Kluwer Arbitration Blog » Lucy Reed

More on Corporate Criticism of International Arbitration

Lucy Reed — Fri, 16 Jul 2010 22:13:40 +0000

I recently spoke at a conference co-sponsored by the Milan Chamber of Arbitration and the ICC on the occasion of the publication of the new Italian arbitration treatise entitled Commentario Breve al Diritto Dell’Arbitrato Nazionale ed Internazionale (CEDAM 2010) by my colleague Massimo Benedettelli, along with co-authors Claudio Consolo and Luca Radicati di Brozolo. The topic of my panel was general trends in international arbitration.

Although I would have liked to have spoken on a substantive trend in international arbitration, I decided I could not ignore a much bigger, procedural trend that has been the topic of conferences in both the United States and Latin America – that is the growing discontent of corporate users with international arbitration.

The criticisms regarding international arbitration center around cost and efficiency. A recent study of the Corporate Counsel International Arbitration Group (CCIAG) found that 100% of the corporate counsel participants believe that international arbitration “takes too long” (with 56% of those surveyed strongly agreeing) and “costs too much” (with 69% strongly agreeing).

Three main questions arise from these criticisms. The first is whether these criticisms are justified? The second is, if so, then what (or who) is to blame? The third and final question is what can the arbitration community do about these critiques? The answers to the first two questions depend on where one sits. But I am increasingly impatient with our responses to the third, as I think there are relatively simple solutions if we are willing to be creative and proactive.

First, much of the criticism regarding cost and efficiency in international arbitration is targeted at investor-state arbitration. These by their nature involve a more transparent and political process than international commercial arbitration, and the problems and solutions are, in part, different in each.

Second, there is plenty of blame to go around. Many blame complaints on outside counsel – especially those from the United States – for requesting too many documents, making too many motions, and generally filing too many pages. Others blame in-house counsel for not using their authority to rein in practices they criticize as inefficient or wasteful. And some blame the arbitral institutions themselves for not constructing a system that reins in everyone.

My most negative experiences recently, however, have been with arbitrators – and especially chairs – who are oftentimes overscheduled, unprepared, disorganized, reactive, timid and slow. Without suggesting I am blameless as a chair, there is no way to defend arbitrators who cannot schedule hearings for months or produce awards for years. But don’t take it from me. The CCIAG survey lists the following factors as contributing to the rising inefficiency of international arbitration: (i) 100% of those surveyed identified arbitrator availability and excessive document disclosure; (ii) 95% identified the “failure of tribunals to narrow issues, evidence and argument leading parties/counsel to feel need to cover all bases” and (iii) 90% identified excessive concern for due process over efficiency, leading to a free-for-all on timing.

So, then, what are the solutions? Fortunately several have already been identified and implemented. The CEDR and ICC have published rules and techniques for controlling time and costs. The ICC has revised its Arbitrator Statement of Independence to include information on availability, in the form of data about other cases in which an arbitrator candidate is serving. Despite the many complaints regarding the “Americanization” of document discovery, it is the AAA that has issued international guidelines calling for arbitrators to manage document disclosure strictly, using cost assessment as a control mechanism.

We can go farther. Institutions should require more than the ICC’s disclosure on availability. Why not require a simple calendar with black-out dates for scheduled hearings and deliberations as arbitrator, teaching commitments, hearings and major filings as counsel? No disclosure of details, of course, but just calendar dates – based on then-available information – on when an arbitrator is and is not available for hearings.
As for efficiency in issuing awards, why not require arbitrator candidates to disclose not just how many prior cases they have handled as arbitrator, but also, for each case, how much time passed between the close of the record and the issuance of the award? Provided there is a field for an explanation, i.e., delay caused by suspension, or illness, this is simply objective ‘data’ helpful to the parties.

How about building into the procedural calendar a one or two day private (and paid) meeting of the tribunal to allow (and in some cases, force), the arbitrators to study the record together, prepare focused hearing directions, and (ideally) issue (neutral) questions to parties to prioritize use of witnesses and hearing time. (This is the “Reed Schedule” I mentioned in prior talks and blogs.)

Finally, if these proposals seem radical, consider that the CCIAG has proposed a far more radical solution: linking arbitrator remuneration to achieving milestones in the procedural calendar.

Whether or not concerns about international arbitral efficiency are exaggerated, the international arbitration community must face this discontent and, more importantly, take steps to fix these problems if it is to maintain legitimacy with its users.

