UNCITRAL Adopts Expedited Arbitration Rules

By Mylene Chan

This is the third part of a series of CPR Speaks posts reporting on the United Nations Commission on International Trade Law’s 54th session where the commission adopted legislative and non-legislative texts relating to alternative dispute resolution. 

At the three-week session concluding July 16, the commission adopted the UNCITRAL Expedited Arbitration Rules and the Explanatory Notes to the UNCITRAL Expedited Rules. These rules and notes complement and are intended to be read together with UNCITRAL’s well-known arbitration rules, which are for resolving international disputes and applicable both in administered arbitrations under the auspices of an arbitral institution, as well as in ad hoc arbitrations.

The UNCITRAL Arbitration Rules were originally developed as an alternative to other major rule systems. UNCITRAL’s innovative rules were initially viewed with skepticism, but over time, they have been frequently used in investment arbitrations, commercial arbitrations, arbitrations between states, and between states and individuals, such as for the Iran-U.S. Claims Tribunals and several bilateral investment treaties. Latham & Watkins Guide to International Arbitration (2019) (available at https://bit.ly/2VeZKU8).

The UNCITRAL Arbitration Rules have gone through three versions, in 1976, 2010 (revised to meet the needs of modern business including improvements to procedural efficiency, inclusion of provisions on multi-party arbitration and the development of rules on interim measures; available at https://bit.ly/3i7UrPq), and 2013 (incorporated rules on transparency for investment arbitrations based on treaties; available at https://bit.ly/2UZMEKH). See general background on the rules from UNCITRAL at https://bit.ly/3l6RyjD.

In 2018, UNCITRAL mandated Working Group II to explore ways to improve the efficiency of the arbitral proceedings through streamlining and simplifying procedures, resulting in the drafting of the UNCITRAL Expedited Arbitration Rules. The goal is to reach a final dispute resolution in a cost- and time-effective manner while ensuring due process and fair treatment for the disputants. (See https://undocs.org/en/A/CN.9/934 for the 2018 statement on expedited rules.)

For coverage of the early drafting process of the UNCITRAL Expedited Arbitration Rules, see Piotr Wójtowicz & Franco Gevaerd, “How UNCITRAL’s Working Group II on Arbitration Is Analyzing the Field to Help Expedited Processes” 37 Alternatives 90 (June 2019) (available at https://bit.ly/377Nfwg), and Piotr Wójtowicz & Franco Gevaerd,  “The Framework: The U.N.’s Working Group II Debates New Expedited Arbitration Rules,” 37 Alternatives 99 (July/August 2019) (available at https://bit.ly/3l5OLqS).

Special features in the UNCITRAL expedited arbitration rules include the following:

  • Disputes under the expedited procedures shall be settled in accordance with the UNCITRAL Arbitration Rules as modified by the expedited rules.
  • The expedited rules shall apply only with express consent by the disputants.
  • To facilitate speedy constitution of the tribunal, the claimant must include, with its notice of arbitration, the proposal of an appointment authority and the arbitrator. The notice of arbitration constitutes the claimant’s statement of claim. The respondent then has 15 days to file a response to the notice of arbitration. By contrast, under UNCITRAL Arbitration Rules, the time to respond is 30 days from the receipt of the notice of arbitration.
  • When the disputants cannot agree on an appointing authority, any disputant can request that the Permanent Court of Arbitration Secretary-General designate the appointing authority or serve as appointing authority. The PCA Secretary-General has discretion to decline serving as appointing authority and designate another authority if it deems it more appropriate. In this way, the UNCITRAL Expedited Rules have deviated from the default two-step designation/appointment procedure found in the non-expedited UNCITRAL Arbitration Rules.
  • The tribunal has discretion in shaping the proceedings, including extending or abridging timeframes (except for award issuance, as discussed in the bullet below) and determining whether hearings will be held or evidence taken.  This discretion represents an expansion of the discretion contained in the UNCITRAL Arbitration Rules.
  • The time period for rendering the award employs a bifurcated approach. If the tribunal considers that it is at risk of not rendering an award within nine months, it shall propose a final extended time limit. If all disputants agree, the extension is considered adopted.  If a party objects to the extension, however, any party may make a request that the UNCITRAL Expedited Rules no longer apply to the arbitration. After hearing the disputants, the tribunal may then decide that it will instead conduct the proceedings in accordance with the UNCITRAL Arbitration Rules, which do not contain the time limits.

The most contentious issue was the last bullet point above regarding the time period for rendering the award. Working Group II spent more than six hours debating on this point during the 54th session, focusing on how to balance the policy interest of promoting a truly expedited process with the goal of ensuring that the result of that process would be enforceable through the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as the New York Convention.

At one point, the U.S. delegation objected vehemently that “[u]sing this approach, as the default in the rules, creates a very concerning precedent for an uncontrolled instrument in our delegation’s experience.  . . . That is why we have drafted the compromise language that . . . seeks to bridge the gap between delegations like ours, who are very concerned about adopting a system that will likely produce unknowable awards, and those delegations who primarily are concerned that without a hard stop at nine months, the rules will enable arbitrators who were not very diligent, or who simply procrastinated to continue to take extensions.”

There were more concerns about protecting those with lesser means and bargaining power:

  • The U.S. delegation noted, “We think that given that these rules may be used by unsophisticated parties because they are expedited, . . . one of the goals is to reach out to parties who might be otherwise deterred from pursuing arbitration because of the cost.  . . .”
  • The Israel delegation point out that “[t]here could be concerns of parties with weaker bargaining powers that would have to be essentially compelled to agree to this.  . . .”

While the debate was heated, ultimately the member states drafted an innovative approach to reach a consensus. 

The UNCITRAL Expedited Arbitration Rules will appear together with the explanatory notes toward the end of the year as an appendix to the UNCITRAL Arbitration Rules.  In the fall, Working Group II will deliberate on rules about early dismissal of frivolous claims that will require modifications to the UNCITRAL Arbitration Rules. Working Group II will post the final rules, and currently has the drafts, here.

In addition, UNCITRAL is contemplating developing a new framework for adjudication. commonly known as dispute resolution boards, to complement the UNCITRAL Arbitration Rules. There has been a recurring expression of interest within UNCITRAL member states in the principle of rapid decision common to adjudication in construction projects. The U.S. delegation noted that it hoped that this principle can be adapted to expedite the resolution of disputes in other long-term contracts, or at least to mitigate the impact of those disputes.

UNCITRAL expects to conduct colloquiums to discuss adjudication next spring. With the adoption of the expedited rules, UNCITRAL is taking steps to expand the use of arbitration as a method of dispute resolution available to a wider range of parties.

Thomas W. Walsh, special counsel based in the New York office of Freshfields, who in his arbitration work focuses on UNCITRAL matters and worked on an early draft of the UNCITRAL Expedited Rules, said that the rules “are a welcome example of the arbitration community responding to the needs of the businesses that use arbitration. If parties have a commercial need to expedite the resolution of their dispute, the rules offer a thoughtful, ready-made procedure that they can select to meet that commercial need.”

The UNCITRAL Expedited Rules eliminate many of the obstacles that made arbitration costly and overly time-consuming, and the role of UNCITRAL as a global trend-setter on arbitration means that these new provisions are likely to be used as models worldwide.

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The author, an LLM candidate at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, has covered UNCITRAL’s 54th Session proceedings for CPR Speaks as a 2021 CPR Summer Intern. Her articles can be found using the search box on the upper right of this page.

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UNCITRAL Completes a New Mediation Framework, Based on the Singapore Convention

By Mylene Chan

Earlier this month, the United Nations Commission on International Trade Law adopted the UNCITRAL Mediation Rules, the UNCITRAL Notes on Mediation, and the Guide to Enactment and Use of the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation. 

Judith Knieper, Legal Officer at the UNCITRAL Secretariat, at a side forum on investor-state mediation, commented that these texts complete UNCITRAL’s mediation framework, with the milestone 2018 Singapore Convention on international settlement agreements as a pillar. 

Starting in 1980, UNCITRAL began to develop a mediation framework, which now includes the following:

  • UNCITRAL Conciliation Rules (1980) (updated in 2021).
  • UNCITRAL Model Law on International Commercial Conciliation (2002) (amended in 2018).
  • UNCITRAL Guide to Enactment and Use of the 2002 Model Law (2002) (replaced in 2021).
  • UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation (2018) (amending the 2002 Model Law). See page 2 of UNCITRAL Working Document 1073 here.
  • The United Nations Convention on International Settlement Agreements Resulting from Mediation (2018), commonly known as the “Singapore Convention.”
  • UNCITRAL Mediation Rules (2021) (updating the 1980 Conciliation Rules)
  • UNCITRAL Notes on Mediation (2021).
  • Guide to Enactment and Use of the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation (2021) (replacing the 2002 Guide) (available in the Working Document linked above). 

