#arbitration information

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Arbitration and Allegations of Corruption in the Aviation Industry

Reportedly, many agents in the aviation industry have seen their payments halted and contracts terminated by the Airbus Group (“Airbus”)  in circumstances where they have done nothing wrong. Many agents have thus reportedly commenced arbitration against the Airbus Group on the basis of breach of contract.

This curious situation in the aviation industry appears to derive from investigations into the Airbus Group. In August 2016, the British anti-corruption agency, Serious Fraud Office, confirmed it had commenced a formal investigation into the dealings of the Airbus Group concerning business deals concluded via third-party consultants. With the use of such local consultants’ contacts and their knowledge of the region, groups such as Airbus Group could in principle efficiently enter markets without spending significant time and money for extensive market research. The problem was that some third-party consultants may have paid bribes in order to secure orders for Airbus.

After the British Serious Fraud Office’s investigations, the French authorities then also followed suit with investigations of Airbus’ dealings under fraud charges. Allegedly, more than 300 million Euros of funds were misappropriated through third-party consultant contracts for securing potential new business opportunities in China and South-East Asia.

The Airbus Group has since reportedly taken actions to remedy the issue internally and decided to stop using third-party consultants altogether. Also, the Group has appointed an independent panel of independent experts to investigate on the case. It has also been reported to have suspended all payments to third-party consultants while they are being phased out, which has pushed many of them to initiate arbitral proceedings against it on the basis of breach of contract.

What can a third-party consultant previously working with Airbus, or a similar company, whose contract was terminated or whose payments have been suspended due to the suspected misdeeds of other third-party consultants do in such a situation?

Of course, if a third-party consultant’s dealings were in fact tainted by corruption, then the consultant should avoid arbitration and obtain a criminal lawyer instead. Corruption is frowned upon at all levels and serious wrongdoing will doom nearly all claims.

Even innocent parties, however, should not rashly assume that just because Airbus was in breach of contract they will necessarily be entitled to compensation. This will depend on the applicable law and a careful reading of the parties’ agreement. Interestingly, the standards applicable in the investigations against Airbus are not necessarily the same standards which govern the relationship between Airbus and its agents. The applicable law may define what constitutes prohibited activities and may define the remedies available to the parties outside of the contractually agreed options. The Parties’ contract will also contain obligations that must be respected, which must be accurately interpreted in an attempt to ascertain whether there may have been a breach of contract and its consequences.

What may ultimately determine success on the merits, however, may be the burden of proof applied by the arbitrator. In arbitration, there is no single standard of proof with respect to proving allegations of corruption. In some cases, arbitrators have used a standard of proof of “clear and convincing evidence” or “beyond reasonable doubts” in determining whether allegations of corruption have been proven, a high standard of proof that is very difficult to satisfy. In most cases, tribunals proceed on the basis that a “preponderance of evidence” standard is more appropriate, with the burden of proof on the party making allegations of corruption. In some cases, however, arbitrators have used a lower standard, on the basis of that corruption is hard to prove and so circumstantial evidence and indirect evidence can and should be relied upon. In such a situation, even an innocent agent could see its claims fail after the revelation of facts that hint at, but do not prove, wrongdoing on its part.

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The Seat of Arbitration in International Commercial Arbitration

The seat of arbitration (also known as the place or locale) is one of the most important factors to take into consideration when drafting international arbitration clauses in a contract and is often confused with the venue of the arbitration, which is not the same thing.

The choice of the seat of arbitration can have major implications for an arbitration that later arises. Mandatory provisions of the seat of arbitration will always apply to the arbitration: for instance, if the seat of arbitration is chosen as Riyadh, then the arbitration must be Shari’a compliant, without the awarding of interest. The seat of arbitration will also typically determine the procedure governing arbitral proceedings as well as the court that has the power to interfere in arbitration proceedings, for instance by issuing interim measures or by annulling an award. A choice of London as the seat of arbitration, for instance, will generally permit applications for security for costs under the Arbitration Act 1996. A choice of a U.S. seat of arbitration, on the other hand, may allow the intervention of domestic courts to force the production of documents under 28 USC section 1782.

The seat of arbitration must be distinguished from the physical place where hearings are to be conducted, even though they usually are at the same location. The difference between the place and the venue is emphasized in certain arbitration rules, such as for example Article 18 of the ICC Rules (2017) and Article 16 of the LCIA Rules (2014).

Traditionally, the most popular seats for international commercial arbitration were London, Paris, New York and Geneva, where the oldest and most popular arbitral institutions are based. However, recent statistics reveal increasing diversity as to the arbitral seat.