Availability of Arbitrators: What About the Other Objective Data?

Lucy Reed — Tue, 11 May 2010 15:45:55 +0000

When it comes time to identify an arbitrator candidate, be it in the investor-state context or in an international commercial arbitration, there are many factors to consider. One such factor, however, that has been the focus of much attention recently by arbitration institutions, practitioners and commentators alike, is arbitrator availability. It is clearly a sore subject.

In August 2009 the ICC took a major step towards transparency with respect to arbitrators’ availability and workload. As a result of these measures, the ICC now requires ICC arbitrators to complete an ICC Arbitrator Statement of Acceptance, Availability and Independence listing their “currently pending” cases, and confirming their ability to devote the necessary amount of time to the arbitration and to conduct the process “diligently, efficiently and in accordance with the time limits in the Rules”.
While the ICC’s measures to increase transparency about arbitrator availability are certainly welcomed and commendable, they are only a first step. Aside from ascertaining the number of “currently pending” cases in which an arbitrator candidate is involved, either as tribunal chair, co-arbitrator or counsel, other objective data is relevant and ought to be available. This kind of data includes details about the calendar of an arbitrator candidate, and details about an arbitrator candidate’s record for award drafting in past cases.

Calendar of an Arbitrator Candidate. Arbitral institutions should not be afraid to ask an arbitrator candidate for a calendar of his/her professional responsibilities for the upcoming 12 – 18 months. We obviously do not mean a calendar with case (or personal) details, but rather a calendar showing dates blacked-out for existing commitments: hearings, deadlines for the drafting of awards and time blocked for drafting (particularly if the candidate is acting as tribunal chair), and responsibilities as counsel.

An Arbitrator Candidate’s Record on Awards. As we have said publicly before, why shouldn’t institutions – and parties – ask arbitrator candidates to indicate on their disclosure statements information, from past cases as arbitrator, about the length of time (i) from the final hearing to the close of the proceedings, and (ii) from the close of the proceedings to the issuance of the award. Arbitrators would, of course, be able to explain any particularly long delay, for instance, due to suspension of the proceedings by the parties for settlement purposes or illness of a tribunal member.

Although the number and type of arbitrations an arbitrator candidate has done is perhaps the most important piece of information for appointing parties and institutions, surely it would help those parties and institutions also to have information about the candidate’s availability – real availability – and pattern of award issuance. If the first type of objective date is required on disclosure statements, why not the second?

By Lucy Reed and Noiana Marigo

Safety National Casualty Corp. v. Certain Underwriters at Lloyd’s, London:Does the McCarran-Ferguson Act Authorize State Insurance Law to Reverse-Preempt the New York Convention?

Lucy Reed — Mon, 12 Apr 2010 22:32:55 +0000

In Safety National Casualty Corp. v. Certain Underwriters at Lloyd’s, London, 587 F.3d 714 (5th Cir. 2009), the Fifth Circuit addressed the following question: does the McCarran-Ferguson Act authorize state law prohibiting arbitration agreements in insurance contracts to reverse-preempt the New York Convention or the New York Convention’s implementing legislation (the Federal Arbitration Act, or FAA)? In comparison to the Second Circuit (which had already decided a similar question), the Fifth Circuit held that the New York Convention trumps the state law in this instance, thereby permitting compulsion under an arbitration agreement.

The McCarran-Ferguson Act proscribes Acts of the U.S. Congress from preempting state insurance law unless the Act of Congress specifically relates to the business of insurance, stating that “No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance … unless such Act specifically relates to the business of insurance” (15 U.S.C. § 1012(b)). In passing the McCarran-Ferguson Act in 1945, Congress declared that it was in the public interest to allow the several states to continue to regulate and tax the insurance industry (15 U.S.C. § 1011).

In Safety National, a dispute arose among three insurers regarding arbitration agreements. The Louisiana Safety Association of Timbermen-Self Insurers Fund (LSAT), which provides workers’ compensation insurance to its members, entered into reinsurance agreements with Certain Underwriters at Lloyd’s, London (Underwriters) that contained arbitration agreements. Safety National Casualty Corporation (Safety National), which is also a provider of excess insurance coverage, alleged that LSAT transferred its rights under these reinsurance agreements to Safety National. Underwriters refused to recognize this assignment, arguing that LSAT’s rights under the reinsurance agreements were non-assignable.

