connected to the dispute. The criteria to determine the closest connection can be quite extensive, and may include consideration of the State of potential enforcement of the arbitral award, the State that would have had jurisdiction but for the arbitration, and the State of

10. Dicey, Morris & Collins on the Conflict of Laws (Lord Collins of Mapesbury et al. gen eds) (Sweet & Maxwell, 15th ed, 2012) at p. 850. 11. Award in ICC Case No. 2930 IX YB Comm Arb 105 (1984); see also Award in ICC Case No. 7375 11(12) Mealey’s Int’l Arb Rep A-1 at A-37 (1996); see also, Award in ICC Case No. 6030 in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 228 n 227 (2001): ‘[The] conflict rules of the place of the arbitration are by no means binding on international Arbitral Tribunals sitting in Switzerland’; Partial Award in ICC Case No. 8113 XXV YB Comm Arb 324 at 325 (2000): ‘… not only is the Tribunal, sitting in Zurich, not bound to apply the Swiss rules of conflict of laws, but the application of such rules to the dispute would not be appropriate or justifiable since the contractual relationship between the parties has no connection whatsoever with Switzerland’. 12. International Arbitration Rules of the Zurich Chamber of Commerce 1989, Art. 4; Rules of Proceedings of the Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry 2000, Art. 14.

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conclusion or performance of the contract. Each present unique challenges of uncertainty for the tribunal. For example, when considering potential enforcement as a determinant of law, the tribunal must be prepared to deal with the possibility of multiple jurisdictions where enforcement may occur. The same applies when considering the State that would have had jurisdiction but for the arbitration. When looking to the place of conclusion or performance of the contract, many national laws prioritise the place of business or habitual residence of the party that performs the major contractual obligations. Tribunals in this context should be prepared to deal with the uncertainty that externalities can create, for example by electronic commerce or ongoing negotiations with a range of potential counter-offers. There is also the possibility that a circular proceeding may result, as it may be necessary to know the applicable law to know where and when the acceptance took place.

[C]

Closest Connection Test

Tribunals often apply the closest connection test even where not required to, considering the test a transnational principle of private international law and thus one of the ‘most appropriate’ conflict of laws rule. This method appeals to the notion that the law will be tailor-made for the particular contractual circumstance. However, in modern commerce there can be too many relevant factors connected to the dispute which can lead to depecage, where different laws apply to different parts of the contract. Notably, the operation of the closest connection test can be quite similar to the voie directe approach, with the tribunal needing to determine a relevant element of circumstance to determine the closest law or rule of laws to be applied.

[D]

The Domicile of the Person Exercising Characteristic Performance

There is mixed commentary concerning whether the domicile of the person exercising characteristic performance is but one aspect of the closest connection test, or a conflict of laws rule in itself.13 The 2008 European Union Regulation on the Law Applicable to Contractual Obligations (‘Rome I Regulation’) attempts to combine this method with the closest connection test. Article 4(2) of that Regulation stipulates that, in the absence of choice by the parties, the domicile of the person exercising characteristic performance is the preferred method of resolving choice. However, Article 4(3) stipulates that where it is clear on the facts that the contract is ‘manifestly more connected with a country other

13. Marc Blessing, ‘Regulations in Arbitration Rules on Choice of Law’ in Planning Efficient Arbitration Proceedings: The Law Applicable in International Arbitration (ICCA Congress Series, 1994 Vienna vol 7) (Albert Jan van den Berg ed) (Kluwer Law International, 1996), at p. 415; ICC Case No. 7205 in Collection of ICC Arbitral Awards 1991–1995 (J-J Arnaldez, Y Derains & D Hascher eds) (Kluwer Law International, 1997) at p. 622 where the arbitral tribunal applied the law of the country in which the party that effected the characteristic performance had its central administration.

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than indicated’ by the domicile test, or where the law cannot be determined pursuant to the domicile test, then the closest connection test should be preferred. A number of issues arise when applying the characteristic performance test. For one, the nature of modern international commercial exchanges has developed dramatically with the advent of technology and globalised businesses such that it is not always possible to determine what constitutes the characteristic performance. Further, the application of this method may result in favouring the laws of one type of contracting party. As stated by Petsche, ‘while the characteristic performance test does provide some degree of precision, it does not usefully apply to complex contractual settings devoid of a characteristic performance’.14 Such complex contractual settings might include turnkey agreements, technology transfers, mining concessions and joint ventures.

[E]

Cumulative Method

Perhaps most intuitively, the cumulative method is an approach that is frequently utilised by tribunals. This method consists of simultaneously considering all of the choice of law rules of all legal systems with which the dispute in question is connected. If these rules result in the same substantive law, the tribunal will apply this law to the merits of the dispute. In theory, this method applies a ‘false conflict’ ideology to demonstrate that all analyses would lead to the same applicable law. Conversely, however, the cumulative method is obviously of limited value to a tribunal where the outcome is different for each method applied. A classic example of the application of this method is contained in a 1997 ICC award where a tribunal, seated in Paris, considered whether to apply French, Yugoslav or Egyptian conflict of laws rules. All the conflict of laws rules determined the applicable substantive law differently; the French conflicts rules referred to the substantive law of the Yugoslav seller’s domicile, the Yugoslav conflicts rules referred to the substantive law at the principal office of the seller, and the Egyptian conflicts rules referred to the substantive law of the place of signature. Despite the differences in analysis, all three conflicts systems lead to the conclusion that Yugoslavian substantive law was the most applicable to the dispute.15 In another ICC example, an arbitral tribunal applied ‘both the Irish and the French rules of conflict, given that these are the only ones having a direct connection with the parties and the dispute’, with both sets of rules producing the same result.16

14. Markus A. Petsche, ‘International Commercial Arbitration and the Transformation of the Conflict of Laws Theory’ (2009–2010) 18(3) Michigan State Journal of International Law 461. 15. See, e.g., Award in ICC Case No. 6281 in Collection of ICC Arbitral Awards 1991–1995 (J-J Arnaldez, Y Derains & D Hascher eds) (Kluwer Law International, 1997) at p. 409; Gary B. Born, International Commercial Arbitration (Kluwer Law International, 2009) ch 18. 16. Partial Award in ICC Case No. 7319 XXIVa YB Comm Arb 141 (1999); Gary B. Born, International Commercial Arbitration (Kluwer Law International, 2009) ch 18.

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Doug Jones AO International Conflict of Laws Rules

To escape the peculiarities of national laws, some tribunals have considered that there might exist international conflict of laws rules that are not connected to any national conflicts rules. In those terms, an ICC arbitral tribunal found that the implied choice of Austrian law was confirmed by the ‘general rules’ of conflicts, making reference to the existence of such international rules.17 Furthermore, an ICC arbitral tribunal in its award of 2001 established that there is:18 much to be said in favour of adopting generally accepted principles of international conflict of laws. The fact that the dispute arises out of dealings between one government and an instrumentality of another government gives them a unique international flavour. Hence, the parties could reasonably have contemplated that arbitrators would apply generally accepted international conflicts-of-law rules in arriving at the applicable law by which their dispute would be resolved. In the circumstances of the present arbitration, which is truly international in character, the Arbitral Tribunal is of the opinion that it should adopt generally accepted international conflict of laws rules.

Arbitral tribunals have relied on several occasions on the 1980 United Nations Convention on Contracts for the International Sale of Goods19 (‘CISG’), the 1955 Convention of the Law Applicable to International Sales of Goods, the Rome I Regulation and its predecessor the 1980 Rome Convention. However, it is important to note that there is no such body or single set of international conflict of laws rules which apply universally and specifically in the context of international commercial arbitration.

§18.04

VOIE DIRECTE IN PRACTICE

The laws which a tribunal may apply under voie directe need not be exclusively national law. They may instead apply laws resulting from several sets of rules, such as the general principles of private international law, the lex mercatoria, trade usages or particular principles, or international regulations regarding a specific subject such as intellectual property in copyright or patents-related disputes. They may even apply a combination of these rules. Although there is nothing to exclude the application of these principles under a voie indirecte method, in practice they are more likely to be applied where the tribunal has a discretion to determine the applicable law directly, rather than where they must determine the choice of laws rule as the application of which is more likely to point to a particular national law. This is significant when it is considered that, in some cases,

17. Award in ICC Case No. 7197 120 JDI (Clunet) 1028 (1993); Gary B. Born, International Commercial Arbitration (Kluwer Law International, 2009) ch 18. 18. Award in ICC Case No. 7071 in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 236 n 249 (2001). 19. 11 April 1980, 1489 UNTS 3 (entered into force 1 January 1988).

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the application of accepted private international law principles may be more aligned with the parties’ expectations than the application of a foreign national law.

[A]

General Principles of Private International Law

Numerous commentaries and arbitration awards reveal a preference to apply ‘general principles of law’ over a particular national law. Examples can be found in awards applying the lex mercatoria, the ‘principles of good faith dealings and mutual trust in business relationships’, and the ‘principles generally applicable in international commerce’. These rules transcend national boundaries, and may adjust to the complex transactions which are in dispute. Where the parties originate from different legal systems, the arbitral tribunal can explore other factors such as trade usage and practices, and evidence from past dealings between the parties. Several advantages can be highlighted from the application of general principles of private international law. For example there may be matters where two or more legal systems may be equally connected to the dispute, although they may lead to significantly different results. It may also be the case that the parties have sought to avoid the application of a national law which contain provisions contrary to the expectations of their agreement. In this context, it is clear that a tribunal’s reasoning should evidence some priority to the commercial considerations held by parties at the time of contracting.20 By the same merit, the tribunal may also opt for the application of such international principles as a means of interpreting and supplementing the applicable national law. Concurrent application may also be established, as occurs in arbitrations within the International Centre for Settlement of Investment Disputes. The Convention on the Settlement of Investment Disputes between States and Nationals of other States (‘ICSID Convention’) in Article 42(1), establishes that in the absence of an agreement of the parties on the applicable law, ‘the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable’. Additionally, as explained by Blessing, ‘a reference to international law is made as a corrective means to test the authority of the national law’.21 In this way, the ICSID Convention opens the possibility for the arbitral

20. See Yves Derains, ‘Transnational Law in ICC Arbitration’ in The Practice of Transnational Law (Klaus Peter Berger ed) (Kluwer Law International, 2001) at pp. 43 and 47 citing an ICC dispute between a Japanese manufacturer and a Middle Eastern distributor held that the contract should be governed by ‘principles of international business law’; see also The Practice of Transnational Law (Klaus Peter Berger ed) (Kluwer Law International, 2001) at p. 228 quoting ICC Case No. 8385 which applied ‘what is more and more called lex mercatoria’ as the application of international principles that ‘take into account the particular needs of international relations’; see generally Norsolor v. Pabalk Ticaret (18 November 1982) (Austrian Supreme Court), 1993 Rev Arb 516; Banque du Moyen-Orient v. Fougerolle (9 December 1981) (Cour de Cassation, France) 1982 Rev Arb 183; Deutsche Schachtbau- und Tiefbohrgesellschaft v. Ras al Khaimal National Oil Co [1987] 3 WLR 1023. 21. Marc Blessing, ‘Regulations in Arbitration Rules on Choice of Law’ in Planning Efficient Arbitration Proceedings: The Law Applicable in International Arbitration (ICCA Congress Series, 1994 Vienna vol 7) (Albert Jan van den Berg ed) (Kluwer Law International, 1996) at p. 420.

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tribunal to refer to general principles of law to avoid local standards of the applicable domestic law that may be contrary to the parties’ expectations.22

[B]

Validity and Party Autonomy

As party autonomy forms the foundation of international commercial arbitration, the efficiency of the approaches to determining choice of law can be, to some degree, measured by the outcome and its reflection of the parties’ expectations at the time of contracting. In this context, the application of the voie indirecte method can sometimes produce an unexpected result, as the variety of conflict of laws rules that tribunals can elect to use render any outcome unpredictable. By contrast, the application of the voie directe method may prove more predictable, and accordingly may better balance the rights and expectations between the parties. One way in which voie directe achieves this result is in allowing the tribunal to choose a law to promote the validity of the contract (assuming that the parties’ original intent was to have a valid agreement). By way of example, when confronted with this issue, an ICC tribunal applied Swiss law rather than the laws of the Arab claimant given that their application ‘might partially or totally affect the validity of the Agreement’, and that it was ‘reasonable to assume that from two possible laws, the parties would choose the law that would uphold the validity of the Agreement’.23 In another ICC decision, it was found that an agency contract between an Italian company and a French agent should be governed by French rather than Italian law, because the latter’s requirement, according to which all commercial agents need to be registered in Italy, would have invalidated the contract.24 Such decisions demonstrate that the question of validity is an extension of a tribunal’s prioritisation of the business and commercial interests of parties engaging in arbitration. After all, given the sheer complexity and size of transactions which utilise arbitration as their preferred dispute resolution mechanism, there should be no doubt that the parties intended for the contract to be a valid and binding agreement between them. A decision to contrary would make little commercial sense.

[C]

Parties’ Expectations and Intentions

Observing the parties’ expectations when deciding the applicable law might well be a successful commercial formula for arbitral tribunals. In practical terms, however, the tribunal may not have any firm indications of what these expectations are, or may have been. Several considerations may be taken into account in this situation.

22. Christoph Brunner, Force Majeure and Hardship under General Contract Principles: Exemption for Non-performance in International Arbitration (Kluwer Law International, 2008) ch 2 at p. 49. 23. ICC Case No. 4145 in Collection of ICC Arbitral Awards 1986–1990 (S Jarvin, Y Derains & J-J Arnaldez eds) (Kluwer Law International, 1994), 53 and 57. 24. ICC Case No. 4996 in Collection of ICC Arbitral Awards 1986–1990 (S Jarvin, Y Derains & J-J Arnaldez eds) (Kluwer Law International, 1994) at pp. 53 and 57.

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First, the arbitral tribunal may find that there has been a negative choice, or a rejection of a particular law or set of laws, by the parties. Such a determination necessarily requires an unequivocal rejection by both parties. In general, failure to agree on a particular choice of law would not in itself satisfy the threshold for unequivocal rejection. However, in circumstances where an unequivocal rejection is not obvious on the facts, tribunals have resolved the dispute by applying those general principles of international private law related to the business interests of parties. For example, a 1996 ICC tribunal considered nine contracts made in the 1970s between Iran and a US supplier which did not contain a choice of law clause. The tribunal concluded that at the time of entering into the agreement that neither party would have agreed to the use of the other party’s national laws, noting: The Tribunal will apply those general principles and rules of law applicable to international contractual obligations which qualify as rules of law and which have earned a wide acceptance and international consensus in the international business community, including notions which are said to form part of a lex mercatoria, also taking into account any relevant trade usages as well as the UNCITRAL Principles, as far as they can be considered to reflect generally accepted principles and rules.25

In Compañía Valenciana de Cementos Portland (Spain) v. Primary Coal Inc (New York),26 the arbitral tribunal concluded that neither of the two national laws were the most appropriate for resolving the dispute. They held that the absence of a choice of law clause in the contract was a ‘deliberate, tacit omission’ and an indication that the parties did not want a domestic law applied to their contract. Ultimately, the tribunal concluded that the parties had intended to have a ‘purely international law’ as the applicable law; the ‘ensemble of the usages of international commerce’. On appeal, and upheld by the French Cour de Cassation, the Paris Court of Appeals confirmed the tribunal’s decision, holding that an ICC tribunal is not bound to apply conflict rules stemming from a domestic legal system, and that it can resort to general international principles of conflict of laws. It is also available to tribunals to hold that the choice of law of a dispute had been implied by the parties in their agreement. In these cases, the tribunal assesses whether there are strong connecting factors to a particular law revealed in the analysis of the lex arbitri which would suggest that the parties held an implied intention to rely on that law. However, significant care must be taken by a tribunal in such a determination, as it must be appreciated that an explicit choice of the lex arbitri by the parties does not imply, per se, a preference to have that rule as the applicable law to the substance of the dispute.

25. The award has been reported in 11(12) Mealey’s Int’l Arb Rep A-1 ff (1996) and is available in excerpts at UNILEX. 26. (13 July 1989) (Cour d’appel de Paris) (1Ch suppl), (1990) 3 Revue de l’Arbitrage 663–674; Klaus Peter Berger, ‘Lex mercatoria in der internationalen Wirtschaftsschiedsgerichtsbarkeit; Der Fall “Compañía Valenciana”’ (1993) 13 Praxis des Internationalen Privat-und Verfahrensrechts 281–288.

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In ICC Case No. 8502, the arbitral tribunal heard a dispute regarding a contract between a Vietnamese seller and a Dutch buyer acting through a French company as its agent and held that although the contract contained no choice of law clause, it referred to international trade usages which should be applied as the law of the dispute. Indeed, the contract included some provisions imposing the application of the Incoterms 1990 and the clause of the Uniform Customs and Practice for Documentary Credits 500 to specific contractual obligations. The arbitral tribunal was of the view that: by referring to both the Incoterms and the UCP 500 the Parties showed their willingness to have their Contract governed by international trade usages and customs … in particular, the Arbitral Tribunal shall refer, when required by the circumstances, to the provisions of the 1980 Vienna Convention on Contracts for the International Sale of Goods (Vienna Sales Convention) or to the Principles of International Commercial Contracts enacted by UNCITRAL, as evidencing admitted practices under international trade law.27

§18.05

CONCLUSION

It is no exaggeration to say that tribunals strive to protect the fundamental principles of party autonomy and commercial interests which form the foundations of international arbitration. Binding parties to domestic laws is often avoided if to do so would unnecessarily interfere with what the tribunal can infer to be the parties’ reasonable expectations. It is by this same token that the application of general principles of international private law may, more accurately, establish the real intent of the parties than the application of conflict of laws rules which seek to impose a single choice of national law. There is no definitive dividing line between voie directe and voie indirecte. It is common for both methods to be applied concurrently, as tribunals may consider the same elements when selecting the applicable law to the merits of the case. However, in my view, there are great advantages in the voie indirecte approach. Tribunals in many cases perform a comparative analysis of national legal systems, arbitral case law, international conventions, and compilations of general principles of law, and apply such analysis in a meaningful way against the particular facts of each case. The application of such a rigorous decision-making process is beneficial for parties, especially in cases where the commercial interests that underpin voie directe are also engaged. This chapter has sought to give readers a succinct analysis of the ways in which voie directe and voie indirecte may influence proceedings. In their application of either approaches, tribunals will always aim to deliver a decision that champions certainty, foreseeability, and neutrality if arbitration is to remain the chief mechanism of dispute resolution for international transactions. 27. Award in ICC Case No. 8502 of November 1996, ICC Bull 1999, 72–74, UNILEX; see also Christoph Brunner, Force Majeure and Hardship under General Contract Principles: Exemption for Non-performance in International Arbitration (Kluwer Law International, 2008) ch 2 at pp 43–56.

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ICANN’s Dispute Resolution Mechanisms: With Great Power Comes Great Responsibility Klaus Sachs & Friederike Maria Fronius

§19.01

INTRODUCTION

In October 2016, and largely unnoticed by the broader public, the central oversight over the Internet was transferred from the United States (U.S.) government to the Internet Corporation for Assigned Names and Numbers (ICANN), a California nonprofit public benefit corporation established in 1998 and headquartered in Playa Vista/Los Angeles, California. This transition further cemented ICANN’s position as the central institution in the governance of the Internet. At the same time, ICANN’s nature as a private institution raises questions as to its accountability to the global Internet community, in particular with respect the potential impact of its actions on internationally recognized human rights—after all, the famous Spiderman quote “with great power comes great responsibility” also applies to the World Wide Web. In this chapter, we will therefore briefly introduce ICANN, its history, technical background and core values (§19.02) and will then discuss the alternative dispute resolution (ADR) mechanisms ICANN offers for disputes concerning its various activities (§19.03) and their compatibility with relevant principles of international human rights law (§19.04).

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Klaus Sachs & Friederike Maria Fronius WHAT IS ICANN? History of ICANN and Internet Governance

For historical reasons,1 the U.S. used to hold the factual power over the operation and administration of the Internet. However, as a consequence of the worldwide expansion of the Internet, the growing international Internet community began to demand a more substantial influence on the governance of the Internet. As a reaction to these requests, ICANN was founded in September 1998 and was tasked with the administration of the Internet name and address system by way of a “Memorandum of Understanding (MoU)” with the U.S. Department of Commerce.2 ICANN is run by a Board of Directors (BOD) advised by supporting organizations and advisory committees representing the various interest groups of the global Internet Community.3 However, international criticism of the remaining factual power of the U.S. government over the administration of the Internet did not abate.4 The U.S. government still retained substantial influence on ICANN,5 and during the following years, its agreement with ICANN was repeatedly renewed. It therefore came as a surprise when in March 2014, the U.S. government announced its intention to hand over its remaining oversight over the Internet to the “global multistakeholder community” with the expiry of its latest agreement with ICANN on September 30, 2015.6 After an extension of this deadline until September 30, 2016, the definite transition of the Internet stewardship function from the U.S. government to ICANN eventually took place on October 1, 2016.7

1. The origins of the Internet go back to a research project started in the 1960s by the Defense Advanced Research Projects Agency (DARPA), a research facility of the U.S. Department of Defense. For more information on the history and development of the Internet, see, e.g., Barry M. Leiner et al., Brief History of the Internet, http://www.internetsociety.org/internet/what-internet /history-internet/brief-history-internet (accessed 3 Feb. 2017); A. Michael Froomkin, Wrong Turn in Cyberspace, 50 Duke L.J. 17, 50 (2000). 2. Katherine Meyers, Domain Name Dispute Resolution in U.S. Courts: Should ICANN be Given Deference?, 43 B.C.L. Rev. 1177, 1185 (2002), http://lawdigitalcommons.bc.edu/bclr/vol43/ iss5/6 (accessed 3 Feb. 2017). 3. For a more detailed overview on ICANN’s structure and organization, see https://www.icann. org/resources/pages/chart-2012-02-11-en (accessed 3 Feb. 2017). 4. See U.N.’s Working Group on Internet Governance (WGIG), Report of the Working Group on Internet Governance, Château de Bossey, June 2005, http://www.wgig.org/docs/WGIGREPORT .pdf (accessed 3 Feb. 2017); Lennard G. Kruger, Internet Domain Names: Background and Policy Issues, CRS Report for Congress (March 6, 2015), pp. 5 et seq., https://fas.org/sgp/crs/misc/97868.pdf (accessed 3 Feb. 2017). 5. For example, it was still entitled to terminate its contract with ICANN with three months’ notice. 6. See NTIA, NTIA Announces Intent to Transition Key Internet Domain Name Functions, https:// www.ntia.doc.gov/press-release/2014/ntia-announces-intent-transition-key-internet-domainname-functions (accessed 3 Feb. 2017). 7. For further information on the transition process, see, e.g., Digital Watch, IANA Transition and ICANN Accountability, http://digitalwatch.giplatform.org/processes/iana (accessed 3 Feb. 2017); Electronic Frontiers Australia, The IANA transition - an explainer, https://www.efa.org. au/2016/10/07/iana-transition (accessed 3 Feb. 2017).

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§19.02[C]

ICANN’s Tasks and Technical Background

According to Article 1, Section 1.1.(a) of its Bylaws, ICANN’s mission is to ensure the stable and secure operation of the Internet’s address system, specifically to oversee the assignment of names in the Domain Name System (“DNS”).8 In a nutshell, the technical background of the tasks performed by ICANN can be described as follows:9 All computers connected to the Internet are identified by a numeric Internet Protocol (IP) address, which allows them to send and receive data to and from computers anywhere on the Internet. Since such IP addresses are impossible to memorize for the average Internet user, they are translated into domain names. Like actual addresses, domain names must be unique in order to lead to unambiguous results. The task of translating domain names into IP addresses are carried out by so-called root servers, whose operation is coordinated by ICANN.10 A domain name, such as “www.kluwerarbitration.com,” is composed of several parts: the part “.com” is the Top-Level Domain (TLD), the part “kluwerarbitration” is the Second-Level Domain (SLD) and the part “www” is the Third-Level-Domain. Subgroups of TLDs are Country Code Top-Level Domains (ccTLDs), such as .de or .fr, and generic Top-Level Domains (gTLDs), such as .com, .org or .net. In 2012, ICANN started its “New gTLD Programme” aimed at the introduction of a great number of new gTLDs; since then, more than 1,000 new gTLDs (such as .law, .cheap, .green, .museum) have been inserted into the root zone.11 TLDs are administered by so-called registrars, which are obliged by ICANN’s “Registrar Accreditation Agreement” to adhere to ICANN’s guidelines and policies and to contractually ensure that all applicants for domain names are also bound by these guidelines and policies. By way of this “contractual chain,” ICANN consolidates its central position of power over the administration of the DNS.12

[C]

ICANN’s Core Values

In Section III of its Articles of Incorporation13 (AoI) and Article 1, Section 1.2.(a) of its Bylaws, ICANN commits itself to act “in conformity with relevant principles of

8. ICANN, Bylaws for Internet Corporation for Assigned Names and Numbers (ICANN Bylaws), https://www.icann.org/resources/pages/governance/bylaws-en (accessed 3 Feb. 2017). 9. For a more detailed description of the technical background of the DNS, see, e.g., InterNIC, The Domain Name System: A Non-Technical Explanation—Why Universal Resolvability Is Important, https://www.internic.net/faqs/authoritative-dns.html (accessed 3 Feb. 2017). 10. See Meyers, supra n. 2, at 1184. 11. For more information on ICANN’s new gTLD program, see ICANN, New Generic Top Level Domains, https://newgtlds.icann.org/en/about/program (accessed 3 Feb. 2017). 12. See Milton Mueller, Rough Justice: A Statistical Assessment of ICANN’s Uniform Dispute Resolution Policy, 17:3, 151, 152 (2001); A. Michael Froomkin, ICANN’s UDRP—Causes and Partial Cures, 67 Brook. L. Rev. 605, 612 (2002); Elizabeth G. Thornburg, Going Private: Technology, Due Process, and Internet Dispute Resolution, 34 U.C. Davis L. Rev. 151, 160 et seq. (2000). 13. ICANN, Amended and Restated Articles of Incorporation of Internet Corporation for Assigned Names and Numbers (AoI) as approved by the ICANN Board on 9 August 2016 and filed with the

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international law and international conventions and applicable local law, through open and transparent processes that enable competition and open entry in Internet-related markets.” In Article 1, Section 1.2.(b) of its Bylaws, ICANN names several “Core Values” which shall guide its decisions and actions. These “Core Values,” as well as numerous other provisions of ICANN’s Bylaws, have undergone extensive reconsideration and reform during the preparations for the transition of the Internet stewardship in 2016 in order to account for ICANN’s perceived lack of transparency and accountability. For the purposes of this chapter, it is of particular relevance that ICANN’s “Core Values” of accountability and transparency have been enhanced, and a new express commitment to respect “internationally recognized human rights as required by applicable law” has been introduced.

§19.03 [A]

ICANN’S ADR MECHANISMS Second-Level Domain Disputes

One side effect of the rapid expansion of the Internet in the 1990s was the occurrence of the phenomenon of “domain grabbing” (also called “cybersquatting”), which can be defined as the bad-faith registration of domain names using trademarks or their modifications for the purpose of selling counterfeit products or, more frequently, of selling the domain name to the trademark owner at a high price.14 In many cases, the “cybersquatter” is situated abroad, making the enforcement of trademark rights by way of traditional court proceedings rather difficult in light of the typical pitfalls of international litigation, such as problems locating the defendant, serving him with documents, determining the governing law and enforcing a judgment, not to speak of the costs and delays connected with these issues.15 As a reaction to these developments, in October 1999 ICANN introduced the Uniform Domain Name Dispute Resolution Policy (UDRP)16 as an alternative to traditional litigation. The UDRP applies to all gTLDs, including new gTLDs.17 By registering a domain name, the registrant agrees to submit to the UDRP in case a domain name dispute arises.18 However, the UDRP expressly does not prevent either

14.

15. 16. 17. 18.

California Secretary of State on 3 October 2016, https://www.icann.org/resources/pages/ governance/articles-en (accessed 3 Feb. 2017). See Luke A. Walker, ICANN’s Uniform Domain Name Dispute Resolution Policy, 15 Berkeley Tech. L.J. 289, 294 et seq. (2000). Domain grabbing is facilitated by the fact that registrars rely on the applicant’s assurance that the domain name he is applying for does not violate the rights of a third party, see Mueller, supra n. 12, at 151. See Neil Brown, An Introduction to Domain Name Arbitration, Hong Kong Int’l Arb. Centre (HKIAC) 2016, Volume 2016 Issue 3, 145, 146 (2016). ICANN, UDRP Uniform Domain Name Dispute Resolution Policy (UDRP), https://archive.icann .org/en/udrp/udrp-policy-24oct99.htm (accessed 3 Feb. 2017). Registrars of ccTLDs are free to incorporate the UDRP in their registration agreements. Whereas most registrars of ccTLDs opted to do so, there are some registrars (such as DENIC for the .de ccTLD) who decided not to adopt the UDRP. See § 1 UDRP; cf. Brown, supra n. 15, at 147; Meyers, supra n. 2, at 1186.

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§19.03[B]

party from submitting the dispute to a court of competent jurisdiction for independent resolution before or after UDRP proceedings have been conducted.19 Furthermore, the scope of the UDRP is limited in that it only aims at bad-faith registrations of domain names which are identical or confusingly similar to a trademark owned by a third party,20 and that the remedies available are limited to the cancellation of the domain name or its transfer to the complainant.21 The trademark owner can submit its complaint to one of the five currently accredited UDRP providers.22 The proceedings are mainly conducted electronically; in-person hearings are only held in exceptional cases.23 The Panel, which generally consists of one expert,24 decides the complaint on the basis of the statements and documents submitted and in accordance with the UDRP, the UDRP Rules and any rules and principles of law that it deems applicable.25 If the respondent does not submit a response, the Panel will decide the dispute based on the complaint only.26 If the complaint is successful, the Panel will order the cancellation or transfer of the domain name. The registrar is bound by its accreditation agreement with ICANN to enforce this decision unless the respondent, within ten business days, initiates court proceedings in a competent jurisdiction to have the order set aside, in which case the registrar will await the outcome of such court proceedings.27

[B]

Top-Level Domain Disputes

When ICANN started its new gTLD program in 2012, the issue of trademark protection became virulent once again. Substantial concerns were raised that the introduction of a potentially unlimited number of new gTLDs would open countless new possibilities for “cybersquatting,” both on the TLD and the SLD level.28 In light of these concerns, ICANN introduced new mechanisms for the protection of trademarks and other legitimate interests in its “new gTLD Applicant Guidebook (AGB).”29 These new

19. See § 4(k) UDRP. 20. See § 4(a) UDRP. 21. See § 4(i) UDRP. Trademark owners seeking damages, specific injunctions, or costs and interests must therefore still initiate traditional court proceedings, see § 5 UDRP; cf. Brown, supra n. 15, at 146. 22. These UDRP providers are the Asian Domain Name Dispute Resolution Center, the National Arbitration Forum, the WIPO, the Czech Arbitration Court Arbitration Center for Internet Disputes and/or the Arab Center for Doman Name Dispute Resolution. 23. See § 13 UDRP Rules. 24. See § 3(b)(i) and § 5(c)(iv) UDRP Rules. 25. See § 15(a) UDRP Rules. For a detailed overview of the elements necessary for a successful complaint, see, e.g., Brown, supra n. 15, at 148 et seq. 26. See § 14(a) UDRP Rules. 27. See §§ 3 and 4(k) UDRP. 28. See, e.g., Association of National Advertisers (ANA), Say No To ICANN: Generic Top Level Domain Developments, http://www.ana.net/content/show/id/icann (accessed 3 Feb. 2017); Adam Smith, ICANN and the trademark community—a broken relationship?, http://www. worldtrademarkreview.com/Blog/detail.aspx?g=f2734fb6-7f04-426a-a1e1-5573d090b1cc (accessed 3 Feb. 2017); Kruger, supra n. 4, at 22. 29. ICANN, gTLD Applicant Guidebook (AGB), https://newgtlds.icann.org/en/applicants/agb (accessed 3 Feb. 2017).