2016 ICC Statistics on the Seat of Arbitration

ICC statistics for 2016 show that out of 106 cases registered in 2016, 96 had their seat in Paris, 65 in London and 54 in Geneva. The top three places chosen by the parties for the seat were followed by Belize City, a popular jurisdiction for the incorporation of special purpose vehicles, followed by New York, Zurich, Singapore and Madrid.

Regarding ICC cases with their seat in the USA, out of 80 cases registered in 2016, 41 had their seat in New York, NY, 10 in California, 10 in Texas, 7 in Florida, 2 in Illinois, 2 in Washington and 2 Washington D.C. For ICC arbitrations with their seat in Canada, most Canadian seats were in the provinces of Ontario, Alberta and Quebec. Finally, Hong Kong was the place of arbitration in 8 ICC cases seated in China.

What Has Changed Regarding the Seat of Arbitration and Why?

Pursuant to a comprehensive report prepared by the IBA in 2015 entitled “The Current State and Future of International Arbitration: Regional Perspectives”, it appears that in Europe and North America traditionally “safe” seats for arbitration maintain their popularity. These include London, Paris and Geneva but also Zurich, Stockholm, New York, Washington DC, Toronto, Houston and Vancouver, British Columbia. Records also show that Madrid is becoming an increasingly popular venue for Latin-American and Spanish parties. The Hague, Vienna and Frankfurt are also frequent seats of arbitration.

Well-established seats have also maintained their popularity among Latin American and African parties aiming for a neutral seat in their arbitration clauses. In Africa, for example, parties still prefer London, Paris and Geneva, but it is interesting to note that Mauritius has gained traction as a seat of arbitration for African parties.

Asia, on the other hand, has seen significant developments in the field of international arbitration over the past decade that mirror its economic growth. As the global economy changes and arbitration grows in popularity, the financial centers of Asia have emerged as popular new international arbitration hubs. Singapore and Hong Kong, in particular, have become major seats of arbitration in Asia. Singapore is today the most popular seat in Asia, with well-developed infrastructure, modern national legislation and a strong position as a financial and commercial center. Furthermore, Singapore is also situated in a geographically convenient location and is a neutral venue for parties from two opposite sides of the globe.

In the Middle East, while the predominant seats remain Paris, London and Geneva, significant changes over the past years have also led to positive changes that have impacted parties’ choice of the seat. The United Arab Emirates, and in particular Dubai, has seen an immense growth in popularity as the preferred seat of arbitration for parties from the Middle East after 2006, when the UAE acceded to the New York Convention for Recognition and Enforcement of Arbitral Awards. Furthermore, as Middle Eastern countries open up towards arbitration and modernize their national legislation, many see Cairo (a historically important seat of arbitration but less so today), Tunis, Beirut and Riyadh as emerging arbitration hubs in the region, especially for parties speaking Arabic and wishing to conduct proceedings in their own language.

In conclusion, traditionally popular seats of arbitration have maintained their popularity among parties when choosing a safe, neutral and arbitration-friendly seat to solve their disputes. However, following rapid changes in the global economy and the fact that the arbitration is growing and expanding to the other continents as well, new centers, especially in Asia and the Middle East have established their place in the global arbitration community.

Only a few decades ago, a neutral and independent place of arbitration was sometimes halfway across the globe. Parties will likely have more possibilities to solve their international commercial disputes in their own language and in a more familiar environment in years to come.

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Screening Arbitrator Appointments

Is screening arbitrator appointments a potential solution to the perceived bias of party-appointed arbitrators?

Paul Slovic, a cognitive scientist from the University of Oregon, was part of an interesting experiment. He and his colleagues provided a survey of various technologies to participants, who were asked to list their benefits and costs. The initial results concluded that when respondents advocated for a product, they listed its benefits, whereas those who disliked it noted its risks, with few benefits. Test-takers then read about a technology’s benefits or disadvantages, and the outcome was eye-opening: those who had received messages extolling the benefits of a technology lowered their views on its risks, while those who read about mild risks increased their view of its benefits.

Slovic touched on a psychological trait, which is that humans, by collecting and organising data quickly and without much reflection, are vulnerable to simplify complex judgements into painless trade-offs. If a technology is deemed ‘good,’ it has fewer costs, and vice-versa.

Also known as the affect heuristic (or the tendency to “go with your gut”), this phenomenon is relevant to the debate over whether party-appointed arbitrators in international arbitrations are prone to unethical or partial decisions due to conscious or sub-conscious biases and whether the screening of arbitrator appointments would be useful to implement.