These texts provide a means for the harmonization of laws, procedural rules, and enforcement mechanisms for international mediation. The most significant tool for international commercial dispute resolution is the Singapore Convention, which enables enforcement of mediated settlement agreements among its signatories.

As a result of the adoption of the Singapore Convention, international businesses now have an effective alternative to litigation and arbitration in resolving cross-border disputes.  Judith Knieper said that 54 states had signed the Singapore Convention, and she said she hoped that more will join as many states are currently engaged in the ratification process.

The UNCITRAL Secretariat has invited CPR to participate as an observer delegation to its Working Group II deliberations, and solicited its comments on the drafts to facilitate finalizing the texts. The UNCITRAL Working Group II is composed of UNCITRAL’s 60-member states and has been developing work focused on mediation, arbitration, and dispute settlement. 

During UNCITRAL’s recent 54th session, which ran from June 28 and concluded July 16, and was held in person in Vienna, Working Group II introduced a number of updated provisions aimed at taking into account recent mediation trends and developments, including court-ordered mediation. See page 2 UNCITRAL Working Document 1074 here. UNCITRAL incorporated Working Group II’s revisions as part of the newly adopted UNCITRAL Mediation Rules.

Major updates in the UNCITRAL Mediation Rules include the following:

  • Clarify that the rules apply to mediation regardless of the process’s origin, including an agreement between the parties, an investment treaty, a court order, or a mandatory statutory provision.
  • Introduce a definition of mediation.
  • Stipulate that in a case of conflict, mandatory provisions in the applicable international instrument, court order, or law will prevail.
  • Specify that mediation commences when the disputants agree to engage in the mediation.
  • Require disclosure of circumstances regarding impartiality or independence.
  • Permit use of alternative means of communication during the mediation and of remote consultations.
  • Provide that information shared by parties with the mediator is confidential unless parties express otherwise.
  • Update the provisions governing the preparation of settlement agreements to take into account UNCITRAL’s legal framework, including the recently adopted Singapore Convention.  
  • Address the interaction between mediation and other proceedings.
  • Provide for exclusion of liability for mediators.
  • Encourage gender and geographical diversity in selection of mediators.
  • Specify that parties and the mediator should agree upfront on the methods of assessing mediation costs, with multiparty mediations shared on a pro rata basis.

UNCITRAL is expected to publish the UNCITRAL Mediation Rules and the UNCITRAL Notes on Mediation together later this year, according to a statement at the end of the session.

UNCITRAL’s work on mediation will continue with the drafting of rules and guidelines relating to investor-state mediation and with work exploring educational best practices, according to an official’s comments in a side forum, which is a lunch-hour roundtable in which UNCITRAL officials discussed topics related to UNCITRAL’s work.

Benjamin N. Cardozo School of Law Prof. Lela Love, who is chair of the International Advisory Board on Mediation for the Office of Ombudsman for the United Nations Funds and Programmes, commented about the developments reported here:

All this remarkable focus on mediation—and activity around it—heralds a new era for the dispute resolution process that ideally promotes enhanced understanding, dialogue and creative problem solving.  This may be a renaissance time for mediation—one that is very welcome in the divided and polarized time we inhabit.

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The author, an LLM candidate at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, has covered UNCITRAL’s 54th Session proceedings as a 2021 CPR Summer Intern.

UN Insolvency Work Finds Help with Mediation

By Mylene Chan

The United Nations Commission on International Trade Law adopted a simplified insolvency regime that recommends mediation to resolve disputes between financial sector creditors and small debtors during its 54th Session. 

The move sets out a path where mediation can be a help to debt-plagued businesses in developing and emerging countries.

Last Friday, UNCITRAL closed its 54th Session in Vienna, which began June 28. During this session, Working Group V on insolvency law finalized legislative recommendations for a simplified insolvency regime for micro and small enterprises, or MSEs, and UNCITRAL adopted it. 

UNCITRAL mandated this project in 2013 because the insolvency rules generally applicable to mid-sized and large business enterprises do not accommodate micro and small businesses, which are the driving economic force for many countries. Gregor Baer, 14:2 Insolvency and Restructuring Int’l 64 (Sept. 2020) (available at https://bit.ly/3B1peox).

As part of the United Nations’ sustainable development goals, UNCITRAL has also asked its  Working Group I, on micro, small and medium enterprises, to make recommendations to reduce legal obstacles faced by micro and small businesses in developing countries. Id.

The drafting of the simplified insolvency regime has been coordinated with the World Bank Group because the Financial Stability Board designated both the World Bank and UNCITRAL as standard setters in the field of insolvency. Financial Stability Board, Insolvency and Creditor Rights Standard (Jan. 20, 2011) (available at https://bit.ly/36EKqTi).

In light of the significant negative impact of Covid-19 on MSEs, several member states of Working Group V have expressed an urge to expedite the drafting of the simplified insolvency regime. UNCITRAL, Capital Markets Intelligence, “International Insolvency & Restructuring Report 2020/21” (available at https://bit.ly/2VBeg8P).

Ironically, because many member states have implemented insolvency-related legislative measures to address difficulties faced by MSEs during the health emergency, the pandemic has created valuable experiences that could help improve the text of the simplified insolvency regime.

The simplified insolvency regime addresses major characteristics of small debtors, such as having a non-diversified creditor, supply, and client base. See Note by the Secretariat,  “Insolvency of micro, small and medium-sized enterprises: Draft text on a simplified insolvency regime” (Sept. 28, 2018) (available at https://bit.ly/3ie53Ll).  

Other distinguishing features of small debtors covered by the simplified insolvency regime include the access to credit being subject to the grant of personal guaranties, encumbrance of physical assets, and unencumbered assets with minimal value.  In addition, the simplified insolvency regime considers small debtors’ frequent poor or nonexistent records, overlapping ownership control and management, and “concerns over stigmatisation.” See UNCITRAL, Capital Markets Intelligence, International Insolvency & Restructuring Report at 10, linked above.

The simplified insolvency regime focuses on mechanisms to bring micro and small business debtors into a formal insolvency system that provides rehabilitation and a reasonable payment plan.  Through reduced complexity of insolvency procedures, lowered costs, and more favorable conditions for a prompt discharge, small debtors could hope to have a fresh start.  See Note by the Secretariat at page 7, linked above.

Member states have proposed endorsing out-of-court and hybrid procedures to develop workable alternatives to formal insolvency processes amicable to MSEs. Report of Working Group V (Insolvency Law) on the work of its 54th session (Vienna, 10–14 Dec. 2018) p. 22 (Dec. 20, 2018) (available at https://bit.ly/3z29MGR).  

During previous drafting stages, some member states explained that certain preconditions should exist for out-of-court and hybrid procedures to be effective, such as incentives for financial institutions to negotiate debt restructuring and to suspend the debt.  Those procedures, however, were generally more suitable for large and medium-sized enterprises.

Other member states explained that in some jurisdictions, positive tax impacts of debt forgiveness are available as incentives for financial sector creditors to negotiate debt restructuring with small debtors. In other jurisdictions, administrative out-of-court procedures and mediation have yielded positive results.

In previous negotiation stages, some national delegations and development-focused non-governmental organizations suggested non-punitive rehabilitation of small debtors to promptly restore their economic productivity. See Baer, linked above.

* * *

In this month’s session, Working Group V adopted the following commentaries in the simplified insolvency regime to provide guidance that mediation could be helpful in resolving disputes relating to MSEs:  

To avoid delays and at the same time to ensure transparency and predictability, this [text] recommends that a simplified insolvency regime should provide for the default procedures and treatment that can be overridden by the decision of the competent authority on its own motion or upon request of any party in interest. The competent authority may modify the proceedings by introducing, for example, a mandatory mediation stage or displacing the debtor- in-possession with an independent professional.

Note by the Secretariat, “Draft text on a simplified insolvency regime” 38, ¶ 75. (Feb. 16, 2021)  (available at https://bit.ly/3id8IJw).

Mediation and conciliation services may also be helpful for resolution of disputes between MSE debtors and creditors and among creditors.

Note by the Secretariat, “Draft text on a simplified insolvency regime Addendum” 38, ¶ 75. (Feb. 16, 2021)  (available at https://bit.ly/3raOQKU).

* * *

The simplified insolvency regime is expected to appear as Part V of UNCITRAL’s Legislative Guide on Insolvency Law.

Developing and emerging countries, where MSEs may drive the economies, are among those hit hardest by the economic contraction spurred by the Covid-19 pandemic. Small debtors’ insolvency affects job preservation and the supply chain.

