Tag Archives: international arbitration

Climate Change: Disputes, Difficulties, and Solutions

By

Gilberto Elio de Martinis

In the last decades, climate change has cast an increasingly ominous shadow on nations around the globe, threatening many aspects of society, from agriculture1 to the global economy. This looming danger imperils the well-being of the future generations. As a result, a substantial number of provisions have been established. Of these, the two most relevant and interconnected are the 1992 United Nations Framework Convention on Climate Change (“UNFCCC”) and the 2015 Paris Agreement.

The UNFCCC is aimed at “preventing dangerous human interference with the climate system,”2 while the 2015 Paris Agreement is an international treaty between the member states of the United Nations Framework Convention on Climate Change. It concerns the reduction of greenhouse gas emissions. The treaty’s goal is to contain the global average temperature below 2°C compared to pre-industrial levels from 1850 to 1900 and, if possible, at 1.5°C compared to these same levels.

Article 14(2) of the UNFCCC provides that:

[w]hen ratifying, accepting, approving or acceding to the Convention, or at any time thereafter, a Party . . . may declare . . . that, in respect of any dispute concerning the interpretation or application of the Convention, it recognizes as compulsory ipso facto and without special agreement, in relation to any Party accepting the same obligation: submission of the dispute to the International Court of Justice, and/or arbitration . . ..3

In this sense, the possibility to empower arbitration with the function of settling disputes arising out of climate change claims is established. Nevertheless, the disposition “does not expressly set out the types of inter-parte disputes that can be resolved through arbitration.”4 As a result of this deficiency, State parties to the Convention appear to divert climate change-related disputes from arbitration to other, more suitable ways of settling claims.

In other words, when facing climate change related disputes, it is evident that litigation proves not to be the best solution for a successful settlement. In fact, they are too complex to be solved using the courts. Because of this complexity, these disputes require competence on technical climate change issues. This necessity has paved the way for new and increasingly developing instruments, summarized as alternative dispute resolution (ADR), in particular negotiation and mediation.

The conclusion of an analysis expressed in Kenya,5 which has been suffering from climate change for decades, provides the most suitable instrument for resolving this type of conflict.

The University of Nairobi has underlined the clear difficulties of negotiation relating to this matter: first of all, when negotiating, it is difficult or even impossible to find a win-win solution, due to the complexities of the interest at stake; furthermore, the power imbalances can be of such a substantial nature not to provide an equal solution, as it can appear in the relations between multinational companies or government agencies and a local community.6

On the other hand, “mediation remains one of the most effective and efficient ADR methods of resolving land and natural resources disputes.”7 In fact, mediators help parties in identifying the “shared interests, maximiz[ing] the various shared benefits, and equally address[ing] the challenges and problems together.”8 This conclusion is even more supported by the concrete example provided by the Kenya Association of Manufacturers, which engaged with Ufadhili Trust in 2016. In this case, the association worked as a mediator between the mining company and the community, with the successful result of making these two parties work together in resolving their dispute.

In conclusion, climate change related disputes have resulted in an ever-growing concern of modern societies, mediation proves to be very suitable and effective in settling claims, due to its capacity of concretely understanding the interests of the parties, while making them work together, in order to achieve the best possible outcome.

  1. U.S. ENVTL. PROT. AGENCY., Global Greenhouse Gas Overview (Last updated April 11, 2024), https://www.epa.gov/ghgemissions/global-greenhouse-gas-overview (“Estimates indicate that net global greenhouse gas emissions from agriculture, forestry, and other land use were approximately 12 billion metric tons of CO2 equivalent, or about 21% of total global greenhouse emissions.”)
  2. UN Women, United Nations Framework Convention on Climate Change 10-11 (Last checked, May 1, 2024), https://www.unwomen.org/en/how-we-work/intergovernmental-support/climate-change-and-the-environment/united-nations-framework-convention-on-climate-change.
  3. Id.
  4. Marin J. Valasek and Caroline Bélair, International Arbitration and Climate Change, 20 INT’L ARB. REP. 11 (May 2023), https://www.nortonrosefulbright.com/-/media/files/nrf/nrfweb/publications/international-arbitration-report-issue-20.pdf.
  5. Bruno O. Osanan, The Application Of ADR In Resolving Climate-Related Disputes To Achieve Sustainable Development In Kenya, 2 U. NAIROBI L.J. 1 (July 2023), https://uonjournals.uonbi.ac.ke/ojs/index.php/unlj/article/view/1579/1352.
  6. Id. at 12.
  7. Id.
  8. Id. at 12-13.