Debate over Party-Appointed Arbitrators

Notable advocate Jan Paulsson first posed the issue as a moral one when he argued that a selected arbitrator’s role as ‘arbitrator-advocate’ was mutually exclusive with mutual confidence by both parties and thus threatened the legitimacy of arbitration.[1]

Soon after, another thought leader, Albert Jan van den Berg, alleged that party-appointed arbitrators nearly always issue a dissenting opinion when the appointing party loses a case.[2] 

Then the pendulum swung back in favour of party-appointed arbitrators. In April 2013, Johnny Veeder concluded that party appointments were the “keystone” of international arbitration.[3]

Additionally, Judge Charles Brower and Charles Rosenberg deconstructed the Paulsson/van den Berg narrative by stressing the importance of procedural justice as a legitimation device and by distinguishing mutual confidence in the tribunal as a whole as opposed to one of the arbitrators.[4]

Interestingly, neither side truly considered screening arbitrator appointments as a potential compromise solution. It was mentioned once by Jan Paulsson in passing.

User Satisfaction regarding the Appointment of Arbitrators

Users have also weighed in on the debate over party-appointed arbitrators.

In a survey co-conducted by Queen Mary and White & Case LLP, 76% of respondents favoured party appointments.[5] Choosing an arbitrator also remains one of the top three most valuable attributes of the system.[6] Questions, however, still lurk.

Only sixty-six percent (66%) of arbitrators favoured unilateral appointments, however, whereas eighty-three percent (83%) of practitioners supported it.

Given this division, what should be done? Could screening arbitrator appointments serve as a potential middle ground?

The Screening of Arbitrator Appointments

The International Institute for Conflict Resolution & Prevention (“CPR”) recently implemented a screening arbitrator appointments process.

Under Rule 5.4(d) of the new CPR Rules for Administered Arbitration of International Disputes, if the parties have agreed to a three-member tribunal, two of those arbitrators will be appointed by the parties “without knowing which party designated each of them.”

How can parties appoint arbitrators but not know which arbitrator they appointed?

The CPR’s process is conducted as follows. First, after discussing the preferred credentials of potential arbitrators,[7] the CPR provides a list of candidates for parties to rank its top three candidates within a ten-day period.[8] During that time, the parties may object to any listed candidate based on “grounds of lack of independence or impartiality.”[9] If an objection is successful, CPR will appoint the next candidate by order of party preference.[10]

Interestingly, the Rules stipulate that “[n]either CPR nor the parties shall advise or otherwise provide any information or indication to any arbitrator candidate or appointed arbitrator as to which party selected either of the party-designated arbitrators.”[11]

This means that the CPR has potentially found a way to ensure objectivity and procedural legitimacy while maintaining the traditional party appointment process.

Conclusion

Because of the novelty of the CPR Rules, no reported arbitrations exist to date where arbitrators were appointed in this manner.

There will surely be forthcoming obstacles, most notably concerning arbitrator interviews, disclosure of the constitution of the tribunal and the challenging of arbitrators.

With future advancements in cognitive research, users and attorneys in the field may one day better understand the effects of affiliation and judgement. Until then, however, the CPR’s screening of arbitrator appointments may be a useful compromise to be emulated.

Thomas W. Davis, Aceris International Arbitration Law Firm

[1] Jan Paulsson, Moral Hazard in International Dispute Resolution, 25 ICSID Rev. 339 (2010).

[2] Albert Jan van den Berg, Dissenting Opinions by Party-Appointed Arbitrators in Investment Arbitration, in Looking to the Future: Essays on International Law in Honor of W. Michael Reisman (2011), available at http://www.arbitration-icca.org/media/4/83547731316157/media012970228026720van_den_berg–dissenting_opinions.pdf.

[3] Sebastian Perry, Party Appointments are the Keystone of Arbitrations says Veeder, Global Arbitration Review, April 17, 2013.

[4] Charles N. Brower & Charles B. Rosenberg, The Death of the Two-Headed Nightingale: Why the Paulsson-Van den Berg Presumption that Party-Appointed Arbitrators are Untrustworthy is Wrongheaded, 6 World Arb. & Med. Rev. (2012), p. 25.

[5] Queen Mary University of London and White & Case LLP, The 2012 International Arbitration Survey: Current and Preferred Practices in the Arbitral Process, available at http://www.arbitration.qmul.ac.uk/docs/164483.pdf.

[6] Queen Mary University of London and White & Case LLP, The 2015 International Arbitration Survey: Improvements and Innovations in International Arbitration, available at http://www.arbitration.qmul.ac.uk/docs/164761.pdf.  Other top characteristics included enforceability of awards (65 percent); avoiding specific legal systems/national courts (64 percent); and flexibility (38percent).

[7] Candidates are generally drawn from CPR’s “Panel of Distinguished Neutrals,” although parties are free to select their own candidates.

