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Getting The Deal Through

Introduction

Gerhard Wegen and Stephan Wilske

Gleiss Lutz

Wednesday 27 February 2019


Once again, it is our great pleasure to introduce what is now the 14th edition of Getting the Deal Through – Arbitration. This edition now covers four additional jurisdictions, with a total number of 38 reports on jurisdictions and arbitral institutions worldwide. We expect an increase of contributions so that this specialist edition will continue to expand and diversify, embracing the most important tendencies and developments in international arbitration. Therefore, we appreciate and consider the positive feedback we have received regarding past editions and hope we can continue in this manner.

General trends

In 2018, arbitration remained one of the most favoured means of dispute resolution throughout most jurisdictions. The 2018 Queen Mary International Arbitration Survey revealed that 97 per cent of respondents saw international arbitration as their preferred method of dispute resolution, either on a stand-alone basis (48 per cent) or in conjunction with alternative dispute resolution (ADR) (49 per cent). ‘Enforceability of awards’ continues to be perceived as arbitration’s most valuable characteristic, followed by ‘avoiding specific legal systems/national courts’, ‘flexibility’ and ‘ability of parties to select arbitrators’, whereas costs and lack of effective sanctions during the arbitral process are viewed as disadvantages.

At the same time, the future of investment arbitration – at least within the European Union – appears less bright, and was called into question by the Court of Justice of the European Union’s (CJEU) judgment in the Achmea BV v The Slovak Republic case. With its landmark decision, which was issued on 6 March 2018, the CJEU found intra-EU bilateral investment treaty (BIT) arbitration clauses to be incompatible with EU law. In July 2018, the European Commission issued a communication to the European Parliament that EU investors can no longer invoke intra-EU BITs owing to their incompatibility with EU law. The EU Commission even expanded the reasoning of the CJEU in Achmea to arbitrations based on the Energy Charter Treaty (ECT) to which the European Union is a party. The CJEU’s decision and the EU Commission’s follow-up caused heated debates within the arbitration community and met severe criticism. Regardless of whether concerns about investor–state arbitration are legitimate, no effective alternative to the investor–state dispute settlement (ISDS) mechanism has yet been created. If investors are now deprived of the protection previously offered by arbitration clauses in intra-EU BITs, this must be considered a threat to effective investment protection, and has the potential to adversely affect the economic development of the European Union.

From case numbers provided by the most important arbitral institutions up to November 2018, we conclude that many arbitral institutions, including the International Chamber of Commerce (ICC) Court of Arbitration, the London Court of International Arbitration (LCIA), the Chinese International Economic and Trade Arbitration Commission (CIETAC), the Hong Kong International Arbitration Centre (HKIAC), the Swiss Chambers’ Arbitration Institution, the Vienna International Arbitral Centre and the Cairo Regional Centre for International Commercial Arbitration have managed to increase their caseload as of the end of October 2018 compared to the previous year.

The Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention) was ratified by the Mexican Senate in April 2018, making Mexico the 154th state to ratify the Convention since it entered into force in 1966. Sudan acceded to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention), bringing the number of states that have ratified that Convention to 159.

Lively debates about the possible impact of Brexit on international arbitration continued in 2018. According to the 2018 EY Attractiveness Survey Europe, Paris is now more attractive for foreign investors than London. At the same time, according to the 2018 Queen Mary International Arbitration Survey, London remains the preferred seat of arbitration, but investors are concerned as to possible negative effects of Brexit. Since a no-deal Brexit became more likely during the first 10 months of 2018, these concerns have increased, and the future of post-Brexit London as seat for arbitrations appears uncertain. What appears clear is that after Brexit, the United Kingdom will lose one of its most important advantages in attracting investments, since it will no longer be able to position itself as the gateway to the European Union for business – especially if a no-deal Brexit occurs. It cannot be ruled out that as a consequence, BIT claims – based on a violation of the principle of fair and equitable treatment, and the concept of legitimate expectations – may be brought against the United Kingdom by international investors.

In several jurisdictions, laws relating to (international) arbitration have been revised with the goal of further enhancing the regulatory framework for arbitrations. Some prominent arbitral institutions have reviewed their arbitration rules and guidelines, including the German Arbitration Institute (DIS) and the HKIAC. Arbitral institutions continue to play a vital role in the development of arbitration by introducing procedural innovations to increase efficiency, and by combining these efforts with the institutions’ primary role of administering arbitral proceedings.

Third-party funding (TPF) in international arbitration has been under the spotlight for many years, but never more so than this year, which saw the launch of the much-anticipated ICCA-Queen Mary Task Force report on TPF. The report is seen as the most significant commentary on this topic so far, dealing with key issues in the context of TPF, including disclosure and conflicts of interest, privilege and professional secrecy, costs and security for costs. Publication of the report caused a heated debate among the arbitral community, which will likely continue. Legislative amendments on TPF are underway in key Asian jurisdictions, including Singapore and Hong Kong. Thus, there is reason to expect more funding-related decisions from courts and tribunals in the near future.

Another topic to re-emerge in 2018 is the dispute of climate change, with the ICC launching a Task Force on Arbitration of Climate Change Disputes (the Task Force). The Task Force aims to explore how arbitration can be used to resolve energy and environmental disputes related to climate change. Similarly to public health disputes, the resolution of climate change disputes may require particular expertise, as major public interests are at stake. In 2018, there were at least 59 pending ISDS cases related to renewable energy investments, including claims of renewable energy investors brought against Spain, Italy and the Czech Republic based on the states’ reversals of their incentive regimes initially aimed at encouraging renewable investments. It is likely that the future will bring more investment treaty disputes related to climate change. Here, investment treaty arbitration may offer a neutral and effective dispute resolution mechanism.

