VIAC – UNCITRAL Joint Conference 2011
Vienna, 14-15 April 2011
The joint UNCITRAL/VIAC Conference took place on 14 and 15 April 2011. In the days before the annual Willem C. Vis International Commercial Arbitration Moot practitioners, academics and students from all over the world gathered in Vienna to discuss some of the most relevant topics in international arbitration.
The first item on this year’s agenda was the current work of UNCITRAL in the field of investment arbitration.
Corinne Montineri (Senior Legal Officer, UNCITRAL) presented the most important UNCITRAL initiatives concerning international arbitration. She mentioned the 2007 resolution on the interpretation of some parts of the New York Convention on the recognition and enforcement of foreign arbitral awards and the draft digest on case law on the UNCITRAL Model Law on International Commercial Arbitration to which Frédéric Bachand and Lawrence Boo have contributed substantially. This work has turned out to be an indispensable tool, in particular for judges and academics. The UNCITRAL Arbitration Rules were amended in 2010 and there is currently a recommendation in preparation on how arbitral institutions and other interested persons may apply the amended rules. In addition, a new working group has been established in New York in mid-May 2011 to discuss the problems related to online dispute resolution. She then turned to the issue of transparency in treaty-based investment arbitration which may be considered, inter alia, a suitable instrument to fight corruption and to enhance democracy. However, some UN member states have expressed the desire to obtain carefully drafted rules on how to build the requested transparency. Such transparency rules would deal with the initialisation of proceedings, the production of documents and by whom such transparency should be effected, namely either by the states themselves or by reliable non-governmental institutions.
Claudia Gross of UNCITRAL concentrated mainly on the question of whether it would be desirable to apply such transparency rules to each and every of the, approximately, 1500 existing bilateral investment treaties and whether it would be possible to make them legally binding, by possibly drafting a multilateral convention. An alternative approach would be the adoption of a recommendation or a joint declaration by the countries represented in UNCITRAL.
Questions regarding the content of a legal standard on transparency
James Castello (King & Spalding, Paris) first questioned the degree of transparency that should be established. Even now, if the parties consent, awards may be published and hearings may be held publicly. The present status however, provides for privacy rather than for confidentiality and does not encourage parties to seek transparency. The latter requires cooperation between the parties. The first issue is to decide what should be disclosed, and, to then consider as to when this disclosure should be made. He referred to Chapter 11 of the NAFTA Agreement where in 2004 the governments of the three member countries have obliged themselves to publish all their records after a certain cooling-off period and only after the arbitral tribunal has had a reasonable opportunity to study such records. The said records include all pleadings, submissions, witness statements, expert reports, procedural orders and other items. Among the effects of transparency are increased public pressure on states and more reliable information for third parties to act as amicus curiae. However, publication of all such records requires time and incurs cost. The latter should be borne by the parties.
Michael Schneider (Lalive, Geneva) dealt with the practical experience of transparency in NAFTA, ICSID and WTO proceedings. Increased transparency has only been appreciated by entities that have acceded to the proceedings as amici curiae, while all other persons concerned have shown much less enthusiasm. He then made suggestions on the publication of awards and minutes, on the access to hearings for amici curiae and for the broadcast of hearings to places where the public may watch such hearings. The main goal to be achieved lies in the balance between the right of the public to be informed and the need to protect the integrity of the procedure and to avoid disturbance of the arbitral proceedings.
The discussion then turned to the role of third parties. It was questioned how an interested third party may join the procedure and what requirements had to be met for that party to be admitted, in particular whether a third party may actively participate in the proceedings or only by submitting amicus curiae briefs. It was further debated as to when, and to what extent, an amicus curiae may have access to the documents submitted by the parties and whether such an issue would be for the parties or the arbitral tribunal to determine.
How to apply a legal standard on transparency?
Professor Giuditta Cordero Moss (Oslo University) investigated the legal basis for the elements of transparency developed by the previous speakers. One of the possible solutions could be guidelines for the arbitral tribunal on how to handle the transparency issue. However, these guidelines would be of limited help when it comes to deciding on public access to hearings and documents. Another method could be a model convention on the amendment of existing BITs or to introduce a “dynamic reference” to arbitration rules which then would have to be amended accordingly.
Aurelia Antonietti (ICSID) reported on the practice and experience with NAFTA and CAFTA proceedings, in particular with hearings open to the public and with third party participation. Many details of the pending disputes are available on ICSID’s website which is thus the main instrument for transparency.
Julien Fouret (International Chamber of Commerce) mentioned that transparency is rather unusual in investment disputes under the ICC Rules. Theoretically, it is questionable whether disputes arising from bilateral investment treaties fall under the scope of the ICC Rules. Since 1996, 13 claims have been filed stemming from BITs. Very often parties had concluded confidentiality agreements but not so in BIT Investment disputes. Three awards have been made public, but not by the ICC International Court of Arbitration. The draft of the new ICC Rules does not expressly consider investor-state arbitration but deals with such other types of disputes as well. The reference to “commercial disputes” may be deleted. An ICC task force has adopted a recommendation that all decisions on the challenge of arbitrators or on their confirmation shall be reasoned if a state or a state entity is involved. This rule will now be extended to any other kind of dispute.