[8] Rule 5.4(a), CPR Rules. The CPR will also provide in its list “disclosure of any circumstances that might give rise to justifiable doubt regarding their independence or impartiality” to sit on the tribunal.

[9] Rules 5.4(b), CPR Rules.

[10] Rules 5.4(c), CPR Rules.

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Colombia Arbitration Proceedings: Fool’s Gold?

What connects General José Fernández de Santillán, emeralds and Colombia arbitration proceedings? More than one would think.

If Mr. Fernandez de Santillán had defeated the British squadron on 8 June 1708, the myth of a galleon carrying vast amounts of treasure would never have been born. One of the most interesting recent international arbitrations would also not have been commenced, concerning approximately USD 1 billion in sunken treasure.

The Origins of the Dispute

An American company exploring coasts of Latin America for sunken ships, Glocca Mora Co. (GMC), located the famous Spanish galleon San José in the early 1980’s. San José carried worthy carriage composed of gold, silver and gems from the New World. Its precious cargo was intended to finance Spanish campaigns against the British. However, due to an unexpected attack by the British, the galleon sunk. Almost USD 1 billion in treasure in today’s prices sunk with it.

After its discovery of the galleon in the 1980’s, GMC assigned its rights to another American company named Sea Search Armada (“SSA”). SSA turned to the Colombian authorities, claiming 35% of the found treasure for itself. The Colombian government refused to cooperate. Instead, it enacted an act banning any further operations concerning the sunken ship by private entities. Colombian authorities guaranteed only 5% of the value of the finding to the explorers, however. This is when SSA’s tireless combat over its rights commenced.

Over the following years, SSA sought recourse through Colombian domestic courts. It even obtained a decision of the Colombian Supreme Court which, in 2007, ruled in favor of a 50-50 split of the profits from the find. Even though this decision seemed a beacon of light on a tormented sea, la conquista did not finish there as Colombia blocked salvage operations from taking place.

This led SSA to initiate proceedings before US Courts, but American courts ruled that SSA’s claims were time-barred. In the meantime, Colombian authorities undertook their own explorations and announced their own discovery of the sunken vessel. Recently, San José was made an exclusive State property and was named a State secret of Colombia.

Colombia Arbitration Proceedings

However, the story became even more interesting on 8 August 2017 when SSA expressed its intent to settle the issue once and for all before of an arbitral tribunal. By commencing arbitration proceedings against Columbia, the SSA would potentially have a chance to finally enforce the 30-year old agreement. However, such proceedings would also provoke an even higher level of scrutiny of the issue and would not settle the issue of whether Colombia would allow the resulting arbitral award to be enforced.

These arbitration proceedings would take the form of an investment arbitration. This stems from the fact that the company’s assets, time and capital gains were on the line and arguably represented an investment. Besides, a sudden withdrawal of the authorization by a public entity is another issue, potentially relevant to unfair and inequitable treatment. Finally,  the alleged breach of contract by the Colombian authorities should not be neglected, although a clearly applicable umbrella clause would normally be needed in order to resolve issues of contract violations per se at an international level. Still, it is unclear by which rules the proceeding would be organized and who would represent the parties.

The letter of 8 August 2017 announcing the intent of the SSA to commence arbitration is not a surprise. The parties participated in amicable settlement for months. Unfortunately, SSA, the Colombian Ministry of Culture and the Navy Maritime Administration of Colombia never reached a compromise. Thus, arbitration proceedings seemed necessary.

Kingdom of Spain Expressed Interest as Well

Another variable in the already complicated equation is the potential interest of Spain in the sunken treasure. At first glance, this might seem confusing. However, the galleon San José navigated under the Spanish flag. It also carried a Spanish crew. Besides, Spain was one of the most powerful forces at the time. Finally, the precious cargo arguably represents part of its cultural heritage.

The eventual success of the pending arbitration proceedings is still unclear. Will the myth of wealth and glory turn into an anecdote of fool’s gold?

Colombian maritime territory is reportedly packed with colonial shipwrecks – more than 1000. Regardless of the outcome, the eventual arbitration award is likely to serve as an example for similar arbitration proceedings concerning salvage operations in the future.

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Top 10 Tips for Drafting Better International Arbitration Clauses

Drafting international arbitration clauses in your contract appears like a simple task from the outset. There are many examples online – all you need to do is to take the existing template, copy/paste it and tailor it to your needs. However, is this really true?

Arbitration is generally considered as a faster, cheaper and more confidential dispute resolution method in comparison to litigation. This is only true if the underlying basis of each arbitration process – the agreement to arbitrate – is properly drafted, valid and enforceable. Through their agreement to arbitrate the parties express not only their willingness to submit their dispute to arbitration but also specify the aspects of a procedure they wish to require. In order to  have an eventually enforceable award, this first step – a properly drafted arbitration agreement is crucial. This article provides ten tips on what to include and pay attention to when drafting arbitration clauses in your contracts.