Crystallizing Jurisprudence: Analyzing the Remedies Available to ICSID Tribunals in Arbitrator-Counsel Conflicts

By

Ishita Wargaht

The principal responsibility of any counsel in a dispute lies in the orchestration and administration of any procedural mechanisms aimed at resolving the conflict. The importance of such a representation is highlighted in many conventions. The International Covenant on Civil and Political Rights1 and the European Convention on Human Rights2 are two preeminent examples. Such a legal representation is equally important in an arbitration proceeding. However, there is always a probability of the existence of a conflict of interest with respect to the individuals involved in an arbitration proceeding. This conflict mainly arises between the arbitrators and the counsels representing the parties. This post analyses the remedies available to ICSID tribunals in case of an arbitrator-counsel conflict of interest while referencing the London Court of International Arbitration (“LIAC”),3 ICC International Court of Arbitration (“ICC”),4 and International Bar Association (“IBA”)5 for a comparative analysis.

The International Centre for Settlement of Investment Disputes (“ICSID”) has long been regarded as the cornerstone of investor-state dispute resolution, providing a specialized forum for the resolution of investment disputes and is governed by the ICSID Convention, Regulations, and Rules (“ICSID Rules”).6 These rules, among others, demarcate the powers and remedies available to the tribunals in case of any arbitrator-counsel conflict of interest contention, for example, where a counsel has some connection with one of the arbitrators which can result in bias and lack of impartiality in the proceedings. Procedurally, in case any such contention is raised by the parties, the only remedy available at hand is to remove the conflicted arbitrator. However, in recent times, tribunals have taken a different stance and have begun removing the conflicted counsel.

This stand was first taken in the Hrvatska Tribunal,7 where, in order to avoid bias due to the acquaintance of one of the counsels with the arbitrators, the counsel was disqualified from representing the concerned party. When questioned as to where the tribunal got the authority to order such a removal, the tribunal opined that it was authorized under Article 44 of the ICSID Convention to make such a decision. Citing the aforementioned case, the same was held in the Rompetrol Tribunal8 wherein it was also added that such a power could only be used in exceptional circumstances when the integrity of the proceedings could be compromised. A similar understanding was reflected in the Edmond Khudyan Tribunal9 and Fraport Tribunal10 decisions. In the Theodore David Einarsson Tribunal decision,11 (Feb. 24, 2022).] during deliberations regarding the removal of counsel, it was asserted that ICSID Tribunals lack the authority to monitor a counsels’ adherence to ethical obligations imposed by local codes. These ethical constraints, stemming from codes governing lawyers’ professional conduct, encompass responsibilities such as not discontinuing representation without just cause and maintaining confidentiality. The Tribunal argued that as the removal of counsel directly impacts the fundamental fairness of proceedings, it falls within the jurisdiction of the ICSID Tribunal.

These above-referenced decisions indicate that ICSID tribunals have the authority to disqualify the representation by a counsel in a particular case. However, such a disqualification is based on exceptional circumstances, and the recourse should be availed only when the integrity of the proceedings would be compromised should the counsel not be removed.

Arbitration is a self-contained, party-centric dispute resolution mechanism existing outside the realm of stare decisis. For example, ICSID tribunals render non-precedential awards that subsequent tribunals are free to follow or ignore. It can be argued that it is an unnecessary practice recognized only in a handful of cases, is not a customary norm, and does not hold any precedential value. Therefore, it can be claimed that when arbitrator-counsel disputes arise, the arbitrator should be disqualified, not the counsel.