On July 16, the final day of the 54th session, Caroline Nicholas, Senior Legal Officer of UNCITRAL, commented on technical assistance activities focusing on MSEs recovery from the effects of the pandemic:  

What is really interesting to hear is the experience in three continents, in Africa, Latin America, and Asia. We have some emphasis on exactly the same points, the need for agility, the need for syndicated simplified measures and the need for speed in supporting MSEs so that they are receiving the financial and other support.

As the world is gaining control over the Covid-19 virus, mediation emerges as a potential solution to help ease the recovering path for struggling segments by bringing creditors to negotiate with small debtors. 

With the help of mediation and incentivized policies for creditors to suspend or forgive debts, perhaps many MSEs can recover their economic productivity and help developing and emerging countries restore economic and social welfare after the pandemic. 

* * *

The author, an LLM candidate at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, has covered UNCITRAL’s 54th Session proceedings as a 2021 CPR Summer Intern.

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United States Submits Amicus Brief in Servotronics International Arbitration Supreme Court Case

By Cai Phillips-Jones

Multiple parties have filed briefs concerning arbitration discovery rules in a case now before the U.S. Supreme Court for fall argument, Servotronics v. Rolls Royce, No. 794 (see the Court’s official docket at https://bit.ly/3ysbMrL).  

In the case, the Court will decide the question of whether federal district courts can assist with obtaining evidence in foreign arbitration cases at the parties’ request. The argument date has not yet been set.

The U.S. Solicitor General’s office in the Justice Department has filed an amicus brief advocating on behalf of the U.S. government for a narrow interpretation of 28 U.S.C. 1782, a law that has created a split among federal circuit courts. The law allows circuit courts to authorize discovery for litigation originating in “foreign tribunals,” including compelling testimony from witnesses residing in the United States. 

But circuit courts have not been able to agree about whether the law pertains to arbitration taking place in foreign countries: The Fourth and Sixth U.S. Circuit Courts of Appeals support court involvement in discovery for these arbitrations under Section 1782, and the Second, Fifth and Seventh Circuits reject this interpretation of the law.

The Fourth and Seventh Circuits both heard the same Servotronics case that is now on the Supreme Court docket. The circuit courts reached opposite conclusions. For background on the cases’ paths and how the current Seventh Circuit case made it to the Supreme Court, see Amy Foust, “The Next Arbitration Matter: Supreme Court Agrees to Decide Extent of Foreign Tribunal Evidence Powers,” CPR Speaks (March 22) (available at https://bit.ly/36cp27K), and “YouTube Analysis: What Happens Next with the 3/22 Servotronics Cert Grant on Foreign Arbitration Evidence,” CPR Speaks (March 22) (available at https://bit.ly/3jLbVT3).

CPR, which publishes CPR Speaks, submitted an amicus brief in support of the Servotronics certiorari request in January, which also was the subject of an amicus brief by the Atlanta International Arbitration Society. Since the petition was granted, 11 additional amicus briefs, including the brief of the Solicitor General’s office, have been filed.

Of the group, two state that they do no support either party–those of Prof. Yanbai Andrea Wang, of Philadelphia’s University of Pennsylvania Carey Law School, who asks the Court to clarify the scope of Section 1782, previously interpreted in the Intel case discussed below; and the International Court of Arbitration of the International Chamber of Commerce, which discusses the ICC’s international law views.

Two briefs support the petitioner, submitted on behalf of Columbia Law School Prof. George A. Bermann; and Palo Alto, Calif.-based ADR provider Federal Arbitration Inc.

Seven of the briefs support the respondent in seeking a narrow scope for Section 1782 discovery to exclude international arbitrations. In addition to the U.S. government’s brief, they include briefs submitted on behalf of China and Hong Kong-based arbitrators Dr. Xu Guojian, Li Hongji, Zhu Yongrui, Tang Qingyang, Chi Manjiao, Ronald Sum, and Dr. Zhang Guanglei; the U.S. Chamber of Commerce and the Business Roundtable; International Arbitration Center in Tokyo;  the General Aviation Manufacturers Association Inc. and the Aerospace Industries Association; Halliburton Co., which is facing a Section 1782 issue in a separate case, and the Institute of International Bankers, a New York City-based industry association of international banks operating in the United States.

* * *

In its brief, the government reviews the history of requests for discovery from foreign parties.

According to the amicus brief, prior to 1855, federal courts did not have the authority to compel a witness to testify in a case involving a foreign state party. In 1855, an act was passed by Congress to remedy this, but in a strange twist this law was subsequently “buried in oblivion” due to “a succession of errors in indexing and revising the statutes” and lost to the courts. A similar law was passed in 1877 and, in 1948, the law was broadened to include discovery for non-state parties.

In 1964, the language in the law was broadened again, applying to “a proceeding in a foreign or international tribunal” compared to the previous version’s “any judicial proceeding in any court in a foreign country.” Since then, only one Supreme Court case has discussed the scope of the law, Intel Corp. v. Advanced Micro Devices Inc., 542 U.S. 241 (2004).

The case concerned the distinction between judicial and administrative processes and whether Section 1782 applied to the latter. The Court found it applied. But recently, disagreement  has sprung up about whether the “foreign tribunal” language includes arbitrations involving foreign parties. The U.S. government has now taken the position that the law should not apply to private foreign arbitrations.

In its brief, United States argues (1) that such discovery functions were not within the scope of Congress’ intent when it passed 28 U.S.C 1782; (2) that interpreting the law to apply to international commercial arbitrations would create asymmetry with the domestic rules of arbitration incorporated in the Federal Arbitration Act; and (3) such an interpretation would create additional problems if extended to investor-state arbitration.

Noting that previous versions of the law clearly referred to only courts, the government acknowledges that the 1964 revision changed this language from “any judicial proceeding in any court in a foreign country,” to “a proceeding in a foreign or international tribunal.” This change, according to the government, and in contrast to the Fourth Circuit’s interpretation, was “only a measured expansion of the provision’s scope to capture quasi-judicial entities (such as investigating magistrates) and certain intergovernmental bodies (such as state-to-state claims commissions).” As the government points out, at the time the 1964 law was passed, international commercial arbitration was still novel, and thus likely outside Congress’s intent.

The government’s second argument discusses the incongruence of the limited discovery available under the FAA to arbitrators, in contrast to the discovery requests available to parties under Section 1782. Interpreting the law to apply to commercial arbitrations would “[allow] more expansive discovery in foreign disputes than what is permitted domestically,” the government’s amicus brief states.

While the court acknowledges that Section 1782 is not coextensive with domestic discovery rules, the “stake asymmetry” produced by a broad interpretation of the law “should [be taken] into account” in determining the law’s scope.

Finally, the government discusses a particular type of arbitration, investor-state arbitration, which gives investors who have claims against a foreign state in which they held an investment a private remedy for losses allegedly caused by the state. Arbitration in this context replaced a more time-consuming and expensive process, diplomatic protection, involving a government negotiating a resolution on behalf of one of its citizens who has suffered an economic injury.

The solicitor general’s amicus brief argues that investor-state arbitrations would be hampered by additional discovery procedures and “upset settled expectations” of investor and state parties entering contracts.

The U.S. government, in addition to filing a brief, has requested permission from the court to argue the case with the parties this fall The Court has not yet acted on the oral argument request, which is expected to be granted.

Meantime, the underlying arbitration in Servotronics has been conducted in London the week of May 10. If a decision emerges before the Court hears the arguments, the existence of an arbitration award could raise questions of mootness.

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The author, a J.D. student who will enter his third year this fall at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, is a 2021 CPR Summer Intern.

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Arbitration for Art: Regs Seek to Provide a Better Way to Resolve Disputes

By Jacqueline Perrotta

Over the past 30 years, the Art World has become the Art Market. Selling and purchasing art has become Big Business for collectors and investors alike. In a mostly unregulated market, new regulations are emerging on resolving disputes between parties involved in art deals.

On July 13, 2020, subject-matter experts including lawyers and professors with experience in the art sector and in arbitration, gathered to form these new “Regulations on Arbitration in the Art Sector of the Venice Chamber of Arbitration” as a way to better resolve art disputes.

A January 2021 article, “Art and Arbitration: an overview in light of the new Regulations on Arbitration in the Art Sector of the Venice Chamber of Arbitration,” highlights the context of the regulations in today’s global art market, the advantages of using arbitration for art sector disputes, and the new regulations, including their importance and potential impact on how the art market resolves disputes.

Described as the first initiative of its kind in Italy, the regulations promote the use of arbitration and provide an alternatives to the Hague’s Court of Arbitration for Art, or CAfA.  Established in 2018, the Court of Arbitration for Art was founded to resolve disputes through alternative dispute resolution throughout the art market. Through CAfA, disputes can be arbitrated or mediated with the help of the Netherlands Arbitration Institute.