After Safety National filed suit against Underwriters in federal district court, Underwriters filed a motion (which was unopposed) to stay the proceedings and compel arbitration, which the district court granted. Once the arbitration began, however, the parties (Underwriters, Safety National and LSAT) could not agree on the process for selecting arbitrators. Therefore, Underwriters filed a motion in the district court to lift the stay of the proceedings in order to join LSAT as a party to the litigation and also to compel arbitration to determine the process for selecting arbitrators. LSAT then moved to intervene, lift the stay and quash arbitration, arguing that the arbitration agreements in the reinsurance agreements were not enforceable under Louisiana state law.

The U.S. District Court for the Middle District of Louisiana granted LSAT’s motion on the grounds that the New York Convention, which would otherwise operate to compel arbitration, was reverse-preempted under the McCarran-Ferguson Act by a Louisiana state law prohibiting arbitration agreements in insurance contracts. The Fifth Circuit reversed the District Court’s decision, holding that the McCarran-Ferguson Act did not allow the Louisiana state law to reverse-preempt the New York Convention or the FAA.
The Fifth Circuit then considered the case en banc and reversed the District Court’s decision on the grounds that the McCarran-Ferguson Act does not apply to the New York Convention. The majority held that the Louisiana state law did not reverse-preempt the New York Convention for two reasons: (1) a treaty (such as the New York Convention) is not an “Act of Congress” for the purposes of the McCarran-Ferguson Act; and (2) it is the New York Convention, rather than the FAA, which determines the parties’ rights and obligations, and supersedes state law.

Writing for the majority, Judge Priscilla Owen stated that while it was “unclear” whether the New York Convention is a self-executing treaty, “[t]he fact that a treaty is implemented by Congress does not mean that it ceases to be a treaty and becomes an ‘Act of Congress’” (Safety National, 587 F.3d at 721, 723). The majority also stated that the FAA “does not in this case operate without reference to the contents of the [New York] Convention,” and “[b]ecause here the [New York] Convention, an implemented treaty, rather than the [FAA], supersedes state law, the McCarran-Ferguson Act’s provision that ‘no Act of Congress’ shall be construed to supersede state law regulating the business of insurance is inapplicable’” (id. at 724, 725).

In her concurring opinion, Judge Edith Brown Clement stated that she would hold that Article II of the New York Convention is self-executing and, as such, preempts the Louisiana state insurance law through the operation of the Supremacy Clause. In determining whether Article II is self-executing, Judge Clement utilized the interpretative framework established in Medellin v. Texas, 552 U.S. 491 (2008), which first looks to the text of the treaty, and also to its “negotiation and drafting history” and the signatories’ “postratificiation understanding” (Medellin, 552 U.S. at 506-07 (citations omitted)). Judge Clement determined that Article II(3) is self-executing because it is specifically addresses the courts of the Contracting States (as opposed to the Contracting States themselves) and contains mandatory (as opposed to discretionary) language. As such, Judge Clement concluded that Article II is enforceable in U.S. courts on its own terms because it does not require Congress to pass implementing legislation.

Judge Jennifer Walker Elrod wrote a dissenting opinion, which was joined by Judges Jerry E. Smith and Emilo M. Garza. The dissent concluded that the New York Convention is a non-self-executing treaty and that the majority was incorrect to frame the question before the en banc court as whether the New York Convention is an “Act of Congress” for the purposes of the McCarran-Ferguson Act. Rather, the dissent maintained that the appropriate question is whether the FAA, as the New York Convention’s implementing legislation, is an Act of Congress. Upon addressing this reformulated question, the dissent determined that the FAA is indeed an Act of Congress, which would be reverse-preempted according to the McCarran-Ferguson Act because the FAA does not specifically relate to the business of insurance.

Moreover, the dissent declared that the concurrence was incorrect to address the issue of whether the New York Convention was self-executing because Underwriters failed to preserve their argument that Article II is self-executing before the en banc court (which the majority also noted in passing). The concurrence responded to the dissent’s point, stating that Underwriters merely focused their argument before the en banc court on the question presented by the panel, and therefore did not waive their argument that Article II is self-executing.

The Fifth Circuit’s en banc decision in Safety National acknowledged that it created a circuit split with the Second Circuit’s holding in Stephens v. American International Ins. Co., 66 F. 3d 41 (2nd Cir. 1995). In Stephens, the Second Circuit held that the New York Convention was reverse-preempted under the McCarran-Ferguson Act by a Kentucky state law regulating the business of insurance, which would render the arbitration agreement between the parties unenforceable. In reaching its holding, the Second Circuit declared that the New York Convention is “not self-executing, and therefore, relies upon an Act of Congress for its implementation” (Stephens, 66 F.3d at 45).