New developments

The year 2018 saw several new developments and trends related to international arbitration, the most important of which are summarised below.

Universal Citation in International Arbitration (UCIA)

In March 2018, Global Arbitration Review issued UCIA, a guide on citation in international arbitration. The guide provides a uniform approach to the citing of exhibits and authorities, including contracts, witness statements, expert reports, statutes and cases. UCIA is intended for use in all writing related to international arbitration, aiming to reduce inconsistencies as they are commonplace with arbitration practitioners coming from different legal traditions with different systems of citation. To reflect the best practices from an international perspective, an advisory board of 26 leading arbitration practitioners contributed to UCIA. Still, it remains to be seen whether UCIA will be internationally accepted as a valuable tool for daily practice.

Brexit

On 29 March 2019, the United Kingdom is expected to leave the European Union. In spite of the date coming ever closer, the EU–UK fight over the terms of Brexit continues. Therefore, a high level of uncertainty and unpredictability remains, which will have an effect no matter whether the negotiations end with or without an agreement. On 13 September 2018, the UK Ministry of Justice released a statement on how British courts are to handle civil matters in the event of a no-deal Brexit, making it clear that various EU instruments, including the Brussels Ia Regulation, would no longer apply. There are concerns that Brexit will immediately affect not only litigation, but also arbitration. In various EU legal texts, a clear distinction between EU member states and third states is made. In the future, the United Kingdom will qualify as a third state, with possible effects on dispute resolution clauses providing for the jurisdiction of English courts or for London as a seat of arbitration. In particular, there is a requirement for third-country firms under EU Regulation No. 600/2014 on markets in financial instruments to offer to submit certain disputes to the jurisdiction of a court or an arbitral tribunal in an EU member state. As a result, a pre-Brexit agreement on London as a seat of arbitration may be considered invalid in the future. Nevertheless, according to the 2018 Queen Mary International Arbitration Survey, London remains the most popular seat of arbitration despite the upcoming Brexit. But, although some continue to believe that Brexit might even strengthen London as a seat of arbitration, given its regained powers to issue anti-suit injunctions, it appears more likely that Brexit will lead to an increasing shift of arbitrations away from London to continental Europe. After all, legal uncertainty has seldom served to increase the attractiveness of a jurisdiction. Notably, in the draft agreement on the withdrawal of the United Kingdom from the European Union, arbitration is set out as a dispute settlement mechanism. According to the draft, a five-person arbitration panel can be called to resolve disputes, but all matters of EU law must be referred to the CJEU in Luxembourg.

Data protection and cybersecurity

In 2018, the EU General Data Protection Regulation (GDPR) came into force. The GDPR is a major development, as it introduces potential criminal liability and fines, and will have a considerable impact on international arbitration. It applies to all arbitrations where anyone involved is based in the European Union, including parties, but also their counsel, arbitral institution, members of the arbitral tribunal, experts and vendors, each of whom may have to ensure GDPR compliance. Transfer of personal data to outside of the European Union is prohibited, including during an arbitration, except under certain limited conditions. Consequently, personal data processed and transferred during an arbitration should be reduced to a minimum, and proper data protection measures should be put in place early in the proceedings. From a practical perspective, GDPR compliance will usually require adoption of a data protection protocol or other measures to address such compliance in the arbitral proceedings, including its potential impact on data transfer and disclosure. Also, adequate cybersecurity is mandatory wherever the GDPR applies, including the implementation of ‘appropriate technical and organisational measures to ensure a level of security appropriate to the risk’, as the GDPR stipulates. This means that at least basic security measures must be taken throughout arbitral proceedings. To ensure compliance with the GDPR, the international arbitration community should consider attempting to develop an agreed framework for GDPR-related compliance in international arbitrations. This should be a nightmare for any hard-core cross-examiner who prefers to ambush witnesses with personal information retrieved from all kinds of secret sources.

New rules on the taking of evidence

The Prague Rules

The Rules on the Efficient Conduct of Proceedings in International Arbitration (the Prague Rules), issued by a working group consisting mainly of Russian, Commonwealth of Independent States and Eastern European members of the bar, were launched on 14 December 2018. The Prague Rules were issued as a response to what was perceived to be the ‘creeping Americanisation of international arbitration’ by selected civil law practitioners. The Prague Rules are advertised as an alternative to their IBA counterpart, following a more inquisitorial approach regarding document production and fact witnesses, reflecting a civil law perspective and thereby limiting the common law features of international arbitration. Inter alia, the Prague Rules stipulate that the tribunal should avoid extensive discovery, including any form of e-discovery, while taking a more active role in witness questioning and assisting the parties in settling the dispute, including by expressing its preliminary view on the parties’ position and acting as a mediator. The working group hopes that the rules will encourage tribunals to be more active in case management and will increase the efficiency of the proceedings. However, the proposed more active role of tribunals in establishing facts is controversial in the international arbitration community.

Changes in arbitral institutions and arbitration legislation

In 2018, several changes in arbitral institutions and national arbitration legislation have taken effect.

New arbitral institutions, hearing centres and other advances

JIDRC

The Japan International Dispute Resolution Centre (JIDRC) was established in Osaka in 2018 to address the absence of permanent facilities for conducting arbitral proceedings in Japan. The JIDRC provides state-of-the-art facilities for arbitration or other types of ADR. The facilities can be used for a hearing of ad hoc or institutional arbitrations under the auspices of various arbitral institutions. There are also plans to set up a centre in Tokyo in time for the 2020 Olympics.

The Court of Arbitration for Art

A new court dedicated to resolving art-related disputes was launched in The Hague. Arbitrators will be appointed from a ‘pool’ composed of international lawyers with experience in litigating or advising clients in art law disputes or international arbitration, or both. To be selected as a Court arbitrator, candidates must be current or former judges, law professors or lawyers in private practice, and have at least five years of appropriate experience.