However, such a contention does not hold water, and to understand the need for such an alternate remedy, the concept of fungibility is relevant. Fungibility means the quality of being interchangeable or substituted.12 In the context of arbitration, it refers to the parties that can be replaced. In an arbitration proceeding, the level of fungibility of each participant is not equal and depends on the relevance of the parties. In the case of arbitrator-counsel disputes, the fungibility level of arbitrators is lower than that of the counsels as arbitrators are appointed by a common consensus between the parties themselves, which forms the foundation of any arbitration agreement. This is also recognized in the ICSID convention as the principle of immutability. It means that a properly constituted arbitral tribunal cannot be changed as it may imperil the legitimacy of the whole process, thereby also attributing procedural sanctity to such an aspect. The ICSID Convention explicitly states, “[a]fter a Commission or a Tribunal has been constituted and proceedings have begun, its composition shall remain unchanged.”13 Additionally, while removing an appointed arbitrator, the principal consequences, both for the parties and the arbitration system, are the increased cost of the dispute and the length of the proceedings.14 A counsel, on the other hand, is appointed by the express choice of the respective parties, thereby having a higher fungibility level than that of an arbitrator, and therefore, in most cases, the counsel should be removed. However, this should not be construed as a hard-and-fast rule. Before resorting to any alternative, the concept of fungibility should be analyzed according to the facts of each case. The circumstances of a particular case might mandate the removal of an otherwise less fungible participant, for example, an arbitrator, especially when the counsel has been involved extensively in the case for a long period of time. Removing the counsel in such a case shall just prolong the process and not be in the best interests of all the participants in the proceeding.

The concept of fungibility therefore explains why is there a need for an alternate remedy in the case of an arbitrator-counsel dispute. The author in the current piece is proposing to attribute procedural sanctity to the removal of a counsel as against the customary and procedural mandate of removing the arbitrator after assessing the fungibility of the concerned actors in the proceedings and analyzing the facts and circumstances of each case.

The primary problem in ICSID decisions is their non-precedential nature. As noted above, while there are only a handful of decisions available for an arbitrator-counsel dispute wherein the counsel is disqualified from participating in the proceedings, these are of a non-precedential nature.15 This gap was also observed by a commentator who stated:

At any rate, there is no rule of binding precedent in investment treaty arbitration. There is nothing in the ICSID Convention itself or in its travaux préparatoires to indicate the existence of such a doctrine. The decentralized structure of investment treaty arbitration is not well suited to the application of stare decisis. There are over 3000 distinct investment treaties currently in force. There is no hierarchy as between ICSID tribunals, and no mechanism of appeal. There are limited grounds for annulment and the annulment mechanism is not designed to provide consistency or predictability. And the publication of investment arbitration awards is subject to party consent. These factors have occasionally led to divergent and even conflicting awards on the same points of law or similar facts.16

This empowers the arbitral tribunal to exercise its powers in a wider import than necessary thereby necessitating the consolidation of such an alternate remedy within the framework of ICSID to impart procedural legitimacy to the same.
Secondly, for the cases that necessitate the removal of an arbitrator instead of a counsel in case of an arbitrator-counsel conflict of interest, the power to decide upon such a removal is given to the arbitral tribunal (including the conflicted arbitrator). Such an inclusion of the conflicted arbitrator is also observed in LIAC,17 ICC,18 and IBA19 processes. However, logical gaps can be observed in such a process. By including the conflicted arbitrator in an issue that involves himself as a party to the conflict of interest, gives rise to a secondary conflict of interest. The first and the primary one being between the arbitrator and the counsel and the secondary one being the constitution of the tribunal in deciding such an issue. In such a case, only the non-conflicted arbitrators (i.e., the ones not a party to the conflict of interest) should determine the secondary issue.

To conclude, the remedies available to ICSID tribunals in arbitrator-counsel conflicts constitute a dynamic area within the landscape of investor-state dispute resolution. While traditionally the remedy involved removing the conflicted arbitrator, recent decisions, as exemplified by the Hrvatska Tribunal,20 demonstrate a shifting trend towards disqualifying the counsel. This evolution, grounded in the authority granted by Article 44 of the ICSID Convention, underscores the tribunal’s commitment to preserving the integrity of proceedings and addressing exceptional circumstances where the participation of a conflicted counsel could compromise the fairness of the proceedings.

However, challenges persist, notably the non-precedential nature of previous decisions and the logical gaps in the process, particularly while deciding on the removal of an arbitrator which also includes the conflicted arbitrator. These problems have a simple solution, codify a tribunal’s ability to remove conflicted counsel into the framework of the ICSID convention. Additionally, the conflicted arbitrator should not be allowed to participate in deliberations involving himself and the conflicted counsel. Overall, a balanced and comprehensive approach is essential to enhance the legitimacy and effectiveness of the ICSID dispute resolution mechanism.

