As 2021 gets underway, the Withers trio looks at what 2020 brought the arbitration community.
Withers international arbitration specialists Hussein Haeri, Camilla Gambarini and Ruzin Dagli look back at developments in the field in 2020, the year when the coronavirus pandemic transformed practice.
In an extraordinary year in which the world sometimes seemed largely to stop – or at least maintain a holding pattern punctuated by stops and starts of lockdowns and other restrictions – arbitration largely took the new challenges in its stride.
The flexibility inherent to arbitration, though often overlooked in formulaic mechanisms characteristic of more normal times, came to the fore with the widespread recognition that these were not normal times, and that new approaches were needed.
The result was a flurry of initiatives to facilitate virtual hearings and adapted proceedings necessitated by the covid-19 pandemic, with the “new normal” of such hearings and proceedings rapidly becoming just “normal”.
This was accompanied over the course of the year by important decisions on arbitration matters – by courts as well as arbitral tribunals – leading institutions updating their arbitral rules and continued investor-state dispute settlement reform initiatives.
10 of these developments are reflected on below.
1) Virtual hearings and adapted proceedings
The global outbreak of the covid-19 pandemic in the early months of 2020 and its continuation throughout the course of the year had a direct and significant impact on the nature and timetables of dispute resolution proceedings around the world.
Facing the impossibility or severe practical obstacles to holding hearings in person for an undetermined period of time, arbitral institutions and groups engaged swiftly, issuing protocols and practical guidelines for counsel, arbitrators and arbitral institutions to encourage the use of virtual hearings and overcome due process concerns, technology and cybersecurity challenges.
Several leading arbitral institutions issued a joint statement expressing their support for international arbitration’s contribution to ‘stability and foreseeability in a highly unstable environment, including by ensuring that pending cases may continue and that parties may have their cases heard without undue delay.’
Delos issued a checklist setting out suggested factors to consider when deciding whether to hold a hearing in person or remotely, including considerations for deciding whether to maintain a hearing at all or to postpone it. Similarly, the ICC prepared a checklist for a protocol on virtual hearings and suggested clauses for cyber-protocols and procedural orders.
Regional initiatives were also notable. In Africa, the Arbitration Academy launched its Protocol on Virtual Hearings in Africa that takes into account the specific challenges and circumstances that may arise in relation to virtual hearings in Africa. In Asia, the Korean Commercial Arbitration Board published the Seoul Protocol on Video Conferencing in International Arbitration addressing the need for fairness and impartiality in the context of videoconferencing and the practical difficulties of remote hearings.
2) The UK Supreme Court decides on the law governing an arbitration agreement: Enka v Chubb
On 9 October 2020, the Supreme Court of the United Kingdom delivered a judgment in Enka Insaat Ve Sanayi AS v OOO Insurance Con Chubb, a decision determining the law governing an arbitration agreement in the absence of a specific choice of law to that issue. In this case, the contract was governed by Russian law and contained an arbitration agreement under the ICC rules with London as the seat of arbitration, but there was no express choice of law for the arbitration agreement.
With proceedings originally commenced in the Arbitrazh Court in Russia by Chubb, the dispute was heard in London when Enka filed a claim in the High Court of England and Wales for an anti-suit injunction. The High Court held that Russian courts, being the governing law of the contract, were the proper forum. Enka appealed this decision. The Court of Appeal held that if a contract does not contain an express choice of law, there is a presumption that the choice of arbitral seat is the governing law of an arbitration agreement. Chubb appealed to the Supreme Court.
In a 3:2 judgment, the Supreme Court dismissed the appeal and upheld the Court of Appeal’s findings. The Supreme Court found that, in circumstances where the contract does not contain an express choice of the law for the arbitration agreement, the law having the closest and most real connection with the arbitration agreement is the law applicable to the arbitration agreement. In this case, English law applied as the seat of the arbitration – London – was the place of performance of the arbitration agreement.
Such an approach was stated by the majority to maintain consistency with the objectives of the New York Convention and assist parties to predict which law will apply to the arbitration agreement in the absence of an express choice.
3) The UK Supreme Court hands down a judgement on disclosure obligations and apparent bias: Halliburton v Chubb
Less than two months after the judgment in Enka v Chubb, on 27 November 2020, the UK Supreme Court handed down another significant judgment related to arbitration in Halliburton Company v Chubb Bermuda Insurance Ltd (Formerly known as Ace Bermuda Insurance Ltd).