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mechanisms are available both prior to (see below 1) and after (see below 2) the introduction of a new gTLD.

[1]

ADR Mechanisms Prior to the Delegation of a New gTLD

ICANN is conducting several application rounds in which prospective registrars can apply for the delegation of new gTLDs (so-called strings). All complete applications are published, and during a so-called Objection Filing Period, interested parties may file a “Formal Objection” against one of the gTLD strings applied for (“Dispute Resolution Phase”).30 By submitting his application for a new gTLD, the applicant subjects himself to the Dispute Resolution Process for such Formal Objections as provided for in the AGB.31 The objection may be based upon four objection grounds:32 (1) Identity or Risk of Confusion with another existing gTLD string or another gTLD application (“String Confusion Objection”), (2) Violation of Existing Rights, e.g., of registered or nonregistered trademarks (“Legal Rights Objection”), (3) Opposing Public Interest (“Limited Public Interest Objection”), which pertains to internationally recognized principles of moral and public order, and (4) Opposing Interest of a Community (“Community Objection”), which requires substantial opposition against the disputed string application within a clearly delineated community at which the string application may be explicitly or implicitly targeted. The objection proceedings are each administered by different institutions33 and follow ICANN’s “New gTLD Dispute Resolution Procedure,”34 as well as the supplemental rules of the respective Dispute Resolution Provider. In-person hearings are only conducted under exceptional circumstances.35 The Dispute Resolution Panel decides the Objection based upon the standards formulated by ICANN in the AGB, supplemented by “relevant rules of international law.”36 If the Panel comes to the conclusion that the Formal Objection has merit, it will not allow the string application to proceed. The ICANN Board has discretion to individually consider an application for a new gTLD,37 but in most cases, the Board accepts the Panel’s decision without any such review. However, there are some cases in which it ordered a reexamination of the case by a new Panel or even substituted the Panel’s decision with its own.38

30. 31. 32. 33.

34. 35. 36. 37. 38.

See Module 3 AGB. See Module 6 AGB (Top-Level Domain Application—Terms and Conditions), No. 6. See 3.2.1. AGB. String Confusion Objections are administered by the International Centre for Dispute Resolution, Existing Legal Rights Objections are administered by the WIPO, Limited Public Interest Objections and Community Objections are administered by the International Centre for Expertise of the ICC, see Art. 3 of the Attachment to Module 3 AGB (New gTLD Dispute Resolution Procedure). See Attachment to Module 3 AGB (New gTLD Dispute Resolution Procedure). See Art. 19 of Attachment to Module 3 AGB (New gTLD Dispute Resolution Procedure). See 3.5. AGB. See 5.1. AGB. See, e.g., for the gTLD .cam: Board Resolution of 12 October 2014, https://features.icann.org/ perceived-inconsistent-string-confusion-objection-expert-determinations (accessed 3 Feb.

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§19.03[B]

ADR Mechanisms after the Delegation of a New gTLD

Once a new gTLD has been delegated, the AGB offers further ADR mechanisms for the protection of trademark rights. Besides these “new” mechanisms, it remains possible to initiate “traditional” UDRP proceedings or court proceedings, even after proceedings under the “new” mechanisms have been conducted.39 First, in the registry agreement, the registrar of a new gTLD subjects himself to the “Trademark Post-Delegation Dispute Resolution Proceeding (Trademark PDDRP),” which offers a dispute resolution mechanism for cases of bad-faith trademark violations committed by the registrar himself during the operation of the new gTLD.40 The Trademark PDDRP Panel deciding the dispute generally consists of one expert.41 In-person hearings are only held under exceptional circumstances.42 If the complaint is successful, the Panel makes a recommendation for sanctions to be determined by ICANN.43 Both parties can appeal the PDDRP Panel’s decision with respect to the merits and/or the recommended sanctions to an Appeal Panel instituted by the PDDRP provider.44 In case ICANN decides to impose sanctions against the registrar, the registrar may also commence court proceedings in the competent jurisdiction against the Panel’s decision or may commence dispute resolution proceedings against the sanctions imposed by ICANN45 (see below C). Second, the registry agreement also makes it obligatory for the registrar to implement the “Uniform Rapid Suspension (URS) Proceeding,” which allows trademark owners to obtain a fast suspension of SLDs in cases of an obvious violation of their proprietary rights.46 Complaints in URS proceedings are decided by a one-person panel without a hearing and within three days of its constitution.47 If the complaint is successful, the SLD is suspended, i.e., it can no longer be used by the registrant of the domain.48 Both parties may appeal the URS panel’s decision within fourteen days of its issuance.49

39. 40. 41. 42. 43.

44. 45. 46. 47. 48. 49.

2017), and for the gTLD .hospital: Board Resolution of 3 February 2016, https://features.icann .org/consideration-expert-determination-re-objection-application-hospital (accessed 3 Feb. 2017). See Section 22 Trademark Post-Delegation Dispute Resolution Procedure (Trademark PDDRP), Module 3 AGB; Sections 8.5. and 13 Uniform Rapid Suspension System (URS), Module 3 AGB. See Section 6 Trademark PDDRP. Trademark PDDRP providers are the Asian Domain Name Dispute Resolution Centre (ADNDRC), the National Arbitration Forum (FORUM) and the WIPO. See Section 13.2. Trademark PDDRP. See Section 16.1. Trademark PDDRP. Depending on the gravity of the violation, sanctions may range from the obligation of the registrar to remedy the violation up to the termination of the registry agreement by ICANN, Section 18.3. Trademark PDDRP. Damage claims cannot be raised in a Trademark PDDRP are reserved to traditional court proceedings. See Section 20 Trademark PDDRP. See Section 21.4. Trademark PDDRP. See Section 8 Uniform Rapid Suspension System (URS), Module 3 AGB. See Section 9 URS. See Section 10.2. URS. See Section 12 URS.

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Klaus Sachs & Friederike Maria Fronius Protection Against Actions by ICANN

Actions taken by ICANN—both with respect to domain disputes and other issues—have the potential to gravely affect the persons or entities concerned. For example, if ICANN excludes an applicant for a new gTLD following an expert panel’s decision in a Formal Objection proceeding, or if it implements sanctions against a registrar of a new gTLD following PDDRP, such actions may have a substantial impact on the registrar’s business. As protection mechanisms, ICANN’s Bylaws therefore provide for internal reconsideration (see below 1) and independent review processes (see below 2).

[1]

Internal Reconsideration Process

Any person or entity materially affected by an action or inaction of the ICANN Board or Staff may request the review or reconsideration of that action or inaction by the Board (“Reconsideration Request”)50 if it contradicts ICANN’s mission, Core Values and/or established ICANN policies.51 A Board Governance Committee (BGC) designated by the Board considers the Reconsideration Request and may summarily dismiss incomplete or frivolous Requests.52 If the Reconsideration Request is not summarily dismissed, it is sent to ICANN’s Ombudsman, who will review the Request and submit his evaluation to the BGC.53 Within thirty days following the receipt of the Ombudsman’s evaluation, the BGC shall make a final recommendation to the Board, which is published on the ICANN website. The Requestor may file a rebuttal within fifteen days of the receipt of the recommendation which must be limited to rebutting or contradicting the issues raised in the BGC’s recommendation.54 In its decision, the Board is not bound by the BGC’s recommendation. The Board’s decision shall be published on the ICANN website, along with all briefing materials supplied to the Board and a recording and a transcript of the Board discussion from the meeting at which the Board considered the BGC’s recommendation, if the Requestor requests their publication.55 Alternatively, applicants may also directly approach ICANN’s Ombudsman with complaints about decisions or actions by the ICANN’s staff or board.56 However, the Ombudsman’s role is limited to providing nonbinding recommendations as to the fairness of the process.57

50. 51. 52. 53. 54. 55. 56. 57.

Article 4, Section 4.2.(a) ICANN Bylaws. Article 4, Section 4.2.(c) ICANN Bylaws. Article 4, Section 4.2.(k) ICANN Bylaws. Article 4, Section 4.2.(l) ICANN Bylaws. Article 4, Section 4.2.(q) ICANN Bylaws. Article 4, Section 4.2.(r) ICANN Bylaws. Article 5, Section 5.2. ICANN Bylaws. Eve Salomon et al. (Council of Europe), Applications to ICANN for Community-Based New Generic Top Level Domains (gTLDs): Opportunities and challenges from a human rights

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§19.03[C]

Independent Review Process

ICANN’s Bylaws further provide for a so-called Independent Review Process (IRP). The IRP has been thoroughly reformed by the new Bylaws, which apply to proceedings initiated on or after October 1, 2016. The reformed IRP shall offer an accessible, transparent, efficient, consistent and just dispute resolution mechanism ensuring that ICANN does not exceed the scope of its Mission (see above §19.02[B]) and acts in compliance with its AoI and its Bylaws.58 The IRP may be initiated by any person that has been materially affected by an action or inaction of ICANN violating the AoI or Bylaws.59 Once a Statement of Claim has been filed to the designated IRP Provider,60 a three-member “Independent Review Process Panel (IRP Panel)” is chosen from a so-called Standing Panel of at least seven members who must be independent of ICANN and must possess significant legal expertise in at least one of the areas of international law, corporate governance, judicial systems, ADR and/or arbitration.61 The Claimant and ICANN each select one panelist from the Standing Panel, and the two panelists then select the third panelist from the Standing Panel.62 The IRP Panel conducts a de novo examination of the dispute in compliance with the AoI, the Bylaws and “norms of applicable law.”63 According to the Bylaws, the new Rules of Procedure, which are still to be established by a so-called IRP Implementation Oversight Team, must conform “with international arbitration norms”64 and are intended to “ensure fundamental fairness and due process.”65 Within six months of the filing of the Statement of Claim, the IRP Panel shall issue its written reasoned decision, which shall be published on the ICANN website along with all documents on file, unless they contain confidential information.66 If the IRP Panel comes to the conclusion that the Claim has merit, it may declare that the action or inaction violated the AoI or Bylaws and may recommend that ICANN stay any action or decision or take interim measures until its decision is considered by the Board.67 The IRP decision may be appealed to the full Standing Panel sitting en banc within sixty

58. 59. 60. 61. 62.

63. 64. 65. 66. 67.

perspective, Council of Europe report DGI(2016)17, p. 63, https://rm.coe.int/CoERMPublic CommonSearchServices/DisplayDCTMContent?documentId=09000016806b5a14 (accessed 3 Feb. 2017). Article 4, Section 4.3.(a)(i), (ii), (iii), (vii) ICANN Bylaws. Article 4, Section 4.3.(b) ICANN Bylaws. Under the Bylaws effective until October 2016, the International Centre for Dispute Resolution (ICDR) has acted as IRP Provider. So far, there is no indication that ICANN is intending to change to a different IRP Provider under its new Bylaws. Article 4, Section 4.3.(j) and (q) ICANN Bylaws. Article 4, Section 4.3.(k)(ii) ICANN Bylaws. If a Standing Panel is not yet in place, or if its members are unavailable due to other IRP commitments, the Claimant and ICANN shall each nominate a qualified panelist from outside the Standing Panel, and these two panelists will then select the third panelist. Article 4, Section 4.3.(g) and (i) ICANN Bylaws. Article 4, Section 4.3.(n)(i) and (ii) ICANN Bylaws. Article 4, Section 4.3.(n)(iv) ICANN Bylaws. Article 4, Section 4.3.(u) and (v) ICANN Bylaws. Article 4, Section 4.3.(o) ICANN Bylaws.

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days of the issuance of the decision.68 IRP Panel decisions, and decisions of an en banc Standing Panel upon an appeal, are intended to be enforceable in any court with jurisdiction over IACNN without a de novo review.69 In its new Bylaws, ICANN explicitly agrees to be bound by all IRP Panel decisions “as a final, binding arbitration.”70 This commitment is implemented as follows: the Board shall consider its response to IRP Panel decisions at its next meeting and shall affirm or reject compliance with the decision based on an expressed rationale.71 If the Board rejects an IRP Panel decision without undertaking an appeal to the en banc Standing Panel, or if it rejects an en banc Standing Panel decision upon appeal, the Claimant may seek enforcement in a court of competent jurisdiction.72

§19.04

COMPATIBILITY OF ICANN’S DISPUTE RESOLUTION MECHANISMS WITH “RELEVANT PRINCIPLES OF INTERNATIONAL LAW”?

The concept of entrusting the administration of a global public resource, namely the central functions of the Internet, to a private institution such as ICANN, has traditionally been subject to criticism.73 An in-depth discussion of the various points of criticism, such as the perceived lack of democratic legitimation and transparency of ICANN, would go beyond the scope of this chapter. We will therefore concentrate our discussion on the question of whether ICANN’s ADR mechanisms are compatible with ICANN’s self-commitment in to respect “internationally recognized human rights.”

[A]

ICANN and Human Rights

Human rights are traditionally understood as being directed toward states and their institutions.74 Obligations of states to respect human rights exist on a national level, but also as international consensus on human rights standards, laid down in various instruments.75 However, since the concept of human rights was developed, numerous private actors have gained tremendous power and are in a position to impact human rights.76 ICANN is just one example of a private institution administrating a public resource of

68. 69. 70. 71. 72. 73. 74. 75.

Article 4, Section 4.3.(w) ICANN Bylaws. Article 4, Section 4.3.(x)(ii) ICANN Bylaws. Article 4, Section 4.3.(x)(iii) ICANN Bylaws. Article 4, Section 4.3.(x)(iii)(A) ICANN Bylaws. Article 4, Section 4.3.(x)(iii)(C) ICANN Bylaws. See, e.g., Froomkin, supra n. 1, at 29; Meyers, supra n. 2, at 1178. See Salomon et al., supra n. 57, at 17. Such as the Universal Declaration on Human Rights (UDHR), the International Covenant on Civil and Political Rights (ICCPR) or, on a regional level, the European Convention on Human Rights (ECHR), see Wolfgang Benedek et al. (Council of Europe), Comments relating to Freedom of Expression and Freedom of Association with Regard to New Generic Top Level Domains, DG-I (2012) 4, 12 October 2012, p. 5, http://www.ivir.nl/publicaties/download/DG_I_2012_4_ FINAL.pdf (accessed 3 Feb. 2017). 76. See Salomon et al., supra n. 57, at 17 et seq.

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global importance.77 It is common ground that highly influential private institutions must be held to certain internationally recognized human rights standards.78 In June 2011, the United Nations Human Rights Council adopted the “UN Guiding Principles on Business and Human Rights” as a global reference for the responsibility of private corporations to respect human rights.79 As regards the issues created by the expansion of the Internet, it adopted the Resolution “The Promotion, Protection and Enjoyment of Human Rights on the Internet,” which affirms that “the same rights that people have offline must also be protected online.”80 In recognition of this obligation, ICANN incorporated in its new Bylaws a commitment to respect “internationally recognized human rights.” In the following, we will briefly discuss whether ICANN’s ADR mechanisms are fit to fulfill this commitment. In particular, we will analyze whether they are granting the procedural right to due process (see below B), and whether they are sufficient to safeguard further material human rights (see below C).

[B]

Due Process

The right to due process, which is set out in numerous human rights treaties and declarations,81 entails the concept that no one should be deprived of their rights without due process of law.82 International human rights law recognizes several elements of the right to due process, such as the right to notice, the right to a hearing, the right to a reasoned decision, the right of appeal to an independent tribunal, the right of public access to information and the right to a judicial remedy.83 Whereas the right to due process traditionally aims at protecting private persons in relation to states, the UN Guiding Principles on Business and Human Rights call for effective remedies in case corporate actors have adversely impacted individuals, and postulate a responsibility of corporate actors to provide such remedies, which shall be legitimate, accessible,

77. See Salomon et al., supra n. 57, at 17. 78. See, e.g., NETMundial, NETmundial Multistakeholder Statement adopted in Sao Paolo on 24 April 2014, http://netmundial.br/wp-content/uploads/2014/04/NETmundial-Multistakeholder -Document.pdf (accessed 3 Feb. 2017); Monika Zalnieriute et al. (Council of Europe), ICANN’s procedures and policies in the light of human rights, fundamental freedoms and democratic values, Updated version of 8 October 2014, pp. 5 et seq., https://rm.coe.int/CoERMPublic CommonSearchServices/DisplayDCTMContent?documentId=090000168048f14f (accessed 3 Feb. 2017); Salomon et al., supra n. 57, at 18. 79. United Nations, Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework, http://www.ohchr.org/Documents/ Publications/GuidingPrinciplesBusinessHR_EN.pdf (accessed 3 Feb. 2017). 80. United Nations, The Promotion, Protection and Enjoyment of Human Rights on the Internet, https://documents-dds-ny.un.org/doc/UNDOC/LTD/G16/131/89/PDF/G1613189.pdf?OpenEl ement (accessed 3 Feb. 2017). 81. For example, in Art. 14 (1) ICCPR, Arts. 8 and 10 UDHR and Arts. 6 and 13 ECHR. 82. See Salomon et al., supra n. 57, at 23. 83. See Salomon et al., supra n. 57, at 23; Devika Hovell, Due Process in the United Nations, The Am. J.Int’l L. Vol. 110, No. 1, 1 (2016), http://www.jstor.org/stable/pdf/10.5305/amerjintelaw.11 0.1.0001.pdf (accessed 3 Feb. 2017).

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predictable, equitable and transparent.84 ICANN’s ADR mechanisms, which qualify as such nonjudicial grievance mechanisms, must conform to these due process standards.85 With respect to arbitration, the ECtHR86 and national courts, such as the German Federal Court of Justice87 have held that the right of access to court and a public trial may be waived in favor of arbitration, provided that that the arbitration agreement is based upon the free will of all parties. However, the generally permissible waiver of the right to access to a court should not be understood as an automatic waiver of all procedural rights guaranteed by the right to due process.88 Regardless of their exact qualification,89 ICANN’s ADR mechanisms must therefore conform to the standards of due process,90 which in the past has often been questioned.91 As regards the UDRP, critics detected a systemic bias in favor of trademark owners, as well as a significant inconsistency in the application of the UDRP Rules.92 With respect to ICANN’s ADR mechanisms for the resolution of disputes involving new gTLDs, one major point of criticism is the applicant’s compulsory waiver of any recourse to the courts. Whether

84. United Nations, Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework, supra n. 79; Salomon et al., supra n. 57, at 23 et seq. 85. See Salomon et al., supra n. 57, at 25. 86. ECtHR, X. v. Germany, Decision of 5 March 1962, appl. no. 1197/61; ECtHR, Suovaniemi a.o. v. Finland, Decision of 23 February 1999, appl. no. 31737/96. 87. German Federal Court of Justice (Bundesgerichtshof, BGH), Decision of 3 April 2000, doc. no. II ZR 373/98; BGH, Decision of 7 June 2016, doc. no. KZR 6/15 (“Pechstein”). 88. ECtHR, X. v. Germany, Decision of 5 March 1962, appl. no. 1197/61. 89. It might seem questionable whether ICANN’s ADR mechanisms do in fact qualify as “arbitration proceedings” in the traditional sense. According to Born’s definition, “arbitration is a process by which parties consensually submit a dispute to a non-governmental decision-maker, selected by or for the parties, to render a binding decision resolving a dispute in accordance with neutral, adjudicatory procedures affording the parties an opportunity to be heard” (Gary B. Born, International Commercial Arbitration (2nd ed., Kluwer Law International, 2014) at p. 246). ICANN’s UDRP proceedings (see supra §19.03[A]), which expressly allow supplementary or alternative recourse to national courts, therefore cannot be qualified as arbitration proceedings, but must be considered as proceedings sui generis (see, e.g., Dluhos v. Strasberg, 321 F.3d 365 (3rd Cir. 2003); Judgment of 17 June 2004, Le Parmentier v. La Société Miss France, XXX Y.B. Comm. Arb. 119, 123 et seq. (Paris Cours d’appel); Austrian Supreme Court, Decision of 16 March 2004, doc. no. 4 Ob 42/04m; see also Alex Ansong, Trademark Claims in Internet Domain Names: Applicable Disputes and Enforcement of Panel Decisions under the ICANN Uniform Doman Name Dispute-Resolution Policy, Estey J. Int’l L. & Trade Policy, Volume 16 No. 2, 130, 139 (2015)). In contrast, as regards ICANN’s ADR mechanisms for the resolution of disputes involving new gTLDs and actions by ICANN itself, applicants for new gTLDs expressly waive any recourse to the courts. Furthermore, specifically with respect to IRP Panel decisions, the new Bylaws now expressly confirm their binding nature on the ICANN Board and declare that the IRP shall “lead to binding, final resolutions consistent with international arbitration norms that are enforceable in any court with proper jurisdiction.” ICANN’s ADR mechanisms for the resolution of disputes involving new gTLDs can therefore be considered as arbitration proceedings. 90. Salomon et al., supra n. 57, at 26. 91. See, e.g., Mueller, supra n. 12, at 161; Froomkin, supra n. 12, at 717 et seq.; John Magee, Domain Name Disputes: An Assessment of the UDRP as Against Traditional Litigation, J. L. Tech. & Policy, Volume 2003, 203, 207 et seq. (2003); Michael Geist, Fair.com?: An Examination of the Allegations of Systemic Unfairness in the ICANN UDRP, http://aix1.uottawa.ca/~geist/ geistudrp.pdf (accessed 3 Feb. 2017). 92. See, e.g., Mueller, supra n. 12, at 161; Geist, supra n. 91; Froomkin, supra n. 12, at 671 et seq.

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or not this compulsory waiver is enforceable has been an issue of disagreement between the U.S. courts: Whereas one court raised substantial questions as to the conscionability of the waiver, therefore “weighing toward its unenforceability,”93 another court held that the waiver was not unconscionable, arguing that the applicant was a sophisticated party and that “without the covenant not to sue, any frustrated applicant could, through the filing of a lawsuit, derail the entire system developed by ICANN to process applications for gTLDs.”94 Further due process concerns were based upon ICANN’s perceived lack of transparency and accountability, which were acerbated by ICANN’s denial of the binding nature of IRP Panel decisions.95 In its new Bylaws, ICANN is trying to meet these concerns by introducing new transparency and accountability mechanisms. In particular, IRP Panel decisions are now definitely binding and enforceable in any court with proper jurisdiction.96 Furthermore, ICANN is henceforth obligated to publish all IRP documents on file97 and to prepare annual reports on accountability.98 Whereas these amendments to ICANN’s Bylaws are generally welcomed,99 critics remain unsatisfied by the fact that the new Bylaws still do not afford IRP Panels the power to affirm, reverse or vacate a decision by the ICANN Board.100

[C]

Further Human Rights

One prominent example for the potential impact of ICANN’s actions on human rights is the delegation of new gTLDs. Domain names are not merely technical resources, but nowadays are a central means of receiving and sharing information, as well as showing association to certain groups, and thus are critical for the exercise of the freedoms of expression101 and association.102 Similarly, domain names play a significant role in the

93. DotConnectAfrica Trust v. ICANN and Numbers & ZA Central Registry, U.S. District Court Central District of California, Decision of 12 April 2016, case no. 16-CV-00862 RGK (JCx). 94. Ruby Glen, LLC v. ICANN, U.S. District Court Central District of California, Decision of 28 November 2016, case no. CV 16-5505 PA (ASx). This argumentation is similar to the reasoning of the German Federal Court of Justice in a recent decision upholding an arbitration agreement between the International Skating Union (ISU) as monopolist for the organization of international ice skating competitions and an athlete, arguing that although the athlete’s right to access to justice was concerned and although she did not have any choice but to accept the arbitration agreement in light of the ISU’s monopoly, the arbitration agreement was valid because of the ISU’s legitimate interest to prescribe arbitration as a means of ensuring conformity in the application of the rules of international sports law, see BGH, Decision of 7 June 2016, doc. no. KZR 6/15, paras. 61 et seq. (“Pechstein”). 95. See, e.g., Salomon et al., supra n. 57, at 59 et seq. 96. Article 4, Section 4.3 (a)(viii) ICANN Bylaws. 97. Article 4, Section 4.3 (u) and (v) ICANN Bylaws. 98. Article 4, Section 4.2 (u) ICANN Bylaws. 99. See, e.g., Internet Governance Project (IGP), The Transition: The good, the bad and the ugly, http://www.internetgovernance.org/2016/02/19/the-transition-the-good-the-bad-and-theugly (accessed 3 Feb. 2017); Salomon et al., supra n. 57, at 62. 100. See, e.g., Salomon et al., supra n. 57, at 62. 101. See, e.g., Art. 29 UDHR; Art. 19 ICCPR; Art. 10 ECHR. 102. See, e.g., Art. 20 UDHR; Art. 21 ICCPR; Art. 11 ECHR.

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exercise of other fundamental human rights, such as freedom of religion103 and the principle of equality and nondiscrimination.104 Whether or not a new gTLD is approved for delegation is not purely based upon technical aspects, but also on content-related considerations.105 Such considerations may e.g., occur during Formal Objections proceedings (see above §19.03[B][1]), such as Limited Public Interest Objections, which involve a judgment as to whether the Internet community is likely to find the applied-for gTLD to be against norms of morality and public order.106 By rejecting an application for a specific gTLD, or by delegating it to a particular applicant instead of another, ICANN can exercise decisive influence on the content available under this particular gTLD.107 The Council of Europe called the decisions to be made by ICANN in this context “editorial-like decisions, similar to those taken by media organizations.”108 ICANN must therefore strike a delicate balance in which other legitimate rights and interests, such as the property rights of trademark owners or the stability and security of the DNS,109 may not be used as a pretext for effectively oppressing the human rights at stake.110 Although ICANN must be allowed a certain degree of discretion in finding this balance of interests,111 it has been repeatedly criticized for not sufficiently safeguarding the human rights at stake.112 One major point of criticism has been the perceived lack of consistency in UDRP, Formal Objection and IRP Panel decisions, as well as in ICANN’s own (in)actions and decisions.113 In its new Bylaws, ICANN has incorporated a new “Core Value” to respect “internationally recognized human rights as required by applicable law.” However, there are certain limitations to this self-commitment: Article 1, Section 1.2.(c) of the ICANN Bylaws notes that although ICANN intends to apply its Core Values as broadly and consistently as possible, “situations may arise in which perfect fidelity to all Core Values simultaneously is not possible.” Furthermore, Section 27.2. of the ICANN Bylaws states that this Core Value shall have no effect until a “Framework of Interpretation for Human Rights (FOI-HR)” has been adopted. Consequently, a final evaluation of ICANN’s proclaimed efforts to enhance its human rights standards will only be possible once the FOI-HR has been adopted and applied in a significant number 103. 104. 105. 106. 107. 108. 109. 110. 111. 112.

113.

See, e.g., Art. 18 UDHR; Art. 18 ICCPR; Art. 9 ECHR. See, e.g., Art. 2 UDHR; Arts. 2 and 26 ICCPR; Art. 14 ECHR. See Benedek et al., supra n. 75, at 3. See Benedek et al., supra n. 75, at 8. See Benedek et al., supra n. 75, at 6 et seq.; Salomon et al., supra n. 57, at 19 et seq.; Zalnieriute et al., supra n. 78, at 19. See Benedek et al., supra n. 75, at 3. For a detailed discussion of such rights and interests to be balanced with human rights, see Benedek et al., supra n. 75, at 10 et seq.; Zalnieriute et al., supra n. 78, at 27 et seq. See Benedek et al., supra n. 75, at 7 et seq.; Zalnieriute et al., supra n. 78, at 18 and 29. With respect to states, this is known as the “margin of appreciation doctrine” developed by the European Court of Human Rights (ECtHR), see Benedek et al., supra n. 75, at 10 and 19; Salomon et al., supra n. 57, at 19. See, e.g., Zalnieriute et al., supra n. 78, at 7; Christine Haight Farley, Convergence and Incongruence: Trademark Law and ICANN’s Introduction of New Generic Top Level Domains, John Marshall J. Computer & Info. L., 25, No. 4, 625, 631 (2009); Salomon et al., supra n. 57, at 11. Zalnieriute et al., supra n. 78, at 30; Salomon et al., supra n. 57, at 11, 26 et seq. and 59 et seq.

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of cases. However, already at this point of time, critical voices are being raised.114 In particular, concerns are justified in light of the explicit subjection of ICANN’s adherence to human rights to a certain relativism by stating that its mission may prevent it from “perfect fidelity” to its Core Values. Furthermore, ICANN only pledges to respect human rights law “as required by applicable law,” which might turn out to be a highly flexible concept.

§19.05

CONCLUSION

ICANN’s ADR mechanisms have developed into an important means of ensuring ICANN’s accountability toward individuals affected by its actions, as well as toward the global Internet community. After they had been riddled with some “teething problems,” the reforms of the ADR mechanisms contained in ICANN’s new Bylaws have the potential to mend the most pressing issues of safeguarding due process and other human rights. However, whereas the new Bylaws are a step into the right direction, whether or not ICANN’s reformed ADR mechanisms are in fact sufficient to meet ICANN’s self-commitment in its new Core Value to respect “internationally recognized human rights” greatly depends upon their implementation in each specific case. Since so far, there is no published case law under the new Bylaws, it remains to be seen whether ICANN will be able to live up to the increased responsibility that has come with its takeover of the stewardship of the Internet.

114. See, e.g., IGP, Missing the Target: The Human Rights Push in ICANN goes off the rails, http://www.internetgovernance.org/2016/10/26/missing-the-target-the-human-rights-pushin-icann-goes-off-the-rails (accessed 3 Feb. 2017).

