Human rights and investment arbitration: What we can expect in 2019
In 2018, we highlighted the growing relevance of arguments based on international human rights to investment treaty arbitration. We expect this focus on investor responsibility, as the counterpoint to investment protection, to continue.
Following the 2017 landmark decision in
Urbaser v Argentina
, where the tribunal accepted jurisdiction over Argentina's counterclaim based on the human right to water, tribunals have continued to grapple with arguments raised by States based on alleged violations of human rights and environmental standards. In Bear Creek Mining Corporation v Peru (November 2017), for example, the tribunal limited the investor to recovery of its sunk investment costs in circumstances where there was limited prospect of obtaining a "social license to operate" for a mining project, with the dissenting arbitrator also proposing a further reduction in damages for contributory fault. Meanwhile, in Aven v Costa Rica (September 2018), the tribunal upheld Costa Rica's right to enforce environmental regulations and accepted jurisdiction in principle over a counterclaim. In short, States now appear to be invoking human rights and environmental obligations on investors as a potential 'shield' against claims - one question is whether we will see such obligations also increasingly used by States as a possible 'sword'.
Further reflecting States' increasing public interest concerns, recently-drafted bilateral investment treaties explicitly prescribe commitments regarding human rights, corporate social responsibility and sustainable development, alongside protections to investors. For example, on 19 October 2018, the Dutch Government adopted a new Model BIT, which contains an innovative provision that permits investor compensation to be reduced for non-compliance with the UN Guiding Principles and the OECD Guidelines for Multinational Enterprises; it further provides that investors can be liable for damage in the host State under the rules applicable in their own home State. The Dutch Government has announced plans to notify the European Commission of its intention to renegotiate its 78 non EU-BITs in line with the new Model BIT. It will be interesting to see how this re-negotiation process unfolds and the extent to which the Model BIT may recalibrate States' approach generally to investment protection.
Further examples include the Cooperation and Facilitation Investment Agreements that Brazil has signed with Ethiopia (April 2018) and Suriname (May 2018), both of which contain provisions aimed at encouraging sustainable development and corporate social responsibility, as well as provisions expressly confirming that the host State is free to adopt measures in order to ensure that foreign investment is carried out according to national labour, environmental and health laws.
Efforts are also underway to develop
a legally binding UN instrument
that sets out the rights and obligations of transnational corporations in relation to human rights, as well as to develop a set of arbitral rules specifically tailored towards the resolution of disputes concerning alleged violations by multi-national enterprises.
t appears likely that both investors and States will raise increasingly innovative arguments relating to investor responsibility. We will watch with interest to see how these arguments are treated by tribunals.
"States are increasingly invoking human rights and environmental obligations as a potential 'shield' against claims by investors. One question is whether we will see such obligations used by States as a possible 'sword'".
Lamps Plus, Inc. v. Varela: Class Arbitration Must Be Expressly Authorized
Class arbitration came back before the Supreme Court this term in Lamps Plus, Inc. v. Varela. Today, the Supreme Court issued a 5-4
in Lamps Plus, holding that, under the Federal Arbitration Act, "courts may not infer from an ambiguous agreement that parties have consented to arbitrate on a classwide basis." Rather, class arbitration must be expressly authorized by contract.
The facts of Lamps Plus are straightforward. An employee had signed an arbitration agreement upon being hired to work for Lamps Plus. After a data breach, the employee sued Lamps Plus in federal court. Lamps Plus filed a motion to compel individual arbitration, and the district court granted the motion to compel but authorized arbitration on a class basis. The Ninth Circuit affirmed, reasoning that the arbitration provision was ambiguous as to class arbitration and must be construed against the employer under California's contra proferentem rule that ambiguities in a contract must be construed against the drafter.
The Supreme Court reversed. The Court accepted the Ninth Circuit's conclusion that the arbitration provision was ambiguous, and went on to hold that an ambiguous agreement cannot provide the necessary contractual basis for compelling class arbitration.
Stolt-Nielsen v. AnimalFeeds Int'l Corp.
