#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].

* * *

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.

* * *

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.

[END]

Experiences & Impact from CPR’s 2019 International Mediation Competition

By Ibrahim Godofa (A member of the University of Nairobi Team)

The 2019 CPR International Mediation Competition has definitely been one of the key opportunities that I have been lucky enough to participate in this year and arguably for the entirety of my law school period. I believe it was an incredible opportunity for my teammates as well.

My attention was first drawn to this competition on LinkedIn where the poster was shared by Mr. Olivier André from the CPR Institute. I immediately shared the information with like-minded colleagues at the university and a team was formed, whereupon we applied for participation as well as a partial scholarship that had just been instituted to aid disadvantaged teams. Upon assessment, we were selected alongside 17 other teams from across the globe as the only team from the African continent. Additionally, we were granted the partial scholarship to participate!

“The role all of these takeaways will play in enhancing the position of mediation in Kenya, especially among our fellow students, cannot be underestimated.”

The competition period that took place between the 4th and 6th of April in São Paulo, Brazil was probably the most intensive and beneficial learning opportunity throughout the process. Coming from a jurisdiction where mediation is still a progress in motion, the first evening of the training session, featuring short lectures about the various emerging aspects of mediation, was an incredible way to start a learning curve that would last for the following two days. It was quite an eye-opening kick-off and equally interesting to be introduced to emerging technologies as well as business aspects, such as agricultural ones, in the practice of mediation. While this training session served as an effective way to expand the participants’ views on the evolving practice of mediation, we also found it to be a helpful approach to preparing for the actual competition, whose themes revolved around these emerging aspects.

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The Nairobi team, receiving their award for best teamwork. The author, Ibrahim Godofa, is pictured on the right, along with his teammates Edgar Usagi Alema (left) and Sumaiyah Abdi Omar (center).

The first day of the competition provided many different kinds of lessons, as my team and I got the chance to go up against excellent teams from world class universities all around the world. My team had the rare chance to go up against teams from three different continents: South America, Asia and North America on this first day. It was quite an awesome experience trying out our preparation against teams that had different approaches and internal qualification processes to get to this stage of the competition, and some of which even had coaches, unlike my team. It was also an interesting experience to compete in the style in which the competition was set up—which was new to me, and (as I learned from speaking to them) to several of the other participants as well.

Additionally, as a team we had always known mediation to be a conflict resolution process that is not bent towards a win-lose outcome. While retaining the important values of a mediation, this competition allowed us to simultaneously act upon the rush of competitiveness coming from all the teams while maintaining a respectful and professional sportsmanship, which was one of the highlights of this phase of the competition observable from all the teams present.

The first day of the competition culminated quite memorably for us, with an announcement that our negotiating team was through to the quarter finals the following day. Being part of our negotiating team, this presented serious excitement for me and also meant continued work within the limited time we had to prepare for the quarter finals round. The quality of the competition in this round was even a notch higher than the previous day’s, and so were the stakes. However, my team would learn later in the day that our impressive run would end at this round, albeit against a worthy opponent, the Harvard Law School team.

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The team from the University of Nairobi, School of Law, taking a well-deserved break

Outside the competition rooms, there was an extended opportunity to interact and network with current and future voices in global mediation. This ranged from top-of-their-class students from the various participating universities as well as other professionals who were present in different capacities as judges, coaches and other volunteers. Interacting with these individuals and exchanging contacts provided an invaluable door to long-lasting partnerships and collaborations that are particularly priceless coming from a jurisdiction such as ours, where borrowing from global best practices brings a special kind of difference in an under-developed field such as mediation.

At the end of the competition, my team was recognized with the “Best Teamwork” Award, upon the completion and compilation of feedback from the excellent judging panels that we came across in the various rounds. This feedback from the judges, which continued to come to our attention even after the competition was long finished, has been a very important part of the competition’s learning process and my team is incredibly proud to have emerged with an award testament to the positive and constructive feedback that the judges had on our performance.