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CHAPTER 20

Practices, Arbitral Duties and Effects of Awards in Default Proceedings Julian Lew QC

Default proceedings are an unfortunate but increasing reality in commercial arbitration. Due to the consensual nature of arbitration, the conduct of the proceedings is in accordance with the agreement of the parties. Whether the arbitration is ad hoc or under institutional rules, there are few coercive rules, which can be used and relied on by the arbitral tribunal, to oblige a party to participate in an arbitration. Default proceedings are generally regulated by the law of the place of arbitration or dealt with in the majority of the arbitration rules or are subject to provisions in the arbitration agreement. The rationale behind continuing the arbitral proceedings despite the noncooperation of one of the parties lies in ensuring the effectiveness of the arbitral dispute resolution mechanism. At the same time, requirements of due process and fairness canvass the limits within which default proceeding should be carried out. If arbitration is to be effective and efficient, the parties should all participate and cooperate in the process. Most parties appreciate and accept that arbitrations can be won or lost, in whole or in part. The decision of a party to participate or not in an arbitral proceeding may be connected to various reasons. This includes a party being disaffected with arbitral proceedings or unable to afford them. Other tactics underlying the parties’ decision is their preference to resolve their differences through negotiation or the choice to wait until the enforcement stage in order to resist enforcement. There are three main situations where a default proceeding may arise. First, when a respondent argues that it did not receive any notice of the arbitration. Second, when the respondent argues that the notice was not properly served. The third occurs when the party decides to ignore the arbitration process and fights against the default award at a later stage.

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Default proceedings may further cover situations where the respondent did not participate at all in the arbitration proceedings, or where the respondent stopped participating in the proceedings after appearing only for a limited time. It also covers the case where a respondent did not appear at the beginning of the arbitration proceedings, but “joined” in a later stage.1

§20.01

ARBITRATION RULES FOR DEFAULT PROCEEDINGS

Arbitration is governed by an arbitration agreement, applicable arbitration rules, and the law of the place of arbitration. The UNCITRAL Model law provides that in the absence of a party, the arbitral proceedings may be continued provided that due notice has been given and subject to the contrary agreement of the parties. Article 25(a) provides: The arbitral proceedings may be continued in the absence of a party, provided that due notice has been given. This applies, in particular, to the failure of the respondent to communicate its statement of defence (article 25 (b)). The arbitral tribunal may also continue the proceedings where a party fails to appear at a hearing or to produce documentary evidence without showing sufficient cause for the failure (article 25 (c)). However, if the claimant fails to submit its statement of claim, the arbitral tribunal is obliged to terminate the proceedings (article 25 (a)).2

The Model Law distinguishes between the absence of the respondent and the absence of the claimant.3 If the claimant fails to communicate its statement of claim, without showing sufficient cause, the arbitral tribunal shall terminate the proceedings. In contrast, if a respondent fails to communicate its statement of defense, the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant’s allegations. A different approach is taken when it comes to the issue of participation in the hearings and production of evidence where the consequences for the respondent and claimant are the same. In the event either the claimant or the respondent fails to appear at a hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the award on the evidence before it. The UNCITRAL Arbitration Rules make specific reference to default proceedings in Article 30. It specifically differentiates between the nonappearance of the respondent and the nonappearance of the claimant just like in the UNCITRAL Model law. Article 30 provides: 1. If, within the period of time fixed by these Rules or the arbitral tribunal, without showing sufficient cause:

1. Bernard Hanotiau, “Le défaut d’une partie dans la procédure d’arbitrage international”, in: Mélanges offerts à Raymond Vander Elst, 1986, pp. 375 et seq. 2. Explanatory Note by the UNCITRAL secretariat on the 1985 Model Law on International Commercial Arbitration as amended in 2006 paras. 37-38. 3. UNCITRAL Model Law Art. 25.

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(a) The claimant has failed to communicate its statement of claim, the arbitral tribunal shall issue an order for the termination of the arbitral proceedings, unless there are remaining matters that may need to be decided and the arbitral tribunal considers it appropriate to do so; (b) The respondent has failed to communicate its response to the notice of arbitration or its statement of defence, the arbitral tribunal shall order that the proceedings continue, without treating such failure in itself as an admission of the claimant’s allegations; the provisions of this subparagraph also apply to a claimant’s failure to submit a defence to a counterclaim or to a claim for the purpose of a set-off. 2. If a party, duly notified under these Rules, fails to appear at a hearing, without showing sufficient cause for such failure, the arbitral tribunal may proceed with the arbitration. 3. If a party, duly invited by the arbitral tribunal to produce documents, exhibits or other evidence, fails to do so within the established period of time, without showing sufficient cause for such failure, the arbitral tribunal may make the award on the evidence before it.

Under Article 30, the tribunal has the power to terminate the proceedings in the case the claimant does not submit a statement of claim, and to go forward with the proceedings ex parte in the three instances where the respondent does not submit a statement of defense, a party does not appear to the hearing, and a party does not produce the documentary evidence requested by the tribunal. In these last three cases, the consequence of nonparticipation is that the proceedings continue despite the absence of a party since in arbitration there is no summary procedure that may result in a default decision.4 However, when it comes to sanctioning a defaulting party, arbitral powers are considered to be limited to measures connected to the specific procedural stage of the arbitration. For example, if a party fails to appear at a hearing, the tribunal may sanction that party with respect to the hearing phase, e.g., by foreclosing argument on such mater or by costs, but may not prevent the party from participating in subsequent phases, e.g., oral closing arguments or post-hearing submissions.5 The ICC Rules adopt a more laconic style when referring to the nonappearance of a party. Article 6(8) provides that in the case any party refuses or fails to take part in the arbitration or any stage of the arbitration, the arbitration shall proceed notwithstanding such refusal or failure. In addition, even though the absent party will not take part in the drawing up of the Terms of Reference, they will be submitted to the Court for approval so as to be an effective statement of the allegation of breaches and claims.6 As far as the hearings are concerned, the arbitral tribunal shall have the power to proceed with the hearing in the case any of the parties although duly summoned, fails to appear without valid excuse.7 The LCIA Rules connect the nonappearance of a party with consequences for the appointment of an arbitrator. Article 2(4) provides that failure to deliver a Response 4. David Caron, Lee Caplan, Matti Pellonpää, The UNCITRAL Arbitration Rules, A Commentary (OUP 2013) p. 672. 5. Ibid., p. 673. 6. Article 23(3) ICC Rules. 7. Article 26(2) ICC Rules.

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within time shall constitute an irrevocable waiver of that party’s opportunity to nominate or propose any arbitral candidate. However, failure to deliver any or any part of a Response within time or at all shall not (by itself) preclude the Respondent from denying any claim or from advancing any defense or cross-claim in the arbitration. According to Article 15(8), the arbitral tribunal has the discretion to decide whether it will have a hearing or not: If the Respondent fails to submit a Statement of Defence or the Claimant a Statement of Defence to Cross-claim, or if at any time any party fails to avail itself of the opportunity to present its written case in the manner required under this Article 15 or otherwise by order of the Arbitral Tribunal, the Arbitral Tribunal may nevertheless proceed with the arbitration (with or without a hearing) and make one or more awards.8

The ICDR Rules contain a specific article on default dealing with the statement of defense, the hearings and evidence in such proceedings. They allow the tribunal to continue if a party defaults for no justifiable reasons from participating in the arbitration. Article 23 provides: 1. If a party fails to file a statement of defense within the time established by the tribunal without showing sufficient cause for such failure, as determined by the tribunal, the tribunal may proceed with the arbitration. 2. If a party, duly notified under these Rules, fails to appear at a hearing without showing sufficient cause for such failure, as determined by the tribunal, the tribunal may proceed with the arbitration. 3. If a party, duly invited to produce evidence or take any other steps in the proceedings, fails to do so within the time established by the tribunal without showing sufficient cause for such failure, as determined by the tribunal, the tribunal may make the award on the evidence before it.9

The SIAC Rules give the tribunal a discretionary power to continue the proceeding or not in the case a party does not appear at the hearings. Article 24(3) provides that “if a party fails to appear at a hearing without showing sufficient reasons, the Tribunal may proceed with the arbitration and may make the award based on the submissions and evidence before it.”10 Article 39 of the CIETAC Arbitration Rules, as of January 2015, regulates the default proceedings. Following the Model Law, Article 39 makes the distinction between the claimant and the respondent when failing to appear at an oral hearing. In the case the claimant: […] fails to appear at an oral hearing without showing sufficient cause, or withdraws from an on-going oral hearing without the permission of the arbitral tribunal, the Claimant may be deemed to have withdrawn its application for arbitration. In such a case, if the Respondent has filed a counterclaim, the arbitral

8. Article 15(8) LCIA Rules. 9. Article 23 ICDR Rules. 10. Article 24(3) SIAC Rules.

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tribunal shall proceed with the hearing of the counterclaim and make a default award.11

However, if the Respondent: […] fails to appear at an oral hearing without showing sufficient cause, or withdraws from an on-going oral hearing without the permission of the arbitral tribunal, the arbitral tribunal may proceed with the arbitration and make a default award. In such a case, if the Respondent has filed a counterclaim, the Respondent may be deemed to have withdrawn its counterclaim.12

In the cases where the arbitration rules selected do not make reference to how the tribunal should proceed in the event of a nonappearing claimant, the arbitrators may decide appropriately. One possibility may be to keep the arbitration pending while waiting for the claimant’s action. The tribunal may further extend the time for making any submission and, if appropriate, define the consequences for failing to comply.13 A good practice in this case would be to communicate with the claimant, copying the other party or parties, in order to find out whether it intends to continue with the arbitration and set a reasonable time for response and any consequences for a failure in responding.14 What remains important in default proceedings is that the nonappearing party has been duly notified and that the tribunal informs the defaulting party of the procedural steps taken in the arbitration. In this case, if the respondent does not participate in the arbitration or remains inactive, “he must be deemed to have deliberately forfeited the opportunity.”15 A good practice in order to avoid the objection that no notification was received, would be to effectuate all communications via registered email or courier with a receipt. Going a step further, and as mentioned below, default in arbitration does not per se bar enforcement of an award given that a party is bound by the decision despite its nonparticipation.16 Default proceedings in arbitration do however render the task or arbitral tribunals complicated in an attempt to respect the contractual agreement to arbitrate and due process despite the absence of one party, and conduct the arbitral proceedings in a fair manner.

§20.02

ARBITRAL DUTIES IN DEFAULT PROCEEDINGS

Due process is a precondition of effective arbitration. It is essential in all proceedings that parties are given adequate notice and time to present their case and answer to the

11. Article 39 CIETAC Arbitration Rules. 12. Article 39(2) CIETAC Rules 13. Chartered Institute of Arbitrators, International Arbitration Practice Guideline, “Party NonParticipation” (2016) p. 7 available at http://www.ciarb.org/docs/default-source/ ciarbdocu ments/guidance-and-ethics/practice-guidelines-protocols-and-rules/international-arbitrationguidelines-2015/2011partynonparticipation.pdf?sfvrsn=28 (last accessed Sept. 11, 2017). 14. Ibid. 15. Albert Jan van den Berg, The New York Convention of 1958: Towards a Uniform Interpretation (Kluwer, 1981) p. 306. 16. Ibid., see infra section “Enforcement of Default Judgments: Vizcaya Case”.

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other party. Especially in default proceedings where one of the parties does not take part in the proceedings, certain safeguards should be put in place in order to address the exigencies of justice and fairness required in any judicial proceeding, whether public or private. These safeguards include the principle of due process, the equality of the parties, the opportunity for each party to present its case, as well as the proper notice of the party. Failure to meet a certain threshold of such safeguards may lead to the challenge of the award or to the resistance of its recognition and enforcement. According to Article V(1)(b) of the NYC, breach of due process may amount to the refusal of the enforcement and recognition of the arbitral award: Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: […] (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.17

Due process defense encompasses the right to be heard and mirrors the need to ensure specific standards of fairness of the arbitration procedure. The arbitral tribunal in this case is expected to ensure that proper notice has been given and that each party is able to present its case. Given the fact that Article V(1)(b) is considered an international rule18 it is considered to be connected to the public policy defense of Article V(2)(b). Public policy concerns can be interpreted so as to cover not only the public policy of the enforcing state but also international or transnational public policy.19 Proper notice, including notice of the proceedings and of the names of the arbitrators, largely depends on whether it was timely and appropriate. Even though this depends on the formal requirements contained in national laws, the award is considered to be enforceable when the parties comply with the requirements of the arbitration rules applied.20 In these cases, not only the notice regarding the procedures should be reasonable, proportionate and clear, but also other notices such as disclosure of the names of the arbitrators.21 Lack of notice or receiving the notice of the proceedings after the award has been rendered does not fulfill the proper notice requirements.22

17. Most national laws have similar or equivalent provisions which if ignored may result in the award of a tribunal being overturned/quashed. 18. Philippe Fouchard, L’arbitrage commercial international (Dalloz 1965) para. 526. 19. Martin Hunter and Gui Conde e Silva, Transnational Public Policy and Its Application in Investment Arbitrations, 4(3) The J. World Inv. (2003). 20. See Mexico, Tribunal Superior de Justicia, 1 August 1977, Malden Mills Inc (USA) v. Hilaturas Lourdes SA (Mexico), IV YBCA 302 (1979), cited in Julian DM Lew, Loukas A. Mistelis, and Stefan Kroll, Comparative International Commercial Arbitration (Kluwer Law International, 2003) at paras. 26-84. 21. Julian DM Lew, Loukas A. Mistelis and Stefan Kroll, Comparative International Commercial Arbitration (Kluwer Law International, 2003) at paras. 26-85. 22. See, e.g., Sesotris SAE v. Transportes Navales, 727 F Supp 737, XVI YBCA 640 (1991) (District Court, D Mass, 1989).

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The second requirement of due process is the opportunity given to a party to present its case. This is connected to the obligation of the arbitrator to provide a fair hearing. The concept of fair hearing, except from adequate notice, also includes a hearing on the evidence, and an impartial arbitrator.23 Article 18 of the UNCITRAL Model Law affords the parties a full opportunity to present their case focusing on the equal treatment of the parties: The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.24

In a slightly different spirit, Section 33(1)(a) of the English Arbitration Act refers to the general duty of the tribunal affording a reasonable opportunity to the parties to present their case: The tribunal shall—act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent […].25

According to Section 68 of the English Arbitration Act 1996 an arbitral award can be challenged, inter alia, for the reason that the arbitral tribunal has failed in its duty under Section 33 to act fairly and impartially, and on the ground of “serious irregularity” resulting in “serious injustice.”26 In general, this requirement is respected by arbitrators when confining themselves: “to the evidence provided by the parties unless judicial notice would have been possible in conventional courts.”27 It should also “provide notice of, and an opportunity to respond to, issues, ideas, methods, research, investigations and/or studies of the arbitrator that were not reasonably foreseen in the light of the arguments traversed before the arbitrator.”28 Nevertheless, it is accepted that each party should be given the opportunity to present its case. In which way, and whether the party will actually use this opportunity, will not generally affect the enforceability of the award.29 In any event, such objections as to the enforceability of the awards should be raised during the arbitration proceedings if the party objecting has knowledge of such facts at that time.30 The timely objection of the party is important in order to avoid the possibility of being estopped from raising the objection at a later stage. When it comes to the enforcement of a default award, the claimant may seem to be in a more favorable position. Although the grounds of Article V(1)(b) NYC are

23. See Generica Limited v. Pharmaceuticals Basics Inc, XXIII YBCA 1076 (1998) 1078-9 (7th Cir, 1997). 24. Article 18 UNCITRAL Model Law. 25. Section 33(1)(a) of the English Arbitration Act. 26. Judith Butchers and Philip Kimbrough, The Arbitral Tribunal’s Role in Default Proceedings, 22(1) Arb. Int’l 233, 240 (2006). 27. Robert Merkin, Arbitration Law (LLP 2004), pp. 16-26, para. 16.33. 28. Ibid. 29. Sam Ming Forestry Economic Co v. Lam Pun Hing, (2000) 15(1) Mealey’s IAR 12 (HCHK). 30. Julian DM Lew, Loukas A. Mistelis and Stefan Kroll, Comparative International Commercial Arbitration (Kluwer Law International 2003) paras. 26-89.

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frequently invoked, courts do not easily accept violation of due process as a defense.31 On one hand, the burden of proof lies upon the respondent and on the other hand national courts tend to interpret procedural irregularity grounds quite narrowly.32 The breach of legality and due process requirements also constitute a ground for challenging the award. In the U.S., for example, the lack of an oral hearing may amount to a breach of due process and the challenge of the award.33 The Model Law and national arbitration laws mostly mirror the provisions of the New York Convention on the issue of challenge. In a similar wording, Article 34(2)(a)(ii) of the Model Law reads: An arbitral award may be set aside by the court specified in article 6 only if: […] (ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case.

Section 68 of the EAA provides for a party to apply to the court in order to challenge an arbitral award due to serious irregularity that may affect the tribunal, the proceedings or the award. Such irregularity includes the failure by the tribunal to comply with its general duties as laid out in Section 33 of the EAA.34 Moreover, the arbitrators should adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, in order to resolve fairly the dispute. As much as it may appear, the route for challenge based on serious irregularity does not constitute a panacea to every attempt for challenging an award. The test applied by the courts in order to examine the existence of serious irregularity is whether it caused substantial injustice to the applicant.35

§20.03

DUE PROCESS AND THE UNREPRESENTED PARTY

Duties of fairness and due process also arise where the party is not represented by a counsel in the arbitral proceedings; either because it chose not to be or because the counsel has withdrawn. In a recent case before the British Columbia Supreme Court,36 two companies were parties to a joint venture agreement with a third company for the purchase of three properties for development purposes. The joint venture agreement provided for disputes to be resolved through mediation, and in the case mediation failed, by commercial arbitration under the domestic Arbitration Act, RSBC 1996

31. Herman Verbist, “Challenges on Grounds of Due Process Pursuant to Article V(1)(b) of the New York Convention”, in: Emmanuel Gaillard, Domenico Di Pietro, Enforcement of Arbitration Agreements and International Arbitral Awards—The New York Convention in Practice, 2008, p. 692. 32. Luca Beffa, “Enforcement of Default Awards” (2013) ASA Bulletin 31.4, pp. 756-773. 33. Parsons & Whittemore Overseas Co v. Societe Generate de L’Industrie du Papier, 508 F 2d 969 (2d Cir 1974). 34. Section 33 provides that the arbitrators have the duty to act fairly and impartially as between the parties and give each party a reasonable opportunity to present its case. 35. Section 68(2) EAA. 36. 0927613 BC Ltd v. 0941187 BC Ltd, 2014 BCJ No 2659, (Aug. 21, 2014). See Henri C. Alvarez, Alexandra Mitretodis, Do Arbitrators Have a Special Duty Towards Unrepresented Parties? (KAB, Mar. 11, 2015).

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Chapter 55 (the “Act”). A dispute arose between the parties and arbitral proceedings commenced. Counsel for the petitioner, complaining that he did not get any instructions from the petitioner, failed to file submissions by the agreed deadline and withdrew as counsel.37 The British Columbia Supreme Court held that the arbitrator has a duty to comply with rules of natural justice and provide assistance that would be useful to the unrepresented party. Section 22(1) of the domestic Arbitration Act38 applied in the specific case in conjunction with the Domestic Commercial Arbitration Rules of Procedure of the BCICAC which require that the arbitrator treats the parties fairly, gives them the opportunity to present their case and consults them in order to set the dates for the hearings. The court recognized that the requirements of fairness and natural justice depend on the specific circumstances of each case. Drawing analogies from the natural justice standard applied in litigation proceeding before national courts and administrative tribunals, it concluded that the arbitrator had certain procedural obligation toward the unrepresented party.39 These include ensuring that the unrepresented party comprehends the proceeding and has a full opportunity to present its case. Such a scenario may also appear in the context of international arbitration where the arbitral tribunal will also have to ensure the equality of arms of the parties and the fairness of the proceedings. This can be difficult where one party is represented by experienced international counsel and the other party either by good lawyers, but without the same degree of international arbitration expertise, or by no lawyers at all. Even though, in this case, the party was properly notified and does appear in the proceedings, the thresholds of fairness and justice seem to be similar to those for the nonappearing respondent.

§20.04

ENFORCEMENT OF DEFAULT JUDGMENTS: VIZCAYA CASE

In the Vizcaya Appeal case, the Privy Council dealt with the scope and content of the rule that a foreign default judgment is enforceable against a judgment debtor who has made a prior submission to the jurisdiction of the foreign court (as distinct from a submission by appearance in the proceedings).40 In 2008, Mr. Bernard Madoff was exposed as the operator of a fraudulent Ponzi scheme, via his company Bernard L Madoff Investment Securities LLC (“BLMIS”). In 2009 Mr. Irving Picard, the trustee in BLMIS’ liquidation in the New York Bankruptcy

37. Henri C. Alvarez, Alexandra Mitretodis, Do Arbitrators Have a Special Duty Towards Unrepresented Parties? (KAB, Mar. 11, 2015). 38. Arbitration Act, RSBC 1996. 39. Ibid. 40. Vizcaya Partners Limited (Appellant) v. Picard and another (Respondents) (Gibraltar) [2016] UKPC 5, para. 3.

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Court, started proceedings against the investors who had been repaid by BLMIS to avoid and recover those transfers. This included Vizcaya Partners.41 Picard had sought to enforce a default judgment obtained in New York against Vizcaya in Gibraltar, where it held substantial assets. Vizcaya’s application for summary judgment was allowed in part by the Court of Appeal of Gibraltar, which ruled that Vizcaya had agreed to submit to the jurisdiction of the state of New York. An important question was whether the agreement to submit to the jurisdiction of the courts of that country must be express, or can also be implied or inferred. The issue was whether, by a customer agreement entered into by Vizcaya, it had agreed impliedly to submit to the jurisdiction of the New York Bankruptcy Court. Advising that the appeal should be allowed, it held that an agreement to submit to a jurisdiction of a foreign court did not have to be contractual in nature and might be implied as a matter of fact, or by law. The Privy Council considered that the appeal raised an issue that was not only of general public importance but also of international importance in other common law countries.42 It also stated that there had been conflicting decisions and dicta on whether or not an agreement to submit could ever be implied, and what was required for that purpose.43 From a practical perspective, the Privy Council resolved the conflict concluding that in the absence of an applicable treaty, the enforcement of a foreign court judgment in England depends on whether the defendant expressly agreed to submit to the jurisdiction of that foreign court.

§20.05

COMMUNICATIONS IN DEFAULT PROCEEDINGS

Receipt and knowledge of a communicated document may also be inferred based on the respondent’s actions.44 Nonetheless, it is not always easy to ascertain receipt and knowledge. Communications made through courier with return receipt and signature help avoid the objection of not being informed about the arbitral procedure or the award. In this case, the signature ensures both the receipt and the knowledge of what is in the communication. Notice via email or simple post, though, may make it more difficult to prove not only receipt but also knowledge of the content of the communication. However, the requirement of knowledge may seem to raise the threshold of proper notice very high. Arbitration rules make specific reference to the means and processes of notification. Article 3 of UNCITRAL Model Law provides on the issue: (1) Unless otherwise agreed by the parties: (a) any written communication is deemed to have been received if it is delivered to the addressee personally or if it is delivered at his place of

41. Press Summary, Vizcaya Partners Limited (Appellant) v. Picard and another (Respondents) (Gibraltar) [2016] UKPC 5 (Feb. 3, 2016) available at https://www.jcpc.uk /cases/docs/jcpc2014-0048-press-summary.pdf (last accessed Sept. 11, 2017). 42. Ibid., para. 9. 43. Ibid., para. 55. 44. Luca Beffa, “Enforcement of Default Awards” (2013) ASA Bulletin 31.4, pp. 756-773.

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business, habitual residence or mailing address; if none of these can be found after making a reasonable inquiry, a written communication is deemed to have been received if it is sent to the addressee’s last-known place of business, habitual residence or mailing address by registered letter or any other means which provides a record of the attempt to deliver it; (b) the communication is deemed to have been received on the day it is so delivered.

Article 3(2) of the ICC Rules similarly states that all notifications or communications may be made by delivery against receipt, registered post, courier, email or any other means of telecommunication that provides a record of the sending such notices or communications. Similarly, Article 4.1 of the LCIA Rules provides that any written communication may be delivered personally or by registered postal or courier service or by facsimile, email or any other electronic means of telecommunication that provides a record of its transmission, or in any other manner ordered by the Arbitral Tribunal. If the communication is via electronic means (including email and facsimile), it may only be affected to an address agreed or designated by the receiving party for that purpose or ordered by the Arbitral Tribunal.45 In this context, it is practical and useful for the tribunal to define the specific place of service so there can be no argument as to notice, which in turn should facilitate the enforceability of the award. The addresses of the parties for communication purposes can be identified in the contract. In addition, most national statutes and arbitration rules refer to how notifications should be made properly. If there is no reference to how notifications should be effectuated, communications should be sent to the party’s habitual residence, place of business, email or any other way providing a record of communication.46

§20.06

DEFAULT PROCEEDINGS IN NATIONAL SYSTEMS

In the spirit of drawing analogies from domestic law, national rules of civil procedure make reference to the default proceedings and the enforcement of default awards. Rule 5547 of the U.S. Federal Rules of Civil Procedure makes the distinction between entering a default, i.e. nonparticipation in the proceedings, and entering a default judgment: (a) ENTERING A DEFAULT. When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party’s default. (b) ENTERING A DEFAULT JUDGMENT. (1) By the Clerk. If the plaintiff’s claim is for a sum certain or a sum that can be made certain by computation, the clerk— on the plaintiff’s request, 45. Article 4.3 LCIA Rules. 46. Chartered Institute of Arbitrators, International Arbitration Practice Guideline, Party NonParticipation (2016) p. 6 available at http://www.ciarb.org/docs/default-source/ ciarbdocu ments/guidance-and-ethics/practice-guidelines-protocols-and-rules/international-arbitrationguidelines-2015/2011partynonparticipation.pdf?sfvrsn=28 (last accessed Sept. 11, 2017). 47. As amended Mar. 2, 1987, eff. Aug. 1, 1987; Apr. 30, 2007, eff. Dec. 1, 2007; Mar. 26, 2009, eff. Dec. 1, 2009.

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Julian Lew QC with an affidavit showing the amount due—must enter judgment for that amount and costs against a defendant who has been defaulted for not appearing and who is neither a minor nor an incompetent person. (2) By the Court. In all other cases, the party must apply to the court for a default judgment. …. If the party against whom a default judgment is sought has appeared personally or by a representative, that party or its representative must be served with written notice of the application at least 7 days before the hearing. The court may conduct hearings or make referrals— preserving any federal statutory right to a jury trial—when, to enter or effectuate judgment, it needs to: (a)conduct an accounting; (b) determine the amount of damages; (c) establish the truth of any allegation by evidence; or (d) investigate any other matter.

(c) SETTING ASIDE A DEFAULT OR A DEFAULT JUDGMENT. The court may set aside an entry of default for good cause, and it may set aside a default judgment under Rule 60(b). (d) JUDGMENT AGAINST THE UNITED STATES. A default judgment may be entered against the United States, its officers, or its agencies only if the claimant establishes a claim or right to relief by evidence that satisfies the court.

What is interesting is the explanation of the Advisory Committee on the default judgment in Rule 55(c). In particular, a default judgment should deal with all of the claims of the parties in order to be considered a final judgment, unless the court directs entry of final judgment under Rule 54(b). Until final judgment is entered, Rule 54(b) permits the revision of the default judgment at any time.48 Default proceedings in the English legal system are dealt with in Part 12 of the English civil Procedure rules. The rules define a default judgment as a judgment made without trial where the defendant has failed to file an acknowledgment of service or has failed to file a defense.49 There are, however, certain claims in which default judgment may not be obtained. According to Article 12.2 these include a claim for delivery of goods subject to an agreement regulated by the Consumer Credit Act 1974, where the alternative procedure for claims is used and in any other case where a practice direction provides that the claimant may not obtain default judgment. The Greek Civil Procedure Code focuses on the right of the nonappearing party to challenge the default decision. Article 501 gives the opportunity to the nonappearing party to challenge the default decision in the case the party was not summoned or not properly summoned or not timely summoned or for any other reason of force majeure. According to Article 502 not only the nonappearing respondent but also the nonappearing claimant has the right of challenging a default judgment.

48. Legal Information Institute, Federal Rules of Civil Procedure, available at https://www.law. cornell.edu/rules/frcp/rule_55 (last accessed Sept. 11, 2017). 49. Article 12.1 English Civil Procedure Rules 1998. Rules Amended in 2015.

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The French Code of Civil Procedure50 takes a different approach when it comes to setting aside a default judgment. Article 473 focuses on the case where the defendant fails to appear. It provides: Where the defendant does not appear, the judgement will be rendered by default if the decision is of final instance and where the citation has not been served in person. The judgement will be regarded as a judgement after trial where the decision is subject to appeal or where the citation has been served personally on the defendant.51

When it comes to setting aside the default judgment, Article 571 provides: The motion to set aside aims at retracting a judgement rendered by default. It is available only in favour of the defaulting party.52

These rules are not easily transferred to the international arbitration arena. Firstly, they are specific for each national system. Second, arbitration is a different process, based initially on consent and transcending national boundaries, except where national rules are expressly agreed. The arbitrator’s task in default proceedings has its own particularities in comparison to proceedings in national courts. Arbitral tribunals “have no authority to enter an award based on accepting as admitted claims which have not been denied.”53 As such, the tribunal’s task lies in carefully considering both the facts and the law, reviewing the evidence presented, and satisfying itself that the case has been proven despite the absence of the party.54 Going a step further, keeping a record in writing of the procedural steps to include the nonappearing party in the process would further ensure proper notification and due process.55

§20.07

CONCLUSION

The core of best practices in default arbitration proceedings, whether the nonappearing party is a claimant or a respondent, is proper notification and a fair opportunity to present their case. How arbitrators ensure such full notice and opportunities where a party is refusing to participate in the arbitration, under protest or not, will depend on the circumstances of every case. However, where possible and without allowing excessive delays or opportunities to disrupt the arbitral process, the tribunal also could

50. Translation available at https://www.legifrance.gouv.fr/content/download/1962/13735/ version/3/.../Code_39.pdf (last accessed Sept. 11, 2017). 51. Article 473 French Code of Civil Procedure. 52. Article 571 French Code of Civil Procedure. 53. Laurence Craig, William Park and Jan Paulsson, International Chamber of Commerce Arbitration (3rd ed., OUP 2001) p. 153. 54. Wolfgang Kühn, Defaulting Parties and Default Awards in International Arbitration (Brill 2015) p. 400. 55. Chartered Institute of Arbitrators, International Arbitration Practice Guideline, Party NonParticipation (2016) p. 7 available at http://www.ciarb.org/docs/default-source/ ciarbdocu ments/guidance-and-ethics/practice-guidelines-protocols-and-rules/international-arbitrationguidelines-2015/2011partynonparticipation.pdf?sfvrsn=28 (last accessed Sept. 11, 2017).

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seek to ensure that the parties are kept fully informed at all procedural stages in the arbitration, e.g., all filings, hearings, transcripts, and given the opportunity to engage or reengage in the arbitral process. This should facilitate the enforcement of the ultimate award.

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CHAPTER 21

The Law Applicable to Non-contractual Claims in International Commercial Arbitration Simon Greenberg*

§21.01

INTRODUCTION

Much has been written about how international commercial arbitrators should determine the applicable substantive law in the absence of a choice of law by the parties. There is also a wealth of debate about the limitations on party choice regarding the applicable substantive law, particularly concerning so-called mandatory laws that apply despite the parties having chosen a different substantive law to govern their contract. This chapter examines another issue concerning the limitations of the substantive law governing a contract. A different substantive law may apply to non-contractual claims, in particular tort claims, that are determined alongside contractual claims in the context of an international arbitration. This chapter also considers the limitations of contractual choice-of-law clauses with respect to non-contractual claims that are related to a contractual relationship.