1. Express Agreement to Arbitrate

The first step is for the parties to be clear in expressing their willingness to submit their dispute to arbitration. The language used is very important- never use the permissive wording like “may”or “might” but instead use the words which expresses legally binding obligations like  “shall” or “will”. You want to be clear whether the arbitration is mandatory or optional.

2. Choose between Institutional or Ad hoc Arbitration

The second step is choosing between so-called institutional or ad hoc arbitration. In institutional (also called administered) arbitration, the parties choose an arbitral institution which will assist them in logistical aspects of the proceedings and other practical matters. Some common examples are International Chamber of Commerce (ICC), the London Court of Arbitration (LCIA), the Permanent Court of Arbitration (the PCA), the Stockholm Chamber of Commerce (SCC), the Singapore International Arbitration Center (SIAC) and the Hong Kong International Arbitration Center  (HIAC).  A full list of major arbitral institutions may be accessed here.  This assistance is for the exchange a small fee. Ad hoc arbitration, on the other hand, is more flexible in the sense that the parties have the freedom (and the obligation) to arrange the entire arbitration proceedings as they wish and tailor it to their own needs. There is no institution involved in the process, but there is still a need (and a recommendation) for the parties to designate a third, neutral party (known as an “appointing authority”) to have the final word on the selection of arbitrators if the parties fail to agree, as is often the case.

3. Choose a Set of Arbitration Rules

The third most important step is choosing the set of arbitration rules, which provide for the procedural framework for the proceedings. By choosing a complete set of arbitration rules the parties have saved themselves from having to agree upon all procedural aspects in relation to the proceedings, since the rules are a comprehensive set of rules which govern the procedural aspects of an arbitration and have been tried and tested. Each institution has a model clause suggested for parties who wish to include it in their contracts. A comprehensive list of suggested model clauses of the leading institutions is available here and parties are strongly encouraged to include one of the recommended clauses in order to avoid so called “pathological” and unenforceable clauses. In the case of ad hoc arbitration, parties usually choose the set of arbitration rules developed by UN Commission on International Trade Law (“UNCITRAL Rules”), which is specially tailored for  non-administered arbitrations.

4. Seat of Arbitration

The seat of arbitration (also known as the place of arbitration) is extremely important as it determines the law governing arbitration procedure (procedural law, or lex arbitrii). Parties should select a neutral place, for example they usually choose the place where the local courts would most likely enforce the agreement and support the arbitration process, such as Paris, Geneva or London. The seat of arbitration is the juridical home of the arbitration so the parties should pay special attention since the choice can have important legal consequences. As a general rule, the parties should always choose a place in a jurisdiction which is a signatory to 1958 New York Convention on the Recognition and Enforcement of the Awards (the “New York Convention”) and whose national law is generally supportive of arbitration.

5. Defining the Scope of Arbitration

Make sure to carefully define the scope of arbitration as well. Unless you agree that all disputes, including tort claims and other extra-contractual remedies, arising out of the contract and from the business relationship are to be arbitrated, be sure to exclude disputes which are not to be submitted to arbitration. Be careful about the law of the seat and whether it explicitly excludes certain subject matters and disputes as inarbitrable (such as family law in most jurisdictions).

6. Define the Governing law

The parties should also specify the governing law (also known as the “substantive law”) which is usually set out in a separate clause from the arbitration clause. It is important to note that the governing law to the contract is not the same as the arbitration law or procedural law governing the arbitration. Although the parties are allowed to explicitly agree that it will be the same law, it is quite common for the governing law to be different from the procedural law.

7. Arbitrators 

Careful consideration should also be given to the manner of appointment of arbitrator(s) and the constitution of the tribunal. In the majority of cases, proceedings will be before one arbitrator (a Sole Arbitrator) or a three-member panel (an Arbitral Tribunal). The number should be non-even in any event. The number of arbitrators has an impact on overall costs and the duration of the arbitration (three arbitrators will be more expensive than one arbitrator and may take longer to issue a ruling). It is unnecessary to specify the number of arbitrators in the arbitration clause. While the parties have an option of deciding this issue once the dispute arises, the main disadvantage of this approach is that if the parties disagree on the number of arbitrators, this causes unnecessary delays to the overall proceedings.

8. Appointing Authority 

In case of an institutional arbitration, many procedural rules provide for default rules on appointing arbitrators. However, in an ad hoc arbitration it is important to establish a method for selection and replacement of arbitrators. Absent such a specific provision, the courts at the place of arbitration may have to step in to make the necessary appointments/replacements since it is difficult for parties to agree on arbitrators once a dispute has arisen. Under the UNCITRAL Rules, in case the parties have not specified an appointing authority, it is the Secretary General of the Permanent Court of Arbitration who designates an appointing authority by default.