CIETAC

China’s largest arbitration institution, CIETAC, opened a North American branch in the Canadian city of Vancouver in July 2018. Set up with the aim of promoting the development of both Chinese and international arbitration, and facilitating access to CIETAC’s services, the branch marks a new stage in CIETAC’s internationalisation. Following this path, CIETAC chose Vienna as the seat of its European Arbitration Centre, which opened in September 2018.

New International Commercial Court in China

In June 2018, China’s Supreme People’s Court established the China International Commercial Court with two branches: one in Shenzhen and one in Xian. The new court is specifically designed to deal with disputes related to the Belt and Road Initiative (BRI), and offers a one-stop dispute resolution mechanism with access to mediation, arbitration and litigation.

African Arbitration Association

The non-profit, private sector African Arbitration Association was launched in July 2018. It will have its headquarters in Rwanda’s capital, Kigali, and be hosted at the Kigali International Arbitration Centre. The Association aims to improve the environment for investment and sustainable development within the African continent through the use of international arbitration. Raising awareness of the African expertise available is also among its priorities.

Mauritius

The LCIA and the government of Mauritius have announced the termination of their joint venture agreement, which established the LCIA–MIAC Arbitration Centre in 2011. However, at the same time, a new arbitration centre (entirely separate from the LCIA), the Mauritius International Arbitration Centre, commenced its operations. Also, the Mauritius Chamber of Commerce and Industry Arbitration and Mediation Centre unveiled new rules in 2018, which reflect international arbitration practice, and include expedited procedures and emergency arbitrator procedures, joinder and consolidation of claims, and direction for early disclosure if a case is third-party funded.

New and amended rules of existing arbitral institutions and developments in their frameworks

Organisation for the Harmonisation of Business Law in Africa

The organisation revised its Uniform Act on Arbitration (UAA) and adopted a new Uniform Act on Mediation (UAM), along with a fresh set of arbitration rules (the CCJA Rules) of the Common Court of Justice and Arbitration in Abidjan (the CCJA) – the regional arbitral institution. Among other changes, the 2018 UAA provides arbitral tribunals with an express power to determine whether compulsory pre-arbitration steps such as mandatory mediation have been complied with, and to suspend the arbitration until such requirements have been met. In addition, time limits for judges acting in support of arbitration were set out, as well as the parties’ duty to act quickly and in good faith in the conduct of the proceedings, and to refrain from any dilatory actions. The revised rules of arbitration of the CCJA introduce certain changes, including with regard to time limits, and new provisions on multiple parties and multiple claims, on witness statements and the mandatory content of an arbitral award.

HKIAC

The HKIAC’s new Administered Arbitration Rules came into force in late 2018. Key changes to the rules include the introduction of an online platform for document uploading, new provisions on emergency arbitrators, TPF, new time limits for rendering an arbitral award, and provisions on joinder and early determination. Moreover, the HKIAC launched the BRI committee, which aims to strengthen the Chinese economy, bringing together legal and commercial expertise across a range of Belt and Road industry sectors, including finance, infrastructure, construction and maritime. At the same time, an online resource platform was instituted, hosting publications and reports relevant to the BRI, a list of past and future HKIAC BRI events, and information on dispute resolution options for BRI projects. The platform will be updated regularly with news and practical information for business and legal professionals. In order to further tap into the financial services market, the HKIAC also launched a panel of arbitrators for financial services disputes.

The Korean Commercial Arbitration Board (KCAB)

KCAB officially launched its international division, KCAB International, focusing on administering the resolution of cross-border disputes. KCAB hopes to thereby strengthen Korea’s emerging status as a seat for international arbitration and, in particular, promote Seoul as a dispute resolution hub in Asia.

CAAI/CAA International Arbitration Centre

CAAI has been renamed from ‘Chinese Arbitration Association International’ to ‘CAA International Arbitration Centre’. It is a foreign branch office of the Chinese Arbitration Association (CAA), Taipei, to be registered in Hong Kong by early 2019. CAAI administers arbitrations seated outside Taiwan under CAAI Arbitration Rules (which came into force on 1 July 2017), while CAA focuses on, but is not confined to, administering arbitrations seated within Taiwan under CAA Arbitration Rules. Both specialise in arbitrations in Chinese and English.

CAAI Arbitration Rules have been revised to give effect to various CAAI instruments, including the Code of Ethics for Arbitrators and Parties, Guidelines on Case Management Conference, Notes on Composition and Procedure of CAAI Court of Arbitration and the Arbitrators’ Guide. These were approved by the CAA Board of Directors on 21 November 2018.

The Asian International Arbitration Centre

The Kuala Lumpur Regional Centre for Arbitration officially changed its name to the Asian International Arbitration Centre (AIAC) on 7 February 2018. As a result of this rebranding, the AIAC hopes to establish itself as a non-regional independent dispute resolution centre in order to expand its caseload and international presence.

DIS

The new arbitration rules of the DIS entered into force on 1 March 2018 in relation to all national and international DIS proceedings. The DIS has retained and enhanced those civil law elements that were decisive for the success of its 1998 DIS Rules. It has also adopted new rules to reflect the changes and developments in international arbitration practice over the past two decades. One of the most prominent features of the new Rules – as under the 1998 DIS Rules – is the promotion of early settlements. A newly founded body, the Arbitration Council, will enhance the transparency and integrity of the process, and strengthen the DIS’s role and powers in administering an arbitration, by taking many of the procedural decisions instead of the arbitral tribunal. Several new rules were adopted in order to increase the efficiency, quality and expeditious character of DIS arbitral proceedings, including new provisions for multiparty and multi-contract arbitrations. The revision of the DIS Rules reflects the best practice of a modern set of arbitration rules, while at the same time upholding Germany’s civil law tradition.