The question was whether an arbitrator in a Bermuda Form arbitration should have disclosed his involvement in other insurance cases arising from the Deepwater Horizon accident in the Gulf of Mexico. The arbitrator (who was chairman of the tribunal) had accepted two prior appointments in arbitrations arising from the same accident, involving both Chubb and the company owning the drilling rig in the Gulf of Mexico.
When Halliburton discovered these two appointments, it applied to the High Court of England and Wales to remove the Chairman under section 24 of the English Arbitration Act. When this was rejected by the High Court, Halliburton appealed to the Court of Appeal which dismissed the appeal and, thereafter, Halliburton obtained leave to appeal to the UK Supreme Court.
The Supreme Court noted that an arbitrator has a duty of disclosure under the English Arbitration Act of 1996. It further clarified that the test to be used is an objective test of whether an informed, fair-minded observer would conclude that there is a real possibility of bias, taking into account the context and the particularities. Applying such objective factors to the circumstances of the case, the Supreme Court dismissed the appeal.
In particular, the Supreme Court noted that by the time of the hearing to remove the chairman, he had already explained the reasons why he had not disclosed the previous appointments and Haliburton did not at the time challenge such an explanation.
4) Brexit and EU developments
Signed on 24 December 2020, the UK-EU Trade and Cooperation Agreement includes an exclusive dispute resolution system for disputes stemming from the interpretation or the application of the agreement. The dispute resolution system provides for 30-day consultation by means of a written request and, upon the expiry of the consultation timeframe or lack of an answer to a written request within 10 days, the complaining party may request the establishment of an arbitration tribunal composed of three arbitrators under a procedure set forth in the Agreement. The UK-EU Agreement also sets out a code of conduct for arbitrators in one of its Annexes.
On 28 December 2020, the EU published Decision No. 7/2020 listing 25 arbitrators who may be appointed to hear disputes arising out of the UK-EU Withdrawal Agreement. Signed in October 2019, it provides for a Joint Committee and the initiation of arbitration proceedings to solve disputes on the interpretation and application of the UK-EU Withdrawal Agreement (Articles 167-181). The UK-EU Withdrawal Agreement provides that, where a dispute raises a question of interpretation of a concept or provision of EU law, the arbitration panel shall request the Court of Justice of the European Union to give a ruling on the question and such a ruling will be binding on the arbitral tribunal (Article 174). Annex IX includes the rules of procedure for dispute settlement.
Brexit aside, 2020 saw other arbitration developments at the level of EU law and policy, such as in the context of investment treaty arbitration. This includes that on 5 May 2020, several EU member states signed an Agreement to terminate bilateral investment treaties between EU member states.
Additionally, in November 2020 the European Court of Justice in Komstroy/Energoalians v Moldova heard whether the rationale of the Achmea decision applies to disputes stemming from violations of the Energy Charter Treaty between EU investors and host states.
5) The updated LCIA rules came into force
On 1 October 2020, the updated LCIA Arbitration Rules came into force, replacing the 2014 rules. Focuses of the updates include moving towards electronic communications and remote hearings, the early determination of disputes, composite requests for arbitration, consolidation of cases and the role of tribunal secretaries.
The 2020 LCIA rules introduced provisions to expedite arbitration proceedings including making tribunals endeavour to render the award within 3 months from the last submission from the parties (Article 15.10) and listing a series of procedural tools that they may consider to enhance the efficient and expeditious conduct of the proceedings (Article 14.6). These include limiting the length or content of written pleadings or witness statements, employing technology, dispensing with a hearing and/or deciding the stage of the arbitration at which any issue or issues shall be determined.
Article 22.1(viii) specifically deals with the tribunal’s power to make an early determination that a claim, defence, counterclaim, cross-claim, defence to counterclaim or defence to cross-claim is manifestly outside the jurisdiction of the arbitral tribunal, or is inadmissible or manifestly without merit.
The 2020 rules also enhance the power of tribunals and the LCIA Court to order consolidation of arbitrations commenced under any compatible arbitration agreement(s) and between the same disputing parties or arising out of the same transaction or series of related transactions.
The rules also incorporate an innovative compliance clause (Article 24A) and provisions on the role of tribunal secretaries (Article 14A) and data protection (Article 30A).
6) The ICC issues updated rules
On 1 January 2021, the new ICC rules entered into force, to be applied to cases submitted after that date. The aim is to further enhance efficiency and transparency.