9. Language

When choosing the language of the proceedings, parties should not only take into account the language of the contract but also the related documentation. Note that choosing one language is always preferred to multiple options. This is an optional element, and absence of the explicit agreement of the parties, it is for the arbitrators to decide on the language of the arbitration.

10. Mediation/Negotiations- Multi-tiered Arbitration Clauses

Multi-tiered arbitration clauses – which provide for mediation, negotiations or some other form of alternative dispute resolution (ADR) prior to initiating arbitration are a frequent part of arbitration clauses drafted nowadays. It may be helpful for parties to try to negotiate the settlement of their dispute before engaging in lengthier and more expensive arbitration proceedings, although it may also simply be a waste of time and costs. An important issue to take into account when including multi-tiered clauses is to make it clear whether it is mandatory or optional. If the parties use mandatory wording such as “shall”, recourse to mediation or negotiations is a condition precedent for arbitration. In this case it is crucial to include the explicit time limit beyond which the dispute can be submitted to arbitration. If the parties use wording such as “may”, this can mean that mediation or negotiations are only optional and parties may resort to arbitration as soon as the dispute has arisen.

11. Confidentiality Obligations

Certain Arbitration rules provide for built-in confidentiality provisions. However, the parties are free and encouraged to include express confidentiality obligations and remedies for their breach, since not all arbitration clauses require confidentiality and the laws of many seats of arbitration do not require this either. The scope of this obligation can vary – from the disclosure of the existence of the arbitration, to confidentiality of the documents, evidence or any correspondence between the parties and the tribunal and interim and/or final awards.

This list is not exhaustive – and there are  other details and optional elements which the parties might wish to take into account. In 2010, the International Bar Association published IBA Guidelines for Drafting International Arbitration Clauses, available here, which is  a comprehensive guide to drafting arbitration clauses and making sure there is a valid and enforceable clause giving you full access to arbitration once a dispute has arisen.

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Transparency in Investment Arbitration

Transparency in Investment Arbitration: Entry into Force of the Mauritius Convention

On 18 April 2017 Switzerland became the third UN Member State to ratify the 2015 United Nations Convention on Transparency in Treaty-Based Investor-State Arbitration (“The Mauritius Convention”). The Mauritius Convention reaffirmed the 2014 UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (UNCITRAL Rules), and extended their applicability across all new investment arbitrations (ICSID, SCC, UNCITRAL etc.).

According to Article 9, the Convention would enter into force six months after the third UN Member State ratification. Therefore, following Switzerland’s ratification the UNCITRAL Rules will apply on all treaty-based investment arbitrations registered after 18 October 2017.

The initiative for transparency in investment arbitration initially came as an answer to the backlash against investment arbitration, namely the argument that important State interests, cannot be adjudicated in private. The UNCITRAL Rules incorporated procedural provisions, which try to make investment arbitrations more easily accessible to the public (publication of arbitration documents, access to hearings, amicus curiae submissions etc.). [see our previous reporting on the rules] Taken as a whole, they could drastically alter a traditional feature of investment arbitration, confidentiality.

However, whether the UNCITRAL Rules can actually introduce transparency in investment arbitration and address the proclaimed problem, is uncertain. Indeed, a number of features hint that this might have been a flamboyant, but rather hollow, political move. First, the UNCITRAL Rules apply only to treaty-based investment arbitrations, excluding those under national laws or contracts. Second, several broadly drafted provisions ensure that parties may still exclude “confidential or protected” information from the public.

In addition, while initially enthusiastic, States seem unwilling to participate in the Mauritius Convention. Following Switzerland’s ratification, only three States are now full parties (Mauritius, Switzerland and Canada), while eighteen remain mere signatories.

According to Article 2(2) of the Mauritius Convention, which relates to the unilateral offer of application of the UNCITRAL Rules (“[in investment arbitrations] where the respondent is a Party that has not made a reservation relevant to that investor-State arbitration under article 3(1), and the claimant agrees to the application of the UNCITRAL Rules on Transparency”). In light of this, it will be interesting to observe if and to what extent parties will be willing to apply the Mauritius Convention and introduce transparency in investment arbitration.

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Arbitration in Brazil

Arbitration in Brazil has developed significantly over recent decades. The latest ICC statistical report for the year 2016 shows an increasing number of Brazilian parties using arbitration, with 123 Brazilian parties compared to 112 in 2014, placing Brazil in 3rd place in party-rankings worldwide. Brazil is today described as having a pro-arbitration legal regime and arbitration is frequently used in the construction and infrastructure sectors.