* Sincere thanks are due to Professor Michael Pryles not only for his guidance, but also for his substantial contribution to the author’s education and experience relating to choice-of-law issues in international arbitration, when the author worked for Michael Pryles. Thanks are also due to Ms Pauline Lafleure, trainee at Clifford Chance, for her assistance in preparing this chapter. This chapter was partly inspired by Chapter 3, Section 3.3, of a book by S. Greenberg, C. Kee and R. Weeramantry, International Commercial Arbitration: An Asia-Pacific Perspective (Cambridge University Press, 2011, pp. 113-119), which was in turn partly inspired by the article Simon Greenberg ‘The Law Applicable to Merits In International Arbitration’, (2004) 8 Vondobona Journal 315, Section 3 from p. 327.

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Various non-contractual claims can arise within contractual or future contractual relationships that are subject to an arbitration agreement. Among many examples, non-contractual claims may include pre-contractual torts/delits, restitution, unjust enrichment, culpa in contrahendo, and statutory torts including antitrust or trade practices claims. Yet in this author’s experience,1 international arbitrators sometimes gloss over the issue, shallowly assuming that a contractual choice-of-law clause automatically applies to non-contractual claims. These questions – like certain other choice-of-law determinations by international arbitrators – can sometimes require a more thorough analysis. From an academic perspective, surprisingly little attention has been given to the law applicable to non-contractual claims in arbitration. This author is aware of only a handful of writings2 and one published speech on the topic. At the end of that speech, Professor Lagarde thanked the speaker and commented: 3 You have explored a subject that is new; it seems that there has never been a study on those problems of [the law applicable to] tort and extra-contractual responsibility in arbitration.

It is possible that when a non-contractual issue arises, lawyers do not always recognise that a different law might apply to it. They might not properly identify the potential for a different law being relevant. In some cases the law applicable to non-contractual claims will be the same law that governs the contract. But in other cases it can be different, and it could be to the distinct advantage of one party to establish that a different law applies.

[A]

Example from Practice: A Lesson from One of Asia’s Top International Arbitrators

An example of a disciplined conflict of laws approach to determining the law applicable to non-contractual claims can be found in an award issued by an arbitral tribunal chaired by Professor Michael Pryles in Transfield Philippines Inc v. Luzon Hydro

1. Including, in particular, the author’s experience in reviewing over 1,400 draft arbitral awards submitted to the ICC International Court of Arbitration for scrutiny when he was Deputy Secretary General of the ICC Court (2008-2012). The author has continued to review draft ICC arbitral awards since 2012 in his capacity as one an ICC Court Member (for Australia). 2. Gary Born, whose 2014 treaty spans two heavy volumes and over 4,200 pages, dedicates less than six pages to the law governing non-contractual claims in international arbitration, but focuses on whether a contractual choice-of-law clause will cover non-contractual claims. G. Born, ‘Chapter 19: Choice of Substantive Law in International Arbitration’ in International Commercial Arbitration, 2nd edition, 2014, pp. 2738-2744. 3. Authors’ translation from original French. See P. Lagarde, ‘Débats’ in C Reymond, ‘Conflits de lois en matière de responsabilité délictuelle devant l’arbitre international’, (1991) [1988-1989] Travaux du Comité Français de Droit International Privé 97, at p. 107.

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§21.01[A]

Corporation Ltd.4 Parts of the award became public through domestic court proceedings in Australia and Singapore. The dispute related to the construction of a hydroelectric power station in Northern Luzon, the Philippines. The subcontractor, Transfield Philippines Inc. (‘TPI’), commenced arbitration against the contractor, Luzon Hydro Corporation (‘LHC’), seeking various relief under the contract. The seat of the ICC arbitration was Singapore and a contractual choice-of-law clause provided that the contract was governed by the laws of the Philippines. In addition to its contractual claims, TPI claimed for pre-contractual misleading and deceptive conduct and negligent misrepresentation by LHC’s directors about what TPI might expect in relation to the project. It contended that those claims were governed by Australian trade practices legislation rather than Philippines law on the basis that the relevant misrepresentations and misconduct had occurred in Australia. As reported in a subsequent domestic court decision in Australia, the arbitral tribunal ruled on the issue of applicable law in its first partial award as follows:5 the claims for misleading and deceptive conduct are governed by the law of the Philippines under either of two alternative approaches. The first is to apply the law of the Philippines directly without recourse to choice of law rules (‘voie directe’). Alternatively if the governing law is to be selected indirectly through the application of a choice of law rule, the arbitral tribunal determines that the appropriate choice of law rule (application of the law most closely connected with the claim) also leads to the selection of the law of the Philippines. [TPI] has indicated that it will institute court proceedings in Australia if this arbitral tribunal does not determine claims under the [Australian trade practices legislation]. [TPI] has submitted that resort to two tribunals is undesirable. The arbitral tribunal agrees. However, this consideration is not of itself sufficient to warrant the application of a law which the tribunal considers in all the circumstances, not to be appropriate to the dispute between the parties. Further, this tribunal notes that [TPI] has also sought damages for misrepresentation under the law of the Philippines. The claim for misrepresentation will still proceed in this arbitration but will be determined in accordance with the law of the Philippines.

This extract shows that the arbitral tribunal did not find TPI’s non-contractual claims to be covered by the contractual choice-of-law clause. Rather, it held that Philippines law governed the non-contractual claims based on an independent conflict of laws analysis. The tribunal found Philippines law applicable because it was the most appropriate law or, alternatively, by virtue of a general principle of private international law because it was the law most closely connected to the claims.

4. See Transfield Philippines Inc v. Pacific Hydro Ltd [2006] VSC 175 (Supreme Court of Victoria, Australia). 5. Page 24 of the arbitral tribunal’s first partial award dated 18 February 2002, cited in Transfield Philippines Inc v. Pacific Hydro Ltd [2006] VSC 175, at para. 68 (Supreme Court of Victoria, Australia).

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This example provides a useful launching pad for a deeper consideration of how to determine the law governing non-contractual claims in international arbitration.

[B]

Characterisation: The Determination of Whether a Claim Is Contractual or Not

The parties may disagree on whether a claim is based in contract, tort or otherwise. A preliminary question in deciding whether a different law may apply to a claim is, therefore, whether or not the alleged non-contractual claim is, in fact, non-contractual. If the claim in question is really contractual, or is characterised as contractual under the law that governs the contract, there may be no need to determine whether it is governed by a different law than that which governs the contract. A claim may appear as one or the other depending, among other things, on how the party making it has set it out and whether it sees some advantage in having a different law apply to it. Domestic legal systems often provide rules enabling a judge to characterise the nature of a claim. Those rules are part of the lex fori (i.e., the legal system where the court is situated). An international arbitrator has no lex fori and must therefore decide which characterisation rules, if any, to employ in characterising a claim as contractual or not. To ensure consistency and eliminate overlap, the chosen characterisation system or method should be consistent with the law governing the contract.6 It has been suggested that claims should be characterised by a ‘cumulative’ application of all the characterisation rules of the jurisdictions connected, or possibly connected, to the claim and, if that does not work, by using general principles of private international law or the general principles of private international law common in the domestic legal systems involved.7 While certainly not lacking academic rigour, that method may be considered cumbersome for pragmatic arbitrators. Rather, it is submitted that the simplest and most appropriate claim characterisation rules to ensure harmony with the contractual law are those of the law governing the contract. The contractual law may not have a factual connection to the dispute, but it will necessarily have a strong legal connection to any contractual bases of claim. Using its characterisation rules should eliminate inconsistencies and overlaps and ensure harmony of legal solutions. This approach also avoids the complexities of the cumulative method and the uncertainty associated with using general principles of characterisation rules under private international law. In sum, therefore, the first step for an arbitrator faced with a potential noncontractual claim is to decide whether or not it is a non-contractual claim; and the best way to do that is to apply the characterisation rules or principles of the law that governs the contract.

6. Reymond, supra fn 3, p. 99. 7. Reymond, supra fn 3, p. 112.

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§21.01[C]

Arbitrability: Non-contractual Claims and the Scope of the Arbitration Clause

If a claim is characterised as non-contractual, an arbitral tribunal may have to decide whether the claim is capable of resolution by arbitration at all (objective arbitrability) and, if so, whether it falls within the scope of the relevant arbitration agreement (subjective arbitrability). A review of the objective and subjective arbitrability of non-contractual claims is beyond the scope of this chapter. Concerning objective arbitrability, the law governing the arbitration agreement may deem certain tort or statutory claims incapable of resolution by arbitration. Concerning the subjective arbitrability of non-contractual claims, it should be recalled that arbitration clauses are typically drafted (and/or construed) broadly enough to include virtually any and all non-contractual claims that are somehow related to the underlying contractual relationship. For example, a typical, well-drafted arbitration clause often will define the scope of disputes covered by it with language like: ‘All disputes arising out of or in connection with this agreement shall be decided by arbitration […] .’ Phrasing such as ‘arising out of or in connection with’ should logically cover non-contractual disputes related to the contract. In any event, there is nothing in this language to suggest a limitation to purely contractual claims. Courts have confirmed that arbitration clauses narrower than the example just given are sufficiently broad to cover non-contractual claims such as tort claims, although other courts have read down equally broad arbitration agreements.8 Narrower clauses may be more problematic. For example, an Australian court found that a clause providing ‘Any dispute arising from this charter or any Bill of Lading issued hereunder shall be settled in accordance with the provisions of the arbitration Act […]’9 was too narrow to cover tort claims. The Court held that the ‘origin’ of certain 8. Most modern courts now construe arbitration agreements broadly. The Fiona Trust case confirms that commercial parties’ primary intention is not to differentiate non-contractual claims from contractual claims but rather to have all their disputed claims determined in a single forum: ‘the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction’, Premium Nafta Products Limited v. Fili Shipping Company Limited [2007] UKHL 40, para. 13. The Korean Supreme Court has held that an arbitration agreement submitting ‘legal disputes regarding this contract’ to arbitration was broad enough to cover tort claims (91 Da 17146, 14 April 1992, cited in S.W. Chang, ‘Article V of the New York Convention and Korea’, (2008) 25 Journal of International Arbitration 865, at p. 868). Such clauses are, however, occasionally read down so as not to cover torts. See, e.g., Jan De Nul NV v. Inai Kiara Sdn Bhd [2006] 3 CLJ 46, where the Malaysian Court of Appeal found that tort claims were not covered by an arbitration clause which referred to ‘any dispute or difference arising out of and/or in connection with this agreement’. The Malaysian Court of Appeal referred with approval to the Full Federal Court of Australia decision of Hi-Fert Pty Ltd v. Kiukiang Maritime Carriers [1998] 159 ALR 142. 9. Hi-Fert Pty Ltd & Anor v. Kiukiang Maritime Carriers Inc & Anor [1998] 1485 FCA. Aspects of the Hi-Fert decision related to this issue were overruled by the Full Federal Court in Comandate Marine Corp v. Pan Australia Shipping Pty Ltd [2006] FCAFC. Similarly, a US court found that

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non-contractual claims brought under the Trade Practices Act 1974 (Australia Federal law) was the making of misrepresentations and was not sufficiently proximate to the contract so as to have arisen ‘from this charter or any Bill of Lading […]’. The Australian Federal Court may have been concerned to prevent a party avoiding the Trade Practices Act (which contains Australia’s antitrust laws) by relying on the contractual choice of English law. In contrast to arbitration agreements, and as explained further below, contractual choice-of-law clauses tend to be narrower, referring only to the contract itself.

§21.02

PARTIES’ CHOICE OF THE LAW APPLICABLE TO NON-CONTRACTUAL CLAIMS IN ARBITRATION

Where the arbitral tribunal has determined that a party has made a non-contractual claim, and has found it to be objectively and subjectively arbitrable, the arbitral tribunal will need to decide what law applies to it. As a first step, the tribunal will need to consider whether the parties are permitted to choose the law governing their non-contractual claims and, if so, whether they have done so.

[A]

Can Arbitrating Parties Choose the Law to Govern Their Non-contractual Claims?

The parties’ right to choose the law governing a commercial contract is axiomatic in international arbitration. It is confirmed in every respectable set of international arbitral rules and every respectable arbitration law. It is also a widely recognised general principle of private international law applied varyingly by domestic courts all around the world. 10 It is not, however, as clear whether the same principle applies to empower the parties to choose the law to govern a non-contractual claim. The views of academic commentators are mixed. One leading international arbitrator and professor is confident that, as a matter of principle, parties may choose the law applicable to torts after the tort has occurred. He is less decisive as to whether parties can choose the governing law before a tort claim is made, but concludes that they probably can.11 On the other hand, a leading treatise on international arbitration

‘arising under the contract’ in an arbitration clause had to be interpreted narrowly and could not encompass tort claims: Cape Flattery Ltd v. Titan Maritime LLC, 647 F.3d 914, 924 (9th Cir. 2011). 10. See for example J. Lew, ‘Relevance of Conflicts of Laws Rules in the Practice of Arbitration’ in van den Berg, A.J. (ed.) ICCA Congress Series N°7 (1996) 447, at p. 451 and P. Lalive, ‘Les règles de conflit de lois appliquées au fond du litige par l’arbitre international siégeant en Suisse’ [1976] Revue de l’Arbitrage 157, p. 166. 11. W. Kuhn, ‘Express and Implied Choice of the Substantive Law in the Practice of International Arbitration’, (1994) 7 ICCA Congress Series 380, at p. 387.

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asserts that ‘according to traditional private international law thinking, the principle of party autonomy does not apply [to non-contractual claims]’.12 There are logical reasons why party autonomy may be restricted in relation to the law governing non-contractual claims. Contracts regulate the relationship between private, consenting parties. Non-contractual, and especially tort law may be mandatory and formulated by legislators in order to attribute responsibility and provide compensation specifically outside contractual relationships. A tort may even affect third party rights, such that a choice of law for a tort claim between two parties could adversely impact on another. Furthermore, certain statutory torts are designed to protect the ‘common good’ (e.g., relating to antitrust, environmental protection, safety of people, etc.). There may be good reasons why contracting parties are restricted from circumventing mandatory laws that are designed to improve or protect a nation’s society as a whole by choosing a foreign law. Therefore, the possibility afforded to parties to choose the law applicable to non-contractual claims has to take account of imperative provisions of law that may apply regardless of the parties’ choice of law.13 The policy considerations described above do not seem to be reflected in international arbitration legislation or in modern practice. Arbitration laws tend not to prohibit – at least expressly – parties from choosing the law to govern non-contractual disputes. For example, Article 28(1) of the Model Law states: ‘The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute.’14 (Emphasis added) ‘Dispute’ is evidently broad enough to cover non-contractual claims, even if some courts will interpret it narrowly by reference to the policy reasons just given. Courts might potentially also confuse the question of the law governing such a claim with whether or not it is objectively arbitrable. Support for the view that parties may choose the law to govern non-contractual claims, even in advance of the facts giving rise to the claim, can be found in the European Community Regulation on the Law Applicable to Non-Contractual Obligations (‘Rome II Regulation’), of 2009. The Rome II Regulation obviously has no direct applicability in jurisdictions outside Europe but arbitrators may find it persuasive because it is the first significant regional convention of its kind and was prepared by some of the world’s foremost experts in private international law.

12. E. Gaillard and J. Savage, Fouchard Gaillard and Goldman on International Commercial Arbitration (Kluwer Law International, 1999, para. 1530). 13. An example of a court applying a mandatory law in the context of arbitration proceedings can be found in a series of Federal Court of Australia decisions in Clough Engineering Ltd v. Oil & Natural Gas Corporation Ltd. The judge found that there was a prima facie case for applying Australian trade practices laws despite acknowledging that this was contrary to the parties’ contractual choice of Indian substantive law and arbitration seated in India. [2007] FCA 881 (7 June 2007); [No. 2] [2007] FCA 927 (19 June 2007); [No. 4] [2007] FCA 2110 (21 December 2007); [2008] FCA 191 (29 February 2008); [2008] FCAFC 136 (22 July 2008). See also S. Greenberg, C. Kee and J. Romesh Weeramantry, International Commercial Arbitration: An Asia-Pacific Perspective (Cambridge University Press, 2011, Chapter 4, pp. 119-126). 14. This is equivalent in most arbitration laws and rules around the world.

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Article 14(1) of the Rome II Regulation expressly permits parties to choose the law governing non-contractual claims both ‘(a) after the event giving rise to the damage occurred; or (b) where all the parties are pursuing a commercial activity, also by an agreement freely negotiated before the event giving rise to the damage occurred’. Thus in the European Community commercial parties can choose the law to govern existing or future non-contractual claims. Nonetheless, Article 14(2) and 14(3) of the Rome II Regulation clarify that this freedom of choice is not absolute: mandatory domestic laws and European Community laws cannot be avoided.15 In sum, it is safe to conclude that parties to international commercial arbitrations can generally choose the law to govern their non-contractual claims provided the choice does not undermine strictly applicable mandatory laws from which the parties cannot derogate by reason of the link between the relevant conduct/facts and the law in question. The position, therefore, is no different from when the parties choose the law to govern their contract, except that the existence of applicable mandatory laws may be more common when it comes to non-contractual claims, particular tort claims, than for contractual claims.

[B]

Have the Parties Chosen the Law to Govern Their Non-contractual Claims?

It is very rare that parties in arbitration expressly choose the law to govern their non-contractual claims, whether before or after the relevant events occur. If the contract contains a clause designating the contractual law, that clause may be broad enough to cover non-contractual claims. This is purely a question of contractual interpretation. Often, however, choice-of-law clauses are narrow, referring specifically to the contract. For example, a typical choice-of-law clause such as: ‘this contract shall be governed by and construed in accordance with the laws of X’ is not easily understood as a choice of law for non-contractual claims. To avoid uncertainties, parties negotiating international commercial contracts should consider broadening their choice-of-law clauses such that they are as broad as the arbitration clause in the same contract. Gary Born in his treatise discusses selected case law from around the world relating to the construction of contractual choice-of-law clauses, and specifically whether such clauses are understood to cover non-contractual claims. Surprisingly, his research reveals a mix of court approaches to the issue, with some courts reading down

15. Article 14 of the Rome II Regulation: ‘(2.) Where all the elements relevant to the situation at the time when the event giving rise to the damage occurs are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement; (3.) Where all the elements relevant to the situation at the time when the event giving rise to the damage occurs are located in one or more of the Member States, the parties’ choice of the law applicable other than that of a Member State shall not prejudice the application of provisions of Community law, where appropriate as implemented in the Member State of the forum, which cannot be derogated from by agreement.’

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choice-of-law clauses as applicable only to the choice of contractual law. Born’s conclusion on these decisions is sensible:16 Insofar as these decisions suggest that choice-of-law provisions cannot validly select the law applicable to a tort claim, they are plainly out-of-step with choice-of-law analyses in many developed jurisdictions, including the jurisdictions in which these decisions were rendered. Alternatively, these decisions are also untenable as exercises in contractual interpretation: they do not appear even to consider the language of the parties’ agreement, instead generally declaring conclusorily that a choice-of-law clause only covers contractual issues Second, other national court decisions appear to have adopted presumptions against the application of contractual choice-of-law provisions to tort or other extracontractual issues. As one court declared: ‘Courts do tend, however, to read choice of law provisions narrowly’. Or, as another court held, the parties’ chosen law will only be applied to tort claims where there was an ‘express and unambiguous’ agreement to do so. This analysis is more plausibly justified, although it is unclear why a contractual choice-of-law clause should presumptively extend only to contractual matters (as contrasted, for example, with all aspects of the parties’ legal relationship).

Rather than reading down a contractual choice-of-law clause, international arbitrators might rather consider that these clauses should be read broadly, with a presumption that the parties intended to choose the same law for all claims relating in any way to the contract. Adopting that approach, arbitral tribunals may find that the parties implicitly chose the same law for their contractual and non-contractual claims relating to a contract. This would be a pragmatic and convenient approach, but would be artificial and suffer a lack of rigour if taken too far. Worse still, it could potentially lead to incorrect legal outcomes. Therefore, it is preferable to analyse the law applicable to non-contractual claims in the absence of party choice.

§21.03

LAW APPLICABLE TO TORT CLAIMS IN THE ABSENCE OF PARTY CHOICE

Without an express or implied choice of law for non-contractual claims, the arbitral tribunal will need to determine what law governs the claim. Article 28(2) of the Model Law provides: ‘Failing any designation by the parties [as to the governing law], the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.’ A convenient and logical approach to this exercise involves employing the conflict of laws rules applicable under the contract’s governing law to determine the law governing the non-contractual claims.17 From a practical point of view, using the contractual law’s conflict of laws rules ensures harmony of legal solutions. The substantive laws of the given jurisdiction are applied to the contract and the same 16. G. Born, ‘Chapter 19: Choice of Substantive Law in International Arbitration’ in International Commercial Arbitration, 2nd edition, 2014, pp. 2739-2740 (footnotes omitted). 17. This is the approach preferred by P. Lalive, ‘Les règles de conflit de lois appliqués au fond du litige par l’arbitre international siégeant en Suisse’, (1976) Revue de l’arbitrage 157, p. 164.

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jurisdiction’s conflict of laws rules are used to determine other applicable laws. This method is also consistent with the suggestion, made above in this chapter, to use the contractual law’s characterisation rules to determine whether a claim is or is not non-contractual in the first place. This method is attractive but has some weakness. Contractual choice-of-law clauses often expressly exclude the conflict of laws rules of the jurisdiction designated. Article 28(1) of the Model Law gives the same effect to any contractual choice-of-law clause to which the Model Law applies: ‘Any designation [by the parties] of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules.’ The exclusion of conflict of laws rules is designed to prevent the frustration of the parties’ agreement on the applicable law through the principle of renvoi, because those rules may, in contrast to the choice of law, designate another law. To resolve this difficulty, it may be assumed that the exclusion of conflict of laws rules is intended only to avoid an unexpected law applying to the contract. Arguably, these exclusions need not prevent an arbitral tribunal using those conflict of laws rules for other issues, such as determining the law applicable to non-contractual claims. Apart from applying the conflict of laws rules of the law governing the contract, there are other possible methods for determining the law applicable to non-contractual claims. It has been suggested that the arbitral tribunal could apply the ‘cumulative’ approach, comparing all potentially applicable conflict of laws rules, or alternatively apply international general principles of conflict of laws.18 In complex commercial torts, however, neither of these methods may offer a solution. When it comes to torts, there will rarely be convergence among the conflict of laws rules connected to the dispute, thus making the cumulative approach difficult to achieve. Nor is there much global uniformity regarding the general principles of private international law applicable to non-contractual claims. One widely accepted principle in tort comparative private international law is the law of the place where the tort occurred or alternatively where the damage was suffered. However, in complex international commercial torts the tort and its damage may span several jurisdictions. Even these two possibilities (conduct or damage) could be subdivided if they cross borders. Claude Reymond suggested applying the law of the centre of gravity of a tort.19 But as Peter Nygh explains, such an approach:20 makes the choice of law dependent on the number of contacts the parties, the events and the issue have with the several jurisdictions involved in an interstate or international incident, and gives the controlling voice to the jurisdiction with the most important ‘contacts’. In that jurisdiction the ‘centre of gravity’ of the tort is said to lie.

18. See Gaillard and Savage, supra fn 12, para. 1531. 19. Reymond, supra fn 3, p. 104. 20. P. Nygh, ‘Some Thoughts on the Proper Law of a Tort’, (1977) 26(4) International and Comparative Law Quarterly 932, at p. 933.

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Once again, guidance might be sought from the Rome II Regulation which sets out the European Community’s view on the law governing tort claims. Its basic rule is (Article 4(1)): the law applicable to a non-contractual obligation arising out of a tort/delict shall be the law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur.

There are various special circumstances and exceptions to this rule stipulated in the Rome II Regulation. Of particular relevance to international commercial arbitration is Article 4(3): Where it is clear from all the circumstances of the case that the tort/delict is manifestly more closely connected with a country other than that indicated in [Articles 4(1) and 4(2)], the law of that other country shall apply. A manifestly closer connection with another country might be based in particular on a preexisting relationship between the parties, such as a contract, that is closely connected with the tort/delict in question.

In sum, it is submitted that where an arbitral tribunal finds it inappropriate, for any reason, to rely on the choice-of-law rules of the law governing the contract, arbitrators should be guided by the Rome II Regulation, even in jurisdictions where it does not apply directly.

§21.04

CONCLUDING REMARKS

It has been observed that ‘[t]he realm of the conflict of laws is a dismal swamp, filled with quaking quagmires and inhabited by learned but eccentric professors who theorize about mysterious matters in a strange and incomprehensible jargon. The ordinary court, or lawyer, is quite lost when entangled in it.’21 It is true that the conflict of laws is sometimes complex, while international arbitration should be simple and flexible. Yet the outcome of a choice-of-law inquiry can directly impact on a party’s substantive rights. Parties may choose arbitration for its procedural flexibility, but do not seek arbitrary or unpredictable outcomes. Therefore, for the determination of the law governing non-contractual claims where the parties have not chosen it, international arbitrators should refer to both the characterisation and the choice-of-law rules of the law governing the contract. That legal system should be used to characterise a claim as contractual or not and, if there is a non-contractual claim, to determine which law governs it. Alternatively, for torts, an arbitral tribunal might use the Rome II Regulation for guidance as to the general principles of private international law for. 21. W.L. Prosser, ‘Interstate Publication’, (1953) 51 Michigan Law Review 959, at p. 971, cited in E. Gaillard, ‘The Role of the Arbitrator in Determining the Applicable Law’ in L.W. Newman and R.D. Hill (eds), The Leading Arbitrators’ Guide to International Arbitration, Juris Publishing, 2004, p. 185.

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CHAPTER 22

Life after Death: The Arbitral Tribunal’s Role Following Its Final Award Stuart Isaacs QC

§22.01

INTRODUCTION

Most writings by academics and practitioners on arbitration law and practice focus on the many and varied issues that arise up to the publication of an arbitral award and in connection with the subsequent enforcement of the award. They cover the considerations that arise from as early in time as the decision by the parties to a contract on what form of dispute resolution provisions should be included in it, the parties’ and the arbitral tribunal’s preparations for an arbitration once an arbitration clause is invoked, the conduct of the arbitral proceedings up to and following an oral hearing and the making of the award by the tribunal. The issues that are then discussed progress to those that arise at the stage of the enforcement of an award in terms of the role of the courts and the grounds on which a party may apply to have an arbitration award set aside. In contrast, less attention has been paid to the position after a tribunal has rendered its final award and before the enforcement stage is reached. This is perhaps because of a misunderstanding of the scope of the functus officio doctrine and an assumption that after the tribunal has rendered its award it has no continuing role to play. So the object of this short essay is to explore that corner of arbitration law and practice concerned with the scope of the tribunal’s role after it has rendered its final award, with particular reference to the position in Singapore, Hong Kong and England. Contrary to the general assumption just mentioned, the tribunal’s responsibilities and tasks do not end with the final award. There is life after death. And the after-life is, hopefully, a subject of interest.

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It looks at the position under the UNCITRAL Model Law on International Commercial Arbitration (‘the Model Law’) and the UNCITRAL Arbitration Rules (2013). It also looks at the involvement of arbitral institutions in the post-award stages of an arbitration, with particular reference to the current SIAC Rules of Arbitration (6th ed., 2016) (‘the SIAC Rules’) and HKIAC Administered Arbitration Rules (2013) (‘the HKIAC Rules’) and also to the LCIA and ICC Rules of Arbitration and to certain provisions of the English Arbitration Act 1996. Globally, there are of course, many other institutions, each with its own set of arbitration rules and its own approach towards the matters which are the subject of this essay.

[A]

The Functus Officio Doctrine

Once a tribunal has rendered its final award it is said to be functus officio. But what does that Latin expression entail in practice? A useful starting point is briefly to explain the doctrine of functus officio. Literally, the expression means having discharged one’s office. In the present context, it means that once a final award has been rendered, the tribunal’s authority to act ceases and the reference to arbitration terminates. Article 32(3) of the Model Law provides that ‘the mandate of the arbitral tribunal terminates with the termination of the arbitral proceedings…’. The same doctrine applies to a tribunal’s partial award in relation to the matters which it decides. One of the consequences of the doctrine is that the parties cannot prolong the arbitration proceedings by repeated applications to the tribunal which would result in the tribunal having to revisit matters which it has already decided. In International Petroleum Refining & Supply SDAD Ltd v. Elpis Finance SA (The ‘Faith’) [1993] 2 Lloyd’s Rep 408, a dispute under a charterparty was referred to arbitration. In the arbitration proceedings, the claimant ship owners stood to receive an award in their favour of USD 35,000; and the respondent charterers stood to receive an award of costs in their favour. The tribunal published a reasoned award and informed the parties that the award could be taken up on payment of the tribunal’s costs of about GBP 6,000. But of course neither of the parties knew at that stage what the outcome of the arbitration was; and neither in fact took up the award within the twenty-one day period laid down under the former Arbitration Act 1979 for seeking a review of the award. The award, which was in the ship owners’ favour, was in fact not taken up until over a year after it had been published. The disgruntled charterers then wrote to the tribunal with further submissions but, after various correspondence, the tribunal replied that it was not appropriate for it to comment since ‘[p]lainly we have no jurisdiction to reconsider [the award]’. The charterers then applied to the English Commercial Court for an extension of time for leave to appeal the award. In the course of refusing the application, Hobhouse J said at page 410 that the tribunal’s response was ‘entirely appropriate’. The tribunal, having published its award, was functus officio. An award made with jurisdiction should be final and, since the charterers’ application overlooked that basis principle it was fundamentally flawed. More recently, in Emirates Trading Agency LLC v. Sociedade de Fomento Industrial Private Ltd [2015] EWHC 1452 (Comm), Popplewell J referred at [26] to:

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a longstanding rule of common law that when an arbitrator makes a valid award, his authority as an arbitrator comes to an end and, with it, his powers and duties in the reference: he is then said to be functus officio (see Mustill and Boyd’s The Law and Practice of Arbitration 2nd Edition pp. 404-405 and Companion Volume 404-414). This applies as much to a partial award as to a final award: see Fidelitas per Diplock LJ at p. 644B-E. Absent agreement of the parties, the tribunal may only reconsider or review its decision if the matter is remitted following a successful challenge to the award in Court, or pursuant to the express powers of correction or reconsideration conferred by section 57 of the Act or by the arbitral rules which the parties have agreed to govern the reference. Otherwise the tribunal has no authority or power to do so.