  1. International Covenant on Civil and Political Rights, March 23, 1976.
  2. European Convention on Human Rights, September 3, 1953.
  3. London Court of International Arbitration Rules, October 1, 2020.
  4. ICC International Court of Arbitration, Arbitration Rules, January 1, 2021.
  5. IBA International Principles on Conduct for the Legal Profession, May 28, 2011.
  6. ICSID Convention, Regulations, and Rules, July 01, 2022.
  7. Hrvatska Elektroprivreda, d.d. v. The Republic of Slovenia, ICSID Case No. ARBl05124, Order Concerning the Participation of Counsel 33 (May 6, 2008)
  8. The Rompetrol Group N.V. v. Romania, ICSID Case No. Arb/06/3, Decision of the Tribunal on the Participation of a Counsel 15 (Jan. 14, 2010).
  9. Mr. Edmond Khudyan and Arin Capital & Investment Corp. v. Republic of Armenia, ICSID Case No. ARB/17/36, Procedural Order No. 2 (Decision on Application to Remove Counsel) 50 (Dec. 5, 2018).
  10. Fraport AG Frankfurt Airport Services Worldwide v. Republic of The Philippines ICSID Case No. Arb/03/25, Decision on Application for Disqualification of Counsel 36-39 (Dec. 23, 2010).
  11. Theodore David Einarsson, Harold Paul Einarsson, Russell John Einarsson, and Geophysical Service Incorporated v. Government of Canada, ICSID Case No. UNCT/20/6, Decision on Claimants’ Motion to Disqualify Counsel [91
  12. See Fungible, MERRIAM-WEBSTER (11th ed. 2023), https://www.merriam-webster.com/dictionary/fungible.
  13. ICSID Convention, Regulations, and Rules, supra note 6, at Art. 56.
  14. Federica Cristani, Challenge and Disqualification of Arbitrators in International Investment Arbitration: An Overview, 13 LAW & PRAC. INTL. CTS. & TRIBUNALS 153, 175 (2014).
  15. See, e.g., Hrvatska Elektroprivreda, d.d. v. The Republic of Slovenia, ICSID Case No. ARBl05124, Order Concerning the Participation of Counsel (May 6, 2008); The Rompetrol Group N.V. v. Romania, ICSID Case No. Arb/06/3, Decision of the Tribunal on the Participation of a Counsel (Jan. 14, 2010); Mr. Edmond Khudyan and Arin Capital & Investment Corp. v. Republic of Armenia, ICSID Case No. ARB/17/36, Procedural Order No. 2 (Decision on Application to Remove Counsel) (Dec. 5, 2018); Fraport AG Frankfurt Airport Services Worldwide v. Republic of The Philippines ICSID Case No. Arb/03/25, Decision on Application for Disqualification of Counsel (Dec. 23, 2010); Theodore David Einarsson, Harold Paul Einarsson, Russell John Einarsson, and Geophysical Service Incorporated v. Government of Canada, ICSID Case No. UNCT/20/6, Decision on Claimants’ Motion to Disqualify Counsel (Feb. 24, 2022).
  16. Abdulqawi Ahmed Yusuf & Guled Yusuf, Precedent & Jurisprudence Constante, in BUILDING INTERNATIONAL INVESTMENT LAW: THE FIRST 50 YEARS OF ICSID 72 (Meg Kinnear, Geraldine R. Fischer ed., 2015).
  17. London Court of International Arbitration Rules, supra note 3, at Art. 5.
  18. ICC International Court of Arbitration, supra note 4, at Art. 17.2.
  19. IBA International Principles on Conduct for the Legal Profession, supra note 5, at Guideline 6.
  20. Hrvatska Elektroprivreda, d.d. v. The Republic of Slovenia, ICSID Case No. ARBl05124, Order Concerning the Participation of Counsel (May 6, 2008).

Using Public Policy to Deny Arbitral Awards: Domestic Overstep or Transnational Necessity?