The Fifth Circuit addressed the Second Circuit’s holding in Stephens by stating: “[b]ecause we give the phrases ‘Act of Congress’ and ‘such Act’ their usual, commonly understood meaning, we conclude that implemented treaty provisions, self-executing or not, are not reverse-preempted by state law pursuant to the McCarran-Ferguson Act” (Safety National, 587 F.3d at 731). A petition for certiorari was filed on February 5, 2010 in Safety National. It will be interesting to see if the Supreme Court grants certiorari to resolve this circuit split.
by Katie Duglin and Lucy Reed

The Consequences Of Market Intervention

Lucy Reed — Thu, 11 Mar 2010 15:31:46 +0000

Following the flurry of arbitrations initiated by investors against Argentina based upon Argentine government actions during that country’s 2001-2002 economic crisis, one might have expected the U.S. government’s extensive market interventions during the 2008 global financial crisis to lead similarly to investor claims. The United States bailed out Fannie Mae and Freddie Mac, in the process acquiring the right to dilute significantly the companies’ existing shares. It also provided large sums of capital to several U.S. banks and car manufacturers. But foreign investor claims have yet to materialize (at least not publicly). While a variety of factors may be at work, the absence of such claims raises some interesting questions, none with obvious answers.
It may be that the U.S. financial crisis is so factually distinct from the Argentine crisis that the comparison is not a fair one. Perhaps the Argentine government’s clear promises regarding the applicable regulatory framework have no parallels in the U.S. context, rendering any fair and equitable treatment claim less viable.
Or perhaps the explanation is not based upon a factual or legal distinction, but rather it lies with pragmatic considerations. The United States remains the preeminent global economic superpower. In applying the fair and equitable treatment standard and determining the applicability of the necessity defense, would a panel of arbitrators use its discretion to give the United States more leeway than other states? Are investors simply afraid to upset their existing relationship with the U.S. government? Perhaps WTO dispute settlement (which actually involves a different standard for the necessity defense), not investor-state arbitration, is the appropriate forum where subsidy-related issues could be addressed at the state-to-state level – in which case the question would be out of investors’ hands?
In a perfect world, international legal standards are applied evenly, irrespective of the identity of the respondent. Yet, much as U.S. federal judges make decisions fully aware of institutional limitations that may affect the implementation of those decisions by other branches of government, arbitrators make decisions in the global context of sophisticated actors participating in a complex, interconnected economy. While these are not questions that can be answered definitively, we can learn more about the role of international arbitration as it is applied to a variety of political and economic scenarios, including the global financial crisis. As first noted in this blog by Luke Eric Peterson (Whither the New Financial Crisis Claims?, February 5, 2009), we are still waiting for the initiation of financial crisis claims.

Lucy Reed and Phillip Riblett

Israel’s Settlement of UN Claim Involving Gaza

Lucy Reed — Fri, 05 Feb 2010 19:09:42 +0000

International claims settlement involves a number of challenges that are relevant for the international arbitration community, including fact-finding and burden of proof, principles of State responsibility, treaty interpretation and damages under international law. One recent development of note involves Israel’s recent settlement of a claim brought by the United Nations.

In July 2009, the United Nations submitted to the Ministry of Foreign Affairs of Israel a claim for reimbursement for the losses that the United Nations sustained in a number of incidents that occurred during the Gaza conflict between December 2008 to January 19, 2009. As a result of discussions that took place between the United Nations and Israel regarding that claim, last month the Government of Israel paid the United Nations $10.5 million as reimbursement for those losses.

The settlement follows an inquiry that began on February 11, 2009, when the UN Secretary-General convened a UN Board of Inquiry to review and investigate the following incidents that occurred in the Gaza Strip between December 27, 2008 and January 19, 2009:

“(1) Injuries occurring at and damage done to the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) Khan Younis Preparatory “A” Girls School on 29 December 2008 and the subsequent death of the person injured;
(2) Deaths occurring at and damage done to the UNRWA Asma Elementary School in Gaza City on 5 January 2009;
(3) Deaths and injuries occurring at and in the immediate vicinity of, and damage done to, the UNRWA Jabalia Preparatory Boys “C” School on 6 January 2009;
(4) Injuries occurring at and damage done to the UNRWA Bureij Health Centre on 6 January 2009;
(5) Small-arms fire affecting an UNRWA convoy in the Ezbet Abed Rabou area on 8 January 2009 and related damage to a United Nations vehicle;
(6) Injuries occurring at and damage done to the UNRWA Field Office compound in Gaza City on 15 January 2009;
(7) Deaths and injuries occurring at and damage done to the UNRWA Beit Lahia Elementary School on 17 January 2009;
(8) Damage done to the Gaza compound of the Office of the United Nations Special Coordinator for the Middle East Peace Process (UNSCO) on 29 December 2008;
(9) Damage done to the World Food Programme (WFP) Karni Warehouse between 27 December 2008 and 19 January 2009.”