  Influenced by Spanish arbitration law and the UNCITRAL Model Law, Brazil’s Arbitration Act (“BAA”) was enacted in 1996 and was recently amended in 2015. The BAA governs both domestic and international arbitrations in Brazil.

Pursuant to the BAA, an arbitration agreement, either in the form of an arbitration clause or of an arbitration submission, must be in writing. It can be included in the main contract or inserted in a separate instrument. The arbitration agreement is separate from the underlying contract. Consequently, if such a contract is held to be null and void, this will not necessarily render the arbitration agreement invalid (BAA, Article 8).

The parties are free to select the applicable law to the arbitration agreement as long as it does not violate morality and public policy. However, arbitration is limited to disputes concerning disposable patrimonial rights. The 2015 amendment clarified the issue of arbitration and Brazil’s public administration. State entities can arbitrate disputes concerning disposable patrimonial rights, but arbitration must be conducted de jure and be public (BAA, Article 2).

Parties should also include in their arbitration agreement an odd number of arbitrators along with the rules for their appointment. Parties may refer to the rules of arbitral institutions for the appointment of the arbitrators. However, the parties may mutually agree not to be bound by the arbitral institutions’ rules that provide for the selection of the arbitrator, co-arbitrator or chairman from their rosters of arbitrators. If the parties fail to specify how to appoint their arbitrators, then domestic courts are given the power to determine this (BAA, Article 13).

In accordance with Article 14 of the BAA, a person linked to the parties or the dispute at hand cannot act as an arbitrator. Further, an arbitrator is required to act with impartiality, independence, competence, diligence and discretion. The BAA requires the arbitrator to disclose any information that could raise doubt as to their impartiality or independence, prior to their appointment.

The annulment of an award may be sought before Brazilian courts within 90 days after it is rendered. The invalidity of the arbitration agreement, the lack of capacity, of independence and/or impartiality of an arbitrator, and the failure to meet formal requirements, constitute the primary grounds for annulment under Article 32 of the BAA. An award contrary to public policy may also be annulled.

Concerning the enforcement of arbitration awards, Brazil ratified the 1958 Convention on the Recognition and Enforcement of Foreign Awards (“New York Convention”) only in 2002. Awards rendered in Brazil are today enforceable without any further step. The recognition of foreign awards requires a homologation and must be recognized by the Supreme Tribunal of Justice since 2014 pursuant to Article 38 of the BAA.

Regarding the enforcement of foreign awards annulled at the seat of arbitration, in 2015 the Superior Court of Justice held inadmissible recognition of an award that was annulled at the seat of arbitration, unlike in many European countries such as France. It considered that the recognition of the ICC award that had been vacated in Argentina, the seat of arbitration, would violate, inter alia, the BAA as well as the New York Convention of 1958 (EDF International S/A v. Endesa LatinoAmérica S/A & YPF S/A (SEC No. 5.782/AR).

Domestic arbitration is also increasing in Brazil. Brazilian arbitral institutions now administer a considerable number of cases. The Arbitration Center of the Brazil-Canada Chamber of Commerce (CCBC), the Chamber of Mediation, Conciliation and Arbitration of São Paulo (CIESP/FIESP), the Arbitration Center of the American Chamber of Commerce in Australia (AMCHAM), the Arbitration and Mediation Chamber of Fundação Getúlio Vargas (CAM/FGV) and, the Business Arbitration Chamber: Brazil (CAMARB), are the principal arbitral institutions.

Brazil was long the “black sheep” of international arbitration. Since 1996 and the enactment of the Brazil Arbitration Act (“BAA“), however, Brazil has made significant steps to foster international commercial arbitration. The ratification of the New York Convention of 1958 was a major improvement and Brazil is now considered arbitration-friendly State.

Yet, Brazil remains a non-signatory of the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States and its recent Cooperation and Facilitation Agreements with Mexico, Angola, Colombia, Malawi, and, Mozambique, do not provide for any investor-State dispute settlement provisions.

The current arbitration law of Brazil, as modified in 2015, may be found in its integrality below.

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ICC Arbitration Clause

By including an ICC Arbitration Clause in a contract, the parties agree that their dispute will be resolved by arbitration and that the arbitration proceedings will be governed by the procedural rules in the ICC Rules of Arbitration, in addition to any mandatory rules at the seat of arbitration.

This also implies that the International Court of Arbitration will administer arbitration proceedings and assist the parties and the arbitral tribunal, e.g., confirming, appointing and replacing arbitrators, deciding on any challenges made against the arbitrators, overseeing emergency proceedings before the start of the arbitration, and scrutinizing and approving the arbitral award.