Amendments of national arbitration laws

Also in 2018, countries around the globe revised – or began to revise – their existing arbitration laws, or issued entirely new legislation.

Argentina and Uruguay

Argentina and Uruguay both passed new international arbitration laws based on the UNCITRAL Model Law in July 2018. Argentina’s new law is almost entirely based on the latest version of the UNCITRAL Model Law with a couple of deviations, including that parties cannot agree that the subject matter of the arbitration agreement relates to more than one country in order for the case to qualify as international. Further, arbitration agreements cannot be recorded ‘orally, by conduct, or by other means’, but must be ‘in writing’, and parties cannot agree to an award without reasons. The bill in Uruguay is based on the 1985 UNCITRAL Model Law, incorporating certain elements from the 2006 version. Practitioners have welcomed the passing of the laws in the two neighbouring states.

Canada

On 9 April 2018, British Columbia introduced amendments to its International Commercial Arbitration Act. As a Canadian province, British Columbia has its own arbitration legislation for domestic and international arbitration. The proposed amendments aim at modernising British Columbia’s international arbitration legislation by adopting international standards. The most significant change is the introduction of rules concerning interim measures and the enforceability of related orders by arbitral tribunals. Further, the amendments add new privacy and confidentiality provisions.

China

On 7 September 2018, the National People’s Congress (the Chinese top legislature) revealed its plans to amend Chinese arbitration law, after more than 20 years without substantive amendments. At the same time, the Macau government drafted a new arbitration bill in 2018, striving to promote Macau as a commercial arbitration hub. Both Chinese and Macau arbitration laws are considered outdated. Moreover, the existence of two laws in Macau, applying to internal and external arbitrations, respectively, regularly cause problems of applicability and inconsistency in interpretation. The new Macau arbitration regime will apply to both external and internal arbitrations, which will be a significant step forward.

Hungary

The new Hungarian Act on Arbitration entered into force on 1 January 2018. The Act adopts the UNCITRAL Model Law’s broad concept of arbitrability, covering all disputes arising from a commercial relationship, as well as provisions on interim measures and preliminary orders. The law also introduces a bold mechanism to deprive arbitrators of their fees if the award is set aside, requiring arbitrators to reimburse their fees to the parties if the award rendered is vacated by the courts. This mechanism is questionable, especially in light of the recent concerns regarding transparency and impartiality of the Hungarian judiciary. Some changes in the law have also been inspired by litigation, including, in particular, the opportunity of intervention. Upon the request of a party, the arbitral tribunal can invite a third party to join that party in order to support its cause. The new Act further introduces the possibility for state courts to suspend setting-aside proceedings in order to give the arbitral tribunal an opportunity to eliminate the grounds for setting aside the award – an amendment that caused concerns among practitioners, since the duration of such a suspension is not clear. In addition, a party may request a retrial of the case by the arbitral tribunal if any relevant new facts or evidence not known at the time of arbitration emerges within one year of an award having been rendered. Since the new provisions have not yet been properly tested in practice, it is too early to fully assess the impact the changes will have on international arbitration in Hungary.

India

Delays are anything but unheard of within the Indian legal system. In order to address this issue, the Indian government in 2015 amended the Arbitration and Conciliation Act, which, since then, required arbitrations to be concluded within a 12-month period, with a possible extension by an additional six months if the parties so agreed. In response to concerns voiced by the international arbitration community that this requirement of timelines adversely affects the quality of arbitrations in India, the Indian government, in its 2018 Arbitration and Conciliation Bill, proposed certain amendments. In particular, the proposal restricts the time limits to domestic arbitrations only.

Malaysia

The Malaysian government has been consistently committed to establishing Malaysia as a global hub for arbitration, mediation, adjudication and other methods of ADR. Aiming at the modernisation of Malaysian arbitration law, the Malaysian parliament in April 2018 passed a bill introducing amendments to the Malaysian Arbitration Act. The amendments reflect the changes to the UNCITRAL Model Law in 2006, and include specific provisions ensuring confidentiality and enabling parties to engage representatives of their choice. Provisions for interim measures were completely overhauled and are now fully in line with the UNCITRAL Model Law. Arbitral tribunals are granted the power of ordering interim measures, and the amendments include a mechanism for such measures’ recognition and enforcement. Pursuant to the new regime, all court proceedings under the Arbitration Act are to be heard in closed court as a default rule. This ensures that even where there are court proceedings related to the arbitration, the confidentiality of the dispute is preserved.

Sweden

In 2015, a commission of prominent Swedish arbitration experts issued a report proposing several amendments to the Arbitration Act aimed at increasing the attractiveness of Sweden as a place for international arbitration. In September 2018, the governmental bill for revising the Swedish Arbitration Act was presented to the Swedish parliament. If adopted, the proposed amendments would enter into force on 1 March 2019. The proposal further limits the grounds for setting aside an arbitral award, imposes time limits on challenging a positive jurisdictional decision by an arbitral tribunal before a competent court of appeal and includes express provisions as to the binding character of parties’ choice of law for an arbitral tribunal. Rather than a remodelling of the Arbitration Act, the governmental bill can be interpreted as a fine-tuning of the current version.

Switzerland

On 24 October 2018, the Swiss Federal Council published the draft bill for the revision of Swiss international arbitration law (Chapter 12 of the Swiss Private International Law Act). One of the most important innovations proposed is a possibility to file submissions before the Swiss Federal Supreme Court in English as the predominant language of international arbitration. Among the proposed amendments are provisions allowing access to Swiss courts in arbitral proceedings seated abroad and the incorporation of the arbitrators’ duty to disclose a potential conflict of interest. The proposed amendments are aimed at adjusting and modernising the Swiss arbitration law in keeping with Switzerland’s pro-arbitration stance.