, the Supreme Court had held that "a court may not compel arbitration on a classwide basis when an agreement is silent on the availability of such arbitration." Stolt-Nielsen reaffirmed that arbitration "is a matter of consent." Because class and individual arbitration fundamentally differ, the Court had concluded, there must be an "affirmative contractual basis for concluding that the party agreed" to class arbitration.
The Court concluded that Stolt-Nielsen controlled the question raised in Lamps Plus.
Like silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to sacrifice the principal advantage of arbitration.
The majority concluded that the Ninth Circuit erred by relying on the doctrine of contra proferentem to compel class arbitration. That doctrine applies only as a rule of last resort, when the intent of the parties cannot be discerned by ordinary methods of interpretation. That is, the doctrine provides a default rule rather than a method of ascertaining the intent of the parties. Under
AT&T Mobility v. Concepcion
, however, state law may not "manufacture" class arbitration absent the parties' consent. Thus, the Court held that the "contra proferentem rule cannot be applied to impose class arbitration in the absence of the parties' consent."
Lamps Plus firmly rejects lower courts' attempts to read Stolt-Nielson narrowly. The Ninth Circuit was not alone in reading that case as limited to its facts. The First Circuit also, in
Fantastic Sams Franchise Corp. v. FSRO Assoc.
, had concluded that Stolt-Nielsen did not require "express contractual language evincing the parties' intent to permit class or collective arbitration." The First Circuit's narrow view of Stolt-Nielsen, along with that of the Ninth Circuit, has now been expressly repudiated by the Supreme Court.
Global Pound Conference Series
Launched in Singapore and finishing in London, the GPC Series convenes all stakeholders in dispute resolution -commercial parties, lawyers, academics, judges, arbitrators, mediators, policy makers, and others - at conferences around the world.
The local voting results, chats and comments are available, please
A number of recent mediations have reaffirmed some essentials which I share here in the hope that they might be helpful to others:
It's not all about the money. Mr A had a very substantial claim against a bank running into hundreds of thousands of pounds Sterling, most of his life savings. When I asked him, early on, what he needed from the mediation day, he replied "I'd like them to apologise". The bank's advice was that it had done everything it could and that it had no legal liability. A familiar situation. However, the bank's representatives found a way, authentically, to convey their deep regret that Mr A had experienced losses. They said they would do everything they could to ensure it would not happen again.
Mr A was very pleased with what was said. The matter settled for a modest sum overall. The Bank and Mr A conducted the final stage of the negotiations themselves, with support from advisers. Both parties left the mediation process satisfied with the outcome.
When wheels have come off, re-engage the key players. Day two of mediation was designed to build on day one several weeks earlier. However, the parties had not made the expected progress. In private initial meetings, one party expressed frustration and a feeling of lack of respect being shown by the other party - and a desire to conclude the process and proceed with litigation.
The engagement between the mediation days had been at a level below the key players. When the principals came together in a private meeting with me, they were able to hear from each other about their mutual frustration with what had happened. They agreed that they needed to oversee the process.
Much progress was then made in joint meetings in which the subordinates addressed the main issues under the watchful eye of the principals. The less senior people (including professional advisers) behaved in a different way with each other as they explored why they had not made progress, where the difficulties lay, and what needed to be done to make faster progress. The most senior people watched, asked questions, summarised, and provided guidance and leadership. The parties probably achieved more in half a day than for several months.
Get under the surface. In a long-running claim worth many tens of millions, the decision-makers appeared to have reached the end of the road. In an effort to find a way forward, we spent four hours going through my 'Questions for a Difficult Meeting' questionnaire. The parties prepared privately first and then, meeting together, they alternated in giving their responses. The nature of the questions is such that they needed to dig deeper to look for answers. This opened up new levels of understanding about pressures, outside constituencies, alternative courses of action, changed realities and validation required for amounts sought. It led to a further discussion about possible settlement figures.
Ask questions. Similarly, in a difficult mediation involving very senior directors in a company, impasse had been reached. Or so it seemed. But the more questions I asked, about their own ambitions, what others would say about them, how they might have contributed, what they might change or do themselves to make a difference, what questions they needed to ask, what pressures each was under, what they might be missing, and so on, the more they could see for themselves what needed to happen. I am a great believer in party autonomy. Questions, used well, compel people to take responsibility.