The Board of Inquiry found Israel responsible for damage sustained in six out of the nine above-listed incidents. The Secretary-General observed that the Board’s report was strictly an internal and confidential document. He decided to release a summary of the Board’s report nevertheless because he considered that the incidents that occurred in the Gaza Strip between December 27, 2008 and January 19, 2009 gave rise to considerable public interest. The summary of the report may be viewed here.

In his summary, the Secretary-General emphasized that the Board of Inquiry “is not a judicial body or court of law: it does not make legal findings or consider questions of legal liability.” Nevertheless, the Board of Inquiry’s conclusions all had a legal basis, namely, the principle that the United Nations is endowed with privileges and immunities in order to ensure the organization’s independence by protecting it from interference by governments. The 1946 General Convention on the Privileges and Immunities of the United Nations, which sets out the scope of privileges and immunities of the United Nations, provides in Article II, Section 3:

“The premises of the United Nations shall be inviolable. The property and assets of the United Nations, wherever located and by whomsoever held, shall be immune from search, requisition, confiscation, expropriation and any other form of interference, whether by executive, administrative, judicial or legislative action.” (available here).

The privileges and immunities basis of the Board’s conclusions was clear in the Secretary-General’s summary. For example, in respect of incident (2), deaths occurring at and damage done to the UNRWA Asma Elementary School in Gaza City on January 5, 2009, the Board of Inquiry concluded:

“…that the IDF carried out a direct and intentional strike on United Nations premises. It considered that this amounted to an egregious breach of the inviolability of United Nations premises and a failure to accord the property and assets of the Organization immunity from any form of interference. It noted that such inviolability and immunity could not be overridden by demands of military expediency. The Board found that the Government of Israel was therefore responsible for the deaths of the three young men who were sheltering in the school and for the damage to the premises caused by its actions.”

With Israel’s payment, the United Nations has agreed that the financial issues relating to those incidents referred to in the terms of reference of the Board of Inquiry have been settled. While the financial issues relating to those incidents have been resolved, the publication by the Secretary-General of a summary of the Board’s findings will undoubtedly lead to further discussion in the international legal community about the legal implications of its conclusions or the absence thereof, particularly in terms of international humanitarian law and possible tensions between international humanitarian law and the law of privileges and immunities law during armed conflict.

In addition, the publication of the summary raises questions about what standards of proof are applied by a UN Board of Inquiry, an investigative body that is not a judicial body. The summary indicates that the Board of Inquiry relied on reasonable inferences rather than a higher standard of proof such as clear and convincing evidence or beyond a reasonable doubt. For example, the summary indicates that the Board of Inquiry concluded that the IDF would have known that one of the schools was functioning as a shelter for civilians based on the fact that on the day of the attack the IDF dropped 300,000 warning leaflets in the area, urging civilians to move to city centers. The summary noted that several hundred Palestinians had been gathering at the Asma School seeking shelter the day prior to the incident, and would have been easily visible to aerial monitoring.

The publication, in and of itself, of the summary is also significant for questions of transparency and the public interest in international dispute settlement. The Secretary-General’s decision to publish the summary is based on his view that there is a unique public interest in Israel’s settlement of this claim. However, the Secretary-General also emphasized that “the Board’s report is an internal document and is not for public release. It contains significant amounts of information that was shared with the Board in strict confidence.” The Secretary-General did not state whether Israel objected to the publication of the settlement of the claim, but he noted that Israel had not embraced all of the summary’s findings: “[t]he Government of Israel has informed me that it has significant reservations and objections to the attached summary, which has been shared with it and to which it intends to react.”