As a result of the functus officio doctrine, the tribunal cannot reopen the case even if fresh evidence comes to light that would have been material to the decision reached. There are other remedies available in that situation such as a remission of the award by the court, on an application to it, to the tribunal. If a tribunal has ruled that it has no jurisdiction, and thus has become functus officio, it has no power to reconsider or reverse its initial award.1 In Tan Poh Leng Stanley v. Tang Boon Jek Jeffrey [2000] SGHC 260, following the making of a final award dismissing the claimant’s claim and the respondent’s counterclaim, an arbitrator acceded to the respondent’s request for a fresh hearing and then made a further award in which he reversed his decision in the earlier award and allowed the counterclaim. In application of the functus officio doctrine, the Singapore High Court held that the second award was a nullity since the arbitrator had lacked the power to reverse the original award. G P Selvam J pointed out that Article 32 of the Model Law expressed the doctrine of finality and functus officio and that there was nothing in the Model Law which authorises the arbitral tribunal to recall or reconsider a final award, after which its mandate was terminated. As the judge observed at [36], ‘[t]he court has no power to resuscitate a dead arbitrator’. In that case, the arbitrator had specifically addressed his mind to whether he was empowered to make the second award and concluded that he did. In the judge’s words at [33], the arbitrator ‘wrote his own writ’: he wrongly assumed the authority to add something to the Model Law, in circumstances where the absence of a power in the Model Law to reconsider the decision contained in a final award is deliberate and founded on the principle of finality and public policy to bring an early end to commercial disputes. Similarly, in ASG v. ASH [2016] SGHC 130, the parties to a large construction dispute requested the sole arbitrator not to deal in his award with the issue of costs. However, contrary to that request, the award disposed of the costs issue. The arbitrator, in response to a request for clarification, then proceeded to issue a correction award in which he attempted to withdraw the costs order in the original award and a subsequent costs award. The plaintiff successfully applied to the Singapore High Court to set aside the part of the correction award dealing with costs and the entirety of the costs award on the ground that the arbitrator, having already made an award of costs 1. Fidelitas Shipping Co Ltd v. V/O Exportchleb [1966] 1 QB 630, Dredging & Construction Co Ltd v. Delta Civil Engineering Ltd [2000] CLC 213.

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in the original award, was functus officio and therefore lacked the jurisdiction to revisit the original costs orders as he had attempted to do in the correction award and the costs award. Coomaraswarmy J concluded that this result was unaffected by the fact that the parties had agreed that the arbitrator should defer his decision on costs for further submissions. Curiously, it appears not to have been argued by the defendant that the arbitrator lacked jurisdiction to make the original costs orders in circumstances where the parties had agreed, during their oral closing submissions at the arbitration hearing, that the issue of costs should not be dealt with in the original award. Instead, the defendant argued that a ‘correction’ should be made to the original award with the effect of withdrawing the costs orders in the original award. Where an award is set aside or is declared of no effect by a court, the functus officio doctrine does not apply. The reasoning for this is that no valid and effective award has in fact been made, and so the tribunal’s jurisdiction is not exhausted by reason of the invalid award having been made. In that situation, the tribunal may proceed to make a fresh award. The court may also remit back to the tribunal for reconsideration in whole or in part an award which it has not set aside or declared to be of no effect, for example where there has been a serious irregularity affecting the tribunal. In that situation, the tribunal will be required to act in accordance with the directions given to it by the remitting court. This may happen, for example, where the tribunal has failed to deal with all the issues put to it, has failed to conduct the proceedings in accordance with the procedure agreed by the parties, or where there is uncertainty or ambiguity as to the effect of the award or a failure to comply with the requirements as to the form of an award.

§22.02

CORRECTION AND INTERPRETATION OF AN AWARD AND ADDITIONAL AWARDS

Where the functus officio doctrine does apply, there are, however, certain limited exceptions to it, in particular relating to the correction and interpretation of an award. As pointed out by Born, International Commercial Arbitration (2nd ed., 2014, Wolters Kluwer): Human fallibility guarantees that all arbitral awards, like all national court judgments and academic treatises, will have mistakes, omissions or ambiguities. These will range from typographical errors, to inaccurate references to evidence or legal authorities, to non sequiturs or unpersuasive analysis, to confusion of parties or outright mathematical miscalculations of amounts; they also may involve failures by the arbitrators to address particular arguments, claims or evidence. These errors usually concern minor or incidental issues and have little or no relevance to the tribunal’s ultimate awards of damages or other relief. … Nevertheless, there are cases where an award contains very serious, but manifest, errors or ambiguities that directly affect one party’s rights. Most obviously, an award’s damages calculation may contain arithmetic mistakes, or an undisputed fact relevant to a damages award may be erroneously recorded (e.g., the number of lost sales in a particular year, the cost of purchasing replacement goods) or may

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have ordered relief that is hopelessly ambiguous or unintelligible; alternatively the tribunal may simply have failed to address one of the claims presented by the parties. In these instances, a party may wish to seek correction, interpretation or supplementation of the arbitral award in order to change the quantum of monetary damages that were awarded, clarify ambiguities, or to address the neglected issue(s). Alternatively, the arbitrators themselves may discover a mistake in their award after notification to the parties, and wish to make a correction upon their own initiative (sua sponte).2

Article 33(1)(a) and 33(2) of the Model Law provide that the tribunal may, either at the request of a party or on its own initiative, correct in the award any errors in computation, any clerical or typographical errors or any errors of a similar nature. Article 38(1) and 38(2) of the UNCITRAL Arbitration Rules are to the same effect. Article 33(1)(b) of the Model Law empowers a party, if so agreed by the parties, without notice to the other party, to request from the tribunal an interpretation of a specific point or part of the award. Article 37(1) of the UNCITRAL Arbitration Rules is to the same effect. Article 33(3) of the Model Law and Article 39(1) of the UNCITRAL Arbitration Rules contain similar provisions in relation to a request for the tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award. Section 69 of the Hong Kong Arbitration Ordinance (Cap 609) provides that Article 33 of the Model Law has effect. In Singapore, section 3 of the International Arbitration Act (Cap 143A) gives effect to the Model Law, subject to the provisions of the Act. Under section 19B(2) of the Act, on an award being made, the tribunal’s powers to vary, amend, correct, review, add to or revoke the award is confined to the powers provided for in Articles 33 and 34 of the Model Law. Consistently with the Model Law, Rule 33 of the SIAC Rules provides for the correction by the tribunal, at the request of a party or on its own initiative, of any error in computation, any clerical or typographical error or any error of a similar nature; for the making of an additional award and for the interpretation of the award. In England, section 57 of the Arbitration Act 1996 is based on Article 33 of the Model Law but is not coextensive with it. Under section 57(3)(a) of the Act, the tribunal has power, on its own initiative or on the application of a party, to correct clerical mistakes or errors arising from an accidental slip or omission or to clarify or remove any ambiguity in the award; and under section 57(3)(b) it also has power to make an additional award in respect of any claim which was presented to the tribunal but was not dealt with in the award. It is worth pointing out that there have been occasions where parties have tried to rely on section 57(3) in order to invite the tribunal to revisit or to correct the substance of its award, on the basis that the party in question believes 2. §24-01, pp. 3112-3113. Born also observes at p. 3123 that it may be an oversimplification to say that the use of the expression functus officio means that the tribunal loses its mandate and that it should instead be understood in the sense that, on the making of an award, the tribunal’s mandate becomes radically transformed and limited.

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the tribunal’s decision to be wrong. However, such a request is beyond the proper scope of section 57(3). Article 27.1 of the LCIA Arbitration Rules (2014) (‘the LCIA Rules’) empowers the tribunal, at the request of a party, to correct in the award any error in computation, any clerical or typographical error, any ambiguity or any mistake of a similar nature. Article 27.2 empowers it also to correct any error (including any error in computation, any clerical or typographical error or any error of a similar nature) upon its own initiative. Article 27.3 entitles a party to request the tribunal to make an additional award as to any claim or cross-claim presented in the arbitration but not decided in any award. Article 37.1 and 37.3 of the HKIAC Rules permit the correction in the award, at the request of either party or by the tribunal on its own initiative of any errors in computation, any clerical or typographical errors, or any errors of similar nature. By Article 37.4, the tribunal has the power to make any further correction to the award which is necessitated by or consequential on the interpretation of any point or part of the award under Article 38 or the issue of any additional award under Article 39. Article 38 empowers the tribunal, at the request of either party, to request the tribunal to give an interpretation of the award. The tribunal’s power under Article 37.4 to make any further correction is said by the authors of A Guide to the HKIAC Arbitration Rules to be a unique provision in the HKIAC Rules which is not found in any other arbitration rules.3 The same is said to be true in relation to the tribunal’s power under Article 38.3 to give any further interpretation of the award which is necessitated by or consequential on the correction of any error in the award under Article 37 or the issue of any additional award under Article 39 and its power under Article 39.3 to make an additional award which is necessitated by or consequential on the correction of any error in the award under Article 37 or the interpretation of any point or part of the award under Article 38.4 Article 36(1) of the ICC Arbitration Rules (2017) (‘the ICC Rules’) provides that, on its own initiative, the tribunal may correct a clerical, computational or typographical error, or any errors of similar nature contained in an award. Article 36(2) provides that a party may apply for the correction of an error of the kind referred to in Article 36(1), or for the interpretation of an award. It can thus be seen that a number of features common to the above jurisdictions emerge: (1) corrections may be made both at the request of a party and on the tribunal’s own initiative; (2) the errors that may be corrected are confined to errors in computation, clerical errors, typographical errors and errors of a similar nature; (3) there is no definition of what may comprise such errors; (4) there are no additional requirements that must be satisfied before an award may be corrected, for example that the correction must have financial or other 3. Michael Moser and Chiann Bao, A Guide to the HKIAC Arbitration Rules (Oxford University Press, 2017) 11.94. 4. Ibid., 11.101 and 11.104.

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consequences for the parties or that it may affect the final outcome of the award; (5) tribunals have the power to interpret an award; (6) it is open to a party to request the tribunal, under the conditions specified, to make an additional award in respect of any claim which was presented to the tribunal but was not dealt with in the award. In England, the position appears not entirely the same, at least at first blush. Section 57(3)(a) of the Arbitration Act 1996 refers to ‘any clerical mistake or error arising from an accidental slip or omission’.5 No express reference is made to errors in computation and no provision is made for the correction of errors ‘of a similar nature’. On the other hand, the provision includes, in addition to the correction of mistakes under the so-called slip rule, a new power to correct an award so as to ‘clarify or remove any ambiguity in the award’. This new power does not permit the arbitral tribunal arbitrators to change its mind completely or to reopen an award to deal with an issue which the award has overlooked.6 Article 27.1 and 27.2 of the LCIA Rules straddle the position under the Model Law and the Arbitration Act 1996: the errors capable of correction are as stated in the Model Law but with the additional power conferred under section 57(3)(a) of the Arbitration Act 1996 to correct an award so as to clarify or remove any ambiguity in the award. Also, the Arbitration Act 1996 contains no express provision whereby the tribunal may, at the request of a party or otherwise, provide an interpretation of the award. The LCIA Rules also do not so provide. It is suggested, however, that the tribunal’s ability to give an interpretation of the award is encompassed by its power to correct an award so as to clarify or remove any ambiguity in it. If so, the tribunal’s powers in this regard are in fact wider than in the other jurisdictions mentioned since their exercise is not dependent on the making of a request to that effect by a party. In England, the process of interpretation so as to clarify or remove any ambiguity in an award takes the form of a correction of the award rather than a formal interpretation of it. Although in practice this may come down to the same thing, as Born points out, in contrast to a correction, an interpretation or clarification of an award does not alter the previous award’s statements or calculations but instead more clearly explains what such statements were intended to mean, without altering them.7 However wide the powers are to correct and interpret an award, correction and interpretation do not entail any appeal procedure or any opportunity to rehear procedural or substantive issues which have been, or could and should have been, dealt with in the proceedings and by way of the award. As already mentioned, the corrections to an award which are envisaged fall into four types: errors in computation, clerical errors, typographical errors and errors of a 5. The reference to an accidental slip or omission is a reference back to the limited power of a tribunal that existed in section 17 of the Arbitration Act 1950, the predecessor legislation to the 1996 Act, which did not extend to errors in thought by the tribunal. 6. Buyuk Camlica Shipping Trading & Industry Co Inc v. Progress Bulk Carriers Ltd [2010] EWHC 442 (Comm) at [42]. 7. Born, §24-04, p. 3141.

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similar nature. The identification of what falls within each of those types will usually be straightforward but it is not always the easy matter which it may seem. A particular error may fall into more than one of those types. Clerical errors can involve such matters as the incorrect names of the parties or tribunal members; incorrect addresses; the incorrect transposition of the parties; or a misspelling which affects the meaning of a word or the use of one word where another was intended.8 Strictly speaking, clerical error is confined to a typographical or administrative mistake in the drawing up of the award resulting from a slip of the pen. It does not include errors arising from an accidental slip or omission resulting in something having been inadvertently inserted or left out of the award. In one sense all errors are accidental, since nobody makes a mistake on purpose. In Sutherland v. Hannevig Brothers Ltd [1921] 1 KB 336, the tribunal mistakenly subtracted steaming time from the time that a vessel was on demurrage, instead of adding it to laytime as it should have done. Rowlatt J held that this was not a clerical error because it was an error in the tribunal’s thought process and not simply an error affecting the tribunal’s expression of its thought.9 That definition of a clerical error – an error affecting the tribunal’s expression of its thought – was followed in Food Corporation of India and Marasro Cia Naviera Shareholders’ Agreement (The ‘Trade Fortitude’) [1986] 2 Lloyd’s Rep. 209 at 216 by Lloyd LJ and applied by Burton J in CNH Global NV v. PGN Logistics Ltd and Others [2009] EWHC 977 (Comm). Some further illustrations from the world of shipping are pertinent here. In Gannet Shipping Ltd v. Easttrade Commodities Inc [2002] 1 Lloyd’s Rep. 713, the tribunal failed to incorporate an agreed figure for demurrage into an award. It was held that this was a clerical error: it was an error because it was wrong; and it was accidental because the tribunal’s use of the incorrect figure resulted from its misreading of some manuscript amendments made in the laytime calculations submitted by the charterers. The sole arbitrator wrote in the award what he intended to write but he was mistaken in the substance of what he wrote. Typographical errors are relatively straightforward and call for little comment. There is often an overlap between this type of error and clerical error. Illustrations from practice include reference to a point being ‘mute’ rather than ‘moot’ and to the subject matter of an arbitration being a contract relating to the supply of sardines rather than soya beans. More commonly, the currency of sums referred to in an award may be incorrectly typed, for example £ instead of $ or S$ instead of US$. Apart from misspellings, incorrect cross-references could come within the scope of typographical error and perhaps also of clerical error. Errors in computation can cover a number of different types of error. For example, the addition or failure to add noughts, incorrect addition, subtraction, 8. See Michael Moser and Chiann Bao, 11.88, footnote 108 citing John Choong and Romesh Weeramantry The Hong Kong Arbitration Ordinance: Commentary and Annotations (2nd ed., 2015) at 385 and 386. 9. As suggested in Robert Merkin and Louis Flannery, Arbitration Act 1996 (5th ed, Informa Law from Routledge) page 236, footnote 24, it seems clear that, on the same facts, under the 1996 Act the tribunal would have the power to clarify the award under section 57(3)(a) and the decision in Sutherland would have gone the other way.

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multiplication or division, an error in calculating the result of a set-off of one party’s claim against the other party’s counterclaim, errors in the calculation of interest, errors in the calculation of the allocation of costs and errors in the calculation (but quaere not the applicability) of taxes such as GST or value added tax. These kinds of error may, depending on the circumstances, also be clerical or typographical errors. In CNH Global NV supra, the tribunal awarded interest on an amount of damages from the date of the award. Pursuant to an application under the predecessor provisions to Article 36(1) of the ICC Rules to correct the award to include interest from the date the sums would have otherwise fallen due, the tribunal issued an addendum to its award which conceded the amendment because of a ‘clerical, computational or typographical error, or an error of a similar nature’. The addendum stated that the tribunal had not intended that the successful party should be deprived of interest on its claims for loss of profits which it would have earned during time periods which had expired prior to the making of the award. The claimant unsuccessfully applied to challenge the award on the ground that the tribunal had no power to correct the award under the ICC Rules and therefore there had been a serious irregularity causing substantial injustice within section 68 of the Arbitration Act 1996. In the course of determining that there had been a serious irregularity, Burton J concluded that it was not possible to say that there had been a clerical error, even on the explanation provided by the arbitrators themselves, since the error was more like an error in the tribunal’s thought process itself, in the sense that it did not accurately express its intention, and not an error affecting the expression of its thoughts. It was also not a computational or typographical error or an error of a similar nature.10 The expression ‘errors of a similar nature’ is by its nature somewhat open-ended. An error of this nature is broader than a mere clerical error since it may encompass an error that has been made not only by the tribunal itself but also by one of the parties or their representatives. Applying the originally Roman law concept of ejusdem generis which has for many years applied in common law jurisdictions, an error of a similar nature must be something close to a clerical, computational or typographical error, albeit not precisely falling within those types. In Mutual Shipping Corp v. Bayshore Shipping Co Ltd (The ‘Montan’) [1985] 1 Lloyd’s Rep. 189, the tribunal incorrectly calculated the amount payable under the award as a result of accepting a particular witness’ evidence but attributing that witness to the wrong party. The English Court of Appeal held that this was not a clerical error but an accidental slip or omission which could be corrected because it was due to the arbitrator’s mental lapse which caused him to transpose the parties in his mind. It would thus also cover, for example, the situation where the award failed to identify all of the counsel on the record for the parties; where the award failed to mention all of the witnesses who gave evidence or mentioned the wrong witnesses; and where the calculation of interest in an award omitted to take into account debit notes to which the respondent was entitled.

10. The application failed because although there had been a serious irregularity it was not one which caused substantial injustice.

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In Tay Eng Chuan v. United Overseas Insurance Ltd [2009] SGHC 193, the applicant, a litigant in person, filed a notice which requested the arbitral tribunal to clarify and correct and make an additional award for what he considered were ‘mistakes’ in its award. The alleged ‘mistakes’ consisted of two instances where the award referred to the financial position of the respondent instead of that of the claimant and three instances where the applicant asked for the award to be corrected so as to ‘allow’ claims which were rejected in the award. The applicant also sought an additional award for costs to compensate him for his time spent on the arbitration. The issue arose in the context of the applicant’s claim for a declaration as to the date when the twenty-eight days prescribed in the Arbitration Act (Cap 10, 2002 Rev Ed) then in force for the making of an application or appeal relating to an arbitral award began to run. Judith Prakash J held at [16] that the procedure in section 43(1)(a) of the Act for the correction of computational, clerical or typographical errors or other errors of a similar nature: is to allow for the correction of obvious errors in calculation or phraseology or reference. It does not function as a procedure which allows the arbitrator to correct mistakes in his findings whether those mistakes are mistakes of fact or mistakes of law. If a party to an arbitration considers that such a mistake has been made, then he may challenge the award by using any available arbitral process of appeal or review which is provided in the Act.

Only ‘technical and non-substantive’ errors are open to correction [18]. Unsurprisingly, the court held that only the first two instances of alleged ‘mistakes’ referred to in the notice pertained to clerical slips which could properly be corrected. The judge said at [17] that: The other four ‘clarifications and/or corrections’ asked for were directed at the substantive findings of the tribunal which the applicant had taken issue with and wanted corrected. The applicant put his request to the arbitrator as a request for correction. He did not ask for an interpretation of the award, a matter in respect of which he would have needed to consent of the respondent. Nor did he ask for the making of an additional award under section 43(4).

It can safely be assumed that the respondent would not have given its consent to a request for the interpretation of the award. Even if it had done so, it must be doubted whether the tribunal would have considered it appropriate to accede to the request. Note that the judge’s statement that the applicant did not request the making of an additional award must be read as meaning that he did not request the making of an additional award for clarification of the original award, as opposed to the request for an additional award which was made in respect of the applicant’s claim for his costs to compensate him for his time spent on the arbitration. In ASG v. ASH supra, the correction award issued by the arbitrator included a ‘correction’ which had the effect of withdrawing the costs order made in the original award. A ‘correction’ of that nature is plainly not within the scope of permissible corrections but the question did not arise directly for decision since that part of the

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correction award dealing with costs was set aside on the ground that the arbitrator was functus officio when he purported to make it. As already observed, in some cases, the tribunal may give a free-standing interpretation of its award. In other cases, a correction of the award may be necessary in consequence of the interpretation given. The interpretation of an award is generally understood to be permissible only where the terms of an award are so vague or confusing that a party has a genuine doubt about how the award should be carried out. Hence, where the reasoning in an award is clear but a party alleges that the award is not sufficiently reasoned, it is suggested that the tribunal cannot and should not interpret the award. On the other hand, where the tribunal’s reasoning or decision is not clear, it is suggested that the tribunal can and, if it considers it appropriate, should interpret the award. It would also be a step too far to regard as ‘interpretation’ requests to the tribunal for clarification of its factual findings in order to ascertain which precise documents and other evidence the tribunal relied on in support of the findings in question and for a party to seek so-called interpretation of the award on the basis that the tribunal did not in its award address all of the parties’ submissions. Commentators have disagreed on whether the correction of an award can be used to alter its meaning. Some earlier writers have suggested that it cannot be so used.11 However, it is submitted that the better view is that expressed by Born, namely that a correction is made precisely in order to alter the effect ‘and, on most views of the term, the meaning – of an award’.12 The question may in the end come down to what is meant by the meaning of an award: as Born observes, it is correct to say that a correction ensures that the arbitrators’ true intentions are fully effectuated (and not to alter those intentions) but it is difficult to conclude that a correction does not change the (mistaken) meaning of their original award.13 The Secretariat’s Guide to ICC Arbitration14 provides useful guidance on when it may be appropriate for an arbitral tribunal to accede to a request for interpretation: 3-1275 In practice, applications for interpretation (as opposed to correction) are rarely accepted. Most arbitral tribunals find that to be admissible a request for interpretation must seek to clarify the meaning of an operative part of the arbitral tribunal’s decision. Therefore, requests for interpretation should generally target the dispositive section of the award or other parts that directly affect the dispositive section or the parties’ rights and obligations. Most such ambiguities will normally have been identified by the [ICC] Court during the scrutiny process. 3-1276 Many applications for interpretation amount to attempted appeals aimed at altering the meaning of an award, raising an additional issue or attempting to have the arbitral tribunal reconsider its decision or the evidence. Article 35(2) [of the 2012 Rules] does not empower an arbitral tribunal to revise the outcome or

11. For example, Emmanuel Gaillard and John Savage (editors), Fouchard, Gaillard, Goldman on International Commercial Arbitration ¶1416 (1999). 12. Born, §24-03, p. 3126. 13. Ibid. 14. Jason Fry, Simon Greenberg and Francesca Mazza, The Secretariat’s Guide to ICC Arbitration (2012 edition).

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reasoning of its award. Attempted appeals accordingly do not fall within the scope of Article 35(2).

Paragraph 3-1265 of the same work states that the interpretation provisions of the Rules do not permit the arbitral tribunal to deal with additional claims or arguments and that it is limited to situations involving clear errors or vague language. Any attempted appeals fall outside the scope of those provisions and may prompt the tribunal to order the applicant to pay the additional fees, costs and expenses incurred in consequence of the application.

§22.03

TIME LIMITS

There is a clear tension between, on the one hand, the need for finality in the arbitral proceedings and, on the other hand, the existence of ongoing issues in relation to an award which may give rise to a need for its correction, interpretation or supplementation. Thus strict time limits are imposed ‘in order to safeguard the finality of awards, to limit uncertainty and to prevent ongoing disputes after an award has been made’.15 The time limits vary but are invariably relatively short and will be strictly enforced. In the case of institutional arbitration, the request to correct an award or for an additional award is made not to the tribunal itself but to the relevant institution. Under Article 33 of the Model Law, any request for the correction or interpretation of an award or for an additional award must be made within thirty days of receipt of the award, unless another period of time has been agreed between the parties. If the tribunal considers the request to be justified, it must make the correction or give the clarification within thirty days of receipt of the request and the interpretation then forms part of the award. The tribunal itself has thirty days from the date of the award within which to make a correction. The tribunal is allowed a sixty day period from the date of a request within which to make an additional award. Article 33(4) gives the tribunal the power to extend, if necessary, the period of time within which to make a correction, interpretation or an additional award pursuant to a party’s request. Under Articles 38.1 and 37.2 respectively of the UNCITRAL Arbitration Rules, the tribunal is allowed a period of only forty-five days from receipt of a request within which to make any correction in the award or to give an interpretation of the award. In England, any application for the exercise by the tribunal of the powers referred to in section 57(1)–(3) of the Arbitration Act 1996 to correct an award or make an additional award must be made within twenty-eight days of the date of the award. Under section 57(4)–(6), if the correction is made at a party’s request, the tribunal has twenty-eight days from the date the application was received by the tribunal to make the correction. Any additional award must be made within fifty-six days of the date of the original award. In each case, however, it is open to the parties to agree on a longer period. 15. Born, §24-03, p. 3125, referring to Howard Holtzman and Joseph Neuhaus, A Guide to the Model Law on International Commercial Arbitration: Legislative History and Commentary 889 (1989) and also Peter Binder, International Commercial Arbitration and Conciliation in Model Law Jurisdictions ¶6-100 (3rd ed, 2009).

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The LCIA Rules apply the time limits laid down by section 57 of the Arbitration Act 1996. Under Article 27 of the LCIA Rules, a request must be made to the Registrar within twenty-eight days of receipt of any award and the correction must be made within twenty-eight days of receipt of the request. The tribunal also has twenty-eight days within which to make any correction on its own initiative, after consulting the parties. The correction takes the form of a memorandum. Any additional award pursuant to a request must be made within fifty-six days of the date of the original award. An additional award made by the tribunal on its own initiative must, however, be made within twenty-eight days of the date of the award, after consulting the parties. Under Rule 33 of the SIAC Rules, a request for a correction, interpretation or additional award has to be made to the Registrar within thirty days of receipt of any award. Any correction has to be made or any interpretation given within thirty days of receipt of the request. The tribunal also has thirty days within which to make any correction on its own initiative, after consulting the parties. A correction may be made in the award or in a separate memorandum. Any correction or interpretation forms part of the award. Any additional award must be made within forty-five days of the receipt of the request. Under Rule 33.5, the Registrar may, if necessary, extend the period of time within which a correction, interpretation or an additional Award must be made. Under Article 36 of the ICC Rules, the procedure is slightly different. On its own initiative, the tribunal may make a correction or interpretation provided that such correction is submitted for approval to the ICC Court within thirty days of the date of the award. Where it is a party which seeks a correction or an interpretation, it must apply to the Secretariat within thirty days of the receipt of the award. After transmittal of the application by the Secretariat to the tribunal, the tribunal must then grant the other party a short time limit, normally not exceeding thirty days, from the receipt of the application by that party, to submit any comments thereon. The tribunal must then submit its decision on the application in draft form to the Court not later than thirty days following the expiration of the time limit for the receipt of any comments from the other party or within such other period as the Court may decide.16 In Hong Kong, under Articles 37, 38 and 39 respectively of the HKIAC Rules, the request for correction or interpretation or for an additional award is made not to the HKIAC but to the tribunal and must be made within thirty days of receipt of the award. The thirty-day period for correction or interpretation is shorter than the forty-five days previously provided for. The tribunal may then set a time limit, normally not exceeding fifteen days in the case of a request for a correction or interpretation and thirty days in the case of a request for an additional award, for the other party to comment on such request. The arbitral tribunal must make any corrections or give any interpretation it considers appropriate within thirty days after receipt of the request and must make any additional award within sixty days after receipt of the request but may extend such period of time if necessary. Corrections made of the tribunal’s own initiative must be made within thirty days after the date of the award. 16. For an interesting discussion of the origins of Art. 36, see Eric Schwarz and Yves Derains, A Guide to the ICC Rules of Arbitration (2nd ed, 2017) Wolters Kluwer pp. 321 et seq. (in relation to its predecessor provisions in Art. 29 of the 2012 Rules.

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A request for an additional award would be justified where, for example, where the tribunal omitted from its award certain sums admitted by the respondent to be due by way of damages or failed to rule on claims for costs and expenses. In contrast, a request for an additional award in respect of a claim not in fact presented during the arbitration proceedings would not be legitimate. In some instances, questions may arise as to when an award is received for the purpose of the start date for an application for the correction or interpretation of an award or for an additional award. What happens, for example, where a tribunal sends the parties its award in unsigned form but states that the tribunal has agreed on it and that a signed award will be provided in due course? On a strict approach, time would only begin to run from the date of receipt by the parties of the signed award. But any prudent practitioner would say that the safer course is to take as the start date the date on which the unsigned award is received. Again, what happens where, for reasons of urgency or otherwise, a tribunal informs the parties of the decision contained in the award and states that it will provide its reasons at a later date? In that situation, it is suggested that because any application for correction or interpretation or for an additional award would require the reasons for the tribunal’s decision to have been communicated to the parties, time would only begin to run from the date of receipt of the reasoned award.