One of the main attractions of this competition to our team lay in the impact that the experience would have on mediation back in our circles at home, both in general and at our school in particular. The lessons taken home by our team from this experience are numerous. Some of the key takeaways from the wholesome experience of the competition include:

  • Best practices from other universities as far as student activities centered around mediation is concerned in their schools, especially for the universities from the United States
  • Valuable feedback from the judging panel, some of which contain long-term lessons for our future practices
  • And, most importantly, a model mediation practice procedure that can be employed to sharpen the skills of eager students back at our school through student-led trainings

It is important to also note that our team’s participation in this edition of the competition was the first of its kind at our school as far as any international Alternative Dispute Resolution competitions are concerned. Our participation has therefore paved way for other students to look for and take up similar opportunities, and to benefit from the connections that our team acquired internationally which can be leveraged to create a ripple of opportunities to others who will come after us. The role all of these takeaways will play in enhancing the position of mediation in Kenya, especially among our fellow students, cannot be underestimated. With all signs indicating the rise of mediation practice around the world, we are certainly committed to advancing this important dispute resolution resource within our immediate circle of friends and fellow students, starting from our school. And a big thank you goes to the CPR Institute for the invaluable role that it continues to play in driving a global mediation culture.

Our team’s appreciations go to Olivier André, the amazing Chris Silva and Franco Gevaerd from the CPR Institute, all of whom played a key role in making our experience of this competition, alongside their other colleagues, so memorable.

And oh! Brazil was an awesome place and the Paulistas were very friendly and welcoming residents of a great city! We had a wonderful time.

 

The New Italian Mediation Law: Experimenting with a “Soft” Approach to Mandatory Mediation

By Giulio Zanolla, LL.M., Esq., CPR Speaks Contributor

GiulioMediation was first introduced as a prerequisite to litigation in the Italian legal system in 2011, when the government issued a decree to implement the EU Mediation Directive of 2008. This legislative measure sparked a mix of enthusiastic reactions and harsh criticisms that culminated with lawyer strikes against its implementation. In 2012, the mandatory provision of the mediation regulation was declared unconstitutional, but the Constitutional Court’s decision was based on the government’s lack of legislative legitimacy to impose the mandatory requirement, rather than on the illegitimacy of the mandatory requirement itself.

The heated debate on the mediation regulation continued inside and outside the rooms of policymakers and led the Italian Parliament to enact a law in 2013 re-introducing mandatory mediation for certain civil and commercial actions in a mitigated form. The new mediation law, which is not affected by the constitutionality issue of the previous regulation, aims to address the concerns brought by a sector of the legal community claiming that the prerequisite of participating in mediation prior to bringing a legal action unjustly burdens and restricts disputants’ rights to access to justice. Unlike the previous regulation, the new Italian mediation law mandates that parties in certain civil and commercial disputes attend only an initial information session with the mediator; it does not require parties to participate in an actual mediation process as a prerequisite to litigation. The parties remain free to opt out of the mediation before the actual process starts and without any consequence for refraining to continue in mediation.

Through the initial information session, the parties have an opportunity to learn about the mediation process and make an informed decision regarding whether to attempt an out-of-court resolution through mediation or to initiate litigation. The information session is free of charge, and parties who refuse to attend the session are subject to sanctions in the subsequent trial. Only if all the parties agree to proceed with mediation will the mediator formally commence the procedure and begin to facilitate discussions of the disputed issues. With the new Italian mediation law, the parties’ participation in the actual mediation process is fully voluntary. The parties’ only mandatory requirement is to educate themselves about the option of mediation through the initial information session.

Recent statistical data available from the Ministry of Justice regarding the first six months of 2014 demonstrates that more than 22 percent of all disputes for which the initial information meeting is mandatory and more than 50 percent of disputes mediated by deliberate initiative of the parties are resolved without recourse to court litigation. In a little over a year since enactment of the law, the benefits of the new law are tangible, not only for those parties who resolved their disputes without litigation, but also—and especially—for the overwhelmed Italian judicial system as a whole, and ultimately for all taxpayers.