United Arab Emirates

The long-awaited Federal Arbitration Law of the UAE came into effect in June 2018, repealing the previous outdated UAE chapter on arbitration contained in the UAE Civil Procedure Law. The introduction of new legislation had a high priority since some of the major procedural questions arising out of arbitral proceedings had so far not been addressed by the law. Most importantly, the new UAE Arbitration Law confirms the requirements for valid arbitration agreements, introduces a clear set of time limits for arbitral proceedings and contains requirements for arbitrators. An arbitrator’s challenge no longer suspends arbitral proceedings – putting an end to disruptive guerrilla tactics through repeated challenges. Unfortunately, the law neither addresses arbitrators’ liability nor explicitly provides for confidentiality of arbitral proceedings. Overall, the new arbitration law is nevertheless hoped to provide a more secure framework for the conduct of arbitral proceedings in the United Arab Emirates.

In September 2018, the President of the United Arab Emirates issued a federal decree, amending several provisions of the UAE penal law and, in particular, revoking provisions that had threatened arbitrators violating their duties of impartiality and neutrality with prison. However, arbitrators remain under the threat of sanctions for violation of the UAE Penal Code’s anti-bribery provisions. Although this cannot be considered inappropriate per se, such a threat nevertheless has the potential to discourage potential arbitrators from serving in arbitrations seated in the United Arab Emirates. Unfortunately, it is not unheard of in Dubai that losing parties accuse arbitrators of all kinds of misbehaviours.

United States

California, with its US$2.8 trillion economy, passed a bill amending the state’s 2015 Code of Civil Procedure, which took effect on 1 January 2019. The new bill expressly permits out-of-state lawyers and foreign lawyers to appear in both international arbitrations and conciliations seated in California, which previously was arguably prohibited. Although California’s new law still maintains restrictions on the participation of out-of-state and foreign counsel, it marks a step forward, bringing the state closer to international pro-arbitration standards.

Groundbreaking cases in 2018

As in previous years, 2018 saw the issuance of landmark decisions in different jurisdictions, the most significant of which will be briefly summarised below.

United Kingdom

In 2015, a London-seated LCIA tribunal issued a US$527 million award in favour of Mobile Telecommunications Company Limited, known as Zain, in a dispute concerning an outstanding loan against Saudi Plastic Factory, the company through which Saudi Prince Hussam, son of a former king of Saudi Arabia, conducts his business. Before the arbitral tribunal had been constituted in 2013, Saudi Plastic had already initiated litigation in Saudi Arabia in relation to the same dispute, but discontinued the same in the course of the arbitration. When Saudi Plastic lost the arbitration, it revived its Saudi court proceedings. In May 2018, the Commercial Court in London, at the request of Zain, issued an anti-suit injunction to halt the Saudi proceedings, which, as the London court found, had the clear intention of undermining the LCIA award. In support of the anti-suit injunction, a jail sentence was imposed on Prince Hussam for flouting English contempt laws by failing to halt his legal proceedings in Saudi Arabia. According to reports, the prince neither attended the hearing in the London Commercial Court nor sent any representation and will only be jailed if he visits the United Kingdom.

Another decision was issued in the setting-aside proceedings of RJ and another v HB [2018] EWHC 2833. In October 2018, the High Court set aside an arbitral award on the basis that a serious irregularity caused the claimant substantial injustice. In his final award, the sole arbitrator determined that RJ was in breach of a share transfer agreement. However, rather than awarding the damages that HB was seeking, the arbitrator made a declaration that RJ was the beneficial owner of the shares purchased by HB, a relief that HB had not sought. The Court decided that the arbitrator had dealt with the dispute on a significantly different basis than argued by the parties and had failed to bring the new point to the attention of the parties or to grant them an opportunity to make submissions on the new point. This relatively rare successful challenge under section 68 of the English Arbitration Act demonstrates that English courts are prepared to intervene in the outcome of arbitral proceedings where there is clear and serious irregularity causing substantial injustice.

Germany

The largest and certainly one of the most notorious German arbitrations – the Toll Collect arbitration – came to an end in May 2018: Daimler and Deutsche Telekom reached a €3.2 billion settlement with the German government, thereby ending a 14-year dispute over a truck toll system that gave rise to a pair of ad hoc arbitrations worth over €9 billion. As part of the €3.2 billion deal, Daimler and Deutsche Telekom will each pay €550 million to Germany, covering some of the loss in revenues caused by the late commissioning of the toll system and contract breaches. Negotiations prior to the agreement were extensive, with more than 100 people participating in the rounds in Munich, mostly lawyers. The settlement has been greeted with enthusiasm by both sides of the dispute. Germany’s transport minister, Andreas Scheuer, described the deal as a ‘historic breakthrough’.

United States

In June 2018, the US District Court of Columbia refused to enforce an UNCITRAL award obtained by a Scottish oil and gas company against India in 2013, finding that the enforcement of an award against a foreign state ordering specific performance would undermine US public policy. The court thereby dismissed an application filed by a Chennai-based subsidiary of Scotland’s Hardy Oil and Gas (Hardy) against India. The award obtained by Hardy ordered India to restore Hardy’s interest in an offshore oil block and to pay interest on the company’s investment, pending the fulfilment of the award. The court declined to enforce the specific performance part of the award, stating that it would be a ‘severe affront to India’s sovereignty’ to force it to comply with the award. Interestingly, the court also refused to enforce the monetary part of the award ordering India to pay interest, which it considered inseparable from the specific performance part of the award. Reportedly, setting-aside proceedings concerning the award are pending in Indian courts.

