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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.

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