While dispute resolution clauses are one of the last issues on which parties tend to agree during the negotiations of the contract, a well-drafted arbitration clause can ensure that parties spend less time and costs should a dispute arise. In case the parties would like their dispute to be resolved in accordance with the ICC Arbitration Rules, the International Chamber of Commerce advises the parties to include in their contract the following standard ICC arbitration clauses and ICC mediation clauses.

Standard ICC Arbitration Clause

“All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”

We typically advise our clients to also include the flowing stipulations relating to the seat of arbitration, the language to be used in the arbitration proceedings as well as the substantive law governing the contract, which are frequently contentious issues after a dispute arises.

“The seat of arbitration shall be [… e.g., Singapore].

The language to be used in the arbitral proceedings shall be […e.g., English].

This contract shall be governed by the substantive law of […e.g., Switzerland].”

ICC Arbitration without the Possibility of an Emergency Arbitrator

In case the parties would like to exclude the possibility of requesting a ruling for conservatory measures by an Emergency Arbitrator, the following statement should be added after the standard clause in order to opt-out of this feature of ICC arbitration.

“The Emergency Arbitrator Provisions shall not apply.”

ICC Arbitration without the ICC’s Expedited Procedure

The parties may also opt-out and exclude the application of the Expedited Procedure Provisions.

“The Expedited Procedure Provisions shall not apply.”

Expedited Procedure Irrespective of the Amount in Dispute

The parties may also opt-in and provide in their contract that the Expedited Procedure will apply to disputes where the amount in dispute exceeds USD 2 million, with the goal of reducing the cost of resolving disputes through ICC arbitration.

“The parties agree, pursuant to Article 30(2)(b) of the Rules of Arbitration of the International Chamber of Commerce, that the Expedited Procedure Rules shall apply irrespective of the amount in dispute.”

Other Recommendations for ICC Arbitration Clauses

If the parties would like to have an ICC Arbitration with the seat of arbitration in Mainland China, the ICC suggests including an explicit reference to the ICC International Court of Arbitration in the arbitration clause.

“All disputes arising out of or in connection with the present contract shall be submitted to the International Court of Arbitration of the International Chamber of Commerce and shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”

Option to Use the ICC Mediation Rules

While this option technically exists whenever a dispute arises, the parties may wish to encourage mediation by including the following option explicitly.

“The parties may at any time, without prejudice to any other proceedings, seek to settle any dispute arising out of or in connection with the present contract in accordance with the ICC Mediation Rules.”

Obligation to Consider the ICC Mediation Rules

Rather than making mediation optional, the parties may also require mediation prior to proceeding with arbitration.

“In the event of any dispute arising out of or in connection with the present contract, the parties agree in the first instance to discuss and consider referring the dispute to the ICC Mediation Rules.”

Obligation to Refer Dispute to the ICC Mediation Rules while Permitting Parallel Arbitration Proceedings if Required

Another option is to permit mediation and arbitration to run in parallel.

“In the event of any dispute arising out of or in connection with the present contract, the parties shall first refer the dispute to proceedings under the ICC Mediation Rules. The commencement of proceedings under the ICC Mediation Rules shall not prevent any party from commencing arbitration in accordance with sub-clause y below.

All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.”

Obligation to Refer Dispute to ICC Mediation, Followed by ICC Arbitration if Required

The parties may also provide for mediation to be attempted for a certain period of time, prior to commencing arbitration.

“In the event of any dispute arising out of or in connection with the present contract, the parties shall first refer the dispute to proceedings under the ICC Mediation Rules. If the dispute has not been settled pursuant to the said Rules within [45] days following the filing of a Request for Mediation or within such other period as the parties may agree in writing, such dispute shall thereafter be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules of Arbitration.”

If the parties would like to have recourse to the Emergency Arbitrator Provisions prior to expiry of the 45-day or other agreed period following filing of the Request for Mediation, the following precision should be added to the clause:

“The requirement to wait [45] days, or any other agreed period, following the filing of a Request for Mediation, before referring a dispute to arbitration shall not prevent the parties from making an application, prior to expiry of those [45] days or other agreed period, for Emergency Measures under the Emergency Arbitrator Provisions in the Rules of Arbitration of the International Chamber of Commerce.”

If the parties would like to have recourse to the Emergency Arbitrator Provisions, but only after expiry of the 45-day or other agreed period following the filing of the Request for Mediation, the following precision should be added to the clause:

“The parties shall not have the right to make an application for Emergency Measures under the Emergency Arbitrator Provisions in the Rules of Arbitration of the International Chamber of Commerce prior to expiry of the [45] days or other agreed period following the filing of a Request for Mediation.”