Use a worked example. Many of us struggle with figures. Few of us really get to the bottom of what the numbers are telling us - or might tell us if we understood them. In a mediation involving a business partnership in which property was being divided up in a separation, the lawyers had spent several hours trying to explain what it all meant. Eventually we got the flip chart sheets up and the parties themselves began to map it all out. It wasn't easy as there were so many variables around land valuations, compulsory purchase possibilities and development proposals. And the taxation aspects were uncertain. However, for over an hour, we worked it through.
One of the parties was moved to say: "The figures are so much easier to understand than the lawyers' words"!! Enough said. A satisfactory deal was done.
Encourage forward-looking momentum. When the going gets tough, maintain a process and be clear what that is - and try to ensure that the parties continue to commit to it. It has been said (by Deepak Malhotra in his excellent 'Negotiating the Impossible'): "Stay at the table even after failed negotiations - if you are not at the table, you are on the menu".
The job of the mediator is to (a) try to offer the best possible process for the circumstances; (b) keep in touch with and support parties even when there seems to be an impasse and (c) be prepared for a window of opportunity to open up, perhaps unexpectedly. Keep looking for it. In my experience, it often does. And we rediscover that most people, whoever they are, wish to resolve their disputes by agreement.
Provide food. Continuing with the idea of eating, it is encouraging to have endorsement of the value of bringing all the participants in a mediation together to share food. I do this whenever I can, with everyone meeting for breakfast after my initial private meetings. A buffet lunch can also be useful where people can choose to linger and chat if they wish.
So that will be pizzas for the early evening final push for resolution then! It is all food for thought...
| Quote for the Day
"What makes us human, I think, is an ability to ask questions."
Image Courtesy of Brad Heckman
See other images from Brad Heckman
The Deep End
Getting to grips with mediation can leave students and trainees overwhelmed. That favourite training tool, the roleplay, throws most in at the deep end. The sudden immersion forces them to speak, listen and observe while trying to remember models and skills plus a sea of reading and the trainer's feedback. Oh, and all combined with performance anxiety. (See Michael Jacobs' excellent critique of this approach in
"How About Making Mediators More Stupid: A Training Agenda"
). This is well-intentioned and even helpful, but I sense that most emerge from their training with the same unanswered question: what does good mediation look like? To expand this slightly: what exactly do expert mediators do and say? How do they work their magic?
Rather than add more tips to the long list already out there (for which I must bear some responsibility: see
Practical Tips for Mediators
) I'd like to offer another perspective - the user's. Regular readers will know that I am myself immersed in, and sometimes overwhelmed by, a PhD study of mediation parties. Mediation practice isn't the main focus; in fact I'm researching ordinary people's sense of fairness and justice. However, from time to time, in the stories I hear, I catch glimpses of mediators in action.
Asked if the process was fair this individual spoke highly of "the senior mediator", then added this passage:
Respondent (R).. It was a good process. Yes.
Interviewer (IV).. Yeah? OK.
R.. Yes. It was fair -
IV.. And what made it so?
R.. The professional way it was done.
R.. Yeah. The controlled environment that it was done in. The clear wording that was used all the time. They had no - the mediator didn't have a challenge from either party, so that helped.
R.. Neither party was challenging to any serious extent. There was never a raised voice, ever. But that's only created if you create the correct environment and I think the mediator did.
R.. And a proper briefing in advance.
Sounds So Simple
What does this tell us about effective mediators? At first glance it's simple, trite even: behave professionally, create a controlled environment, explain things clearly and, almost as an afterthought, brief people about what's going to happen. And yet this person's repeated mention of the lead mediator suggests there was something striking about her approach. The claimant clearly felt in very safe hands.
That 'to do' list elegantly captures four faces of good mediation: trust, setting, word choice and preparation.
Read full article on Kluwer
Seven years since "emergency" was declared by ICC: do we know what a real emergency is?