Most important, each of the numerous information sessions and mediations that took place but did not result in settlement created a concrete opportunity for parties and attorneys to familiarize themselves with the mediation process and educate users about mediation, thus contributing to the development of the culture of mediation throughout the country.

If we believe that the principle of voluntariness is of fundamental value to the mediation process and if we agree that the need for user education is a critical element in the development of a culture of mediation, the Italian mediation law could represent a balanced solution to the question of how to promote the use of mediation through legislation. The next few years’ statistics will reveal whether the number of parties who choose to continue in mediation past the initial information session, and the concomitant overall settlement percentage, will grow thanks to an increased level of awareness and sophistication among mediation users.

Giulio Zanolla is an attorney, a mediator, an ADR instructor, and the author of the blog The Case for Mediation: An ADR Blog by Giulio Zanolla. This article was first published in the The Weinstein JAMS International Fellow Newsletter, Fall 2015. Mr. Zanolla can be reached at giulio@zanollamediation.com.

2016 Copyright of Giulio Zanolla, Esq. – All Rights Reserved

ADR Around the World: Turkey

This article is the fourth in a four-part CPR summer series that examines ADR in a number of rapidly changing locales around the world. If you missed it, you can find the first post, about Colombia, here, the second about Mexico here, and the third about Taiwan, here.

Turkey: Political Conflict Makes ADR an Essential Tool

By Boaz Cohon and Ngutjiua Hijarunguru, CPR Student Interns

On June 3rd, 2015 the World Justice Project released an updated version of their Rule of Law Index.  In this iteration, the Rule of Law Index dropped Turkey from 59th to 80th out of the 102 countries surveyed.  This fall no doubt was impacted by recent developments involving interference by Turkey’s executive branch in the judiciary.

The Turkish economy has, to a lesser extent, also struggled.  Notwithstanding that Turkey attracted over $12.5 billion dollars of Foreign Direct investment (FDI) in 2014, its gross domestic product (GDP) growth rate was just 2.9% for that year, down from 9.2% in 2010.

Currently litigation that relies on Turkey’s judicial system is the primary mode of commercial dispute resolution in Turkey, but complex commercial litigation can take over six years to complete.  The primacy of litigation is due in part to technological innovations such as electronic proceedings and increased courthouse construction that have enhanced the effectiveness of the Turkish court system, but is mostly due to the fact that Turkish businessmen are still quite reluctant to initiate arbitral proceedings at distant venues that utilize unfamiliar rules and procedures.

That being said, the legal framework exists in Turkey for both foreign and domestic companies looking to avoid a legal system mired in political conflict by using impartial, independent forms of ADR to resolve commercial disputes.  The primary law governing international arbitral proceedings that could be used by multinational enterprises (MNEs) is the Turkish International Arbitration Law (IAL), which is based on the UNCITRAL Model Law and the Swiss Federal Statute on Private International Law  Domestic disputes are regulated under the Turkish Civil Procedure Law, which also draws heavily from the UNCITRAL Model Law.

In 2012 Turkey added a modern mediation law—the Law on Mediation for Civil Disputes—to its legal code.  This law, which was opposed by the Istanbul Bar Association, took to heart the most cherished principles of mediation, such as insuring equal treatment of both parties by the mediator, confidentiality, and a duty to inform parties about the process of mediation.  Although most disputes resolved thus far have been employment related, commercial disputes can certainly use mediation as a dispute resolution strategy as well.

Organizations like the Istanbul Chamber of Commerce and the Turkish Union of Chambers and Commodity Exchanges (TOBB) generally administer arbitrations, and a newly established institution, the Istanbul Arbitration Centre, was founded by the government effective January 1, 2015, to facilitate the settlement of domestic and international disputes through arbitration.

In sum, ADR processes in Turkey are slowly advancing toward becoming common practice, making Turkey both a potentially promising ADR marketplace and an ADR destination to watch.  It may well be that government interventions in the judicial system will push the business community in Turkey towards more thoroughly utilizing ADR options at their disposal.