§22.04

NOTIFICATION AND PUBLICATION OF AN AWARD

This final section looks at some practical issues that arise after the tribunal has made its award relating to its notification to the parties. Unless the lex arbitri provides otherwise, these matters may all be open to party autonomy. The parties’ agreement on these matters may either result from their selection of a set of arbitration rules which apply to the arbitration or else be the result of a specific ad hoc agreement reached at the start or even in the course of the arbitration proceedings. The question whether the notification of an award by the tribunal to the parties falls outside the scope of the functus officio doctrine or else is an exception to it may be a matter for debate. The answer may depend on whether the applicable rules provide for notification to take place by an arbitral institution or by the tribunal itself. In the former case, notification is no part of the tribunal’s function and so the functus officio doctrine has no application. In the latter case, notification can be viewed either as part of the tribunal’s functions before its mandate terminates or as a purely administrative act and so the doctrine has no application or else as an exception to the doctrine. Although the answer to the question is of little practical significance, the conundrum may be illustrated by the position under the Model Law. Article 32(3) of the Model Law makes clear that the mandate of the arbitral tribunal terminates with the termination of the arbitral proceedings, subject to the provisions of Articles 33 and 34(4) dealing with correction and interpretation. Article 32(1) states that the arbitral proceedings are terminated by the final award (or by an order of the tribunal for the termination of the proceedings in accordance with Article 32(2)). It would seem that this must refer to the delivery of the final award to the parties, which has to be done by the arbitrators,

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because otherwise the arbitrators would be functus and would have no mandate to deliver the award to the parties. The procedures for the notification of awards differ. One method is the direct delivery of the award by the tribunal itself. Article 31(4) of the Model Law requires a copy of the award to be delivered to each party but does not state by whom. However, Article 34(6) of the UNCITRAL Arbitration Rules directs that the responsibility for the communication of copies of the award signed by the arbitrators lies with the arbitral tribunal itself. Article 2 of the UNCITRAL Arbitration Rules contains useful provisions in a situation where a party may refuse to accept delivery of the award for deemed notification to that person. A variant of the method prescribed in the UNCITRAL Arbitration Rules is seen in the HKIAC Rules. Article 34.6 of the HKIAC Rules provides that, subject to any lien, originals of the award signed by the arbitrators and affixed with the seal of HKIAC shall be communicated to the parties and HKIAC by the arbitral tribunal, with HKIAC to be supplied with an original copy of the award. Another method is delivery by the arbitral institution under whose rules the arbitration proceedings are being conducted. Under Rule 32.8 of the SIAC Rules, the responsibility rests with the Registrar to transmit certified copies to the parties upon full settlement of the costs of the arbitration. Similarly, under Article 26.7 of the LCIA Rules, the responsibility rests with the LCIA Court to transmit to the parties the award, authenticated by the Registrar as an LCIA award, provided that all arbitration costs have been paid. The LCIA Rules expressly permit transmission to be made by any electronic means, in addition to paper form (if so requested by any party) and provide that, in the event of any disparity between electronic and paper forms, the paper form shall prevail. Article 35(1) of the ICC Rules gives the Secretariat the responsibility to notify to the parties the text signed by the arbitral tribunal, provided always that the costs of the arbitration have been fully paid to the ICC by the parties or by one of them. Irrespective of the means of notification of an award to the parties, the effect of notification is threefold. First, notification makes the award final and binding on the parties. Rule 32.11 of the SIAC Rules adds that any award is final and binding ‘from the date that it is made’. It is not clear what the effect of those words is: taken literally, the parties are bound from the date that the award is made, even though it may not at that date have been communicated to the parties. Once an award has become final and binding it gives rise to a res judicata as between the parties (or their successors) with respect to the subject matter of the arbitration. Second, the award is enforceable in the place of arbitration, unless the applicable law provides otherwise. Perhaps more importantly, from its notification, the award may be recognised and enforced abroad under the New York Convention. The only exception to this is where the party against whom the award is sought to be enforced provides proof that the award ‘has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made’ – Article V(1)(e) of the New York Convention. Third, notification of the award triggers the time limits for any remedies that may be available against it. These cover both agreed time limits for making an application

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to correct or interpret an award and statutory ones such as for making an application to set the award aside. Some nice questions may arise in cases where the arbitrator in an institutional arbitration has bypassed the requirement for the institution to notify the parties of the award by delivering the award directly to the parties. Does the award in those circumstances create a res judicata? It is suggested that the answer is yes, since the award has been rendered by the tribunal authorised to do so and has been notified to the parties, albeit not through the agreed channel. Would the delivery of the award directly to the parties provide a ground for setting aside the award? For example, under Article 34(2)(a)(iv) of the Model Law, an award may be set aside where the applicant provides proof that ‘the arbitral procedure was not in accordance with the agreement of the parties’. It is suggested that there would be a ground for setting aside but that the prospect of the national court dealing with the matter, which has a discretion whether or not to set aside, doing so would be remote. The same consideration would apply in relation to the existence of a ground for refusing recognition of the award under the New York Convention, Article V(2)(d) of which is in materially the same terms as Article 34(2)(iv) of the Model Law. It is important that, once signed by the arbitral tribunal, the award be notified to the parties without delay. Section 55(2) of the English Arbitration Act 1996 expressly provides that, in the absence of the parties’ agreement on the requirements as to notification of the award to the parties, the award is to be notified to them by service of copies of the award without delay after the award is made. The ICC always expressly reminds tribunals that an award should be transmitted to it for onward notification to the parties as soon as possible after the award is made. The reason why this is important is so that a party is not placed in the position of being too late to challenge an award if the relevant date for recourse against the award is the date on which it was made. An award must, for reasons of equality of treatment, be notified to each party on the same date, so as to make sure that the deadline for making any challenge expires for each party on the same date. If an award were notified only to the winning party and it does not disclose its existence to the losing party until after the time limits for challenging the award has passed, there is obvious unfairness and prejudice to the losing party.17 Simultaneous notification to each party may, however, not always be possible, for example where notification has to be made abroad, where email communication may be unreliable and couriers may take more than just a few days to delivery packages. In such cases, the tribunal may again be well advised to anticipate these difficulties by requiring the parties in advance to appoint a representative, preferably in the place of arbitration or where the tribunal is located, who is authorised to receive the award on behalf of the party in question.

17. Albeit that the English court, under section 79 of the Act, would have a discretion to extend time.

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Jurisdiction, Admissibility and Choice of Law in International Arbitration V.V. Veeder QC*

‘Quxotic Limitations on Party Autonomy under the United Kingdom’s Arbitration Act 1996’

§23.01

INTRODUCTION

There are surprising limitations on party autonomy under the United Kingdom’s Arbitration Act 1996 for international arbitrations between commercial parties. The starting-point is London (or elsewhere in England and Wales or Northern Ireland) being designated or determined as the juridical seat of the parties’ arbitration within the broad meaning of Section 3(a) of the 1996 Act. That designation can be made by the parties themselves, an arbitral institution (such as the ICC Court) and the arbitration tribunal (under the UNCITRAL, SIAC or LCIA Rules), or otherwise determined, in the absence of any such designation, by the English Court.1 Hence, by virtue of such an English seat and Section 2(1) of the 1996 Act, Part I of the 1996 Act applies to the parties’ arbitration taking place under their arbitration agreement.2 But for that seat, * I am much indebted to Toby Landau QC for his original comments on Section 4(5) of the Arbitration Act 1996. All errors and opinions are, however, mine alone. 1. Section 3 of the 1996 Act provides: ‘In this Part “the seat of the arbitration” means the juridical seat of the arbitration designated – (a) by the parties to the arbitration agreement, or (b) by any arbitral or other institution or person vested by the parties with powers in that regard, or (c) by the arbitral tribunal if so authorised by the parties, - or determined, in the absence of any such designation, having regard to the parties’ agreement and all the relevant circumstances.’ Under Section 5 of the 1996 Act, the arbitration agreement, designating the arbitral seat (whether directly or indirectly, expressly or impliedly) must be ‘in writing’ as there defined. 2. Section 2(1) of the 1996 Act provides: ‘The provisions of this Part [Part 1] apply where the seat of the arbitration is in England and Wales or Northern Ireland.’

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the parties, their dispute and their arbitration could have nothing to do with English law, whether as part of the applicable substantive law, the lex arbitri, the 1996 Act or otherwise. This contribution examines two quixotic features of the 1996 Act impinging upon party autonomy exercised by international commercial parties in regard to: (i) predispute agreements on costs in their arbitration agreement; and (ii) the absence of any express provision in their arbitration or other agreement for pre-award interest. The former is a real problem; but the second, it is suggested, is a myth.

[A]

Costs

Under Section 60 of the 1996 Act, any agreement between the parties to an arbitration with an English seat which has the effect that a party is to pay the whole or part of the costs of the arbitration ‘in any event’ is only valid if made after the dispute in question has arisen.3 This is a ‘mandatory’ provision from which the parties may not derogate, as a matter of English public policy.4 The costs of the arbitration here include the parties’ legal costs, as well as the costs of the arbitrators and any arbitral institution.5 As to timing, the parties may agree in writing at any time after their dispute has arisen that costs should be paid by one party ‘in any event’ (up to the making of the award), but not before their dispute has arisen; e.g., in a standard or printed form of contract such as the early Bermuda forms of excess liability insurance.6 This statutory provision was not new to the 1996 Act. It re-enacted Section 18(3) of the Arbitration Act 1950, which itself re-enacted Section 12(1) of the Arbitration Act 19347 The latter provision resulted from the recommendations of the 1927 MacKinnon Report on Arbitration.8 The MacKinnon Committee had heard evidence that older 3. Section 60 of the 1996 Act provides: ‘An agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration in any event is only valid if made after the dispute in question has arisen.’ 4. Section 4(1) and Schedule 1 to the 1996 Act. 5. Section 59 of the 1996 Act. 6. The Bermuda standard forms for excess liability insurance provided (prior to the Bermuda standard form XL004) that the costs of the arbitration ‘shall be borne equally by the parties to such arbitration’. See also R. Jacobs, L.S. Masters and P. Stanley, Liability Insurance in International Arbitration – The Bermuda Form (2011; 2nd ed), paras 11.61 and 17.32. Since the mid-1980s, the Bermuda forms have been the principal wording on which high value excess insurance for legal liability is written for US-based insureds. The forms’ common feature is a hybrid arbitration agreement providing for London Arbitration and the application to the merits of New York substantive law by the arbitration tribunal. 7. Section 12(1) of the 1934 Act provided: ‘Any provision in an arbitration agreement to the effect that the parties or any party thereto shall in any event pay their or his own costs of the reference or award or any part thereof shall be void; and the principal Act [the 1889 Act] shall in the case of an arbitration agreement containing any such provision have effect as if that provision were not contained therein: Provided that nothing herein shall invalidate such a provision when it is part of an agreement to submit to arbitration a dispute which has arisen before the making of such agreement.’ As noted by Quintin Hogg (later Lord Hailsham LC), this provision did not apply to oral arbitration agreements: see The Law of Arbitration (1936), p. 175. Similarly, the 1996 Act (Part 1) does not apply to such agreements, but in practice these are exceedingly rare. 8. The Report of Committee on the Law of Arbitration, March 1927, p. 14 (Cmnd 2817). The MacKinnon Committee was chaired by Mr Justice MacKinnon, who had earlier chaired the

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insurance policies provided that each side should bear its own costs, although (so it found) new policies generally did not. The Committee was nevertheless concerned that such a term could drive an insured (as the financially weaker party) to compromise with its insurer (as the stronger party), rather than continue the proof of items of its claim at its own irrecoverable expense. The Committee concluded that, as a matter of public policy, a term ‘in a common form of arbitration clause that each side shall pay his own costs shall be void, and that the arbitrator or umpire, notwithstanding such [term], shall have full power to order either party to pay the costs’.9 By ‘common form’, the Committee meant arbitration clauses in printed forms of contract, i.e. contracts of adhesion drafted and imposed by the stronger commercial party. However, for the 1934 Act, the United Kingdom Parliament decided to make the provision of general application, not limited to printed forms or contacts of adhesion.10 It also decided, as advised by the McKinnon Committee, not to limit its application to contracts of insurance, from which the original mischief had apparently originated. Nor did the 1934 Act distinguish between consumer and commercial disputes or limit its application to domestic arbitrations or contracts subject to English substantive law. This issue of public policy was reconsidered by the Departmental Advisory Committee on the Law of Arbitration responsible for drafting the arbitration bill which was submitted to Parliament and enacted as the 1996 Act (the ‘DAC’). The DAC baldly concluded ‘that public policy continues to dictate that such a provision should remain’.11 This succinct recommendation addressed a non-existent problem in practice that was barely evident to the MacKinnon Committee in 1927, some seventy years earlier. It did not derive from the 1985 UNCITRAL Model Law: to the contrary, it conflicted with Articles 19 and 28 of the Model Law. As with several other re-enacted provisions, Section 60 of the 1996 Act smacks of legislative compromise. Moreover, it was inserted in Part I of the 1996 Act applicable to international arbitration and not Part II applicable to domestic arbitration.12 Not unreasonably, this infringement of the principle of party autonomy in Part I of the 1996 Act has been attacked by many international commentators and international users of London Arbitration.13 It remains a problem for party autonomy, unlikely to be remedied within the foreseeable future by

9. 10. 11.

12.

13.

experts’ committee at the League of Nations responsible for the 1923 Geneva Protocol on Arbitration Clauses. Its members included Sir Thomas Chitty (late Senior Master), Sir James Martin (President of the London Chamber of Commerce), F.B. Merriman KC MP (later Solicitor-General) and W. Raeburn KC. The 1927 MacKinnon Report, ibid., p. 14. Notes on Clauses to the Arbitration Bill 1934, regarding ‘Clause 13 – Provisions as to Costs’, p. 50 (PRO: LCO 2/1789 XL 25358). DAC Report of February 1996, para. 267 (See Mustill and Boyd’s Commercial Arbitration, 2001 Companion, pp. 345 & 439, here cited as ‘M&B Companion’). To the best of my knowledge, the DAC had received no written submissions from users regarding the re-enactment of Section 18(3) of the 1950 Act. Sections 85-87 of Part II on domestic arbitration agreements have never been brought into force, owing to the effect of EU law as decided by the English Courts in Philip Alexander v. Bamberger [1996] CLC 1757; see the DAC Report of January 1997, paras 47ff and M&B Companion, pp. 470-471 and 377-378. After ‘Brexit’ in or after 2019, it is possible that these provisions in Part II may be brought into force by the United Kingdom Parliament. For example, see W.W. Park, ‘Arbitration in the Autumn’ (2011) 2:2 Journal of Int Dispute Settlement 1, at pp. 20-21.

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any amendment to the 1996 Act. In the meantime, doubts must exist as to the enforceability outside England of a costs award subjected to Section 60, for the failure of the arbitral procedure to accord with the agreement of the parties under Article V(1)(d) of the New York Convention or Article 36(1)(a)(iv) of the Amended UNCITRAL Model Law. The simplest solution is for international users of London Arbitration to draft their arbitration agreements differently, in conformity with Section 60 of the 1996 Act. Thus, the current Bermuda forms simply provide that any order as to the costs of the arbitration shall be in the sole discretion of the arbitration tribunal.14 This forced solution does not accord with party autonomy; and for present purposes, it can be discarded as providing no solution at all. A partial solution to Section 60, consistent with party autonomy, is however, is possible in practice. Early in the arbitration, particularly at the first procedural meeting (whether held in person or by telephone), the arbitration tribunal can record in a written consent order, made with the authority of the parties, that the parties agree to confirm the offending provision in or incorporated into their arbitration agreement.15 At that time, taking place after the parties’ dispute has arisen, both sides usually retain a common interest in doing so. Alternatively, if one or more parties intend (as the likely prevailing party in the arbitration) to receive an award recovering their costs, the effect of Section 60 can be explained by the arbitration tribunal to the parties at the outset of the arbitration, without the risk of any later unpleasant surprise.16 There have been such surprises: unfortunately not a few arbitrators have overlooked (with the parties) the effect of Section 60, with damning results for their award under Section 67 or 68 of the 1996 Act in the English Commercial Court.17 Whilst this incomplete solution may often work in practice, it does not of course work in theory. Accordingly, as Professor W.W. Park has fairly concluded: ‘The provision casts a wide net, catching even reasonable arrangements among sophisticated business managers to split arbitrator compensation on a 50/50 basis, and/or to require each side to cover its own legal expenses. In such an instance, what is to be done by a conscientious arbitrator?’18 In the absence of further agreement by the parties, that arbitrator’s choice lies between making a costs award invalid under English law or, alternatively, unenforceable under the New York Convention and Amended Model Law. Section 60 is therefore a regrettable quixotism on the 1996 Act’s escutcheon.

14. D. Scorey, R. Geddes and C. Harris, The Bermuda Form (2011), paras 16.11 and 22.35ff (in regard to Bermuda Form XL004); see also R. Jacobs et al, ibid., para. 11.60. 15. Under Section 5(4) of the 1996 Act, there is an agreement if ‘recorded by a third party with the authority of the parties to the agreement’; i.e., by the arbitration tribunal in a written consent order. 16. Article VI.N (Arbitration) and VI.O (Law of Construction and Interpretation); see R. Jacobs et al, ibid., para. 15.21. 17. These cases have not been reported publicly. 18. W.W. Park (2011), ibid., p. 20.

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§23.01[B]

Interest

The issue of pre-award interest is different. It results from an unfortunate misunderstanding of a judgment of the House of Lords on the 1996 Act: Impregilo v. Lesotho.19 This misunderstanding is widely shared and has made legal commentators more than cautious.20 The Lesotho case concerned an ICC arbitration (with an English seat) between parties to a major construction dispute in the Kingdom of Lesotho, where the arbitration tribunal had awarded to the contractors pre-award interest under Section 49 of the 1996 Act on compensation awarded in foreign currencies under Section 48 of the 1996 Act. The employer contended that both pre-award interest and compensation should have been addressed under the parties’ chosen applicable law, namely the law of Lesotho (with very different results highly favourable to the employer) and not under Sections 49 and 48 of the 1996 Act. The employer challenged the award before the English Courts under Section 68 of the 1996 Act on the ground of serious irregularities. After judgments to different effect by the Commercial Court and the Court of Appeal, the House of Lords dismissed the employer’s challenge by a majority. (For reasons of space, this contribution addresses only the issue of pre-award interest and not also the issue of currency; but both issues raise similar points on party autonomy under the 1996 Act). This issue of pre-award interest arises where the parties have expressly agreed that the arbitration tribunal must apply a non-English substantive law to the merits of their dispute (e.g., Lesotho law as in Lesotho or, more commonly, New York law as in the Bermuda forms). That agreement is in writing within the meaning of Section 5 of the 1996 Act.21 The parties have not agreed to the application of any other applicable substantive law. As with most contractual references to a substantive law, it is a succinct reference to that law without spelling out in the arbitration agreement expressly the full contents of that law, e.g., its specific provisions on pre-award interest. Hence (in the case of New York law), by virtue of Section 46(1)(a) and 46(2) of the 1996 Act,22 the arbitration tribunal is required, by contract and statute, to apply New York law as the substantive law chosen by the parties for the determination of their dispute. The question then is whether the tribunal may also exercise the power to

19. Lesotho Highlands Development Authority v. Impregilo Spa & Ors [[2005] UKHL 43, 2006] 1 AC 221, reversing the Court Appeal [2003] EWCA Civ 1159, affirming the Commercial Court on different grounds [2002] EWHC (Com) 2435 (Morison J); see also, for a French translation, Rev arb 2006.1011 (with case-note by this author and S. Moollan QC). The judgment of the House of Lords is here cited as ‘Lesotho’. See also A. Crivellaro, ‘All’s Well That Ends Well … ’ [2005] ICLR 480; A. Sheppard ‘Currency of Awards and Interest’ (2003) International Arbitration Law Review 54; and W.W. Park, ‘The Nature of Arbitral Authority: A Comment on Lesotho Highlands’ (2003) Arb Int 483. 20. For example, see R. Jacobs et al., ibid., para. 17.12-17.16. 21. For Section 5 of the 1996 Act, see footnote 1 supra. 22. Section 46(1)(a) and 46(2) of the 1996 Act provide that the arbitral tribunal ‘shall decide the dispute in accordance with the law chosen by the parties as applicable to the substance of the dispute’ and, for that purpose, ‘the choice of the laws of a country shall be understood to refer to the substantive laws of that country and not its conflict of laws rules’.

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order pre-award interest under Section 49(3) of the 1996 Act as a default ‘nonmandatory’ provision, notwithstanding the parties’ agreement on the application of New York substantive law and its provisions on pre-award interest.23 The starting-point is Section 4(5) of the 1996 Act. It provides: ‘The choice of a law other than the law of England and Wales or Northern Ireland as the applicable law in respect of a matter provided for in a non-mandatory provision of this Part [i.e., Part I] is equivalent to an agreement making provision about that matter. For this purpose an applicable law determined in accordance with the parties’ agreement, or which is objectively determined in the absence of any express or implied choice, shall be treated as chosen by the parties.’ This was a new statutory provision for the law of arbitration in England; but it was not new to English law as the lex loci arbitri. It was explained as follows by the DAC in its Report of February 1996 ‘Sub-section 5: Although we believe that the choice of a foreign law would anyway have the effect set out in this provision, it seemed for the sake of clarity to be useful to state this expressly, so as to remind all concerned that a choice of a foreign law does amount to an agreement of the parties to which due regard should be paid.’24 Next, it is necessary to consider Section 49 of the 1996 Act as regards interest. Section 49 is not a ‘mandatory’ but a ‘non-mandatory’ provision.25 Under Section 4(2) of the 1996 Act, non-mandatory provisions ‘allow the parties to make their own arrangements by agreement but provide rules which apply in the absence of such agreement’. Consistent with Section 4(5), Section 49(1) provides: ‘The parties are free to agree on the powers of the tribunal as regards the award of interest.’ Only in the absence of such agreement (the provision uses the phrase ‘unless otherwise agreed’), do the default provisions apply under Sections 49(2)–(6), including Section 49(3) on pre-award interest.26 In the DAC Report of February 1996, it explained the intention underlying what became Section 4 of the 1996 Act as regards ‘mandatory’ and ‘non-mandatory’ provisions, such as Section 49: ‘This provision is intended to make clear that the [Arbitration] Bill has certain provisions that cannot be overridden by the parties, and for ease of reference these are listed in Schedule 1 to the Bill. The Clause also makes clear that the other provisions of this Part can be changed or substituted by the parties, and exist as ‘fall-back’ rules that will apply if the parties do not make any such change or substitution, or do not provide for the particular matter in question. In this way, in

23. Under New York law, Section 5001(a) CPLR provides that interest ‘shall be recovered upon a sum awarded because of a breach of performance of a contract’; and Sections 5001(b)-5004 address the commencement dates, computation and rates of such interest. (It is assumed, for present purposes, that these provisions are to be characterised as forming part of New York’s substantive law.) 24. DAC Report of February 1996, para. 29 (M&B Companion, p. 401). 25. Section 4 and Schedule 1 of the 1996 Act. 26. Section 49(3) of the 1996 Act provides: ‘The Tribunal may award simple or compound interest from such dates, at such rates and with such rests as it considers meets the justice of the case on any amount awarded by the tribunal.’ These provisions give broader powers to arbitration tribunals to award interest than those exercised by the English High Court under English law.

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the absence of other contrary agreement, gaps in an arbitration agreement will be filled’.27 Why, then, is it said that Section 49(3) of the 1996 Act nonetheless applies in such a case? To the contrary, the parties’ express written agreement on New York substantive law is a choice of law ‘other than the law of England and Wales or Northern Ireland’ within Sections 5 and 46; New York substantive law under the CPLR is applicable ‘in respect of a matter [i.e., pre-award interest] provided for by a nonmandatory provision’, namely Section 49(3); and accordingly, under Section 4(5), the choice of New York law ‘is equivalent to an agreement making provision about that matter’. Hence, so it would seem from reading the unambiguous language of Sections 4(5) and 49 of the 1996 Act, as also confirmed by the DAC, that Section 49(3) should be inapplicable to the parties’ dispute over pre-award interest. Accordingly, so it would seem also, nothing could be clearer as regards the DAC’s intention and the wording of the 1996 Act: the parties’ choice of a foreign law, in writing and providing for the particular matter in question, is to be treated as a change or substitution making inapplicable the statutory ‘fall-back’ or default rule in a ‘non-mandatory’ provision of the 1996 Act. There is then no ‘gap’ for the 1996 Act to fill; and party autonomy would be respected in full. However, the answer is said not to lie in the statutory language of the 1996 Act, but, rather, passages in the speech of Lord Steyn in Lesotho. The case is more often cited for other purposes in regard to Section 68 of the 1996 Act; but Lord Steyn did address the powers of the ICC tribunal in that case to order pre-award interest under Section 49(3) of the 1996 Act as a subsidiary issue: see paragraphs 35–40 of his speech. The critical passage in his conclusion reads as follows: ‘Counsel [for the respondent employer] submitted that the law to be applied to the entitlement of the contractors was the law of Lesotho. This submission founders on two separate grounds. The law of Lesotho cannot be an agreement to the contrary under section 49(2). The power to award simple or compound interest as the ‘tribunal considers meets the justice of the case’ was therefore available to the tribunal [under Section 49(3) of the 1996 Act] … ’ (Lord Steyn’s second ground related to Section 68 and is not here relevant).28 Lord Steyn’s full speech repays careful reading; but it is unnecessary to set out its full wording here. Lord Steyn was a remarkable judge, held in the highest regard, who used his words carefully. What is more significant is what was not in his speech and what was missing from the employer’s case on the appeal as argued before the House of Lords. Lord Steyn did not refer in his speech to Section 4(5) of the 1996 Act, seemingly for two reasons. First, ‘Counsel for the employer submitted that the arbitrators exceeded their power pursuant to section 49(3). But counsel advanced his challenge in respect of pre-award interest in an almost apologetic way. He said this aspect was

27. DAC Report of February 1996, para. 28 (M&B Companion, p. 401); see also Dicey, Morris & Collins, The Conflict of Laws (15th ed), Vol. 1, para. 16-038 and 16-044. (The next para. 29 of the DAC’s Report addressed what is now Section 4(5) of the 1996 Act: see footnote 24 supra). 28. Lesotho, para. 39.

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parasitic on the currency point … ’ (paragraph 35);29 and later, ‘Rightly counsel for the employer found himself unable to support the reasoning of the Court of Appeal … ’ which had held Section 49(3) inapplicable, in Lord Steyn’s words, ‘for reasons which are difficult to follow’ (paragraph 39). Accordingly, whilst the ICC tribunal’s powers under Section 49 were an issue before the House of Lords and Lord Steyn’s statements (with which the majority of his judicial brethren agreed) are not therefore to be regarded as mere obiter dicta, it was not the most important and still less the decisive issue on the appeal; and, clearly, it was not subject to the most exhaustive argument by Counsel. Hence, it is fair to conclude that Lord Steyn’s succinct reasoning assumed a familiarity with the provisions of the 1996 Act, including Section 4(5). It is out of the question that Lord Steyn could have overlooked Section 4(5) or that his decision was made per incuriam: Lord Steyn was the second of the DAC’s three chairmen responsible for the 1996 Act; and as an experienced arbitration practitioner and, later, highly respected judge in the field of arbitration, it has to be assumed that he had Section 4(5) well in mind, even if he did not think it necessary to cite the provision expressly in his speech. The appellate record in Lesotho confirms this. In the parties’ joint statement of facts and issues filed for the appeal before the House of Lords, Counsel for the parties had agreed on their joint interpretation of Section 4(5) of the 1996 Act as follows: ‘ … Arbitrators also have the power to grant pre-award interest unless the parties have agreed to the contrary: s. 49 of the Act. The formalities of any agreement to the contrary are set out in s. 5 of the Act. Section 4(5) of the Act provides that the choice of a law other than that of England and Wales or Northern Ireland as the applicable law in respect of a matter provided for by a non-mandatory provision of Part 1 of the Act (including sections 48 and 49) is equivalent to an agreement making provision about that matter.’30 In addition, the employer’s written case for the House of Lords made several submissions on Section 4(5). Accordingly whatever the scope of the issue regarding Section 49 before the House of Lords, it is clear that no issue arose on the appeal from the interpretation and application of Section 4(5) of the 1996 Act. The parties’ argument lay elsewhere. Again, therefore, it cannot be assumed that Lord Steyn was unaware of or overlooked Section 4(5). It is also confirmed by the manner in which the Court of Appeal subsequently understood Lord Steyn’s speech. In C v. D, the Court rejected the insurer’s argument that the 1996 Act allowed parties to a London Arbitration under a Bermuda form to contract out of the Act’s ‘non-mandatory’ provisions in favour of a challenge to the award before the US Federal Courts. Its reasons included the following passage: 31 The fact, however, that the 1996 Act allows parties to contract out of its non-mandatory provisions does not mean that the proper law of a contract to refer disputes to arbitration can constitute an ‘agreement to the contrary’ and thus import a method of challenge to the award not permitted by the seat of the arbitration. For example section 49 of the 1996 Act gives an arbitration tribunal

29. Lord Steyn also did not cite Section 4(5) on the currency point. 30. Paragraph 13 of the parties’ joint statement of facts and issues, Lesotho. 31. C v. D [2007] EWCA Civ 1282; [2008] 1 Lloyd’s Rep 239, at [19].

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power to award interest. That provision is one of the non-mandatory provisions of the Act. It was argued in Lesotho Highlands Development Authority v Impregilo SpA [2006] 1 AC 221 that, if the proper law of the underlying contract did not permit an award of interest, the choice of that proper law amounted to an agreement to the contrary so as to preclude the Tribunal from awarding interest. Lord Steyn (with whom the majority of the House agreed) pointed out (para. 37) that by reason of section 5 of the Act only an agreement in writing as defined by the 1996 Act could qualify as an ‘agreement to the contrary’ and that a choice of proper law clause was not such an agreement. That is reinforced by the terms of section 4(5) of the Act which refers not to a choice of law clause generally but to a choice of law as ‘the applicable law in respect of a matter provided for by a nonmandatory provision of this part’ of the Act. In other words there has to be a choice of law with regard to the specific provision of the Act which the parties agree is not to apply.

The Court of Appeal thus readily identified the application of Section 4(5) with Sections 5 and 49 of the 1996 Act. Moreover, the Court identified the necessity under Section 4(5) of a relevant link between the choice of the foreign law and the specific provision of the 1996 Act as regards interest. It did not suffice for the respondent employer to assert that the mere choice of Lesotho law, by itself alone, qualified as an ‘agreement to the contrary’. Second, it will be recalled that Section 5 of the 1996 Act requires the parties’ written agreement. Although the statutory definition is broad, there must still be a relevant written agreement proven by the applicant. As the DAC had explained, there should be a requirement for a written agreement (inter alia): ‘to help reduce disputes as to whether or not an arbitration agreement was made and as to its terms’.32 A non-written agreement is legally ineffective under Section 5 of the 1996 Act. From two passages in Lord Steyn’s speech, it is apparent that he considered that the respondent employer had failed to discharge its burden of proving a relevant written agreement within Sections 5 and 49 of the 1996 Act: The only other possibility [on the employer’s argument] is to have regard to the law of Lesotho so far as it governs the substance of the dispute between the parties. There is however no finding about the law of Lesotho in the judgments of either Morison J or the Court of Appeal. Counsel [for the employer] observed that it must have been assumed that there was a substantial injustice. This is not good enough. The burden is squarely on the applicant, who invokes the exceptional remedy under Section 68, to secure (if he can) findings of fact which establish the precondition of substantial injustice, The employer did not satisfy this requirement. [Paragraph 35]; and Morison J appeared to take the view that the law of Lesotho, as the law applicable to the construction contract, may be relevant. This presumably is on the basis that it constitutes an agreement to the contrary under section 49. Ignoring for the moment the fact that one does not know what the law of Lesotho is, this view comes up against the difficulty that only an agreement in writing as defined in the Act can qualify as an agreement to the contrary under Section 49: section 5(1). This is no mere technicality. In the words of the DAC, at p. 14, para 35: ‘By introducing some formality with respect to all agreements, the possibility of subsequent

32. DAC Report of February 1996, para. 33 (M&B Companion, p. 402).

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disputes (eg at the enforcement stage) is greatly diminished.’ The law of Lesotho is not an agreement in writing. [Paragraph 37].