Some notable changes are as follows:
Tribunals are expected to take more initiative to ensure effective case management. New wording in Article 22(2) replaces ‘may’ with ‘shall’ so that it now reads ‘to ensure effective case management, the arbitral tribunal, after consulting the parties, shall adopt such procedural measures as it considers appropriate’ [emphasis added];
Consolidation of arbitrations is now explicitly allowed, subject to certain requirements, where the claims are made under different contracts (Article 10). Joinders are allowed after the constitution of the tribunal (Article 7);
There is now an explicit duty to inform the tribunal of the identity of third party funding or an economic interest in the outcome of the arbitration of non-parties, (Article 11), which increases the transparency and accountability of proceedings;
In the interest of sustainability and digitalisation, the requirement of paper filings is removed (Article 3) and an option for remote hearings introduced (Article 26).
7) Milan Chamber of Arbitration issues updated rules
On 1 July 2020, the Milan Chamber of Arbitration issued new rules applicable to arbitration proceedings started after that date, which includes a new Simplified Arbitration Procedure in its Annex D.
The Simplified Arbitration Procedure will automatically apply to claims less than €250,000 unless one of the parties opts-out and to all claims where the parties agree to it. It provides tools for efficiency such as the appointment of a sole arbitrator, simplified exchange of pleadings, discretion for the arbitrator to take measures for expedited conclusion and a reduction in the sole arbitrator’s fees.
8) Second Spring for Yukos Awards
On 18 February 2020, The Hague Court of Appeal ordered the Russian Federation to pay approximately US$50 billion in total in damages to three former shareholders of Yukos Oil Company, deciding that the Hague District Court had erred in its decision that the Yukos tribunal lacked jurisdiction.
The Court of Appeal stated in a press release: ‘The Hague Court of Appeal has overturned this judgment of the District Court in The Hague, ruling that the tribunal does have jurisdiction under the [Energy Charter Treaty]. When the Russian Federation signed the ECT it undertook to provisionally apply the treaty unless it was incompatible with Russian law.’
Russia appealed this decision to the Dutch Supreme Court; pending hearings are expected early in 2021 and a decision is expected in the autumn of 2021. Russia’s attempts to suspend the enforcement of the awards during the appeal process have not succeeded, meaning the Yukos shareholders are in their second spring of asset freezes until a final judgment.
9) ICSID & UNCITRAL Draft Code of Conduct for Adjudicators
The First Draft Code of Conduct for Adjudicators was published in May 2020. It addresses a core concern for ISDS users: independence and impartiality of tribunal members and the duty to conduct proceedings with integrity, fairness, efficiency and civility.
The code applies to all adjudicators, assistants and candidate adjudicators but not to counsel, experts and other participants in the proceedings or members of arbitral institutions. It imposes duties of independence and impartiality, integrity and diligence and confidentiality. Examples of disclosure include relationships in the past 5 years, financial interest in the outcome, service in other cases and views expressed in publications.
The code considers whether double-hatting should be allowed (and how to define the concept) and if it should no longer be allowed, how this would affect the profession. It suggests numerous ways of implementation such as a model for new treaties, addenda to existing treaties or incorporation into multilateral instruments.
Comments were compiled by ICSID and UNCITRAL until the end of November 2020 and are to be published on their respective websites.
10) ISDS reforms
The 39th session of the UNCITRAL Working Group III on Investor-State Dispute Settlement Reform took place on 5 to 9 October 2020 in Vienna and the 40th session will take place from 8 to 12 February 2021.
During the 39th session, the Working Group considered the following 6 topics: dispute prevention and mitigation as well as other means of alternative dispute resolution; reflective loss and shareholder claims; multiple proceedings including counterclaims; security for costs and means to address frivolous claims; treaty interpretation by state parties; and the possibility of a multilateral instrument on ISDS reform.
The way forward for the Working Group on these issues includes collating information on best practices for states in order to examine how these could be applied in a more consistent manner; preparing model clauses and specific guidelines in order to increase consistent and efficient use and implementation; and compiling information on existing investment agreements and relevant case law.
The academic surveys conducted in 2020 seem to show that there is some movement of state-users of ISDS towards a binding multilateral instrument, although this is indeterminate and the content remains to be discussed; investor-users of ISDS reportedly prefer a system with greater flexibility.
This article was first published by GAR on 05 January 2021.