The CPR Institute would like to thank Boaz Cohon and Ngutjiua Hijarunguru for this contribution. Boaz, a summer public policy/legal intern at CPR, is majoring in Political Science and History at Vanderbilt. Ngutjiua is a LLM graduate from the Center of the Study of Dispute Resolution at the University of Missouri-Columbia.

ADR Around the World: Taiwan

This article is the third in a four-part CPR summer series that examines ADR in a number of rapidly changing locales around the world. If you missed it, you can find the first post, about Colombia, here, and the second about Mexico here.

ADR in Taiwan: Strong Foundations and a Chance to Build

By Gideon Hanft, CPR Research Assistant and Ngutjiua Hijarunguru, CPR Student Intern

In 2013, research institute Business Environment Risk Intelligence S.A. (BERI) ranked Taiwan as the fourth-best investment environment globally. Taiwan’s largest trading partners are the world’s three largest economies, Japan, China and the United States, and, as a leader in technology production, Taiwan has a dynamic and expanding role in the global economy. Taiwan’s economic growth has corresponded with a growth in commercial litigation, but Taiwan’s government and cultural legacy has also built a strong ADR foundation and offers opportunities for further expansion.

Confucianism has historically cultivated an “anti-lawsuit” attitude, and this heritage has served as “fertile soil for the development of mediation.” However, Taiwan’s strong history of societally promoted mediation has not prevented a rapid expansion of civil litigation. Professor Yun-Hsien Diana Lin of National Tsing Hua University, Taiwan ascribes this development to the “increase in judicial staff…, the progress of economic development and the growing prevalence of education among Taiwanese people.” Despite this expansion of litigation, Taiwan’s government has continued to promote mediation as an alternative through two main avenues.

First, Taiwan has legislation that creates mandatory mediation through Article 403 of Taiwan’s Code of Civil Practice. As Salvatore Casabona, ‎Associate Professor of Comparative Law & International Trade Law at University of Palermo, describes, “Originally provided only for small value claims, the range of civil dispute subjected to mandatory mediation were gradually broadened, including a variety of cases from neighbourhood and real property controversies to traffic accident and medical treatment ones.” This type of mediation is conducted in the courtroom by mediators appointed by the presiding judge. A settlement is legally enforced by the judge, but if mediation does not result in settlement litigation follows. Casabona’s analysis suggests Taiwanese litigants have been resistant to this mandatory mediation; for example, less than 1% of debt discharge cases that provoked mandatory mediation have seen mediation sustained. Nevertheless, the number of successfully sustained mediations has risen over time and this act’s expansion points to recognition of the value of ADR procedures.

The second type of mediation in Taiwan is not conducted through the court but, rather, similarly to mediations abroad, is conducted by outside institutions under mutually agreed upon procedures. For example, mediation under the Chinese Arbitration Association, Tapei (CAA) is regulated under the institution’s rules, passed October 2008, which parties may choose to use unless they mutually agree to other rules. Article 45 of Taiwan’s arbitration law specifies that an arbitrator can propose and accept a mediated settlement with legal enforceability.

Beyond these two main avenues, Taiwan has an additional type of out of court mediation that is more unique. This is called Town Mediation, and many see it as an outgrowth of the Confucian tradition. Regulated by the Town Mediation Act, Town Mediation was first passed in 1955 and this local process has been amended frequently since. Townships and administrative divisions maintain mediation committees of seven to fifteen to mediate civil disputes and minor criminal cases. This act specifies “Mediators are appointed by the mayor of township and county–administered city ‘from the men of eminent fairness, within the administrative district, who have legal knowledge or other expertise and good reputation.’” Mediators are often local elders and are not always lawyers.  In recent years, amendments to the Town Mediation Act have increased the role of local courts in overseeing the committees and passed rules to reduce the appearance of bias.