The notion of a public interest is among the factors currently driving demands for greater transparency in all kinds of international dispute settlement, particularly in international arbitration. Indeed it is no longer unusual for the settlement of claims, even those that are politically sensitive, to be made available via the internet. The recent decisions by the Eritrea-Ethiopia Claims Commission (on which one of the authors served as a Commissioner) as well as the Abyei Arbitration concerning the Sudan border were all published and available via the PCA’s web site (available here). In addition, there is a current movement among civil society groups seeking greater transparency in investment arbitration to claim that there is a human right to access to information triggered in all investment disputes involving governments. These developments add to the vibrant debate on how much scope remains for confidential international claims settlements by States—an issue the authors submit can only be resolved on a case-by-case basis.

Lucy Reed and Ruth Teitelbaum

Just Published: The Future of Investment Arbitration (ITA-ASIL, Oxford Press), Edited by Catherine A. Rogers and Roger P. Alford

Lucy Reed — Mon, 04 May 2009 15:04:21 +0000

Dedicated to the late Thomas Wälde, The Future of Investment Arbitration examines some of the current pressures on investment arbitration and looks toward the future of the system as a whole. The authors address issues such as gaps in the procedural rules, the lack of development in certain substantive areas of international investment law, inconsistencies in decision-making and public policy concerns.
Part One: Adequacy of Existing Rules for Investor-State Arbitration
Gary Born and Ethan Shenkman provide a comparative analysis of confidentiality and transparency issues in commercial and investment arbitration, and propose an approach that strikes a balance between the competing interests of transparency and confidentiality.
Catherine Kessedjian tackles the use of precedent in investment arbitration with a comparative law analysis and proposes a model based on the principle of an “obligation de moyens” or “best effort” approach, whereby arbitrators “have an obligation to consider previous decisions rendered” but “have no duty to look at previous decisions unless those previous decisions are pleaded by the parties.”
Ucheora Onwuamaegbu discusses the ways in which investment treaties can define the rules of procedure in investment arbitration and fill in gaps in arbitration rules, covering issues ranging from the submission of claims to post-award remedies.
Carolyn Lamm, Hansel Pham and Chiara Giorgetti discuss the 2006 amendments to the ICSID Rules, with a focus on interim measures and the new procedure for dismissal of frivolous claims.
Jack Coe analyzes Article 28 of the 2004 US Model BIT, which provides for the circulation of a draft award. Coe discusses the possible impact of this provision on settlement, “post-award ripple effects,” and possible amicus participation.
Part Two: The Future of BITs
Susan Rose-Ackerman and Jennifer Tobin address the inconsistencies arising from empirical studies of the correlation between BITs and foreign investment and propose that further empirical research needs to be carried out with more attention paid to the host state’s legal and political environment.
Anna Joubin-Bret‘s piece examines global trends in the international investment universe, and provides important statistics from UNCTAD reports on investment treaties.
Andrea Menaker takes a close look at the ambiguities and gaps in the protection of foreign investment in the BIT network, and concludes that despite the large number of investment treaties, this area of law is far from being fully developed.
William Dodge focuses on investment treaties between developed States, and proposes that investor-State arbitration between developed States should provide for the submission of investment disputes to domestic courts.
Christoph Schreuer examines arbitrary and discriminatory treatment in investment arbitration in terms of its customary law roots and its development by arbitral tribunals.
Arif Ali and Kassi Tallent analyze the origin and development of the minimum standard of treatment of aliens and the development of the fair and equitable treatment standard.
Part Three: Public Functions of Investment Arbitration Decision-Making
William Park discusses tax measures and the difficult balance that must be struck in investment arbitration in determining the point at which a sovereign’s tax measures are tantamount to an expropriation.
Stephan Wilske and Martin Raible focus their discussion on the criticism of investment treaty arbitration based on public policy grounds and the question of whether and to what extent arbitrators should address public policy matters.
M. Sornarajah discusses “the retreat of neo-liberalism in investment treaty arbitration,” in which he maps out what he considers to be “expansionist trends” of investment treaty arbitration, trends which have inevitably resulted in a retreat from the system, such as withdrawals from ICSID and the denunciation of BITs.
Lee Caplan proposes that small and medium-sized enterprises are vital for a dynamic global economy and that the investor-State arbitration system needs to more accessible to smaller enterprises. Among potential solutions he proposes are political risk insurance, strategic alliances, and streamlining the arbitral process.
John Crook addresses the challenges of fact-finding in investor-State disputes and inter-State disputes, including access to information held by an opposing party and the difficulties in determining facts resulting from large-scale events.
Charles H. Brower, II (“Chip”) looks to the future of investment arbitration, analyzing questions such as the consistency of awards and the question of whether a top-down or bottom-up solution for consistency is suitable or desirable.