Russia

In a judgment of 26 September 2018, the Supreme Court of Russia surprised many international arbitration practitioners by finding that an arbitration clause in a contract between Luxembourg and Russian parties – which mirrored the standard ICC arbitration clause – could not be considered sufficient evidence of the parties’ agreement that the ICC Court of International Arbitration was to administer their arbitration. The Court concluded that the ICC tribunal had thus lacked jurisdiction, and refused enforcement of the award. Similarly to the model arbitration clauses of many arbitral institutions, the standard ICC arbitration clause does not specifically state that the arbitration will be administered by the ICC Court of International Arbitration, but merely refers to the Rules of Arbitration of the ICC. However, the Russian Supreme Court had in the past upheld ICC and other standard arbitration clauses. It remains to be seen how the new judgment will influence future Russian court decisions.

United Arab Emirates

UAE courts’ (particularly, Dubai courts’) approach to the validity of arbitration clauses and the enforcement of arbitration awards has always been a source of concern among the international arbitration community. In 2018, the Dubai Court of Cassation again upheld two questionable decisions of the Dubai Court of First Instance and the Court of Appeal, respectively. Both decisions concerned an arbitral award that had been obtained by a subcontractor against its main contractor. The subcontractor sought to enforce the award in the Dubai courts, while the main contractor sought annulment of the award in the same courts. The main contractor had fully participated in the arbitration, had not raised any objections as to a lack of power of representation of the signatory to the contract in question and was represented by counsel. Nevertheless, the two courts found that the award could not be enforced, but rather had to be annulled because the underlying contract, which contained the arbitration clause, had been signed on behalf of the subcontractor by a person who was not the ‘official’ director of the company as stated in its trade licence. The Court of Cassation rejected the appeal filed by the subcontractor, reaffirming a threshold for the validity of arbitration clauses, which is even higher than previously required by UAE courts. To be on the safe side, tribunals will in the future have to insist on the trade licence of the company being submitted and will have to verify that the arbitration agreement has been signed by the director whose name appears on that licence.

Bangladesh

The Permanent Court of Arbitration administered two arbitrations under the Accord on Fire and Building Safety in Bangladesh, which settled and were accordingly terminated in summer 2018. The Accord is an agreement between global brands, retailers and trade unions, concluded in the aftermath of the Rana Plaza building collapse on 24 April 2013 to establish a fire and building safety programme for workers in the Bangladeshi textile industry. The claimants in the arbitrations were IndustriALL Global Union and UNI Global Union, two non-governmental labour union federations based in Switzerland; the two respondents were global fashion brands. Though the two arbitrations can be seen as a huge step towards the establishment of human rights arbitration, the Bangladeshi High Court unfortunately ordered the Accord’s Dhaka office to close by 30 November 2018, thereby causing uncertainty regarding the future protection of workers’ rights and production safety in the apparel industry in Bangladesh.

Egypt

In 2018, the Court of Appeal in Cairo rendered an important decision concerning the recognition of interim measures ordered by an arbitral tribunal, filling a legal gap in Egyptian law. The court affirmed the recognition and enforcement of an interim measure ordered by an arbitral tribunal in an ICC dispute between a South Korean industrial group and developer of Damietta Port in northern Egypt. To fill the void in the law on how interim measures are enforced, the court turned to the 2006 UNCITRAL Model Arbitration Law provisions on the enforcement of interim measures. The court reviewed the challenged interim order in light of these provisions and determined that there were no grounds to refuse recognition and enforcement. The arbitration community warmly welcomed the decision.

European Court of Human Rights (ECHR)

In our 2017 edition, we reported on the German speed skater Claudia Pechstein, one of the most successful Winter Olympians, and her fight against the jurisdiction of the Court of Arbitration for Sports (CAS). In 2009, Pechstein was banned by the International Skating Union (ISU) for two years, having allegedly committed a violation of ISU Anti-Doping Rules. Pechstein challenged her ban before the CAS, in line with an arbitration clause of her membership agreement with the Union. After that, she started numerous proceedings before Swiss and German courts. In all these cases, including before the German Federal Court of Justice, her claims regarding a lack of independence and impartiality, and her challenge of CAS jurisdiction remained unsuccessful. On 2 October 2018, the ECHR rejected claims by Pechstein and Romanian footballer Adrian Mutu that proceedings before the CAS were insufficiently independent to be considered a fair trial. However, the ECHR ruled that in the case of Pechstein, the lack of public hearings had been a violation of article 6 of the European Convention on Human Rights, since questions concerning the merits of the ban imposed on her for doping required public hearings. The decision, while confirming CAS jurisdiction, requires that CAS arbitral proceedings ensure fair hearings, thereby indicating a need for more transparency. A decision by Germany’s Federal Constitutional Court in the Pechstein case is still pending.

Investment arbitration

The legitimacy crisis of investment arbitration reached a peak in 2018, with the CJEU issuing a landmark judgment in Achmea BV v The Slovak Republic on 6 March 2018, discussed below. Despite a lively debate on the future of investment arbitration and a broad-based campaign against it, the investment arbitration caseload shows a significant increase, reflected in 2018 ICSID case numbers. Remarkably, according to the 2018 ICSID Annual Report, 57 new ICSID cases were registered in the 2018 fiscal year ending on 30 June 2018. This is a 16 per cent increase over the number of cases registered last year (49), and constitutes the highest number of cases ever registered at ICSID in a single fiscal year. What is more, in 2018 ICSID unveiled proposals for the most wide-ranging amendments to its rules in over 50 years – including new provisions strengthening efficiency and transparency, as well as a number of suggestions on arbitrator disclosure, security for costs and TPF. The proposals will be subject to another round of comments before the ICSID Administrative Council will decide on their adoption in 2019 or 2020. ICSID is also working with the UNCITRAL secretariat on a code of conduct for arbitrators, ensuring that a consistent approach is taken across all the major sets of rules used for ISDS. Until such a code is ready, the Centre proposes expanding its disclosure requirements for arbitrators with respect to TPF.