By

Austin Robinson

In July 2023, the English Commercial Court alarmed the arbitration community by using UK consumer law as public policy grounds to deny the enforcement of an arbitral award.1 The case of Payward v. Chechetkin serves as an example of how and why a court should be able to reconcile the binding effect of arbitration with its own jurisdictional public policy.2

In opening a cryptoasset exchange account, Mr. Chechetkin formed an arbitration agreement with Payward.3 After a dispute arose between the two, Mr. Chechetkin filed suit, alleging violations of UK consumer laws. Payward removed the case to be settled by an arbitrator.4 In accordance with the arbitration agreement, the arbitrator applied JAMS Consumer Minimum Standards and the law of California to find that Chechetkin assumed the risk of loss and, therefore, could not recover.5 Payward sought enforcement of this award in England, but Chechetkin challenged on the basis of Sec. 103(3) of the English Arbitration Act of 1996, that enforcement may be refused if it would be contrary to public policy.6

The English Commercial Court denied enforcement of the award by finding that the UK’s Consumer Rights Act (“CRA”) constituted UK public policy.7 The Court’s argument rests on prior case law that concluded consumer protection, with respect to the fairness of contractual terms, has “equal standing to national rules which rank, within the domestic legal system, as rules of public policy.”8 Resultingly, the Court determined that the CRA, as a part of their domestic public policy favoring consumer protection, authorized denying enforcement of the arbitral award.9

The Court in Payward interpreted the public policy exception to encompass consumer protection law, effectively ‘overriding’ the arbitral award.10 This poses concerns beyond the mere applicability of UK consumer protection law because it challenges the obligation of contracting states to recognize arbitral awards as binding.11 The treatment of awards varies across jurisdictions. Several other countries favor a transnational approach rather than a domestic approach to public policy in order to more easily enforce awards.12 Contrast this case with Tampico Beverages, in which the Supreme Court of Colombia addressed the enforceability of an ICC award on public policy grounds.13 The Court found that even though the award may violate Colombia’s domestic public policy, they should look to international authorities to determine if there was a violation that justified denying the award.14 The United States similarly adopted a narrow construction of the public policy exception by favoring international public policy rather than the United States’ national policy.15

These alternate approaches reveal that England has interpreted the public policy exception broadly to protect certain areas of their domestic law. Ultimately, the underlying rationale of the public policy exemption justifies English court’s denial of enforcement. The public policy exception enables enforcing jurisdictions to preserve their jurisdictional policies as they deem necessary. The New York Convention made this clear by stating that the “public policy” should be that of the country that is enforcing the award.16 Although the binding nature of an arbitral award must be respected, courts must “enforce them in accordance with the rules of procedure of the territory where the award is relied upon.”17 Public policy was not defined in The New York Convention declined to impose any one transnational public policy so that each contracting state could define it as narrowly or as broadly as they desired.

Payward signifies the importance of the public policy exception, its transnational consequences, and domestic advantages. While cases like Payward may diminish the universal enforcement value of an arbitral award they do not unilaterally destroy that value. This sacrifice is necessary to maintain transnational relationships and prevent arbitration from discriminating against domestic law.

 