 Disputes that arise in art parallel commercial transactions, but with niche concerns including issues of cultural and religious sensitivity, confidentiality, and authenticity.

The use of these regulations for art arbitration comes with several upsides. The article linked above highlights a prominent advantage where arbitration is efficient and is “freely accessible”–having an arbitration clause already baked in to provide a jumping off point if a dispute arises out of difficult cultural matters or from the uncertainty of fraudulent works.

Another upside discussed in the article that comes with using arbitration is “guaranteed confidentiality,” because art-market players often are sensitive regarding “reputation and discretion,” and there is a heightened importance of privacy for collectors and dealers.

The goal of the Venice Chamber regulations is also to broaden the use and scope of arbitration to the contemporary art context and go beyond the limited definitions of national legislation.  By introducing the regulations, arbitration as a means of alternative dispute resolution is promoted as an efficient and effective way to resolve art sector disputes.

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The author, a J.D. student who will enter her second year this fall at Brooklyn Law School, is a 2021 CPR Summer Intern.

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Y-ADR Interview Series #5: Kelly Xing, Legal Counsel, General Motors

CPR’s new Y-ADR Interview Series returns with another discussion on in-house work, law practice development, and careers in dispute prevention and resolution.

This week, Y-ADR Steering Committee member Elizabeth Chan, an associate in the London office of Three Crowns, discusses conflict resolution with Kelly Xing, Legal Counsel at General Motors Co. in the Jing’an District, in Shanghai, China.

Kelly discusses her career path and conflict resolution experience, including how she approaches the drafting of dispute resolution clauses, and how the company uses a multi-tiered approach to dispute resolution that focuses on resolving disputes at management level.

She also talks about the business, discussing in detail the GM joint ventures she works on.

Lizzie Chan’s interview is her fifth in the CPR Y-ADR Interview series.  The previous interview, with Mathias Goh, can be viewed on CPR Speaks here. Previously, Lizzie spoke with Timothy Shore on working as an ombudsman, which can be viewed on CPR Speaks here. The second interview in the series, with CPR Y-ADR co-chair Jason Klingensmith, Assistant General Counsel, at General Motors Co. in Detroit, is available on CPR Speaks here

Lizzie’s kickoff interview in the series, with Jason’s GM colleague Brittany Mouzourakis, is available on CPR Speaks here.

You can watch the new Kelly Xing interview above, and share it on YouTube here.

CPR’s Young Leaders in Alternative Dispute Resolution educates the next generation of leaders on the full spectrum of dispute prevention and resolution mechanisms, and offers unique networking and professional development benefits to participants. Through periodic seminars and other initiatives, participants are introduced to CPR and gain an insider’s view into how CPR’s community of corporate counsel, law firm counsel, and other experts in the field are using dispute prevention and resolution techniques to manage conflict.

Y-ADR is open to the conflict prevention and resolution community–attorneys, professionals, academics and students–45 years old and younger, or those with less than eight years of professional experience in international or domestic ADR practice or other areas of conflict prevention and resolution.

The Y-ADR Steering Committee is the leadership group for Y-ADR. Jason Klingensmith’s co-chair is Ulyana Bardyn, counsel in the New York office of Eversheds Sutherland.

Follow CPR’s social media at the links at the bottom of this page for developments, and connect with Y-ADR’s LinkedIn page here.

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CEDR’s Eileen Carroll: Her Mediation Story

By Antranik Chekemian

F. Peter Phillips, director of New York Law School’s Alternative Dispute Resolution Skills Program, welcomed an online audience earlier this month as part of the program’s long-running lunchtime speaker series for a session with veteran U.K. mediator Eileen Carroll.

Carroll is founder of London-based Centre for Effective Dispute Resolution, better known as CEDR, “by far the most influential and prescient dispute resolution organization not only in the U.K., but really . . .  in Europe,” said Phillips in the introduction to the Feb. 10 session, which had about 40 attendees.

Phillips invited Carroll to share her professional background and how her journey into the ADR world started.  Carroll opened describing, among other things, a long history with the publisher of this CPR Speaks blog, the International Institute for Conflict Prevention and Resolution, and recounted some of those interactions over these years.  [Phillips is a former CPR senior vice president.]

She said she was a senior litigation partner at a London law firm in the 1980s, with “good contacts” in the U.S., and she took a six-month secondment to San Francisco.  “I was one of the senior litigation partners and they asked me whether I would go and work with a firm on the west coast,” she said, “and I took myself off to San Francisco.”

She said that she decided her focus would be alternative dispute resolution. “I learned a bit about mediation from some of the research I had done, and I thought that would be my project,” she said. She noted that she was impressed by how the mediation process “extracted people from the drama of litigation.” Carroll explained:

I then was given a book called The Manager’s Guide to Resolving Legal Disputes by Henry and Lieberman.  . . . Jim Henry, based in New York, who had started . . .  CPR. He became a very dear friend, and I was going to write a book, but someone gave me his book . . . and I decided when I read that I was really fired up to do something.

James F. Henry is founder of CPR, and Jethro Lieberman is a former CPR vice president and a retired New York Law School professor.

Carroll showed the audience an article she wrote stemming from her U.S. work, “Are We Ready for ADR in Europe?” International Financial Law Review 8 Part 12, 11 (1989).

The article’s title, she said, “was a question no one had asked, and I was determined that we were going to be ready for ADR in Europe. But I knew […] that I needed to do something to get a support behind me, so I set about founding a nonprofit organization.” She added, “I did get inspiration from Jim [Henry].”

She added, “By the time we launched CEDR, I had managed to get with the help of others–80 big companies to support the idea–[and] the major law firms in London didn’t want to be left out, so they thought they better support the idea.”

Philips jumped in and mentioned that CEDR’s story was similar to the CPR Institute’s origin in the U.S. “It wasn’t as if the idea was ‘Let’s take mediation and convince people of it’ so much as it was ‘Let’s take a core of leading owners of disputes–leading corporations, people who spend a lot of money litigating–and convene them so that they become the torchbearers,” said Phillips, adding, “They became the people who are convincing their peers.”

Carroll said that the ties to North America in her work continues, citing current work with the International Academy of Mediators. [CPR and CEDR continue to collaborate on seminars and trainings. Information on the next scheduled joint training–a four-day advanced mediation skills training seminar that begins April 19, in which the organizations will be joined by the Silicon Valley Arbitration & Mediation Center, is available on CPR’s website here.]

Philips asked Carroll about the role of emotion in commercial mediation, noting “the challenge to determine the extent to which . . . the expression of emotion in a commercial context is helpful.”

Carroll said, “In every conflict, there is emotion–people are upset in some way or other. Whether it’s because they have been avoiding it, whether it’s anger, whether it’s anxiety, all of those emotions I find present, and they display themselves in different ways, because we all have different kinds of personalities.”

She stressed the importance of “creating an environment where people can tell whatever their story is.” She stated that a mediator’s job is not to patronize but to notice the parties’ emotions and feelings, and explore them at the right moment with the right questions.

Carroll further emphasized that there is not a uniform approach in mediation. “There may be several working sessions with different people,” she said, “so to deal with these emotions, you have to go at it carefully without too many assumptions and create the space to get to know the people that you’re going to work with.”

Phillips then asked Carroll about the challenges women encounter in ADR. “When you were a practicing lawyer, you were very frequently the only woman in the room,” he said, “In the early days of ADR, you were very frequently one of the very few women who was making a go of it,” he said.

She emphasized that because law firms usually advise their clients during the mediator selection process, “they often follow the same kind of pattern of three names.” She expanded:

When l look back to the beginning of the field when we first started, . . . there was just a sense that we need people with status, people with experience, so at that point people were kind of looking to, ‘Who were those senior people?’ And the legal profession, even in the early 90s, a lot of those people were men. It is changing. But . . . those who were early entrants to the field obviously got . . . a reputation. [If they] were good mediators and good arbitrators who were around in the mid-90s, some of those people still have incredibly effective practices today.

Phillips then asked Carroll about a recent CEDR report that discussed “how female mediators view their strengths as opposed to how male mediators view their strengths.” [CEDR’s current research can be found here.]

“[W]omen recognized that they were good at relationships and empathy,” said Carroll, recalling the research, “and a lot of guys obviously have that experience, but . . . a lot of the men saw themselves as more as getting the deal done, much more transactional.”

Carroll then referred attendees to a Simon Baron-Cohen’s 2012 book, “The Essential Difference: Men, Women and the Extreme Male Brain, which discusses these issues.

“Women do have some very natural abilities in relation to communication skills and they have done work with babies, boys, and girls . . . and the way they react.  . . . So, women have a lot of natural skill in the area of mediation which I think sometimes they underplay because if you look at in life, women often have the role of having to make . . . all the relationships work within a family, sometimes in an office,” said Carroll.