ISDS in NAFTA

After strong criticism of the NAFTA ISDS system by the Trump Administration, the agreement to replace NAFTA, named the US–Mexico–Canada Agreement (USMCA), eliminates ISDS between the United States and Canada, and significantly limits it between the United States and Mexico. Pending NAFTA claims remain unaffected by the change, and the mechanism in the old NAFTA remains available for claims arising from legacy investments for a period of three years after its termination. For US investors in Mexico and Mexican investors in the United States there will still be access to ISDS, but it will be limited to bringing claims over national treatment, most-favoured-nation treatment and expropriation, with the definition of indirect expropriation having been significantly narrowed. There is also a more stringent local remedy requirement than under the old NAFTA, with investors forced to pursue domestic court proceedings to completion or for at least 30 months before pursuing an arbitral claim under the treaty. Generally, US practitioners are disappointed that the United States, once a pioneer of investment protection and ISDS, has changed its attitude. The benefits for US citizens are questionable considering that US nationals have been the primary beneficiaries of ISDS under the old NAFTA, and the United States has never incurred liability under the same. Tellingly, some of the keenest ISDS opponents in the United States argue that eliminating ISDS will encourage US investors to invest domestically, since they will lose the certainty as to the protection of their investment overseas. At the same time, the absence of ISDS provisions in trade and investment agreements possibly reducing foreign direct investments in the United States is conveniently ignored by those critics of ISDS. In any case, the USMCA deal will not enter into force unless approved by Congress. Until then, like other trade agreements, the USMCA remains a piece of paper.

EU fight against ISDS

In a much-anticipated ruling in the case of Achmea BV v The Slovak Republic, the CJEU, on 6 March 2018, ruled that the investor–state arbitration clause in the BIT between the Netherlands and Slovakia is incompatible with EU law, since it contradicts the autonomy of EU law. Achmea, a Dutch insurer, had prevailed in its arbitration against Slovakia based on the Netherlands–Czechoslovakia BIT and seated in Frankfurt. According to the CJEU, ISDS is incapable of ensuring that disputes concerning the application or interpretation of EU law will be decided by a court within the EU judicial system. Contrary to the position of the advocate general in this case, the CJEU found that an arbitral tribunal constituted on the basis of the BIT could not be considered a ‘court or tribunal of a Member State’, and is therefore not entitled to seek preliminary rulings from the CJEU on EU law questions. The ruling stated that the investor–state arbitration clause called into question the ‘principle of mutual trust’ between member states and, therefore, was not compatible with the ‘principle of sincere cooperation’, and was undermining the powers of domestic courts. The judgment, which affects nearly 200 BITs between EU member states, was met with severe criticism by a majority of the arbitration community. Taking into account that investors from EU countries have been the most frequent users of ISDS, the judgment is particularly unfortunate. Predictably, some EU member states have in the meantime challenged either the jurisdiction of arbitral tribunals hearing cases against them by EU investors or the enforcement of awards already rendered against them based on the Achmea decision, no matter whether the arbitral tribunal’s jurisdiction was based on a BIT or a multilateral agreement such as the ECT or the ICSID Convention. Notwithstanding, arbitral tribunals in the UP and CD Holding Internationale v Hungary, Vattenfall AB and others v Federal Republic of Germany and Masdar v Spain cases have not considered the Achmea decision to be relevant for arbitrations under the ECT. Finally, the German Federal Supreme Court that referred the case to the CJEU for a confirmation of its own view – namely, that the arbitration clause in the BIT is valid – followed the CJEU’s opposing reasoning and set aside the award in favour of Achmea, finding that there was no valid offer to arbitrate the claim under the BIT and that, accordingly, the tribunal lacked jurisdiction to hear it.

In addition to its Achmea decision, the CJEU has been requested to provide an opinion regarding the compatibility of the investment arbitration provisions of the Comprehensive Economic and Trade Agreement between Canada and the EU (CETA) with EU law. Should the CJEU insist on having the last word wherever the application or interpretation of EU law might be an issue, the envisaged bilateral investment court system between the European Union and Canada is over before it even starts.

Mutual trust

Since it appears that EU national courts may become the main venue for investment claims in the future, certain concerns have been raised by the professional community. One of the main concerns touches upon the sensitive issue of mutual trust. Can investors expect the same level of judicial quality, independence and rule of law in all EU member states? There are genuine reasons to question whether the European Commission’s seemingly unlimited confidence in the national courts of EU member states is justified. Remarkably, such reasons may be found in another recent decision of the CJEU, issued in the case of Minister for Justice v LM. Here, the CJEU ruled on two questions of the High Court in Dublin, which had doubts whether a Polish national sought in Poland on drug-trafficking charges and held in an Irish jail could expect a fair trial in Poland, given what the court called the Polish government’s ‘systematic’ erosion of the rule of law and the independence of the judiciary. On 25 July 2018, the CJEU ruled that a judicial authority called upon to execute a European arrest warrant must refrain from giving effect to this arrest warrant if it considers that there is a real risk that the individual concerned would suffer a breach of his or her fundamental right to an independent tribunal in the issuing member state. One may reasonably wonder why the CJEU appears more concerned about a possible lack of a fair trial in a particular member state in a case concerning drug trafficking than with regard to claims of international investors. The case highlights at least some grounds on which to doubt that a national court of a host state could in each and every case be expected to resolve a dispute involving its own country impartially.