Town mediation retains a distinctly local identity, with traditional mores playing a vital role in the local mediators’ attempts to resolve disputes. As Yun-Hsien Diana Lin, Associate Professor at the Institute of Law for Science & Technology, National Tsing Hua University, Taiwan, writes, “Fairness must be judged in the context of…social relations instead of according to strict justice under the law.” Unlike court mediation, town mediation can only be entered into at the request of both parties, decisions are non-binding until certified by a local court, and the process is free of charge to both parties. Town mediation’s popularity has grown in recent years, especially in the context of minor criminal cases. The number of approved town mediation cases exceeded the number of sustained in-court mediations in 2010 and 96 percent of town mediation settlements brought before courts were approved in that year.

In addition to mediation, arbitration has become a more common method of dispute resolution in Taiwan. The leading arbitration institution is the CAA, founded in 1955. The CAA’s main services are arbitration and mediation conducted in Chinese and English. The CAA specializes in civil, commercial, international banking, construction, distribution, financial/investment, maritime, securities and transportation disputes. The arbitration act and rules governing CAA proceedings are the Republic of China Arbitration Act of 2002, modeled after the UNCITRAL Model Law of 1985, and the CAA Arbitration Rules.

While most arbitral proceeding in Taiwan are conducted under the auspices of the CAA, specialized bodies performing arbitrations include the Taiwan Construction Arbitration Association, the Labour Dispute Arbitration Association and the Chinese Engineering Arbitration Association.

Despite the expanded use of both town and court mediation, it is hard to say that they have kept up with the expansion of civil litigation. In 2008, the number of civil disputes filed with the Taiwanese District Court increased to 2.81 million from 1.37 million in 1998. While this litigious trend may be a concern, it also means there will likely be a greater market for ADR providers and educators in years to come.

In all, the ADR environment in Taiwan is promising. The growth of civil litigation has been met with governmental expansion of mandatory mediation, suggesting that Taiwan’s leaders are eager for an expansion of ADR.  Town Mediation offers an interesting example of local receptiveness to ADR procedures, and judicial willingness to certify proceedings shows a recognition by judges that outside processes can effectively resolve disputes. With these strong foundations, there is room to build an ever stronger ADR culture. As Taiwan’s growing economy and increasingly strong economic ties have made it one of most important and dynamic markets in the world, expanding ADR there could lead to the more effective resolution of disputes in the rest of Asia and beyond.

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Gideon Hanft, a research assistant at CPR, is entering his first year at Columbia Law School.
Ngutjiua Hijarunguru is a LLM graduate from the Center of the Study of Dispute Resolution at the University of Missouri-Columbia.

ADR Around the World: Mexico

This article is the second in a four-part CPR summer series that examines the state of dispute resolution in a number of rapidly changing locales around the world. 

Mexico: A Globally Integrated Economy Moving Towards Effective Commercial Dispute Resolution

By Boaz Cohon, CPR Student Intern

Notwithstanding meager economic growth in recent years, when looking at how Mexico is situated within the global economy it is clear why the country is slated to become the 8th largest economy in the world by 2050. Mexico is fortuitously located adjacent to the world’s largest economy in the United States, which its companies have relatively unfettered access to via the North American Free Trade Agreement (NAFTA). This proximity has made Mexico “an important node in the world trading system” and situated it well in a multitude of global value chains (GVCs). Furthermore, President Enrique Peña Nieto’s financial reforms have broken up telecom oligopolies and liberalized the energy sector, creating even more incentives for multinational enterprises (MNEs) to invest.

One strategy for insuring Mexico reaches its burgeoning economic potential is to improve the efficacy of mechanisms for resolving commercial disputes. Currently, commercial dispute resolution in Mexico offers a mix of problems and potential, with some encouraging, recent improvements but options that are still lacking by international standards. Absent these effective methods, Mexico can still be a challenging place to do business for both domestic firms and MNEs.

Procedural changes to commercial litigation have—auspiciously—already been passed and begun to be implemented. In 2011 the Mexican legislature passed a series of well-received reforms including an expedited process with oral hearings for smaller monetary claims, a reduction in procedural timeframes, and a decrease in the number of appeals (writs of amparo) a disputing party can make.