Emphasizing the need for diversity, she concluded, “Women absolutely have the capability to do any tough mediation, because they have got the intellectual skill, they understand the background of the problem. There is no reason why there could not be as many successful commercial women mediators as men. I think it’s something about the filter of the selection process, which I think is changing.”

“All the business people I have worked with through the years in mediation, I have never had a problem,” said Carroll.  “Over time,” she continued, “I have never . . . felt any concern in dealing with business people about the role of the woman mediator. Never. I would not say that was always the case in relation to certain members of the bar.  . . . I have always managed to walk around it. It hasn’t been a problem.”

She concluded her presentation discussing instilling “patience and persistence” into mediation to make it successful.

* * *

Eileen Carroll’s presentation is archived at the NYLS ADR Program link above and directly on YouTube here.

* * *

The author, a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.

[END]

#CPRAM21: Too Much or Not Enough? The Arbitrator Disclosure Issue, Analyzed

If you missed the 2021 CPR Annual Meeting in January—the first free public meeting held online in the organization’s 40-year history—the videos are being posted on CPR’s YouTube Channel. While additional videos will be posted for CPR members only, the first, linked here on CPR Speaks, is open access and features the keynoters, CNN Anchor and Chief Political Correspondent Dana Bash and General James Mattis, who is former U.S. Defense Secretary. Click the Subscribe button at YouTube for alerts and for more CPR content. For information on full access and joining CPR, please visit CPR’s Membership webpage here.

By Antranik Chekemian

Here are notes on the Jan. 28 closing panel of the second day of CPR’s 2021 Annual Meeting. Moderator Deborah Greenspan, a Washington, D.C. Blank Rome partner focusing on mass torts and complex disputes, served as moderator for the Ethics session.

She introduced the panel, starting with Dana Welch, an arbitrator for nearly 20 years who is based in Berkeley, Calif. Welch focuses on complex commercial and employment matters. She is a fellow of the Chartered Institute of Arbitrators  and the College of Commercial Arbitrators, where she is an executive committee member. Before she became an arbitrator, she was the general counsel of a San Francisco-based investment bank, and a Ropes and Gray partner.

The second panelist was David Pryce, the managing partner of Fenchurch Law Ltd. in London, which is the first U.K. law firm to focus exclusively on representing policyholders in insurance disputes. His practice focuses primarily on construction industry risks. Wherever possible, said Greenspan, Pryce tries to approach disputes in a way that maintains or ideally strengthens the commercial relationships between those involved

The third panelist was Adolfo Jimenez, a partner in the Miami office of Holland and Knight.  He is a litigation attorney focusing on international disputes. He heads the firm’s International Disputes team, and he is chair of the Miami International Arbitration Society.

Greenspan opened by discussing the ethical challenges faced in arbitration, focusing on disclosure, in a session that provided Ethics continuing legal education to qualifying attendees. The panel’s first topic was the issue of repeat players, where an arbitrator is repeatedly selected or appointed by a particular entity or a law firm.

Pryce started off the conversation by presenting a recent U.K. Supreme Court case, Halliburton v. Chubb. He described the case’s background for the online audience.

Halliburton Co. had provided services for Transocean Ltd., the owner of Deepwater Horizon, the Gulf of Mexico oil rig that exploded in 2010.  Halliburton faced various claims along with oil company BP and Transocean. They were all part of the same proceedings. Halliburton settled those claims against it for about $1.1 billion.

Halliburton made a claim under the general liability policy it had with insurer Chubb. Chubb refused to pay the claim on the basis that Halliburton had entered into settlements that were unreasonable. A dispute ensued and the general liability policy provided for an ad hoc London arbitration with three arbitrators, one arbitrator to be chosen by each of the parties and a third arbitrator chosen by the party-appointed arbitrators.

If the arbitrators couldn’t agree, the third arbitrator was to be appointed by the High Court in London. In front of the High Court, each of the parties put forward several candidates. After a contested hearing, the High Court chose Chubb nominee Kenneth Rokison QC, an arbitrator in Reigate, U.K. Rokison was “a regular arbitrator in uniform arbitrations,” explained Pryce, “and Halliburton’s perception . . . was that he was someone that is generally appointed by insurers rather than policyholders.”

Prior to him being appointed, Rokison disclosed relevant points to the proceedings. Rokison said that he previously acted as an arbitrator in several other arbitrations including Chubb. He acted as a party-appointed arbitrator by Chubb and he was currently acting as an arbitrator in relation to references that included Chubb.

The High Court didn’t regard any of those appointments as being an impediment to his appointment in the Halliburton-Chubb dispute and they didn’t call into question Rokison’s impartiality.

Three months after his first appointment in 2015, Rokison accepted a further appointment by Chubb to act as an arbitrator in relation to a claim against it by Transocean, which as the overall owner of Deepwater Horizon was also facing similar claims to the ones that Halliburton had been facing. The dispute between Chubb and Transocean also related to the reasonableness of settlements which Chubb refused to pay on a similar basis for the reasons it refused to pay Halliburton.

Rokison disclosed his involvement in the Halliburton arbitration to Transocean, but he did not disclose to Halliburton that he accepted the Transocean appointment.

The following year, Rokison accepted another appointment in relation to an arbitration between Transocean and different insurers, and that was not disclosed either.


After finding out about the second and third appointments, Halliburton wrote to Rokison and raised concerns about these appointments.

Rokison responded that it had not even occurred to him that he was under any obligation to disclose the second and third appointments to Halliburton. Halliburton called for him to resign, raising concerns about his impartiality with regard to Chubb.

It’s apparent that Halliburton was just as concerned, explained David Pryce, and perhaps even more concerned, about a second issue–that Chubb would potentially gain a tactical advantage as a result of being able to find out what Rokison’s views were on certain issues, because they would be making submissions in the second arbitration which will be relevant to the decision that Rokison was facing in deciding the Halliburton arbitration.

A High Court claim was issued by Halliburton seeking Rokison’s removal under U.K. Arbitration Act Section 24, dealing with situations where circumstances exist for a justifiable doubt about the arbitrator’s impartiality.

The High Court and the Court of Appeal both dismissed Halliburton’s application, so it went to the Supreme Court.

The Supreme Court made the following key observations in reaching the decision:

  • First, the obligation of an arbitrator to act fairly and impartially is a core principle of arbitration, and under English law, the duty of impartiality applies just as much to party-appointed arbitrators, sole arbitrators, and presiding arbitrators. Presiding arbitrators like Rokison in Halliburton v. Chubb aren’t required to be any more impartial than party-appointed arbitrators–“Everyone is required to be impartial,” explained Pryce.
  • Second, the Supreme Court confirmed that the test under English law to establish whether an arbitrator had a real possibility of biases is an objective test. “When the fair-minded informed observer is looking at that, they should take into account various considerations including the factual matrix of the case , . . the role of the arbitrator in the case, and expectations regarding what an objective observer may take into account,” said Pryce. In that regard, market practices are relevant, but in some areas, overlapping appointments may be more likely to give rise to an appearance of bias than others.
  • Finally, in relation to the arbitrator’s duty of disclosure, the Supreme Court held the disclosures are not a question of best practices and that disclosures can only be made if the parties that confidentiality obligations are owed give their consent.

The key takeaway from this case is that “disclosure is not an option,” said Pryce, because disclosure doesn’t trump confidentiality.

“The unfair advantage is not the same thing as a lack of impartiality,” Pryce said, adding, “There is just no remedy for unfair advantage.” Even though repeat business might suggest bias in some cases, it is going to depend on market practice.

He further added that in some areas like treaty reinsurance, overlapping appointments are commonplace and parties are not concerned as there are repeat users “all the time.”

Pryce added that it is much more challenging when where there is a one-off user in a dispute with a repeated user. “From the perspective of someone who was a policyholder such as Halliburton,” said Pryce, “a one-time user in this situation, against an insurer who’s going to be a repeat user, the Supreme Court decision for me feels a little bit tougher.”

Panelist Dana Welch said, “I’m not sure a U.S court would have reached the same decision.  . . . We take it for granted in the United States that you have to disclose every business relationship that comes to mind.”

She then shared that California’s Judicial Council has enacted a rule that requires that the arbitrators not only have to disclose looking backward, but they have a duty to disclose looking forward. Arbitrators are required to disclose at the time of appointment whether they are willing to take future business from either a party who is appearing in that case or a law firm that is appearing in that case.

If the arbitrator discloses that they can take future business, they can be disqualified at that point if someone objects. Once the arbitrator accepts the possibility of future business, and then proceeds in the future to take that business, they must provide notice to the previous parties and the law firm that they have done so. At that point, the parties have no right to disqualify the arbitrator.

Panelist Adolfo Jimenez also shared that from an ethical perspective, repeat business in arbitration presents two problems that also were identified in the Halliburton case.