New approach to ISDS in upcoming treaties and the Dutch model BIT

The European Commission’s anti-ISDS approach is further reflected in the European Union’s new international treaties currently being negotiated. In October 2018, the European Union and Singapore signed three agreements advancing their political, trade and investment relations to a new level. The investment protection agreement contains all aspects of the European Union’s new approach to investment protection, setting up a reformed investment court system for resolving disputes, similar to the one in the CETA. The investment protection agreement will come into effect once it has gone through ratification procedures at the level of the member states. Similarly, the European Union has finished negotiations on all parts of the EU–Japan economic partnership agreement, with the exception of investment protection. It will be interesting to see whether the European Union can persuade Japan to accept its proposal, given Japan’s well-reasoned resistance to the concept so far. The same changes to the ISDS framework, establishing a two-tier investment court to hear investor–state disputes, are foreseen in the modernised EU–Mexico free trade agreement, which is, however, not expected to take full effect until 2022. In July 2018, the European Union and Vietnam also agreed on final texts for the EU–Vietnam free trade agreement and the EU–Vietnam investment protection agreement. The latter foresees a bilateral investment court with Vietnam, an authoritarian state with a one-party system, being entitled to appoint one-third of the members of this court. Contrary to established arbitration rules, the state parties may appoint their own citizens. Obviously, dogmatism (or naivety) was more important to the European Union than impartiality and independence of the judges.

In 2018, the Netherlands published a new draft model BIT, which is intended to replace the 2004 model BIT. Following the Achmea ruling, the Dutch cabinet is also working on the termination of the Netherland’s 12 investment agreements with other EU countries. The key changes to the new draft of the Dutch model BIT include the narrowing of the definition of investors, the prohibition of ‘double hatting’ (acting both as counsel and arbitrator) in investments disputes, and the setting up of a new appointing authority, thereby eliminating the system of party-appointed arbitrators. The draft further envisages the future establishment of a multilateral investment court (MIC) by providing that the ISDS provisions will cease to apply upon the entry into force of an international agreement providing for a MIC.

MIC

Shortly after the CJEU’s Achmea judgment dealing with BITs between EU member states, the Council of the European Union adopted negotiating directives that authorise the European Commission to negotiate a convention establishing a multinational court for the settlement of investment disputes. The overall objective is to set up a permanent international institution to settle investment disputes, moving away from the traditional ISDS system. Time frames for the instalment of the new institution as well as the exact features of the court remain uncertain. It seems that eliminating the current system without creating a stable and efficient new one creates the risk of undermining legal certainty in the area of foreign direct investment. Meanwhile, UNCITRAL has been taking its own steps to reform the system. At the working group meeting in November 2018, it was agreed to outline changes of the system and begin the multilateral reform process. Still, numerous failed attempts to create a uniform multilateral legal framework for international investments in the past have shown that neither the creation of a MIC nor other reforms in the field will be an easy task. In any event, it is very clear that the changes in 2018 will inevitably affect the future of international investment law and arbitration. Whether the effects will be positive or negative remains an open question.

Transparency and due process

One of the main concerns and criticisms of investment arbitration stems from its alleged lack of transparency. It is occasionally reported that the existing system of investment arbitration has historically not regarded transparency as a necessary component of dispute settlement. In this context, it is ironic that, contrary to its avowed wish to strengthen transparency, the CJEU in the ClientEarth v European Commission case denied a request for access to certain documents relating to ISDS compatibility with EU law, namely the documents containing legal advice given by the EU Commission’s legal services on the subject.

After public controversy over ‘moonlighting’ by judges at the International Court of Justice, the president of the Court announced that its members will no longer participate as arbitrators in investor–state or commercial arbitrations. ICJ judges will be permitted to sit as arbitrators in interstate arbitrations in ‘exceptional’ cases, provided that prior authorisation of the Court is sought. However, they will not be permitted to participate in more than one arbitration at a time.

On 2 October 2018, Gambia became the fifth nation to ratify the United Nations Convention on Transparency in Treaty-Based Investor-State Arbitration, joining Canada, Mauritius, Switzerland and Cameroon. The Convention entered into force on 18 October 2017, and is a direct response to the criticism that investment arbitration lacks transparency.

Also, in October 2018, the IBA published a draft report on what is sometimes referred to as ‘due process paranoia’, which covers 13 major jurisdictions for international arbitration. The report addresses concerns voiced by many stakeholders over the past few years that arbitral tribunals, for fear of otherwise risking that their awards will be set aside, too often grant procedural applications that should be denied. According to the report, this fear of arbitral tribunals is unfounded, since it is rare for an award to be set aside for procedural reasons only. Hopefully, the report and the ongoing debate around the topic will help to prevent a further spreading of due process paranoia. Another paranoia that might become more relevant in the coming years might be the fear of arbitrators being replaced by artificial intelligence (AI). In the least, many conferences in 2018 dealt with IT and AI in international arbitration. Certainly, and despite all paranoia, the issue of cybersecurity will keep the international arbitration community busy in the coming years – and many predict that its significance will tremendously increase once the first cybersecurity tsunami has happened.

Conclusion

We hope that the above has (re-)whetted the reader’s interest in international arbitration and that we can help to promote its acceptance as a valuable method of dispute resolution for all stakeholders. Certainly, recent developments in this ever-changing field show that international arbitration is striving to preserve and enhance its qualities, while addressing concerns and criticisms raised.

For this 14th edition, we have modified the questionnaire slightly. With a desire to shed light on the time limits for the enforcement of arbitral awards in different jurisdictions, we now address this issue in question 46.

Our thanks are extended to everyone who has contributed to this edition, in particular, Laura Bräuninger and Ihor Muryn, and we look forward to working with all of you on the 15th edition.

Any suggestions or comments are welcome and should be addressed either to us (stephan.wilske@gleisslutz.com and gerhard.wegen@gleisslutz.com) or to the publisher, Tom Barnes (tom.barnes@lbresearch.com).


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