  1. See Payward Inc v Chechetkin (2023) EWHC 1780 (Comm), No. CL-2023-000029, (166-169), https://3vb.com/wp-content/uploads/2023/07/CL-2023-000029-Payward-v-Chechetkin-final-Judgment39.pdf.
  2. See id.
  3. Payward supra note 1 at (11), (18).
  4. Id. at (39), (48).
  5. See id. at (48), (62).
  6. Payward supra note 1 at (2). See Arbitration Act of 1996: Refusal of Recognition or Enforcement, UK Public General Acts §103(3), https://www.legislation.gov.uk/ukpga/1996/23/section/103.
  7. Payward, supra note 1 at (118)–(122).
  8. Payward, supra note 1 at (105). E.g. C-40/08, Asturcom Telecomunicaciones SL, 2010 E.C.R. I-09579.
  9. Payward, supra note 1 at (111)–(113); Consumer Rights Act, 2015, §74(1) (United Kingdom).
  10. See Payward , supra note 1 at (2).
  11. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, adopted June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 4739 (entered into force as to U.S. Dec. 29, 1970) (hereinafter “New York Convention”)).
  12. See Margaret Moses, Public Policy: National, International and Transnational, KLUWER ARB. BLOG, WOLTERS KLUWER, (Nov 12, 2018), https://arbitrationblog.kluwerarbitration.com/2018/11/12/public-policy-national-international-and-transnational/.
  13. See id. (citing Tampico Beverages Inc. v. Productos Naturales de la Sabans S.Z. Alqueria, SC9909-2017, Case No. 11001-02-03-000-2014-01927-00).
  14. See id.
  15. See GLOB. ARB. REV. (GAR), ARBITRABILITY AND PUBLIC POLICY CHALLENGES (2021), https://globalarbitrationreview.com/guide/the-guide-challenging-and-enforcing-arbitration-awards/2nd-edition/article/arbitrability-and-public-policy-challenges#footnote-048 (Penny Madden KC, Ceyda Knoebel, & Besma Grifat-Spackman, eds.) (citing Parsons & Whittemore Overseas v. Société Générale de L’Industrie du Papier (RAKTA), 508 F.2d 969, 974 (1974) (U.S.) (Parsons), in New York Convention Guide, op. cit., p. 240, ¶ 5).
  16. New York Convention, supra note 12, art. III.
  17. Id.

International Court of Arbitration Amends Arbitration Rules to Streamline Smaller Claims

By: Jonathan Vaitl

The International Chamber of Commerce International Court of Arbitration (“ICC Court”) put amended rules into effect as of March 1, 2017, that highlights the ICC Court’s priority for streamlining smaller claims. The new Expedited Procedure Rules automatically apply to claims that do not exceed USD 2 million (“Small Claims”), although the parties may opt out.[1]

According to the ICC Court’s 2015 statistics, 8.1 percent of disputes submitted for arbitration constituted small claims.[2] This change to the rules suggests the ICC’s expectation that the number of small claims will become an even greater share of total claims in the years to come.

Under the Expedited Procedure Rules, the ICC Court may appoint a sole arbitrator as quickly as possible,[3] with a case management conference to occur no more than 15 days after the date the tribunal receives the file.[4] The tribunal will also have the option of deciding the matter solely on the basis of the documents submitted, without a hearing or examination.[5] The award must be issued within 6 months of the case management conference, although the ICC Court has the ability to extend that time period.[6]

Although the Expedited Procedure Rules would likely reduce the time and cost associated with arbitrating a small claim, the ICC Court’s power to appoint a sole arbitrator has caused some concern, particularly because of the phrasing: “[t]he Court may, notwithstanding any contrary provision of the arbitration agreement, appoint a sole arbitrator.”[7]

The ability of the ICC Court to appoint a sole arbitrator, irrespective of the arbitration agreement, has some wondering if the ICC Court is assuming too much power by taking away party autonomy.[8] Parties that may have agreed to a 3-member arbitration tribunal could find the ICC Court overriding their contractual agreements for the of expediency.

It is worth noting that the wording of the rule makes the overriding of the agreement discretionary on the part of the ICC Court. Over time, we may find that the ICC Court gauges whether to impose its power based on how quickly and effectively the parties can decide on a panel. Overriding the parties’ agreement creates a strange inconsistency in a procedure that is built on party autonomy – on parties’ desire to decide how to resolve disputes on their own terms.

Endnotes:

[1] International Chamber of Commerce Rules of Arbitration, Article 30.

[2] The Express Lane for Claims under US$ 2 Million: The New ICC Expedited Procedure Rules, White Case. (Nov. 7, 2016), https://www.whitecase.com/publications/alert/express-lane-claims-under-us-2-million-new-icc-expedited-procedure-rules.

[3] International Chamber of Commerce Rules of Arbitration, Appendix VI, Article 2.

[4] Id. at Appendix VI, Article 3(3).

[5] Id. at Appendix VI, Article 3(5).

[6] Id. at Appendix VI, Article 4(1).

[7] Id. at Article 2(1).

[8] Lucja Nowak and Nata Ghibradze, The ICC Expedited Procedure Rules – Strengthening the Court’s Powers, Wolters Kluwer. (Dec. 13, 2016), http://kluwerarbitrationblog.com/2016/12/13/reserved-for-13-december-the-icc-expedited-procedure-rules-strengthening-the-courts-powers.