“You can have a situation where you’re going to have one party that’s better informed and an arbitrator that’s hearing evidence that is related to two separate cases,” said Jimenez, “but they are related cases that may influence their view while a set of attorneys who aren’t parties to that other proceeding is ignorant of all . . . that evidence, all that information.”

Second, Jimenez noted, is the risk of inappropriate communications. “Simply because you can does not mean that you should,” said Jimenez, noting that there can be as a result of such contacts an erosion of trust in the process, with one of the parties believing that they’re being affected.

Dana Welch also emphasized that the arbitrators should be careful in order to preserve the integrity of the process in the face of repeat business. She said:

There is a financial incentive if you get repeat business.  And for each one of us who serves as a neutral, every time we get repeat business, we really need to think long and hard about whether we can truly serve as a neutral in a proceeding with a law firm that appoints us a lot or a party that appoints us a lot.  . . . What Adolfo said is right: There’s a difference between ‘can’ and ‘should,’ and it’s an extremely important difference in order to preserve the integrity of the process.

After a participant asked about the future of London-based insurance arbitration in light of the Halliburton decision, David Pryce responded that a single decision shouldn’t call into question the city’s role in insurance arbitration.  He said that when there is a situation with a “one-off” buyer of arbitration services and a repeat user of arbitration services, the court should be extra careful not to go for the appointment of someone who is used frequently by repeat buyers.

“It was an unfortunate choice by the High Court,” said Pryce, adding that if that sort of choice is repeated again and again, “it looks like the deck is being stacked against policyholders,” and that would be a problem for insurance arbitration in London. But he added that as a policyholders’ representative, he did not think the deck is usually stacked against his clients.

[For even more on Halliburton, see the latest issue of Alternatives to the High Cost of Litigation: Adam Samuel, “Multiple Appointments, Multiple Biases: The U.K. Supreme Court Does Arbitrator Disclosure,” 39 Alternatives 19 (February 2021) (available directly at https://doi.org/10.1002/alt.21880).

* * *

Moderator Deborah Greenspan then invited panelists to discuss the expectations parties have about the status of a party-appointed arbitrator.

Panelist Adolfo Jimenez started off the conversation by saying that the duty of impartiality permeates throughout the entire U.K. and U.S. legal systems, and that most arbitral institutions require that arbitrators be neutral.

Jimenez also noted, however, that there sometimes are justifications for repeat businesses–for example, specialized arbitration proceedings such as those at the London Maritime Society of Arbitrators, where parties prefer arbitrators that are particularly qualified. When there is a limited number of qualified individuals, repeat business is an option, said Jimenez.

A second justification is to allow for party autonomy.

He further noted that the Code of Ethics for Arbitrators in Commercial Disputes adopted by CPR Dispute Resolution has the assumption that the arbitrators will be neutral. Even in jurisdictions which allow for repeat business, he noted, neutrality is still expected and required.

Panelist Dana Welch also noted an important reality in arbitration. She said, “When a party chooses an arbitrator, even if it’s a sole arbitrator and not a party-appointed arbitrator, all parties hope that the arbitrator is going to rule on their behalf. Therefore, they are looking for somebody who is going to see things from their point of view.”

She further noted that CPR Dispute Resolution rules provide a process for challenging a party-appointed arbitrator if either side believes that a party appointed arbitrator is not neutral. Reading from CPR Administered Arbitration Rule 7.5, she said: “Any arbitrator may be challenged if circumstances exist or arise that give rise to justifiable doubt regarding that arbitrator’s independence or impartiality.  . . .” She praised the rule and its challenge process for when neutrality isn’t observed.

Greenspan then asked the panelists about the ideal steps parties should take when selecting arbitrators.

Welch said she is a strong advocate of both parties interviewing the arbitrators to understand their management style or their approach to the issues.

Jimenez added that one should be allowed to communicate with an arbitrator to make sure that the arbitrator is comfortable with the cases’ technical issues but should not get into discussing the substance or facts of the case, noting that a red line exists in between.

* * *

Moderator Greenspan then asked the panelists on how to deal with the reality that people from different backgrounds and different jurisdictions have different expectations when it comes to ethical challenges.

Jimenez agreed that different jurisdictions have different norms. He suggested that practitioners can look to journal articles and general expectations of limits that are employed for international disputes. He pointed out that “what may be improper or incorrect in one place is going to be perfectly acceptable [elsewhere]–that’s a real challenge when you’re dealing with a cross-border dispute.”

Greenspan then discussed how parties can enhance trust when implicit or explicit biases exist. When arbitrators are appointed by a party, Welch responded, “it would be the height of denial, to say that there isn’t some impetus that you feel or allegiance that you feel to that party. You really have to struggle against that and understand that you’re a neutral in all senses.”

Welch added that arbitrators need to be conscious of the kind of bias that arises when a party picks them just like they need to be conscious of the kind of bias that can arise when they have repeat businesses.

* * *

The next topic of the panel was about disclosures.

Welch first expressed that the level of disclosure is an interesting question in this age “where everything is known about everybody,” and so much information is out already on social networks. The question, she asked, is “How much is there an obligation for us to disclose versus a party to investigate?”

She then presented two cases.

In the first case, an arbitrator ruled against a claimant, and the respondent was a law firm. Afterward, the claimant did an Internet search and revealed a 10-year-old resume of the arbitrator with a recommendation from a partner from the respondent’s firm.  An appellate court decided this was enough to vacate the award.

Welch concluded, “What it shows is that the courts will look at the arbitrator for disclosure rather than . . . say to the parties to investigate that.”

The second case she presented was decided just a month ago, she said. An arbitrator rendered an award against the claimant. The claimant then found on the Internet that the arbitrator was a founding member of GLAAD, an organization supporting gay rights. The claimant then argued that because he was active in the Catholic Church, and because the arbitrator is active in social justice causes like gay and lesbian rights, the arbitrator had an inherent bias against the claimant.

The Court of Appeals rejected this claim, Welch reported, as it could not find any relationship between the claimant’s allegation and facts of the case.  She noted that “even California” has limits on challenging impartiality. Welch concluded:

What you need to draw from these cases is that the main obligation of disclosure is on the arbitrator, not on the parties. You need to disclose everything that comes to mind. If it comes to mind, you should be disclosing it, but you don’t need to disclose who you voted for president, or what you are active in unless there is a specific issue in that case before you.

Fenchurch’s David Pryce said that “there is a dividing line between . . . bias, something that gives the appearance of bias and what is simply just having better knowledge.” Having better knowledge on its own, he said, doesn’t give rise to either risk of or appearance of bias.

He further reflected on Halliburton v. Chubb. The disclosures, which relate to the same party in another “really high-stakes arbitration . . . about sums over a billion dollars” and issues that are almost exactly the same in both arbitrations, “aren’t insignificant things.”

But, said Pryce, “if we get to a situation where arbitrators feel they need to disclose lots of insignificant things, then I think everyone’s time is just going to be wasted unnecessarily.”

* * *

Greenspan presented the ethics panel’s final topic: “If you’re a mediator in a case and then you are later asked [in a case that doesn’t settle] to be an arbitrator, or if you are an arbitrator and then you’re asked to mediate the case,” how should such a situation be approached?

David Pryce said the moves are uncommon in the United Kingdom.  He added that huge challenges for the med-arb, mixed-mode ADR setup exist, because in mediation, parties are hoping to take advantage of the ability to share things with a mediator that they wouldn’t share with their opponent–and certainly not with the person that needs to make a decision about their case where the neutral is acting as an arbitrator.

The next question was about a situation where somebody had assisted an entity with developing its internal resolution guidelines or contractual terms to use to resolve disputes, and then also became the arbitrator or the mediator in a dispute which is affected by those guidelines.  The question was whether this would constitute a problem.

Dana Welch noted that such a situation raises fewer ethical issues as the person only designed the process, as opposed to being involved in a dispute, and that the person does not know confidential information about the dispute—he or she just comes in understanding the process. Welch says that courts have backed such arbitrators but the focus must be on extensive consents after disclosure.

* * *

The author, a second-year student at New York’s Benjamin N. Cardozo School of Law, is a CPR 2021 intern.

[END]

Court Again Rejects Review on Incorporating Rules that Define Arbitrability

By Temitope Akande & Russ Bleemer

The U.S. Supreme Court this morning declined to hear a case that presented a persistent arbitration issue: whether the incorporation of a set of arbitration rules that state that an arbitrator decides whether a case goes to arbitration, instead of a court making the arbitrability decision, provides sufficient “clear and unmistakable evidence” that the parties agreed for the tribunal to make the decision.

It was the second time in eight months that the Court has rejected a significant case on the issue.

Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, would have analyzed the clear-and-unmistakable evidence standard for delegation to arbitrability from the Court’s First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (available at https://bit.ly/39fAwcR).  