If implemented, these reforms, coupled with the much larger judicial reform of 2008, would undoubtedly have a positive impact on Mexico’s rule of law and judiciary. The World Justice Project ranked Mexico 79th out of 102 countries in the most recent iteration of its Rule of Law Index, and citizens continue to be skeptical of the judicial system as a whole with 54% of respondents in a recent survey saying that the court system has a bad influence on the Mexican state.

This apparent lack of trust in litigation, even in the face of reforms, has likely contributed to a rapid rise of arbitration as the go-to mechanism for resolving commercial disputes. Mexico has adopted the UNCITRAL model law for both domestic and international arbitrations with only minor modifications, and is a signatory of the New York Convention (1958). Over time the judiciary has also become increasingly accepting of arbitration and has remained appropriately aloof from outcomes, not intervening in decisions and enforcing awards unless a clear procedural issue has been demonstrated.

Interestingly, the same upbeat tone cannot be taken when describing other forms of alternative dispute resolution (ADR) in Mexico in the context of resolving commercial disputes. Even as the business population has warmly taken to arbitration, it has, at least comparatively speaking, shunned mediation — despite its cropping up in many other areas of disagreement, such as medical malpractice suits, juvenile justice cases, and labor dispute resolution. In commercial disputes a culture of Pyrrhic victory and notions of the need to ‘win’ legal battles may be obstructing widespread acceptance of mediation in the business community.

This has remained the case even in the face of powerful drivers of change. In 2001 the American Bar Association (ABA) and Freedom House in conjunction with the United States Agency for International Development in Mexico (USAID/Mexico) pursued a program establishing 28 mediation centers. The program increased use, but only to a limited degree.  A 2008 constitutional amendment that set out principles and procedures of mediation, obligations of participants and practitioners, and created Alternative Justice Centers across the country likewise did not immediately incentivize significantly more disputants to undertake mediation to resolve commercial disputes.

Perhaps change needs to come from inside the ADR community in Mexico, and, if so, two organizations look primed to help realize such a cultural shift. The Mediation and Arbitration Center of the National Chamber of Commerce of Mexico City (CANACO) has a broad focus including arbitration and mediation and is the most well-known mediation provider in the country, and The Arbitration Center of Mexico (CAM) primarily focuses on arbitration but is looking to expand into mediation.

In sum, as the complex economic machine that is Mexico continues to gain momentum, it would no doubt benefit from lubricating the gears with a diverse array of effective dispute resolution tools for domestic and international firms.

The CPR Institute would like to thank Boaz Cohon for this contribution. Boaz, a summer public policy/legal intern at CPR, is majoring in Political Science and History at Vanderbilt.

ADR Around the World: Colombia

Throughout this summer, in part inspired by CPR’s recent activity in Brazil, “CPR Speaks” will be publishing a four-part series looking at the state of alternative dispute resolution (ADR) in a number of other rapidly changing locales. We begin with Colombia, to be followed by Taiwan, Turkey and Mexico.

Colombia: A Dynamic Economy with a Vibrant ADR Environment

By Boaz Cohon, CPR Student Intern

In 2014, market research firm Capital Economics reported that Colombia had surpassed Argentina as the third largest economy in Latin America. This economic success surprised few, as Colombia’s Gross Domestic Product (GDP) had grown close to 5% in both 2013 and 2014, despite the slowdown occurring throughout the rest of Latin America and falling oil prices (one of Colombia’s main exports), all while keeping inflation under 4%. Moreover, Foreign Direct Investment (FDI) in Colombia grew to $16,198,401,721 in 2013 from only $10,564,672,091 in 2008.

Colombia is a paragon of excellence in economic expansion for Latin America, and one factor that has helped contribute to Colombia’s stunning growth—particularly its high levels of FDI—is a corporate and legal environment conducive to international as well as domestic alternative dispute resolution (ADR). Continue reading