The ICC International Court of Arbitration (ICC) has recently announced that the ICC Report on Emergency Arbitrator Proceedings (report) will be released on 3 April 2019, as a part of the Paris Arbitration Week 2019.
Considering the previous comprehensive analysis of the emergency arbitrator provisions was undertaken in 2014 when a study was conducted on the first ten emergency arbitrator cases (first emergency arbitrator report), an updated, more detailed report would be a welcome move. The report promises to analyse all aspects, including procedural and substantive issues, which may arise in emergency arbitrator proceedings. It will be based on an empirical study of the first 80 applications that have been filed with the ICC since the inception of the emergency arbitrator provisions.
The ICC formally introduced the emergency arbitrator provisions in 2012 at Article 29 in the Rules of Arbitration of the ICC (ICC Rules) and also provided detailed procedures with respect to these provisions in Appendix V attached to the ICC Rules (together, the emergency arbitrator provisions). These provisions allowed parties to obtain urgent relief prior to the constitution of the tribunal in the case of an ICC arbitration. They were also given an "opt-out" status, wherein these provisions become applicable in all cases under arbitration agreementsconcluded on or after 1 January 2012 unless the parties agree to opt out.
In the run up to the "Global Kick-Off" of this report, this blog seeks to take a look at what we know (and do not know ) about the "'urgency" of the emergency arbitrator process and highlights a specific issue that the author hopes will be addressed in the report.
The emergency arbitrator provisions serve two primary purposes. Firstly, they fill the temporary gap in requesting relief between filing a request for arbitration and the constitution of the tribunal. Secondly, they offer parties an avenue to claim interim relief where national courts may have their hands tied, either in terms of confidentialityconcerns or where they do not afford interim relief at all. Having said that, the emergency arbitrator provisions do not prevent parties from seeking urgent interim/conservatory measures from a competent judicial authority at any time prior to making an emergency arbitrator application and, in appropriate circumstances, even thereafter.
How urgent is "urgent"?
The scope of work of an emergency arbitrator does not include ruling on the merits of the case and is always limited to emergency measures, that is, those "urgent, interim or conservatory measures that cannot await the constitution of an arbitral tribunal". Thus, one of the main criteria taken into account by an emergency arbitrator while deciding whether relief may be granted is if such relief "cannot wait the constitution of a tribunal" and is "urgently" required by the party seeking it. This condition is specifically mentioned in Article 29(1) of the ICC Rules and is also listed as an admissibility-check item in the ICC Emergency Arbitrator Order Checklist, which is a guidance note issued by the ICC for emergency arbitrators.
Thus, the question of urgency would need to be answered in the affirmative while:
- Looking at the admissibility/jurisdiction of the emergency arbitrator application.
- As a substantive requirement for the relief to be granted pursuant to admission.
Emergency arbitrators have approached these questions in various ways based on the circumstances of the case at hand. There is no strict, clear-cut formula on what standard of proof is required for an emergency relief request to be admitted and subsequently granted.
In a case known to the author, an emergency arbitrator, when deciding whether a matter was actually urgent and could not await the constitution of the tribunal, enquired whether the situation giving rise to the interim measures requested would be different if it were to be examined subsequently by the tribunal. In finding that it would not be different, the emergency arbitrator rejected the request to grant interim relief. In this case, the claimant had requested the emergency arbitrator to order the respondent to deliver certain goods to maintain the flow of goods to the claimant until the constitution of the tribunal. However, the emergency arbitrator held that the claimant had not actually shown that there would be a shortage of the goods during the period until the tribunal was constituted. The emergency arbitrator also considered the period of time that it would take for the final constitution of the tribunal and held that, during this period, the claimant would not suffer any loss or harm which would need to be urgently remedied by the respondent; they therefore did not foresee the need for emergency relief to be granted.