The question presented by the petitioner, a former employee of two Domino’s franchisers who had a claim against the parent company, was:

In the context of a form employment agreement, is providing that a particular set of rules will govern arbitration proceedings, without more, “clear and unmistakable evidence” of the parties’ intent to have the arbitrator decide questions of arbitrability?

Last June, the Court declined to hear the question on arbitrability in a cross-petition in Henry Schein Inc. v. Archer & White Sales Inc., No. 19-1080 (June 15, 2020), while accepting the case on the original cert petition on another, close issue involving the reach of carve-out provisions in arbitration agreements. 

In its December arguments in Schein, which awaits decision, the discussion of incorporation by reference on arbitrability arose.  See “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa). In its brief in Piersing, the petitioner “acknowledges that [the] Court recently denied certiorari of a cross-petition presenting a similar question,” citing Schein, adding, “however, the question is presented in this case cleanly and as a stand-alone question.”

In Piersing, the petitioner worked as a delivery driver for a franchisee of respondent Domino’s, and later got an employment offer from Carpe Diem, another Washington state Domino’s franchisee. While the petitioner intended to increase his hours and earnings, the first franchisee fired him based on a no-poach clause in his employment agreement.

He eventually brought a U.S. District Court class-action suit against Domino’s alleging that the hiring rules violated, among other things, antitrust laws.

Domino’s sought to compel arbitration of Piersing’s claims based on the arbitration agreement between the employee and Carpe Diem.  Domino’s asked for arbitration, according to the Sixth Circuit opinion in the case that was the subject of the cert petition (see Blanton v. Domino’s Pizza Franchising LLC, 962 F.3d 842 (6th Cir. 2020) (available at http://bit.ly/3sWDlrg)), “because the agreement’s reference to the AAA rules constituted a delegation clause in that the AAA rules supposedly provide for delegation.”

The district court held that equitable estoppel applies to permit franchiser Domino’s to enforce franchisee Carpe Diem’s agreement against Piersing and, according to the petitioner’s cert petition brief, “that the clause providing the AAA rules would govern any arbitration amounted to ‘clear and unmistakable’ evidence of Piersing’s and Carpe Diem’s intent to delegate questions of arbitrability to the arbitrator.”

Piersing appealed the district court’s decision. Relying on Rent-a-Center, West Inc. v. Jackson, 561 U.S. 63 (2010), and more, the Sixth Circuit held that the incorporation of arbitration rules that permit the arbitrator to resolve questions of arbitrability is sufficient to delegate those questions to the arbitrator.

Piersing’s Supreme Court cert petition brief analyzed the holdings in First Options, Rent-a-Center, West, and the first Henry Schein decision, Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (2019), which wrestled with the question of and the standard for who decides arbitrability, the tribunal or the court.

Based on these precedents, the petitioner argued that the existing circuit court analysis allowing for incorporation of rules that included arbitrators determining arbitrability wasn’t “clear and unmistakable evidence” of the parties’ intent to arbitrate.  It emphasized that, particularly for consumers and employees, the cases weren’t sufficiently thorough in light of the First Options standard. The petitioner also noted that the Sixth Circuit’s decision conflicts with the holdings of several state high courts.

Domino’s countered that an agreement incorporating privately promulgated arbitral rules that assign questions of arbitrability to the arbitrator clearly and unmistakably show the parties’ agreement that an arbitrator, not the court, will resolve whether the case is suitable for arbitration.

Domino’s successfully argued for the nation’s top Court to reject the petition and thereby uphold the Sixth Circuit.

An amicus brief in support of the petitioner was filed by Columbia University Law School Prof. George Bermann, who described the issue in the appeal as “a central but unsettled issue of domestic and international arbitration.” Echoing the petitioner, the brief noted the importance of the issue in both Henry Schein Supreme Court cases, but stated that “the delegation question is presented front and center for review in this case.” It also cited the divergence between state and federal court views.

The amicus brief discussed the principle of “competence-competence” in international commercial law—the international equivalent of the arbitrability question under which the tribunal is presumed to be in a position to determine its jurisdiction, and which the Sixth Circuit invoked.  Bermann’s brief discussed the concept under the “clear and unmistakable” agreement standard of parties to arbitrate.

The amicus noted that the competence-competence language does not constitute “clear and unmistakable” evidence. “[A]ll modern arbitral procedure rules contain a ‘competence-competence’ clause,” the brief argued, “so that treating such language as clear and unmistakable evidence of a delegation means that parties will almost invariably lose their right to a judicial determination of what this Court has multiple times referred to as the very cornerstone of arbitration, viz. consent to arbitrate.”

Noting the state-federal divide in the interpretation of whether the incorporation of rules satisfies First Options, the brief concluded, “Only this Court can definitively resolve that issue and ensure that parties do not forfeit their right to a judicial determination of arbitrability unless they manifest that intention clearly and unmistakably.”

For more information on the case and an in-depth discussion of the issues involved, see the Supreme Court’s docket page at http://bit.ly/39Zxed1.

* * *

Akande, who received a Master of Laws in Alternative Dispute Resolution last May at the University of Southern California Gould School of Law in Los Angeles, is volunteering with the CPR Institute through Spring 2021. Bleemer edits Alternatives for the CPR Institute.

[END]

Extinguishing Intra-EU Bilateral Investment Treaties: Recent Developments

By Krzysztof Wierzbowski and Aleksander Szostak

In line with the decision of the Court of Justice of the European Union (referred to here as the “CJEU”) in Achmea (formerly Eureko) v. Slovakia (the Achmea Decision) and the political declaration issued by the governments of the European Union member states on Jan. 15, 2019, most of the EU member states, with the exception of Austria, Finland, Sweden and Ireland, have entered into a plurilateral treaty for the termination of bilateral investment treaties between the EU Member States (referred to in this article as “intra-EU BITs” and the Termination Treaty).

The Termination Treaty was signed on May 5, 2020, and entered into force on Aug. 29, 2020. See Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT] (available at http://bit.ly/3iqsTn3).

Portugal, the Netherlands, and Luxembourg have made the following formal declarations concerning the Termination Treaty:

  • “Luxembourg calls upon the European Commission and all member states to start, without any delay, a process with the aim to ensure complete, strong and effective protection of investments within the EU and adequate instruments in this regard.” It requests the  European Commission to create a plan for such a process. Declaration of Luxembourg to the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].
  • Portugal appears to endorse a view similar to that of Luxembourg and emphasizes its “support to the intensifying of the discussions between the European Commission and Member States with the aim of better ensuring a sound and effective protection of investments within the European Union. To this end, calls to assess the establishment of new or better tools under European Union law and to carry out an assessment of the current dispute settlement mechanisms which are essential to ensure legal certainty and the protection of interests of investors.” Declaration of Portugal to the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].
  • The Dutch government confirms that although the Achmea Decision does not affect the Caribbean parts of the Netherlands (as Overseas Countries and Territories), BITs concluded with those territories shall also be terminated pursuant to the Termination Treaty. In this sense and irrespective of the Achmea Decision, the effects of the Termination Treaty will extend to all parts of the Kingdom of the Netherlands. Declaration of the Netherlands to the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].

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So what will be the fate of intra-EU BITs and intra-EU investment arbitration?

The conclusion of the Termination Treaty is a direct consequence of the Achmea Decision, in which the CJEU declared that Investor-State Dispute Settlement (the “ISDS”) clauses in intra-EU BITs are not compatible with the EU law. (The decision is available at http://bit.ly/2Kf8OmM.)

In general, the Termination Treaty is based on the premise that all intra-EU BITs shall be terminated and their sunset clauses, providing for the temporarily continued protection of investments existing prior to the termination of the relevant BIT, shall be terminated together with the respective intra-EU BIT and thereby shall not produce legal effects.

Furthermore, it stipulates that new intra-EU investor-state arbitrations may not be initiated and that pending proceedings shall be subject to the management procedure described below.

Interestingly, the Termination Treaty does not resolve the issue of application and compatibility with the EU law of the Energy Charter Treaty (the “ECT”) in the intra-EU investment protection context. In particular, the Termination Treaty stipulates that it does not cover intra-EU arbitrations initiated based on ECT Article 26 and that this issue will be dealt with at a later stage. Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT] at 2. The ECT is available at http://bit.ly/3nUL2u7.

Considering that in recent years we have witnessed rise of the number of intra-EU ECT arbitrations, the uncertainty introduced by the Termination Treaty may put the parties engaged in pending arbitrations, or anticipating initiation of new proceedings pursuant to ECT Article 26, in an adverse position. See,. e.g., Landesbank Baden-Württemberg and others v. Kingdom of Spain, ICSID Case No. ARB/15/45, Decision on the Intra-EU Jurisdictional Objection [25 February 2019]; Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018]; Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1, Award [16 May 2018]; Statistics of ECT Cases (as of Oct. 23, 2019) (available at https://bit.ly/3oGCeJz).