The appellate record in Lesotho confirms this. It contains no evidence of the substantive law of Lesotho on pre-award interest. In the parties’ joint statement of facts and issues, Counsel agreed the issue of pre-award interest as follows: ‘In relation to pre-award interest, the Respondent relies upon the choice by the parties of Lesotho law as the substantive law of the Contract. The Respondent says that Lesotho law does not give the arbitrators power to make the award of pre-Award interest which they made.’33 This plea (repeated at greater length by the respondent employer in its written case) fell far short of proving the substantive law of Lesotho relevant to pre-award interest required by Sections 4(5), 5 and 49 of the 1996 Act. Accordingly, although Lord Steyn accepted that the parties had there agreed in writing that their contract was governed by the law of Lesotho (paragraph 4 of his speech), there was in his view no evidence before the House of Lords as to what that substantive law provided as regards pre-award interest and, hence, there was nothing regarding pre-award interest qualifying as a relevant written agreement under the 1996 Act. As Lord Steyn held, the employer had therefore failed to prove its case under the 1996 Act (the law of Lesotho, as a foreign law pleaded before the English Courts, required positive proof by the employer). The alternative interpretation of Lord Steyn’s speech is, I suggest, mistaken. It asserts, necessarily, that a written agreement by disputing parties as to New York substantive law that includes a relevant law as to pre-award interest, falling within the formalities required by Sections 4(5), 5 and 46 of the 1996 Act, is somehow not an ‘agreement’ within Section 49(1) and 49(2) of the 1996 Act because the parties’ agreement must expressly (in writing) address the matter of pre-award interest under New York law within their arbitration agreement. That interpretation cannot be found within the 1996 Act, the DAC Reports, or the speech of Lord Steyn in Lesotho. It would also make a practical nonsense of the 1996 Act. The Act contains at least 35 ‘non-mandatory’ provisions. Like Section 49(3), each of these default provisions takes effect ‘unless otherwise agreed by the parties’ (or subject to a variant of this phrase). Accordingly, notwithstanding the plain language of Section 4(5) of the 1996 Act, this interpretation would require parties in choosing a foreign law also to record, expressly and in writing, each specific part of that foreign law which provided for the matter otherwise applied by these ‘non-mandatory’ provisions. In other words, it would not suffice for an arbitration tribunal to apply a foreign law regarding specific performance of a contract unless the parties had specifically agreed in writing, in addition to agreeing that foreign law, that particular remedy also within their arbitration agreement. If not, so it must be inferred, Section 48(5)(b) of the 1996 Act applies notwithstanding Section 48(1). That is not the way commercial contracts are drafted by laymen or lawyers. Nor could they be, at least not without appending to the parties’ contract or arbitration agreement the foreign law equivalents of the multi-volume

33. Paragraph 15 of the parties’ joint statement of facts and issues, Lesotho.

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Chitty on Contracts or Halsbury’s Laws of England. In practice, therefore, a ‘nonmandatory’ provision would operate as a ‘mandatory’ provision under the 1996 Act. This interpretation would also throw doubt on the efficacy of parties agreeing to apply institutional rules of arbitration, notwithstanding the express liberty to do so in Section 4(3) of the 1996 Act.34 Such arbitration rules are invariably incorporated by reference under a short form of model wording. Thus, the LCIA recommended model arbitration clause provides: ‘Any dispute arising out of or in connection with this contract including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause … . The governing law of the contract shall be the substantive law of […].’ The LCIA Rules contain specific provisions on pre-award interest (Article 26.4); but, as can be seen, these are not specifically set out in the standard form of LCIA arbitration clause. Accordingly, is it to be said that the LCIA Rules’ specific provisions on pre-award interest are inapplicable to an LCIA Arbitration with an English seat? The absurd consequences resulting from such am interpretation speak for themselves. At the very least, such an interpretation must necessarily assume that Lord Steyn intended to rewrite the statutory language of Sections 4(5) and 49 of the 1996 Act, with the former sub silentio. That is not the function or habit of a senior appellate English judge, such as Lord Steyn or other members of the House of Lords. Moreover, even if Homer can nod, it seems highly improbable that Lords Hoffmann, Scott and Rodger could have nodded simultaneously. It is also wrong in principle to parse Lord Steyn’s speech as if it were an exhaustive English statutory code, interpreting words out of context and inconsistently with the express terms of the 1996 Act. There is a last, but not least, important factor. One of the four general principles, or ‘pillars’, on which the 1996 Act is founded and to be interpreted is party autonomy or, in the language of Section 1(b) of the 1996 Act: ‘… the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest’. This issue of pre-award interest in regard to an international commercial dispute unconnected with English law (save as to the lex loci arbitri) raises no overriding public interest and requires no necessary safeguard. What matters here is what the parties have agreed as regards the substantive law applicable to their dispute: it is their dispute, their arbitration agreement and their arbitration. In particular, where non-English parties, in good faith and for good reason, have agreed in writing upon a non-English substantive law and that law specifically provides how their dispute should be resolved, it seems regrettable that it can then be said that there is an ‘absence’ of any agreement, not because their agreement is non-existent, invalid or fails to meet the formal requirements of the 1996 Act as the lex loci arbitri, but rather because of isolated passages in a judgment of the House of Lords. That result

34. Section 4(3) of the 1996 Act provides: ‘The parties may make such arrangements by agreeing to the application of institutional rules or providing any other means by which a matter may be decided.’

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does not pay ‘due regard’ to the parties’ agreement. To the contrary, it wrongly usurps the parties’ arbitration agreement; and it therefore violates the fundamental principle of party autonomy in arbitration. It also works a grave disservice to the legal predictabilities and procedural certainties required for international commercial arbitration in London. Worse, it is not only a quixotic interpretation, it is simply wrong.

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A Principled Approach Towards the Law Governing Arbitration Agreements Wendy J. Miles QC & Nelson Goh*

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INTRODUCTION

As a giant in the field of international arbitration, Dr Pryles’ early scholarship in the field of conflict of laws is impressive.1 In a world where cross-border transactions and disputes have become the norm, the rules of private international law have become a staple for the modern dispute resolution lawyer. The practice of international arbitration likewise requires a disciplined study of the conflict of laws. Dispute resolution clauses are often inserted as ‘midnight clauses’2 – provisions which attract little attention until the document is due to be executed. Few parties take the opportunity to consider the implications of the dispute resolution clause, and in the case of an arbitration agreement, how different aspects of the arbitration process can be governed by different sets of laws.3

* The views herein are the authors’ personal views and should not be attributed to their respective organisations or any clients they represent. 1. M. Pryles and P. Hanks, Federal Conflict of Laws 1974 (Butterworths); E. Sykes and M. Pryles, Australian Private International Law (3rd edn, 1991, Law Book Company); E. Sykes and M. Pryles, International and Interstate Conflict of Law Cases and Materials, (3rd edn, 1988, Law Book Company); M. Pryles, Australian Citizenship Law (1981, Law Book Company); M. Pryles, Conflicts in Matrimonial Law (1975, Butterworths); M. Pryles, Torts in Private International Law (1991) 227 Recueil des Cours (Martinus Nijhoff). 2. FirstLink Investments Corp Ltd v. GT Payment Pte Ltd and ors, [2014] SGHCR 12 (‘FirstLink’), [1]. 3. See Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd [1993] AC 334, 357, where Lord Mustill identified a long list of possible laws which govern a dispute, including: (i) the governing substantive law of the main contract; (ii) the law governing the dispute resolution clause; (iii) the law governing the dispute resolution procedure; (iv) the law governing the capacity of parties entering into the dispute resolution clause; (v) the law governing the enforcement of an award.

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Central to the law of international arbitration is the doctrine of separability. This doctrine has significant ramification for the choice-of-law rules in international arbitration. Separability,4 in the present context, can be explained as follows: the main contract and the arbitration clause are separate agreements. Therefore, even where a party alleges that the main contract is invalid, its purported invalidity does not automatically invalidate the arbitration agreement. Moreover, because they are separate, they can be governed by two different systems of law. Identifying the law governing the arbitration agreement can be critical; it bears upon issues such as its validity, interpretation, effect, discharge, and scope.5 As arbitral laws in leading arbitration seats converge, the effect of the applicable law may not vary much. However, there will be instances where an arbitration agreement can be deemed invalid depending on the identified governing law.6 In light of this, the volume of literature surrounding this topic is unsurprising.7 Yet, despite the amount of discussion on the topic, some uncertainty still remains as to what approach to take in applying the choice-of-law rules where there is no express governing law.8 According to Dicey, Morris & Collins: ‘[t]here is … no international consensus on the choice of law rule applicable to an arbitration agreement.’9 Two views have found significant support in the absence of an express governing law: (1) the law of the main contract; or (2) the law of the seat of the arbitration. In this short essay, as a choice-of-law scholar might do, we highlight the spectrum of views before setting out what we consider to be a principled rubric from the case law and scholarly writing.

4. G. Born, ‘The Law Governing International Arbitration Agreements: An International Perspective’ (2014) 26 SAcLJ 814, [12]-[18]; B. Primrose, ‘Separability and Stage One of the Sulamerica Inquiry’ (2017) 33 Arbitration International 139. 5. D. Sutton et al., Russell on Arbitration (24th edn, 2015, Sweet & Maxwell) 92-93. 6. Sul América Cia Nacional De Segurors S.A. and ors v. Enesa Engenharia S.A. [2012] 1 Lloyd’s Rep 671. 7. See, e.g., G. Born, International Commercial Arbitration (2nd edn, Kluwer Law International, 2014), 472-635; L. Collins et al., Dicey, Morris & Collins on the Conflict of Laws (15th edn, Sweet & Maxwell, 2012), Chapter 16; D. Joseph, Jurisdiction and Arbitration Agreements and their Enforcement (3rd edn, Sweet & Maxwell, 2015) Chapter 6; N. Blackaby, C. Partasides, Redfern & Hunter: Law and Practice of International Commercial Arbitration (6th edn, Oxford University Press, 2015) Chapter 3; H. Pierre Karrer, ‘The Law Applicable to the Arbitration Agreement’ (2014) 26 Singapore Academy of Law Journal 849; G. Born, ‘The Law Governing International Arbitration Agreements: An International Perspective’ (2014) 26 Singapore Academy of Law Journal 814; S. Pearson, ‘The Hidden Pro-validation Approach by the English Courts with Respect to the Proper Law of the Arbitration Agreement’ (2013) 29 Arbitration International 115; A. Arzandeh & J. Hill, ‘Ascertaining the Proper Law of an Arbitration Clause under English Law’ (2009) Journal of Private International Law 425; J. Lew, ‘The Law Applicable to the Form and Substance of the Arbitration Clause’, ICCA Congress Series No 14, 1998, Paris. 8. David Joseph has suggested that the divergence in the two approaches leads the issues to be one ripe for consideration by the UK Supreme Court: D. Joseph, Jurisdiction and Arbitration Agreements and their Enforcement (3rd edn, 2015, Sweet & Maxwell), [6.30], [6.36]. 9. L. Collins et al., Dicey, Morris & Collins on the Conflict of Laws (15th edn, 2012, Sweet & Maxwell), [16-014].

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[A]

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TWO OPPOSING VIEWS: THE LAW OF THE MAIN CONTRACT OR THE LAW OF THE SEAT? A Presumption in Favour of the Governing Law of the Contract

In the absence of an express stipulation, what law governs the arbitration agreement? Some scholars have suggested that there are as many as five different options.10 Under English choice-of-law rules, there appears to be consensus on the approach towards determining the system of law which governs: (1) the express choice of the parties; (2) the implied choice in the absence of an express choice; or (3) the law which the arbitration agreement has its closest and most real connection with. This three-stage test was enunciated by the English Court of Appeal in Sul América Cia Nacional De Segurors S.A. and ors v. Enesa Engenharia S.A.,11 and appears to be uncontroversial. Indeed, it is synonymous with the choice-of-law rules for the law governing commercial contracts.12 As foreshadowed above, the difficulty faced by scholars is whether the implied choice of the parties – the second stage – should be presumed to be the law governing the contract or the law of the seat. Under English rules, determining the implied choice of law involves ordinary principles of construction. Following the seminal House of Lords decision in Fiona Trust, the aim is to construe the particular clause as rational businessmen would.13 When determining the implied choice of the parties, those who favour the law of the main contract often point towards the close relationship between the main contract and the arbitration agreement. They argue that ‘the arbitration agreement will be governed by the same law, since it is part of the substance of the underlying contract’.14 10. See, e.g., P. Bernardini, ‘Arbitration Clauses: Achieving Effectiveness in the Law Applicable to the Arbitration Clause’ in A.J. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention, ICCA Congress Series No 9 (1998, Kluwer Law International), 200-202 (‘the international arbitrator may take at least three different approaches in order to determine the substantive law of the arbitration clause’); J. Lew, ‘The Law Applicable to the Form and Substance of the Arbitration Clause’, in A.J. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention, ICCA Congress Series No. 9 (Paris 1998) (1999, Kluwer Law International) 141–144 (‘[t]here are four main conflict rules for determining the applicable law to govern the arbitration agreement’). 11. Sul América Cia Nacional De Segurors S.A. and ors v. Enesa Engenharia S.A. [2012] 1 Lloyd’s Rep 671 (Court of Appeal). For a comment on Sul América in an earlier issue of this journal, see A. Arzandeh, ‘The Law Governing Arbitration Agreements in England’ (2013) LMCLQ 31. See also Habas Sinai Ve Tibbi Gazlar Istihsal v. VSC Steel Co Ltd [2014] 1 Lloyd’s Rep 479 at [101] where the relevant choice-of-law principles are neatly summarised. 12. Sul América Cia Nacional De Segurors S.A. and ors v. Enesa Engenharia S.A. [2012] 1 Lloyd’s Rep 671, [9]; Pacific Recreation Pte Ltd v. S Y Technology Inc [2008] 2 SLR(R) 491 and JIO Minerals FZC and ors v. Mineral Enterprise Ltd [2011] 1 SLR 391. 13. Fili Shipping Co Ltd and ors v. Premium Nafta Products Ltd and ors, sub nom Fiona Trust [2007] UKHL 40 (at [5]: ‘… the meaning which parties intended to express by the words which they used will be affected by the commercial background and the reader’s understanding of the purpose for which the agreement was made. Businessmen in particular are assumed to have entered into agreements to achieve some rational commercial purpose and an understanding of this purpose will influence the way in which one interprets their language.’). 14. M. Mustill & S. Boyd, Commercial Arbitration (2nd edn, Butterworths, 1989) at 63, cited with approval in Sul América at [17].

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As a leading commentator has explained: ‘[there is an] intimate connection (both textual and functional) between the arbitration agreement and the underlying contract’.15 Many English cases adopt this view,16 and this has found support from arbitration scholars.17 In Arsanovia Ltd and ors v. Cruz City 1 Mauritius Holdings, Andrew Smith J went as far as to suggest that in the absence of evidence otherwise, the express governing law of the contract is in fact the law governing the arbitration clause. 18

Proponents of this view also argue that reliance on the doctrine of separability – which assumes that the main contract and the arbitration agreement (and their respective governing laws) are separate – may be misplaced. The chief aim of the separability doctrine is to prevent the invalidity of the matrix contract ipso facto to undermine the validity of the arbitration agreement. However, it does not follow that the law of the main contract and law of the arbitration agreement also should be treated as distinct. As one commentator put it: ‘The autonomy of the arbitration agreement is one thing; its hermetic isolation would be quite another. To put the point yet another way: the agreement to arbitrate is severable, but that does not mean it is separate.’19 Likewise, prominent practitioner Yves Derains observed that: ‘[t]he autonomy of the arbitration clause and of the principal contract does not mean that they are totally independent one from the other, as evidenced by the fact that acceptance of the contract entails acceptance of the clause’.20 A recent Singapore High Court decision similarly endorsed this view.21 A presumption in favour of the law of the main contract is particularly apposite when the contract contains a multi-tiered agreement.22 Such escalation clauses may first require the parties to negotiate in good faith, then mediate, then arbitrate. Although other options are theoretically possible, when the parties do not stipulate a

15. G. Born, ‘The Law Governing International Arbitration Agreements: An International Perspective’ (2014) 26 Singapore Academy of Law Journal 814, [44]. 16. More recent examples include Sonatrach Petroleum Corporation (BVI) v. Ferrell International Ltd [2002] 1 All ER (Comm) 627; Peterson Farms Inc v. C&M Farming Ltd [2004] 1 Lloyd’s Rep 603; Svenska Petroleum Exploration AB v. Government of the Republic of Lithuania (No 2) [2006] 1 Lloyd’s Rep 181; Leibinger v. Stryker Trauma GmbH [2006] EWHC 690 (Comm); Arsanovia Ltd v. Cruz City 1 Mauritius Holdings [2013] 1 Lloyd’s Rep 235; Habas Sinai Ve Tibbi Gazlar Istihsal v. VSC Steel Co Ltd [2014] 1 Lloyd’s Rep 479. 17. See, e.g., A. Arzandeh & J. Hill, ‘Ascertaining the Proper Law of an Arbitration Clause under English Law’ (2009) JPIL 425, 427-431; J. Lew, ‘The Law Applicable to the Form and Substance of the Arbitration Clause’, ICCA Congress Series No 14, 1998, Paris. 18. Arsanovia Ltd and ors v. Cruz City 1 Mauritius Holdings [2013] 1 Lloyd’s Rep 235 at [22]. 19. A. Briggs, Private International Law in English Courts (2014, Oxford University Press) at [14.37]. 20. Y. Derains, The ICC International Court of Arbitration Bulletin, vol. 6, no, 1, 10 at 16-17. 21. BCY v. BCZ [2016] SGHC 249 (‘BCY’) (at [59]: ‘The foregoing review demonstrates that more cases appear to favour the Sulamérica approach. Though none of them are binding precedents, in my view, the approach in Sulamérica is to be preferred. Where the arbitration agreement is a clause forming part of a main contract, it is reasonable to assume that the contracting parties intend their entire relationship to be governed by the same system of law. If the intention is otherwise, I do not think it is unreasonable to expect the parties to specifically provide for a different system of law to govern the arbitration agreement.’). BCY rejected the approach taken in FirstLink to favour the law of the seat. 22. See the older edition of this text, D. Joseph, Jurisdiction and Arbitration Agreements and their Enforcement (2nd edn, 2010, Sweet & Maxwell), [6.41].

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governing law over the obligation to arbitrate, or the entire multi-tiered clause, the logical assumption is that the entire clause should be governed by the same law that governs the contract. There is particular force to this argument when one considers how aspects of the multi-tier clause, such as the obligation to negotiate, may be perceived as an indivisible part of the suite of obligations in the contract (and therefore, inseparable).

[B]

A Presumption in Favour of the Law of the Seat

While the above view springs from the contractual instrument as its base, the opposing view – a presumption in favour of the seat – relies heavily on the global legal architecture for international arbitration. A fundamental source of international arbitration law and practice is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the ‘NY Convention’). The NY Convention, signed by more than 160 nations, provides a global framework for the recognition and enforcement of foreign arbitral awards. The beauty of the convention is that it allows an award made in Paris, by a tribunal comprising Canadian, Japanese and British arbitrators, between Chinese and South American parties, to be enforced in Angola.23 For present purposes, Article V(1)(a) of the New York Convention forms the basis for the choice of law being the law of the seat argument. Article V(1)(a) provides that an award may be refused recognition or enforcement if the arbitration agreement is invalid under the applicable law and ‘failing any indication thereon, under the law of the country where the award was made’. Therefore, if the parties do not stipulate a law to govern the arbitration agreement, the law of the seat would be the system of law which determines the validity of the arbitration agreement. This default rule is also found in the UNCITRAL Model Law.24 The Model Law is a non-binding set of rules promulgated by the United Nations Commission on International Trade Law which may be adopted by states as part of their law on arbitration. Australia and Singapore have adopted the Model Law, while England and Wales is a prominent jurisdiction that has not, at least not unmodified. Articles 34(2)(a)(i) and 36(1)(a)(i) of the Model Law mirror Article V(1)(a) of the New York Convention. They similarly provide that a court may refuse recognition or enforcement if the arbitration agreement was invalid under the law chosen by the parties and, ‘failing any indication thereon’, under the law of the seat. Evidently, the drafters of the NY Convention and the Model Law chose to give the seat primacy in deciding on the validity of the arbitration agreement where no stipulation was made. This is not in itself a choice-of-law rule.25 However, it points towards the seat being the default choice where the parties have not otherwise agreed.

23. A state which has most recently acceded to the Convention. 24. UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006. 25. G. Born, ‘The Law Governing International Arbitration Agreements: An International Perspective’ (2014) 26 Singapore Academy of Law Journal 814, [28], [31].

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Some English cases have referred to a close nexus between the law governing the arbitration agreement and the seat. In C v. D, the Court of Appeal went as far as to say that ‘it would be rare for the law of the (separable) arbitration agreement to be different from the law of the seat of the arbitration’.26 Consistent with this approach, in another English case where the main contract had no governing law clause but the arbitration clause stipulated a seat, the law of the seat was a strong candidate for the system of law which has the closest and most real connection.27 Several arbitral rules in other jurisdictions have adopted this same approach. Section 48 of the Swedish Arbitration Act provides that ‘[w]here an arbitration agreement has an international connection, the agreement shall be governed by the law agreed upon by the parties. Where the parties have not reached such an agreement, the arbitration agreement shall be governed by the law of the country in which, by virtue of the agreement, the proceedings have taken place or shall take place.’ Interestingly, Article 61 of the WIPO arbitration rules provides the same. On the basis of the above, some proponents argue that the law of the seat should normally be the implied choice of the law governing the arbitration agreement: ‘rational businessmen must commonly intend the awards to be binding and enforceable [and therefore] their attention with regard to the validity of the arbitration agreements would primarily be focused on the law of the seat’.28 Again in Singapore, where the parties had chosen a seat (but not the governing law of the arbitration agreement), it was reasoned that ‘the very choice of an arbitral seat presupposes parties’ intention to have the law of that seat recognise and enforce the arbitration agreement’.29 Other scholars have pointed out that the seat is generally regarded as crucial for its curial supervision of the procedural aspects of the arbitral process, rather than substantive. The connection between the arbitration and the law of the seat is ‘most readily expressed…in terms of the procedural law of the arbitration rather than the governing substantive law of the agreement’.30 Put another way, an ‘[a]utomatic application of the law of the seat…mistakenly conflates the law governing the arbitration agreement with the law governing the arbitral proceedings, which do not necessarily coincide’.31 On this view, it is not immediately clear that the importance of the seat to the overall arbitral process necessarily means it should govern the validity of the arbitration agreement, which could simply be viewed as one of many obligations in the main contract.

26. C v. D [2007] EWCA Civ 1282, [26]. 27. Habas Sinai ve Tibbi Gazlar Istihsal Endustrisi AS v. VSC Steel Co Ltd [2014] 1 Lloyd’s Rep 479. 28. FirstLink at [14]. Note however, that FirstLink has recently been overruled by the Singapore High Court in BCY. See also C v. D [2007] EWCA Civ 1282, [2008] 1 Lloyd’s Rep 239 and XL Insurance Ltd v. Owens Corning [2000] 2 Lloyd’s Rep 500. However, both decisions have been criticised: A. Arzandeh & J. Hill, ‘Ascertaining the Proper Law of an Arbitration Clause under English Law’ (2009) Journal of Private International Law 425, 432-439. 29. FirstLink at [14]. 30. D. Joseph, Jurisdiction and Arbitration Agreements and Their Enforcement at [6.41]. 31. G. Born, ‘The Law Governing International Arbitration Agreements: An International Perspective’ (2014) 26 Singapore Academy of Law Journal 814, [44].

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§24.03

A PRO-VALIDATION APPROACH?32

All of the decisions and rules that have grappled with this question have done so in pursuit of a common goal – to uphold the validity of the arbitration agreement. This approach is consistent with the House of Lords’ guidelines in Fiona Trust, which held that arbitration clauses should be construed liberally to avoid technical arguments leading to invalidity, on the basis that rational businessmen must have intended for their disputes to be adjudicated in the chosen forum. There is a current trend in favour of developing the choice-of-law rules based on a validating principle,33 which seeks primarily to avoid any unpredictability in the choice-of-law process. The leading proponent of this view is Gary Born. Born posits that the NY Convention and the Model Law, along with arbitral jurisprudence, supports a principle of presumptive validity.34 One example of how the principle is applied in a different context is in applications to stay court proceedings in favour of arbitration. So long as the agreement is shown to be prima facie valid, a court will grant a stay of court proceedings.35 Born proposes that the same principle be infused into the choice-of-law rules: ‘[a] validation principle looks to the purposes of international arbitration agreements and provides for application of the law that will give effect to the parties’ agreement’.36 In practical terms, this validation principle influences the choice-of-law rules this way: it ‘[selects] the national law which will give effect to the parties’ agreement to arbitrate’.37 The attraction of this approach is not difficult to see. The growth and acceptance of international arbitration as a mode of dispute resolution has received considerable judicial support. Recent developments highlight that such support has not waned; for example, the UK Supreme Court recently held that an anti-suit injunction could be issued to protect an arbitration agreement, even where the party seeking the injunction 32. G. Born, International Commercial Arbitration (2nd edn, 2014, Kluwer Law International) 541 et seq. 33. G. Born, ‘The Law Governing International Arbitration Agreements: An International Perspective’ (2014) 26 Singapore Academy of Law Journal 814, 834-847. 34. G. Born, ‘The Law Governing International Arbitration Agreements: An International Perspective’ (2014) 26 Singapore Academy of Law Journal 814, [7] (‘… the New York Convention and the United Nationals Commission on International Trade Law Model Law on International Commercial Arbitration … provide for application of uniform international principles mandating the presumptive validity of international commercial arbitration agreements … ’). 35. Malini Ventura v. Knight Capital Pte Ltd and ors [2015] 5 SLR 707, [36]; Dyna-Jet Pte Ltd v. Wilson Taylor Asia Pacific Pte Ltd [2017] 3 SLR 267, [28]; Tomolugen Holdings Ltd and another v. Silica Investors Ltd and other appeals [2016] 1 SLR 373 (at [63]: ‘We agree that a Singapore court should adopt a prima facie standard of review when hearing a stay application under s 6 of the IAA. In our judgment, a court hearing such a stay application should grant a stay in favour of arbitration if the applicant is able to establish a prima facie case that: (a) there is a valid arbitration agreement between the parties to the court proceedings; (b) the dispute in the court proceedings (or any part thereof) falls within the scope of the arbitration agreement; and (c) the arbitration agreement is not null and void, inoperative or incapable of being performed.’). 36. G. Born, ‘The Law Governing International Arbitration Agreements: An International Perspective’ (2014) 26 Singapore Academy of Law Journal 814, [8]. 37. G. Born, ‘The Law Governing International Arbitration Agreements: An International Perspective’ (2014) 26 Singapore Academy of Law Journal 814, [9].

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did not itself intend to commence arbitration.38 The parties’ agreement to arbitrate contained a ‘negative right’ not to be sued other than in the agreed arbitral forum. In the present context, a validation principle would ensure that whatever system of law is deemed to be the parties’ implied choice, it should be that which validates the arbitration agreement. This principle has been credited with the result in a substantial number of English cases in recent years. One author has called this the ‘hidden pro-validation’ approach.39 In Sul América, the leading English authority on the topic, the insured defendant, Enesa, claimed against Sul América on an insurance policy issued in connection with the construction of a hydroelectric plant in Brazil. Sul América declined liability and commenced arbitration seeking a declaration of non-liability amongst other things. The policy provided for Brazilian law and exclusive jurisdiction but also contained a mediation clause and an arbitration clause providing for a London seat. Sul América applied to the English Court for an anti-suit injunction against Brazilian proceedings brought by Enesa. Enesa argued that under Brazilian law the arbitration agreement was not enforceable without its consent. As part of its decision, the Court had therefore to determine whether English or Brazilian law governed the clause. Interestingly, there was a significant number of connecting factors in favour of Brazilian law:40 the policy was governed by Brazilian law, there was an exclusive jurisdiction clause in favour of the Brazilian courts,41 there was a connection between the policy and the Brazilian subject matter, the currency of the policy was Brazilian and the language of the policy was Portuguese. Sul América, on the other hand, relied heavily on the separability of the arbitration agreement and the choice of London as the seat of the arbitration.42 The Court of Appeal found that English law was the parties’ implied choice. It ultimately reasoned that if Brazilian law governed the arbitration agreement, there was ‘at least a serious risk that [it] would significantly undermine that agreement’.43 It concluded that rational commercial parties ‘[could not] have intended to choose a system of law that either would, or might well, have that effect’. This so-called pro-validation approach may be seen in other English decisions. In XL Insurance Ltd v. Owens Corning,44 it was argued that the arbitration agreement would be invalid under the governing law of the contract, New York law. The Court applied the law of the seat, English law, to avoid invalidity. In Abuja International

38. Ust-Kamenogorsk Hydropower Plant JSC v. AES Ust-Kamenogorsk Hydropower Plant LLP [2013] UKSC 35. 39. S. Pearson, ‘Sulamerica v. Enesa: the Hidden Pro-validation Approach Adopted by the English Courts with Respect to the Proper Law of the Arbitration Agreement’ (2013) 20 Arbitration International 115. 40. Sul América Cia Nacional De Segurors S.A. and ors v. Enesa Engenharia S.A. [2012] 1 Lloyd’s Rep 671, [10]. 41. Nothing turned on this. 42. Sul América Cia Nacional De Segurors S.A. and ors v. Enesa Engenharia S.A. [2012] 1 Lloyd’s Rep 671, [10]. 43. Sul América Cia Nacional De Segurors S.A. and ors v. Enesa Engenharia S.A. [2012] 1 Lloyd’s Rep 671, [31]. 44. XL Insurance Ltd v. Owens Corning [2000] 2 Lloyd’s Rep 500.

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Chapter 24: Principled Approach to Govern Arbitration Agreements

§24.04

Hotels Ltd v. Meridien SAS,45 the court held that English law, the law of the seat, governed the arbitration agreement. It rejected the choice of Nigerian law which it found, could lead to the invalidity of the arbitration agreement based on the Nigerian Constitution. Decisions of the Swedish, Swiss, Spanish and Algerian courts have likewise adopted a validating approach.46 Interestingly, both Swiss and Spanish legislations expressly enshrine a validation principle. Under these rules, an arbitration agreement shall be valid if it conforms either to the law chosen by the parties or to the law governing the subject matter of the dispute, in particular the law governing the main contract or if it conforms to local law.47

§24.04

A PRINCIPLED CANON FOR CHOICE OF LAW

As may be seen, there appears to be a clear divergence in scholarly literature as to the choice-of-law rule to determine the law governing arbitration agreements where the parties did not expressly stipulate one. However, it is suggested that the opposing views may be reconcilable. As a matter of contractual interpretation, viewing the contract as a whole against the relevant background at the time it is agreed,48 silence in the law governing the arbitration agreement sensibly may be attributed to the parties’ assumption that the entire contract is governed by the same law. This traditional view has much to commend for it. While the seat (and the law of the seat) is indeed closely connected to the arbitration agreement by virtue of the NY Convention and the Model Law, it may be slightly tenuous to suggest that parties would have selected the law of the seat at the time of contract formation. This therefore leads to a presumption in favour of the law of the matrix contract. However, the so-called validation principle, endorsed and applied by various national courts and pursuant to several local laws, nevertheless appears to intervene in the event that the choice of the governing law of the contract would (or might) lead to invalidation. At first blush, this appears to involve ex-post rationalisation of the arbitration agreement. Whilst it would be impermissible to adopt a system of law simply because it leads to validity; that is not how the validation principle should be applied. Rather, it assumes that insofar as a choice of law would invalidate the parties’ arbitration agreement, that choice must be thought to go against the parties’ choice. Where they have chosen a seat, rational businessmen must have intended for the arbitration agreement to be operative and enforceable. Thus, between the governing 45. Abuja International Hotels Ltd v. Meridien SAS [2012] EWHC 87 (Comm). See also Hamlyn & Co v. Talisker Distillery [1894] AC 202 where the House of Lords applied English law, being the law of the seat, and not Scottish law, the law of the contract, which would invalidate the arbitration agreement. Lord Ashbourne colourfully noted that the arbitration clause would become ‘mere waste paper’ if Scottish law as selected. 46. See the authorities cited by S. Pearson, ‘Sulamerica v. Enesa: the Hidden Pro-validation Approach Adopted by the English Courts with Respect to the Proper Law of the Arbitration Agreement’ (2013) 20 Arbitration International 115, 125. 47. See Art. 178(2) of the Swiss Law on Private International Law and Art. 9(6) of the Spanish Arbitration Act 2011. 48. Attorney-General of Belize v. Belize Telecom Ltd [2009] UKPC 10; [2009] 1 WLR 1988 at [21].