Linn Bergmann (Arbitration Institute of the Stockholm Chamber of Commerce) reported on SCC’s experience with Eastern European BITs. There are no transparency rules in existence because SCC places emphasis on the interest of its users and not on that of the stakeholders. However, an article has been published which relates to what is expected from users in the case of investor-state arbitration.
The following discussion focused on the impact of the revised ICC Rules on investor-state arbitration and what advantages ICC had to offer for investment disputes.
Trends in the field of treaty-based investor-state arbitration worldwide and in the EU: possible future work for the UNCITRAL Working Group on Arbitration
Anna Joubin Bret (UNCTAD) presented global statistics on all known BITs, on the nationality of investors and the branches covered by these BITs.
Colin Brown (European Commission) gave a brief, but precise, explanation of the EU’s competences for foreign investment under the Treaty of Lisbon. In the Commission’s view, this also comprises the competence for the settlement of investment disputes, either between two states or between investors and states.
Catherine Yannaca Small (OECD) commented on the initiatives of OECD towards investment protection and of the importance of transparency in this context. A joint symposium with UNCTAD in December 2010 had been held, but without any concrete results so far.
Yas Banifatemi (Shearman & Sterling, Paris) added to the previous presentations that the many unsettled issues mentioned therein had substantially reduced the enthusiasm of the acting bodies and persons. The legitimacy of arbitral proceedings for the settlement of investment disputes is increasingly put into question. The main items are: Will ICSID remain the preferred option? If so, it will not have a monopoly but it will, nevertheless, retain its dominant position. Proceedings under the UNITRAL Rules will be the next preferred option. Another issue is state immunity as recently decided on by U.S. courts in the Phoenix case. Additionally, the question also arises as to whether precedents are important with regard to transparency. There is obviously the desire to obtain harmonized case law. Under the new French arbitration law confidentiality will no longer be the rule but the exception.
Barbara Helene Steindl (Brauneis Klauser Prändl) summarized the efforts that have been made towards a uniform legal standard on transparency. Several issues still need to be resolved, including the legality of the investment, enforcement of awards against states and the role of third party funding.
Professor August Reinisch (Vienna University) focused on special issues such as arbitrability of investor claims. In particular, he mentioned the Liamco case which was decided by an arbitrator in favour of Liamco, but in which the U.S. courts nevertheless declined recognition and enforcement of the award. Another issue he dealt with was the coherence and consistency of arbitral proceedings. He concluded that other mechanisms, such as mediation, may allow the investment to continue and thus occasionally may be of more use than arbitration.
The revised UNCITRAL Arbitration Rules in practice
The first day ended with a panel discussion on the above topic. The panel consisted of Michael Schneider (Lalive, Geneva), Lawrence Boo (Arbitration Chambers, Singapore), Günther Horvath (Freshfields Bruckhaus Deringer, Vienna) and Manfred Heider (VIAC). The panellists agreed that there was virtually no experience available as to how the revised provisions will work in practice. However, they did try to predict how the new provisions will affect the conduct of proceedings. The topics discussed included the joinder of parties, the effect of new technologies in communications between the parties and the arbitral tribunal, the role of the Permanent Court of Arbitration, the review of the arbitrators’ fees and the model statement of independence.
Day 2: Legal Theory of International Arbitration: How do different concepts of arbitration affect the interpretation of arbitration laws and rules?
Professor Emmanuel Gaillard (Shearman & Sterling, Paris) undertook an intellectual tour de force which demonstrated that the law of international arbitration cannot properly be understood without reflection on its philosophical underpinnings and, vice versa, that different philosophical conceptions of the law of international arbitration are not without practical implications. He cited the monolocal, the “Westphalian” (or multilocal) and the transnational concepts to explain from where an arbitration derives its legitimacy. According to him, the transnational approach is the most plausible one because international arbitration is now rooted in a huge body of rules created by the international community, such as the New York Convention. He gave two examples to illustrate that this distinction is not merely theoretical. The first one is the arbitrators’ competence to choose the applicable law if the parties have failed to do so. Questions such as, do arbitrators have freedom of choice, do they have to apply the conflict of law rules or should they apply the law with the closest connection to the dispute, are all questions which can be considered. The solution will vary depending on what approach the arbitrators have selected. Analogous arguments apply to the selection of the applicable procedural law.
Werner Melis recalled the drafting of the UNCITRAL Arbitration Rules. At that time, the legal environment for arbitration had been unfavourable and, because of its limited role, arbitration had been a lesser class of dispute settlement. French arbitration law for the first time made a distinction between local and international arbitration. Also, arbitration had been limited to commercial disputes. Today, the situation is much better and has been substantially improved by the UNCITRAL Model Law.
Jernej Sekolec supported the „transnational approach“ as developed by Gaillard. He gave an overview of how UNCITRAL had contributed to that approach. At the beginning of the negotiations the representatives of member states have mostly been in favour of the local approach, but step by step transnational provisions have found their way into the Model Law.