Notably, as argued by the Advocate General Henrik Saugmandsgaard Øe in his recently issued opinion in joined cases C‑798/18 and C‑799/18, the ECT ISDS clause does not apply in the intra-EU context,  and the ECT may be entirely inapplicable to intra-EU proceedings. This indicates that if the CJEU follows the Advocate General’s reasoning, EU investors may be deprived of procedural and substantive protection under the ECT in the intra-EU relations. Joined Cases C 798/18 and C 799/18, Opinion of Advocate General Saugmandsgaard Øe [29 October 2020] (available at http://bit.ly/3bEYEHk).

Management of the pending intra-EU proceedings

Pending proceedings, defined as intra-EU investment arbitration proceedings initiated prior to March 6, 2018—the Achmea Decision linked above–and which have not ended with a settlement agreement or with a final award issued prior to March 6, 2018, where the award was duly executed prior to March 6, 2018, or the award was set aside or annulled before August 29, 2020, shall in principle be subject to the so-called Structured Dialogue, which is a mechanism that aims to assist disputing parties in finding an amicable settlement of a dispute. Art. 1(4) and (5) and Art. 9 Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].

The settlement procedure is overseen by an impartial facilitator who shall find an amicable, lawful, and fair out-of-court and out-of-arbitration settlement of the dispute. Settlement of the dispute shall in principle be reached within six months. Art. 9 (1) – (14) Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT]. It can be observed that the mechanism resembles investor-state mediation.

Going a step further, the Termination Treaty implements an option for investors engaged in pending arbitrations to seek judicial remedies under national law before domestic courts against the host state measure contested in such arbitration proceedings. This option is available to investors under the condition that they withdraw pending arbitration proceedings and waive rights and claims under the relevant intra-EU BIT, or renounce execution of the issued award and commit to refrain from instituting any new arbitration proceedings. Art. 10 Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT]. In such case,  limitation periods would not apply to bringing legal action before domestic courts.

This may have a severe impact on the prospect of lodging a successful claim against a state by the investor, since the legal framework of intra-EU BITs that provided a substantive and procedural legal basis in a pending arbitration will not be applicable in domestic court proceedings.

Doubtful recognition and enforcement of awards

Decisions and/or awards issued in pending, or, as the case may be, new arbitration proceedings may not be effective, because the Termination Treaty stipulates that contracting states shall, in case of domestic court proceedings, request the domestic court, including in any third country, to set the arbitral award aside, annul it, or to refrain from recognizing and enforcing it. Art. 7 (b) Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].

This raises a threat to the effectiveness of guarantees provided under, among others, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention”).

It can be recalled that ICSID Convention Article 54 stipulates that each contracting state shall recognize an award rendered by an ICSID Tribunal as binding and enforce the pecuniary obligations imposed by that award as if it were a final judgment of a court where recognition is sought. This unique recognition mechanism does not leave room for any ground on which the recognition could be refused.

Considering a rather likely scenario in which a domestic court of an EU member state is faced with a request for recognition of award or decision issued by a tribunal in an intra-EU investment arbitration case, it can be noted that such domestic court will need to resolve uncertain and complex situation concerning the conflict of treaty norms. The domestic court will need to decide whether to recognize the award, or issue a decision in accordance with the ICSID Convention, or to comply with the EU law and refuse recognition and thereby, to undermine the ICSID Convention.

Although not addressed in the Termination Treaty, it appears that the CJEU argument in the Achmea Decision regarding incompatibility of the ISDS clauses in intra-EU BITs with the EU law may potentially extend to extra-EU BITs and arbitrations between EU members states and investors from third states.

Clearly, arbitrations initiated on a basis of ISDS clauses contained in such BITs may concern treatment of investors from third states investing in the EU, and therefore the subject matter of such arbitrations may relate to interpretation and application of the EU law.

Such arbitrations may also pose a risk to the proper interpretation and application of the EU law and have an adverse effect on the autonomy of the EU law. See Case C 284/16 Slowakische Republik (Slovak Republic) v. Achmea BV [2018]. Such reasoning, if followed, which is rather unlikely, would further deepen the crisis concerning European Union investment treaty arbitration.

It might be further noted that the competence of the court where the arbitration is seated to set aside the arbitration award may lead to the situation where such court would be a non-EU court and would not be bound by the Termination Treaty.

Furthermore, the winning investor may seek to have the arbitration award recognized and enforced in a non-EU jurisdiction where the defendant’s assets are located.

Taming the lion: The tendency of arbitral tribunals to reject intra-EU jurisdictional objections

Despite the Achmea Decision and clear commitment of EU member states on terminating the intra-EU BITs, arbitral tribunals in intra-EU arbitrations generally reject jurisdictional objections asserting incompatibility of intra-EU BITs.vSee, e.g., Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Republic of Poland, ICSID Case No. ADHOC/15/1, Partial Award on Jurisdiction [4 March 2020]; Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018]; Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1, Award [16 May 2018]; UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, Award [9 October 2018]; Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia, ICSID Case No. ARB/17/37, Decision on Croatia’s Jurisdictional Objection Related to the Alleged Incompatibility of the BIT with the EU Acquis [12 June 2020].

As emphasized by the tribunal in the partial award on jurisdiction in Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Republic of Poland, EU law does not form part of the law applicable to questions of the tribunal’s jurisdiction, and no extrinsic elements of interpretation under Article 31(3) of the Vienna Convention on the Law of Treaties can trump the clear expression of the parties’ common intention to arbitrate. Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Republic of Poland, at par. 8.143. It should be noted, however, that the intention of capital importing states to arbitrate disputes may be considered as no longer existent due to the signing and entry into force of the Termination Treaty.

Notably, the tribunal further considered the issue of the enforceability of an award issued in intra-EU arbitration and recognized its duty to render an enforceable award. It noted, however, that it is not able to predict the future validity, or enforceability of the award before enforcing courts. Id. at par. 8.140-8.142.

More recently, the tribunal in Addiko Bank v. Croatia raised several interesting points when rejecting Croatia’s jurisdictional objection related to the incompatibility of the Austria-Croatia BIT with the EU acquis.

The tribunal reasoned that in light of Article 2(1)(a) of the Vienna Convention on the Law of Treaties, the law applicable to the Austria-Croatia BIT consists of the terms of that BIT itself and general principles of international law, which are the sources of law not considered by the CJEU as  incompatible with the EU law.

Furthermore, the tribunal noted that contrary to the BIT concluded between the Netherlands and Slovakia, considered by the CJEU in the Achmea Decision as incompatible with the EU law, the Austria-Croatia BIT does not incorporate EU law as part of its applicable law. Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia, ICSID Case No. ARB/17/37, Decision on Croatia’s Jurisdictional Objection Related to the Alleged Incompatibility of the BIT with the EU Acquis [12 June 2020] par.267. The tribunal concluded that the Austria-Croatia BIT does not give rise to the same functional concerns, which the CJEU found to be present in the context of the Achmea Decision. Id. at par.269.

This indicates that intra-EU BITs whose applicable law is limited to the terms of the intra-EU BIT itself and general principles of international law are not incompatible with the EU law. Following this reasoning, it can be assumed that the tribunal would reach a different conclusion if the Austria-Croatia BIT included a provision expressly or impliedly incorporating EU law as the applicable law.

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Some of the solutions implemented under the Termination Treaty may indeed be considered controversial. This is particularly the case with respect to the mode of termination of legal effects of sunset clauses, or more broadly, the retroactive effect of the Termination Treaty.

Investors may decide to seek protection under existing BITs concluded with non-EU states and, thereby, engage in the treaty shopping practice. It remains an open question whether such BITs will be affected by the Achmea Decision.

While the Achmea Decision argument has become a popular strategy for defendants in investment arbitration proceedings to challenge jurisdiction of arbitral tribunals, jurisprudence indicates that such arguments are generally rejected.

Although developments contained in mega-regional treaties, such as the Comprehensive Economic and Trade Agreement (available at http://bit.ly/2LXjQh3), may provide a model for the creation of standing investment court, which could replace the ISDS mechanism so far in place, the institutional design of the body must comply with the EU law in order to provide an effective alternative to domestic courts. In this regard, it is important to monitor development of the EU’s initiative concerning the so-called Investment Court System, which could be further developed into a Multilateral Investment Court.

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Krzysztof Wierzbowski is a Senior Partner at Eversheds Sutherland Wierzbowski in Warsaw, Poland. He is a member of the CPR European Advisory Board, which provides EAB posts for CPR Speaks. Aleksander Szostak LL.M. is a lawyer at Eversheds Sutherland Wierzbowski.

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