Lucy Reed

Scorecard of Investment Treaty Cases Against Argentina Since 2001

Lucy Reed — Mon, 02 Mar 2009 08:17:08 +0000

In light of interest in the international arbitration community concerning investment treaty cases against Argentina since the 2001 economic crisis, we thought it could be useful to share Freshfields’ working collation. We caution that this is based only on public records and press reports. Corrections are welcome.

According to our data, 46 treaty cases have been filed against Argentina since 2001; 43 cases have been registered with ICSID and 3 cases have been filed under the UNCITRAL Rules; awards have been issued in 12 cases (3 of them denying jurisdiction to the Claimants); an annulment decision has been issued in only one case and requests for annulment are pending in other 6 cases; one award is being challenged before the Washington, DC Courts; over $100m has been awarded against Argentina, of which nothing has yet been paid. 18 cases are still pending, and proceedings have been suspended or discontinued in 16 cases.

Cases where an Award has been Issued

1. CMS Gas Transmission Company (Gas transportation – ICSID case) Date Registered: 24 August 2001; Award in favor of the claimant for $133.2m rendered on 12 May 2005; Annulment proceedings rejecting the application concluded (decision rendered on 25 September 2007).

2. Azurix Corp. (Water and sewer services concession – ICSID case) Date Registered: 23 October 2001; Award in favor of the claimant for $165.2m rendered on 14 July 2006; Annulment proceedings pending.

3. Siemens A.G. (Informatic services contract – ICSID case) Date Registered: 17 July 2002; Award in favour of the claimant for $237.8m rendered on 6 February 2007; Annulment proceeding pending.

4. LG&E Energy Corp., LG&E Capital Corp. and LG&E International Inc. (Gas distribution – ICSID case) Date Registered: 31 January 2002; Award in favor of the claimant for $57.4m rendered on 25 July 2007; Request for supplementary decision denied on 8 July 2008; Claimants’ request for annulment of the “necessity” defence section of the award is pending.

5. Enron Corporation and Ponderosa Assets L.P. (Gas transportation – ICSID case) Date Registered: 11 April 2001; Award in favor of the claimant for $106.2m rendered on 22 May 2007; Award rectification proceedings concluded on 25 October 2007; Annulment proceedings pending.

6. Sempra Energy International (Gas supply and distribution – ICSID case) Date Registered: 6 December 2002; Award in favor of the claimant for $128.2m rendered on 28 September 2007; Annulment proceedings pending.

7. BG Group Plc (Gas distribution – UNCITRAL case); Award in favor of the claimant for $185.2m rendered on 24 December 2007; Challenge of the award pending before the Washington, DC Courts.

8. Metalpar S.A. and Buen Aire S.A. (Motor vehicle enterprise – ICSID case) Date Registered: 7 April 2003; Award denying jurisdiction rendered on 6 June 2008.

9. Continental Casualty Company (Insurance company – ICSID case) Date Registered: 22 May 2003; Award in favor of the claimant for $2.8m rendered on 5 September 2008. Claimants’ request for annulment of the “necessity” defence section of the award is pending.

10. National Grid plc (Electricity transmission – UNCITRAL case); Award rendered in favor of the claimant for $54m on 3 November 2008.

11. Wintershall Aktiengesellschaft (Gas and Oil Production – ICSID case) Date Registered: 15 July 2004; Award denying jurisdiction rendered on 8 December 2008.

12. TSA Spectrum de Argentina, S.A. (Telecommunications service provider – ICSID case) Date Registered: 8 April 2005; Award denying jurisdiction rendered on 19 December 2008.

Pending Cases

1. El Paso Energy International Company (Hydrocarbon and Electricity Concessions – ICSID case) Registered: 12 June 2003; Hearing on the merits concluded in June 2007.

2. Suez, Sociedad General de Aguas de Barcelona S.A. and Interagua Servicios Integrales de Agua S.A. (Water services concession – ICSID case) Registered: 17 July 2003; Jurisdictional phase concluded; Hearing on the merits concluded in November 2007; Proceedings resumed pursuant to a request for disqualification of an arbitrator declined on 12 May 2008.

3. Suez, Sociedad General de Aguas de Barcelona S.A., Vivendi Universal S.A. (Water and sewer services concession – ICSID case) Registered: 17 July 2003; Hearing on the merits concluded in November 2007; Proceedings resumed pursuant to a request for disqualification of an arbitrator declined on 12 May 2008.