Professor Eric Bergsten pointed out that UNCITRAL, during the last 40 years, has always been pragmatic. The first main idea brought up by civil law countries has been the so-called lex mercatoria which in the meantime has lost ground. Common law countries have since gained more importance in the international arena. A crucial event was the Stockholm accord of 1976 when the United States and the Soviet Union agreed to use the UNCITRAL Arbitration Rules for settlement of their disputes. This had triggered the predominance of the “Westphalian approach”.
Professor Sergey Lebedev (Maritime Arbitration Commission of the Russian Federation) focused on the implementation of the UNCITRAL Model Law in Russia in 1993. This had been the first legislative measure that had been set up in the field of arbitration in the prior 76 years. UNCITRAL has given an important impetus to think about arbitration and to try to find a definition. The different approaches as outlined by Gaillard have been discussed in Russia since the 1930’s when the Russian maritime arbitration commission had been founded.
Professor Ivan Szasz (Squire Sanders Dempsey, Budapest) summarized the influence of all three theories on the work of UNCITRAL. He pointed out that in the future the transnational approach will prevail.
Professor Norbert Horn (University of Cologne) also confirmed the impact of legal theory on UNCITRAL texts. The change of theories influences the interpretation of the UNCITRAL Arbitration Rules. He cited the provisions of Art. 35 para. 1 and of Art. 1 para. 3 of the UCITRAL Arbitration Rules as examples that the lex arbitri need not necessarily be determined by the seat of arbitration. “Delocalisation” is now the prevailing theory as can be seen by transnational rules such as the Unidroit principles and the Incoterms. However, transnational rules of law must be supported by national law to be enforced.
Professor Frédéric Bachand (McGill University, Montreal) supported the view that the monolocal approach is antiquated. However, the relevance of the seat of arbitration may be considered a repercussion of the monolocal theory. Indeed, some aspects point in this direction: A recent study by Professor Mistelis has shown that the lex arbitri is the most important criterion for the choice of the seat of arbitration. Albeit there are some exceptions (as to when unfair competition and anti-trust disputes are not arbitrable) the lex arbitri is not so important anymore. The review of the award shall be made in accordance with internationally accepted standards. The “Rattachement” of an award into the legal order of the seat of arbitration is not always desirable.
Stefan Kröll (University of Cologne) referred to the works undertaken by him and by Professor Bachand for the compilation of case law on UNCITRAL texts and commented that this initiative may be considered as a contribution for the further internationalisation of judicial decisions.
Professor Giuditta Cordero Moss (University of Oslo) discussed the “delocalisation” theory. She posed the question whether the UNCITRAL Arbitration Rules should exclude local courts from judicial control. She mentioned the Pros and Cons, but opined that such a provision would not help to abrogate jurisdiction of the courts. The result has been an Annex to the rules with a statement that the extent of exclusion depends on local law. Another example was the requirement that the arbitration agreement has to be in writing. However, the admission of orally concluded arbitral agreements turned out to be too progressive, although it conformed with the transnational theory. The outcome had been the two options as in the Model Law.
Patricia Shaughnessy (University of Stockholm) dealt with the generational shift that is taking place in ICCA. Shall the old patterns be kept or should new ones be searched ? Transnational commercial law unconnected to national laws is about to arise. Government representatives to UNCITRAL increasingly support this development.
Investing Across Borders
Antonia Menezes (World Bank) presented the recent study undertaken by the World Bank. Investing Across Borders (IAB) is a World Bank Group initiative presenting indicators on countries’ laws and regulations which affect how foreign companies invest across sectors, start businesses, access industrial land, and arbitrate commercial disputes. Its objectives are: (i) to respond to information requests for benchmarks on Foreign Direct Investment (FDI) Regulations by governments, in the private sector and for development partners and academics; (ii) to facilitate the dialogue with politicians by identifying good practices and by sharing reform experiences to encourage FDI; (iii) to stimulate regulatory reforms; and (iv) to provide advice regarding reform projects and to foster research and analysis.
Professor Frédéric Bachand has been one of the experts and put a focus on arbitration by establishing a database available on the internet to support the search for the appropriate venue of arbitration. The language of the arbitration law itself has not been helpful for this purpose, and it is the practice which is the decisive factor. This, among other things, is highlighted by the study.
Yas Banifatemi listed the difficulties and obstacles that have arisen. For example, the difficulty on how to read the collected data and on how to evaluate and understand the data correctly.
Maria Theresia Pflügl (Freshfields Bruckhaus Deringer, Vienna) has contributed to the study. She shared her observations from the standpoint of a transaction lawyer. She gave an example co a Swiss investment in Ukraine for a joint venture. In 2005 the business terms for an agreement between parties had been set up. However, the legal concerns could not be resolved at that time. The parties decided to escape from local law and chose Austrian substantial law and VIAC as the arbitral institution. She explained the reasons for the investor choosing to revert to arbitration in a third country. She also mentioned that the business transaction eventually has become operational without any further difficulty.