393

§24.05

Wendy J. Miles QC & Nelson Goh

law of the contract (which is a strong starting point) and the law of the seat (which typically has the closest connection), it would not be amiss to choose the latter if the former leads to invalidity. In a sense, the validation principle does not ipso facto determine the applicable law; it merely tips the scales between two very close choices by removing the choice the parties would not have intended, i.e. the one that leads to invalidity. Plainly, the law of the seat does not always lead to validity; due to the convergence in international arbitral standards, and the fact that parties normally select a seat which is proarbitration, it is unlikely to do so. The English courts have expressed the view that the ‘parties would not have intended a specific place to be the arbitral seat if there is a serious risk that the law of the seat would invalidate the agreement’.49 However, this goes too far as it assumes that the parties’ choice of seat is based on an understanding of the laws of the seat and that those laws will validate the arbitration agreement.50

§24.05

CONCLUSION

The delicate state of the law in this area of arbitration is best exemplified by Sul América. In setting out a principled approach to the choice-of-law rules concerning arbitration agreements, the Court of Appeal eventually selected the law of the seat on the basis that if Brazilian law applies, the outcome would not have been what the parties intended. However, unless local laws expressly allow for a validation approach,51 at least under the common law, the law governing the arbitration agreement takes the same approach as that for any other agreement: (1) the express choice; (2) the implied choice; (3) failing which, the law with the closest connection. The validation principle does not dictate that the implied choice be the valid choice. However, what it does is to displace a presumption in favour of the law of the main contract if the parties have stipulated a seat, and if the law of the main contract leads to invalidation, based on an implied choice analysis. While these are fine distinctions, this may be the only principled way to reconcile the divergent views while also acknowledging the compelling arguments behind them.

49. FirstLink at [14]. 50. While it could be argued that established arbitral seats tend to have pro-arbitration rules, including as to validity of arbitration agreements, this might be too speculative a ground to justify the assumption. 51. As is the case in Switzerland and Spain.

394

Index A Admissibility in international arbitration, 265–269 BITs (See Bilateral investment treaties (BITs)) description, 265 ICJ proceedings, 282–287 agreement of party to use another method of pacific settlement, 285–286 concept of, 282–283 local remedies, exhaustion of, 286–287 mootness, 284 nationality of claim, 286–287 party’s delay, 284–285 ICSID (See International Centre for Settlement of Investment Disputes (ICSID)) investment treaty arbitration, description under, 265–266 Adverse inference availability of, 155 description, 153–154 failure to produce evidence, 155 origin and characterisation of, 152–156 reluctance, 155–156 Arbitral tribunals correction and interpretation of award Arbitration Act 1996, 361, 363 clerical errors, 364 computation errors, 361, 363

errors of a similar nature, 365 HKIAC Rules, 362 ICC Rules, 362–363 interpretation described, 367 LCIA Rules, 362, 363 mistakes, 366 Model Law, 361 Secretariat’s Guide to ICC Arbitration, 367–368 technical and non-substantive errors, 366 typographical errors, 364 final awards, role following its, 357–358 correction and interpretation of an award and additional awards, 360–368 functus officio doctrine, 358–360 notification and publication of an award, 370–372 time limits, 370–372 Arbitration agreement (See Arbitration agreement) awards, enforcing and challenging, 60–61 Cameron case, 61–62 Sauber case, 62–63 Gutnick case, 66–68 enforcement judgment, stay of, 68–70 residual discretion to enforce, 68 stay of enforcement judgment, 68–70

395

Index ILA recommendations on, 15 international provenance of national arbitration legislation, 58–60 law of seat and, 390 stay and referral, 64–65 subpoenas, 65–66 substantive rights of parties voie directe approach (See Voie directe approach) voie indirecte approach (See Voie indirecte approach) supporting arbitral processes stay and referral to arbitration, 64–65 subpoenas, 65–66 trust disputes, arbitrability of (See Trust disputes, arbitrability of) Arbitration Act 1996 Section 57, 361–362 Section 57(3)(a), 363 Arbitration agreement choice of law, law governing in absence of Hong Kong, 78–79 India, 79 Malaysia, 77 Singapore, 78 conflict of law method in absence of choice, 75–77 drafting, practical implications on, 81–84 law governing (See Law governing arbitration agreement) Arbitration Amendment Bill (2017), 95 Argentina-Germany BIT Article 10(2), 276 Asian jurisdictions law governing arbitration agreement in absence of choice of law Hong Kong, 78–79 India, 79 Malaysia, 77 Singapore, 78 Assignment mid-arbitration consent as proposed requirement, 28

requirement to give notice of, 26–28 Awards. See also Arbitral tribunals Cairo Award, 124–125 default, 337–338 enforcing and challenging, 60–61 Cameron case, 61–62 Sauber case, 62–63 ICC award, 292–293 notification effect of, 371 parties without delay, to, 372 procedures, 371 pre-award interest (See Pre-award interest) B Barclays-Bexhill Facility Agreement (BBFA), 195, 198 BBFA. See Barclays–Bexhill Facility Agreement (BBFA) Bermuda forms, 145, 376, 380 Bilateral investment treaties (BITs) Argentina-Germany BIT (Article 10(2)), 276 Argentina-Spain BIT (Article X(2)), 274 consent of parties, 273 dismal swamp, 273–277 admissibility in ICSID regime, 278–279 Argentina-Germany BIT (Article 10(2)), 276 Argentina-Spain BIT (Article X(2)), 274 dispute resolution clause, interpretation of, 278 effet utile argument, 274 formalism argument, 275 interpretation, 279–280 Paulsson’s essay, 275–277 Paulsson writing, 280–281 purposive argument, 274 Turkey-Pakistan BIT (Article VII), 274

396

Index dispute resolution clause, 273 intra-EU BITS (See Intra-EU BITS) precondition objection consent of parties, 273 dismal swamp (See subhead: dismal swamp) dispute resolution clause, 273 Turkey-Pakistan BIT: Article VII, 274 BITs. See Bilateral investment treaties (BITs) Brazilian domestic law powerful factor rule, 135 Brexit Treaty, 236–238, 242 C Cairo Award, 124–125 Cameron case, 61–62 Canadian Environmental Protection Act 1995 (CEPA), 49 CEPA. See Canadian Environmental Protection Act 1995 (CEPA) Choice of law, 137 critique, 9–11 law of place new claim is brought, where, 6–7 prior award was made, where, 7–8 law of some other state, 8–9 matrix contract, in ad hoc arbitration agreement, 145 arbitration agreement, and, 144 choice of law, 145 commercial obligations, 145–147 principled canon for Choice of seat as choice of law, 145 closest connection, 143 matrix contract, 143–144 selection of seat, 142 CIETAC Arbitration Rules Article 39, 334–335 default proceedings, 334–335 Claim “could have been claims”

NAFTA tribunal decision in Apotex case, 301 principle of concentration, 299 public international law, 301 transactional approach, 298 triple identity test, 299 ILA recommendations for claim for relief, 15 nationality of claim, 286–287 non-contractual (See Non-contractual claims) res judicata claim splitting, 296–298 covering “could have been claims” (See subhead: “could have been claims”) tort, law applicable in absence of party choice, 353–355 Clerical errors, 364 Closest connection test, 135, 308 Communications default proceedings, 240–241 Conflicts of interest, 97 IBA Guidelines, 100–102 Consolidation amendment of rules for ICSID, considerations for award, issue of, 263 basis at, 248–249 capacity for other parties to join consolidated action, 263 criteria, 262 effect on treaty provisions, 263 interplay with other ICSID rules, 263 merging of cases, 263 partial/full consolidation, 262–263 tribunal, 262 arguments for and against consistency in decision-making, 246 mandatory consolidation, 246–247 party autonomy, 247 systemic benefits, 246 tribunals, 247–248

397

Index consistency in decision-making, 246 description, 245 example, 249–256 ICSID basis at, 248–249 rules, considerations for amendment of, 262–263 mandatory, 246–247, 256–259 other treaty provisions claims, arise of, 259–260 nomination of arbitrators, 260 request for consolidation, 260 UNCITRAL Arbitration Rules, 261 party autonomy, 247 systemic benefits, 246 treaty provisions, mandatory consolidation under Article 1126 of NAFTA, 256–258 confidentiality concerns, 259 tribunals, 247–248 Costs United Kingdom’s Arbitration Act 1996 Bermuda forms, 376 MacKinnon Report on Arbitration, 374–375 public policy issue, 375–376 W.W. Park’s conclusion on, 376 “Could have been claims” res judicata covering, 298–302 Cumulative method, 309, 348 Cybersquatting, 318, 319 D DAC. See Departmental Advisory Committee (DAC) DAC Report of February 1996, 378–379 Default proceedings arbitral duties in default award, 337–338 due process, 335–336 equal treatment of parties, 337 irregularity, 338

notice, 336 opportunity to present, 337 arbitration rules for CIETAC Arbitration Rules, 334–335 governance of arbitration, 332 ICC Rules, 333 ICDR Rules, 334 LCIA Rules, 333–334 Model law, 332 non-appearance of respondent and claimant, 332–333 notification of non-appearing party, 335 oral hearing, failing to appear at, 334–335 respondent vs. claimant, absence of, 332 sanctions, 333 SIAC Rules, 334 termination of proceedings, 333 communications in, 340–341 enforcement of, 339–340 national systems, 341–343 party’s decision on participating in arbitral proceeding, 331 regulation of, 331 situations for arise of, 331 tribunal’s power to terminate, 333 unrepresented party, 338–339 Vizcaya case, 339–340 Delocalised arbitration, 307 Denationalised approach, 134 Departmental Advisory Committee (DAC), 375, 378–382 doctrine of separability, 138 Dépeçage, 139–141 Dicey’s Conflict of Laws, 20 Rule 135(b), 24–25 Dispute test, 307–308 Doctrine of non-arbitrability, 91 Domain grabbing, 318 Domestic law res judicata, 293 Draft Accession Agreement, 232, 234

398

Index Due process default proceedings, 335–336 ICANN’s ADR mechanisms, 325–327 E EA proceedings. See Emergency arbitrator (EA) proceedings ECHR. See European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) Emergency arbitrator (EA) proceedings architectural peculiarities de novo, 188 institutional rules, 189 risk, 189 time schedule, 188 basic framework of, 176–177 emergency relief in international arbitration, legal criteria for granting content of international standard, 178–179 laws proposed, 177–178 substantial harm, risk of, 183–187 success, prospect of, 180–183 urgency, 179 introduction and scope of, 175–176 legal criteria architectural peculiarities, 187–189 reconsidering second and third criterion, 189–192 objective of, 176–177 substantial harm, risk of damages, compensation by, 184 irreparable harm, 183–184 standard of proof, 186 success, prospect of applicant’s prospect of, 180 jurisdiction, exercising, 180–181 reasonable possibility, 181–183 time schedules, 177 urgency, 179

English Arbitration Act, 110 Section 33(1)(a), 337 Section 41, 164 Section 55(2), 372 Section 68, 337, 338 English Law choice of law method, 133–134 mid-arbitration, 22–23 European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) Article 53, 233 Evidence failure to produce evidence in adverse inference, 155 inferences (See Evidentiary inferences) Parol evidence rule, 160 Evidentiary inferences, 151–152 adverse inferences conflict-of-law analysis, 161 lex causae, 161 parol evidence rule, 160 traditional sources of law, guidance provided by, 161–163 choice of law and seat lex arbitri, 157–158 lex causae, 158–159 lex fori, 156–157 description, 152–153 transnational lex evidentia of law of the seat, role of, 168–171 tribunal’s power to draw, source of, 163–168 F Facility agreement, 195 Finality res judicata, 119 Finance, 193 Assignments, 198–200 BB Debenture, 195–196 assignments (Clause 16.1 ), 198

399

Index Clause 2, 196 Clause 3.1, 196 Clause 5, 197 Clause 7.1.2, 197 Clause 11.1, 197 Clause 13, 197–198 fixed charges given by [Bexhill] (Clause 3.2), 197 floating charge (Clause 3.4), 197 receivables defined (Clause 1.1), 196–197 facility agreement, 195 international arbitration, 200–201 Law of Property Act 1925, 194 preliminary conclusions from English case law, 199–200 premium credit funding, 195 Free standing principle, 149 Free Trade Agreement (FTA) Investment Chapter (See Investment Chapter in FTA) Functus officio doctrine, 357–358 G Gutnick case, 66–68 enforcement judgment, stay of, 68–70 residual discretion to enforce, 68 stay of enforcement judgment, 66–68 H HKIAC Rules Article, 371 Articles 37.1 and 37.3, 362 Articles 37, 38 and 39, 369 Hong Kong law governing arbitration agreement in absence of choice of law, 78–79 Hong Kong Arbitration Ordinance Section 69, 361 Human rights ICANN and, 324–325, 327–329

I IBA Rules on Evidence Rules 9(5) and 9(6), 166–167 ICANN. See Internet Corporation for Assigned Names and Numbers (ICANN) ICANN’s ADR mechanisms protection against actions by ICANN independent review process (IRP), 323–324 internal reconsideration process, 322 second level domain disputes domain grabbing, 318 UDRP, 318–319 top level domain disputes, 319–320 after the delegation of new gTLD, 321 prior to delegation of new gTLD, 320 ICC Rules Article 3(2), 341 Article 6(8), 333 Article 36, 369 Article 36(1), 362 Article 36(2), 362 default proceedings, 333 ICDR Rules Article 21.9, 164 Article 23, 334 default proceedings, 334 ICJ proceedings. See International Court of Justice (ICJ) proceedings ICSID. See International Centre for Settlement of Investment Disputes (ICSID) ILA. See International Law Association (ILA) Impartial arbitrator limit in allowing party to agree to, 103–104 Independent review process (IRP), 323–324, 327, 328

400

Index India law governing arbitration agreement in absence of choice of law, 79 Indian Companies Act Sections 391 to 394, 24 Interaction of laws in international arbitration agreement to arbitrate, issues relating to applicable law, 73–74 choice of international arbitration, 72 choice of law, 74 conflict of law rules, 72–73 motivation for parties, 72 arbitration agreement, law governing absence of choice of law: Asian jurisdictions, 77–79 conflict of law method in absence of choice, 75–77 practical implications on drafting arbitration agreements, 81–84 separability presumption, 79–81 choice of law context, in, 80–81 pro-arbitration approach, 80 International approach critique, 15–16 sources of international standards ILA recommendations on res judicata and arbitration, 15 New York Convention, 14 public international law jurisprudence, 13–14 standards adoption, rationale for, 12 sources of, 12–15 International arbitration admissibility (See Admissibility in international arbitration) interaction of laws in (See Interaction of laws in international arbitration) provisional measures application in (See Provisional measures application)

International Arbitration Act, 58, 64, 69, 361 International Bar Association (IBA) Guidelines conflicts of interest, on, 100–102 International Centre for Settlement of Investment Disputes (ICSID) consolidation (See Consolidation) Convention Article 42(1), 311–312 Article 54, 241 Article 54(3), 241–242 Article 55, 241–242 legal framework, 269–270 annulment of an award, procedure for, 271 consent, 270 jurisdiction ratione materiae, 270 jurisdiction ratione personae, 270 parties to challenge jurisdiction, procedure for, 270 tribunals experience admissibility objections, 271–272 objections, 272–273 respondent’s classification, 272 International Court of Justice (ICJ) proceedings admissibility, 282–287 agreement of party to use another method of pacific settlement, 285–286 concept of, 282–283 local remedies, exhaustion of, 286–287 mootness, 284 nationality of claim, 286–287 party’s delay, 284–285 legal framework, 282 objection, nature of, 281 International Law Association (ILA) arbitration, recommendations on, 15 Report and Recommendations, 294–296 res judicata, recommendations on, 15

401

Index Internet Corporation for Assigned Names and Numbers (ICANN) ADR mechanisms (See ICANN’s ADR mechanisms) dispute resolution mechanisms, compatibility of due process, 325–327 human rights, 324–325, 327–329 history and internet governance, 316 human rights, and, 324–325, 327–329 tasks and technical background, 317 Intra-EU BITS, 217–218 Background, 218–220 CJEU and its case law Brexit Treaty, 236–238 EEA Court: Opinion 1/91, 225–226 EFTA Court: Opinion 1/92, 226 European Court of Human Rights: Opinion 2/13, 232–234 implications of, 234–236 Joint Committee for the European Common Aviation Area: Opinion 1/100, 226–227 Kadi, 228–230 MOX Plant dispute, 227–228 Patents Court: Opinion 1/09, 230–231 competence and applicable law CJEU and its case law, 225–238 perspectives, 222–225 consequences CJEU’s decision, extent to which tribunals take, 238–239 enforcement, 240–242 set aside, revision and annulment, 239–240 Investment Chapter in FTA interpretative aspects and mechanisms binding interpretations, 45–48 duty to apply agreement and applicable rules of international law, 42–44

non-disputing NAFTA parties, interventions of, 44–45 substantive obligations expropriation and compensation (Article 1110), 35–36 minimum standard of treatment (Article 1105), 35 most-favored-nation treatment (Article 1103), 35 national treatment (Article 1102), 34–35 performance requirements (Article 1106), 35 senior management and boards of directors (Article 1107), 35 special formalities and information requirements (Article 1111), 36–37 standard of treatment (Article 1104), 35 textual directives to tribunals and, chapter-specific qualifications of, 37–39 transfers (Article 1109), 35 textual directives to tribunals, chapter-specific qualifications of substantive obligations Article 1112, 38–39 Article 1113, 39 Article 1114(1), 39 eleven qualifications of, 39–42 national security (Article 2102), 40 reservations and exceptions (Article 1108), 37–38 taxation (Article 2103), 40–42 tribunal encounters with jurisdictional limits subject-matter jurisdiction, limitations on, 48–51 unexpressed territorial limitations, 51–55 Investment treaty arbitration admissibility, 265–266, 287

402

Index Investor defined, 34 IRP. See Independent review process (IRP) Issue estoppel persona requirement expansion, 126–128 principles of, 120, 121 requirements for, 120 self-evidently, 120–121 J Jurisdictions Asia (See Asian jurisdictions) ICSID parties to challenge jurisdiction, procedure for, 270 ratione materiae, jurisdiction, 270 ratione personae, jurisdiction, 270 prima facie bifurcation, relevance of existence of, 116 commercial arbitration, in, 117 finding of, 115 ICSID case fact on, 115–116 pleadings in connection with, 116–117 tribunals power to order, 112–113 ratione materiae, 270 ratione personae, 270 subject-matter, 48–51 L Law governing arbitration agreement, 385–386 analysis English choice of law method, 385–386 proper law, 133 choice of a seat closest connection, 143 matrix contract, 143–144 selection of seat, 142

choice of law, 137 matrix contract, in, 144–147 dépeçage, 139–141 doctrine of separability, 132 conception of, 138 DAC explanation, 138 description, 136 English Arbitration Act 1996, 138 English law support for, 137 example case for, 138–139 interpretation of, 137 Model Law (Article 16(1)), 137 English authorities, 134–136 law of main contract, presumption in favour of multi-tiered agreement, 388–389 separability doctrine, 388 law of seat, presumption in favour of arbitration and, connection between, 390 Model Law, 389 New York Convention, 389 Swedish Arbitration Act (Section 48), 390 matrix contract, 132 principle, correct analysis in law of the seat, significance of, 142–144 matrix contract, choice of law in, 144–147 qualifications, 147 principled canon for choice of law, 393–394 pro-validation approach, 391–393 single contract, 132 validation principle, 148–149 void/invalid arbitration agreement, 132–133 Law of main contract presumption in favour of multi-tiered agreement, 388–389 separability doctrine, 388 Law of Property Act, 24 Section 136, 199

403

Index Section 136(i), 194 Law of seat arbitration and, connection between, 390 evidentiary inferences, 388–389 presumption in favour of Model Law, 389 New York Convention, 389 Swedish Arbitration Act (Section 48), 390 res judicata, 292 LCIA Rules Article 2 (4), 333–334 Article 4.1, 341 Article 27, 369 Articles 27.1 and 27.2, 363 default proceedings, 333–334 Lex arbitri, 207, 304, 307 res judicata, 291 Lex loci arbitri, 378 M MacKinnon Report on Arbitration, 374–375 Malaysia law governing arbitration agreement in absence of choice of law, 77 Mandatory consolidation, 246–247, 256–259 Mandatory laws, 345 attempt to get it right, 211–212 arbitrators’ discretion / self-interest, 215 consistency, 213 efficiency, 214–215 enforceability, 215 justice, 213 party autonomy, 212–213 sovereign support, 213–214 state legal expansionism, 214 consistency, 213 efficiency, 214 enforceability, 215

justice, 213 party autonomy (See Party autonomy, subhead: mandatory rules of law) sovereign support, 213–214 state legal expansionism, 214 Matrimonial property trust disputes, 92 MFN clause. See Most-favored nation (MFN) clause Mid-arbitration assignment consent as proposed requirement, 28 requirement to give notice of, 26–28 law applicable, 19–23 Dicey’s Conflict of Laws, 20 doctrine of separability, 22 English law, 22–23 Swiss Federal Act, 20–21 transfer, 23–26 transfer mid-arbitration, 20 transfer, legal nature of, 23 Dicey’s Conflict of Laws: Rule 135(b), 24–25 Indian Companies Act (Sections 391 to 394), 24 Scheme of Amalgamation, 25–26 Mistakes, 366 Model Law, 58 Article 3, 340–341 Article 16(1), 137 Article 18, 337 Article 25 (a), 332 Article 28(1), 354 Article 28(2), 351 Article 30, 333 Article 33(1)(b), 361 Article 33(3), 361 Article 34(2)(a)(ii), 338 Article 36(1)(a)(iv), 376 Articles 33(1)(a) and 33(2), 361 default proceedings, 332

404

Index law of seat, presumption in favour of, 389 Mootness ICJ proceedings, 284 Most-favored nation (MFN) clause, 116–117, 253 MOX Plant dispute, 227–228 Multi-tiered agreement law of main contract, 388–389 N NAFTA. See North American Free Trade Agreement (NAFTA) Nationality of claim ICJ proceedings, 286–287 National systems default proceedings, 341–343 New York Convention, 14, 58 Article V, 240 Article V(1), 209 Article V(1)(a), 149 Article V(1)(b), 336–338 Article V(1)(d), 376 Article V(2)(b), 88–89, 210 law of seat, presumption in favour of, 389 Non-arbitrability doctrine, 91 Non-contractual claims arbitrability objective, 349 subjective, 349–350 law applicable to arbitration clause, scope of, 349–350 characterisation, 348 disciplined conflict of laws approach example, 349–350 parties’ choice of law, 350–353 tort claims in absence of party choice, 353–355 parties’ choice of law applicable to, 350–353 Non-Waivable Red List, 350–353

North American Free Trade Agreement (NAFTA), 44–48 Apotex case, 301 Article 1126, 256–258 Notice default proceedings, 336 Notification award effect of, 371 parties without delay, to, 372 procedures, 371 default proceedings, 335 O Objective arbitrability, 349 Oral hearing default proceedings, 334–335 P Parol evidence rule, 160 Party autonomy, 212–213, 216 consolidation, 247 jurisdiction and (See Trust disputes, arbitrability of) limits, and legitimacy to arbitral process, 89–90 parties’ agreement, 90 mandatory rules of law, 204–205 outside proper law, 207–211 proper law, 205–206 natural justice and conflict of interest, 97 fundamental principles, tension between, 97 IBA Guidelines on conflicts of interest, 100–102 impartial arbitrator, limit in allowing party to agree to, 103–104 Non-Waivable Red List, 100–102 proper limits, 96 statutory approach, 98–100

405

Index outside proper law, mandatory rules of law arbitration, place of, 207–208 enforcement, place of, 210–211 performance, place of, 208–209 personal laws of parties, 209–210 transnational public policy, 211 principle, 88 United Kingdom’s Arbitration Act 1996, limitations under (See United Kingdom’s Arbitration Act 1996) Pre-award interest United Kingdom’s Arbitration Act 1996 DAC Report of February 1996, 378 description, 377–378 ICC tribunal’s powers under Section 49, 380 language of Section 1(b), 383 LCIA recommended model arbitration clause, 383 non-English substantive law, 383–384 non-mandatory provisions, 382–383 regards interest (Section 49), 378–379 Section 4(5), 378, 380–381 Section 49(3), 379 Section 5: parties’ written agreement, 381–382 Premium credit funding, 195 Prima facie definition, 114 jurisdiction bifurcation, relevance of existence of, 116 commercial arbitration, in, 117 finding of, 115 ICSID case fact on, 115–116 pleadings in connection with, 116–117 tribunals power to order, 112–113 standard, 114–115 test, 112

Pro-arbitration approach, 80 Proceedings default (See Default proceedings) EA (See Emergency arbitrator (EA) proceedings) ICJ (See International Court of Justice (ICJ) proceedings) Pro-validation approach, 391–393 Provisional measures applications, 117–118 evaluation of, 108 fundamental competence or jurisdiction, 108 power to award, 108, 110–111 prima facie jurisdiction, 109 bifurcation, relevance of existence of, 116 commercial arbitration, in, 117 definition, 114 finding of, 115 ICSID case fact on, 115–116 pleadings in connection with, 116–117 standard, 114–115 tribunals power to order, 114–115 jurisdictional requirement, 112 prima facie jurisdiction, 112–113 ultimate jurisdiction, need to order provisional measures prior to, 113–114 Public international law, 13–14 R Res judicata, 3–4, 128–129 conception of claim splitting, 296–298 ILA Report and Recommendations, 294–296 covering “could have been claims” ILA Recommendations, 300–301 NAFTA tribunal decision in Apotex case, 301 principle of concentration, 299 public international law, 301

406

Index transactional approach, 298 triple identity test, 299 description, 1–2 dictum, 120 finality, principles of, 119 ILA recommendations on, 15 international commercial arbitration, in, 4–5 choice-of-law approach, 6–11 international approach, 11–16 issue estoppel in investment arbitration, and, 122–126 Cairo Award, 124–125 claimants’ claims, 123 domestic judgment, 125–126 ICC award, exclusionary effect o, 125 law applicable domestic law to, 293 ICC award, 292–293 law of the seat, 292 lex arbitri, 291 principles, 289–290 requirements for, 119 Rome II Regulation Article 14(1), 352 S Sanctions default proceedings, arbitration rules for, 333 Sauber case, 62–63 SCC Arbitration Rules (2017) Article 35(3), 164 Scheme of Amalgamation, 25–26 Self-evidently issue estoppel, 120–121 Separability doctrine, 22, 132 conception of, 138 DAC explanation, 138 described, 132, 136 English Arbitration Act 1996, 138 English law support for, 137 example case for, 138–139 interpretation of, 137

law of main contract, 388 Model Law (Article 16(1)), 137 Separability presumption, 79–81 SIAC Rules. See Singapore International Arbitration Centre (SIAC) Rules Singapore law governing arbitration agreement in absence of choice of law, 78 Singapore International Arbitration Centre (SIAC) Rules Article 24 (3), 334 default proceedings, 334 Rule 33, 369 Soft law, 162 Subjective arbitrability, 349–350 Subject-matter jurisdiction tribunal, limitations on, 48–51 Subpoenas arbitration, 65–66 Substantive rights of parties in arbitration voie directe approach (See Voie directe approach) voie indirecte approach (See Voie indirecte approach) Success EA proceedings applicant’s prospect of, 180 jurisdiction, exercising, 180–181 reasonable possibility, 181–183 Swedish Arbitration Act Section 48, 390 Swiss Federal Act, 20–21 T Tort claims law applicable in absence of party choice, 353–355 Trade Practices Act 1974, 350 Transactional approach, 298 Treaty of the European Union (TEU) Article 3(5), 242 Article 50(2), 236 Treaty of Waitangi, 97

407

Index Treaty on the Functioning of the European Union (TFEU) Article 218(3), 236 Triple identity test, 13, 299 Trust disputes, arbitrability of Arbitration Amendment Bill (2017), 95 beneficiaries dispute after the death of settlor, 94 compel arbitration, 94 consent, lack of, 94–9 doctrine of non-arbitrability, 91 matrimonial property issues, 92 misconduct against trustee, allegation of, 92–93 trust described, 91–92 trustee and beneficiary, dispute between, 93 Turkey-Pakistan BIT Article VII, 274 Typographical errors, 364 U UDRP. See Uniform Domain Name Dispute Resolution Policy (UDRP) UNCITRAL Arbitration Rules Article 39(1), 361 Article 38.1 and 37.2, 368 consolidation, 261 Uniform Commercial Arbitration Acts, 58, 60 Uniform Domain Name Dispute Resolution Policy (UDRP), 318–319, 321, 326, 328 Uniform Rapid Suspension (URS) proceeding, 321 United Kingdom’s Arbitration Act 1996 costs Bermuda forms, 376 MacKinnon Report on Arbitration, 374–375 public policy issue, 375–376 W.W. Park’s conclusion on, 376

ICC tribunal’s powers under Section 49, 380 interest DAC Report of February 1996, 378 ICC tribunal’s powers under Section 49, 380 language of Section 1(b), 383 LCIA recommended model arbitration clause, 383 non-English substantive law, 375–376 non-mandatory provisions, 382–383 pre-award, 382–383 regards interest (Section 49), 378–379 Section 4(5), 378–379 Section 49(3), 379–380 Section 5: parties’ written agreement, 381–382 language of Section 1(b), 383 regards interest (Section 49), 378–379 Section 4(5), 378, 380–381 Section 49(3), 379–380 Section 60, 376 Section 5: parties’ written agreement, 381–382 Urgency EA proceedings, 179 URS proceeding. See Uniform Rapid Suspension (URS) proceeding V Validation principle, 148–149, 394 Vienna Convention on the Law of Treaties (VCLT), 42-46, 54 Article 59, 219 Vizcaya case, 339–340 Voie directe approach, 310–311 description, 304–305 parties’ expectations and intentions, 312–314 party autonomy, validity and, 312 private international law, general principles of, 311–312

408

Index reasons, need for, 306 validity and party autonomy, 312 voie indirecte vs., 305–306 Voie indirecte approach description, 305 practice, in characteristic performance, domicile of person exercising, 308–309 closest connection test, 308 cumulative method, 309 dispute test, 307–308

international conflict of laws rules, 310 rules of the seat, 307 prescription of, 305 reasons, need for, 306 voie directe vs., 305–306 W WIPO arbitration rules Article 61, 390

409