In another recent case, involving a request for urgent relief, the claimant asked the emergency arbitrator to restrain a company, which was a beneficiary of an on-demand guarantee made by a bank, from calling on such a guarantee. However, the emergency arbitrator noted that the claimant had conceded in its submissions that if this guarantee was indeed called upon, the claimant's shareholders would in fact be able to make additional contributions for the purposes of satisfying a request for reimbursement by the bank. Thus, the emergency arbitrator held that there was no sufficient proof of the urgency of the claimant becoming bankrupt and hence rejected the request. This case illustrates that the question of an "emergency" is not necessarily one that turns on what can change in the short period between submitting the request for arbitration and the constitution of the tribunal, but on whether a party could mitigate circumstances that may actually result in an "emergency".
Neither of the cases addressed the specific question of the threshold required to meet the standard of urgency for emergency arbitrator applications, and whether this is the same or any higher than required for "regular" interim measure applications submitted to the tribunal. As stated in the first emergency arbitrator report, this question was also raised by an emergency arbitrator while hearing one of the first emergency arbitrator applications filed with the ICC, but no conclusion was reached with respect to this question.
What did the first emergency arbitrator report say?
The first emergency arbitrator report had briefly touched upon this issue. It observed that certain emergency arbitrators had addressed the urgency test while discussing both admissibility and merits, while other emergency arbitrators had restricted the urgency discussion to the merits of the case. At the present time, a clear definition or explanation of this requirement has not been provided and emergency arbitrators have generally analysed this question based on the specific circumstances of each case. While it is true that deciding whether a matter is urgent or not would largely turn on the facts of a particular case, it would be interesting to see whether this approach has changed over the years and if the report addresses this in greater detail, or offers any clarity on the practice generally followed.
Also of note in the first emergency arbitrator report is the narrative of a case where an application was finally dismissed, not on the basis of whether the emergency arbitrator considered the measure to be an urgent one or not, but because there was no sufficient proof of irreparable harm to the claimant. This case, according to the first emergency arbitrator report, demonstrates that urgency does not always necessarily determine the outcome of the application, which could be rejected on other grounds. Thus, despite the fact that the ICC Rules do not explicitly mention any other substantive standards or prerequisites for granting emergency measures, emergency arbitrators have been known to look at other criteria as well.
It is interesting to note that the UNCITRAL Rules and the Hong Kong International Arbitration Centre (HKIAC) Rules unambiguously lay down criteria that may be taken into account while deciding applications to grant interim/emergency measures. However, since emergency arbitrators appointed in ICC arbitrations are not provided with such a list, they often turn to standards applicable to granting interim relief laid down by national arbitration laws, international arbitration practice, and civil procedure laws of the seat of arbitration.
Besides the urgency test, the most common questions that are taken into account by emergency arbitrators in deciding an emergency relief application are whether:
- There is a prima facie case for the measures requested.
- There is a risk of irreparable harm.
- The applicant has demonstrated a reasonable chance of succeeding on the merits of the case.
In answering the last question, the emergency arbitrator would, however, have to tread carefully so as to avoid prematurely ruling on the merits at a stage of the proceedings where the evidentiary record is yet to be complete. Having said that, it is interesting to note that the first emergency arbitrator report observes that emergency arbitrators have generally been flexible in their approach and have not felt strictly bound by criteria commonly relied on in international arbitration practice as referred to above.
The then Secretary General and Deputy Secretary General of the ICC, authors of the first emergency arbitrator report, had observed that the question of the standards governing the granting of emergency measures is one of the most important and controversial issues in relation to interim measures. We will have to wait and see if this continues to be true today and to what extent the upcoming report addresses this. It would indeed be very helpful if the report lays down the threshold for the "urgency" test, describes factors that may be taken into account while evaluating whether the "urgency" criteria has been met, and possibly also sets out a "laundry list" of items that emergency arbitrators have generally considered over the years while granting (or not granting) emergency relief measures. This will not only help emergency arbitrators who may be appointed in the future, but it will also give parties and their counsel a clearer picture in deciding whether to proceed with an emergency arbitrator application or not.
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Thank you for reading my newsletter, and as always, if you have any questions on any of the articles listed, do not hesitate to contact me.
Thomas P. Valenti, P.C.
350 W. Hubbard St., Suite 630
Chicago, IL 60654-3406
© April 2017 Thomas P. Valenti