4. AWG Group Ltd. (Water and sewer services concession – UNCITRAL case) Registered: 17 July 2003; Hearing on the merits concluded in November 2007; Proceedings resumed pursuant to a request for disqualification of an arbitrator declined on 12 May 2008.

5. EDF International, SAUR International and León Participaciones Argentinas (Electricity Distribution – ICSID case) Registered: 12 August 2003; Hearing on the merits concluded in September 2008.

6. Azurix Corp. (Mendoza case) (Water and sewer services concession – ICSID case) Date Registered: 8 December 2003; Tribunal constituted on 28 March 2008.

7. Total S.A. (Gas Transportation / Power Generation / Gas and Oil Production – ICSID case) Registered: 22 January 2004; Hearing on the merits concluded in January 2008.

8. CIT Group Inc. (Leasing Enterprise – ICSID case) Registered: 27 February 2004; Jurisdictional phase concluded.

9. Mobil Exploration and Development Inc. Suc. Argentina and Mobil Argentina S.A. (Gas Production – ICSID case) Registered: 5 August 2004; Tribunal constituted on 14 August 2008.

10. DaimlerChrysler Services AG (Leasing and Financial Services – ICSID case) Registered: January 14, 2005; Tribunal constituted on 21 September 2005.

11. Asset Recovery Trust S.A. (Collection contract – ICSID case) Registered: 23 June 2005; Tribunal constituted on 24 March 2006.

12. Giovanna Beccara and others (Bondholders – ICSID case) Registered: 7 February 2007; Tribunal constituted on 6 February 2008.

13. Giovanni Alemanni and others (Bondholders – ICSID case) Registered: 27 March 2007; Tribunal constituted on 3 July 2008.

14. Impregilo S.p.A (Water services concession – ICSID case) Registered: 25 July 2007; Tribunal constituted on 27 May 2008.

15. Urbaser S.A. and Consorcio de Aguas Bilbao Biskaia, Bilbao Biskaia Ur Partzuergoa (Water services concession – ICSID case) Registered: 1 October 2007; Tribunal not yet constituted.

16. HOCHTIEF Aktiengesellschaft (Highway construction contract – ICSID case) Registered: 18 December 2007; Tribunal not yet constituted.

17. Giordano Alpi and others (Bondholders – ICSID case) Registered: 28 July 2008; Tribunal constituted on 5 December 2008.

18. Impregilo S.p.A (Highway construction concession – ICSID case) Registered: 15 October 2008; Tribunal not yet constituted.

Proceedings Suspended or Discontinued

1. AES Corporation (Electricity generation and distribution – ICSID case) Registered: 19 December 2002; Jurisdictional phase concluded; Suspended by agreement of the parties on 23 January 2006.

2. Camuzzi International S.A. (Gas Supply and Distribution – ICSID case) Registered: 27 February 2003;Hearing on the merits concluded in February 2006. Suspended by agreement of the parties on 21 June 2007.

3. Compañía General de Electricidad S.A. and CGE Argentina S.A. (Electricity Distribution – ICSID case) Registered: 4 February 2005; Jurisdictional phase concluded; Suspended by agreement of the parties on 22 February 2008.

4. Electricidad Argentina S.A. and EDF International S.A. (Electricity Distribution – ICSID case) Registered: 12 August 2003; Tribunal constituted on 2 June 2004; Suspended by agreement of the parties on February 5, 2008

5. Enersis S.A. and Others (Electricity Distribution – ICSID case) Registered: 22 July 2003; Tribunal constituted on 21 January 2004; Suspended by agreement of the parties on 28 March 2006.

6. Gas Natural SDG, S.A. (Gas Supply and Distribution – ICSID case) Registered: 29 May 2003; Jurisdictional phase completed; Suspended by agreement of the parties on 11 November 2005.

7. SAUR International (Water and sewer services concession – ICSID case) Registered: 27 January 2004; Jurisdictional phase concluded; Suspended by agreement of the parties on 7 April, 2006.

8. Telefónica S.A.(Telecommunications service provider – ICSID case) Registered: 21 July 2003; Tribunal constituted on 12 April 2004; Suspended by agreement of the parties on 8 April 2008.

9. Unisys Corporation (Information Storage and Management Project – ICSID case) Registered: 15 October 2003; Tribunal constituted on 3 September 2004; Suspended by agreement of the parties on 26 October 2004.

10. Aguas Cordobesas SA, Suez, and Sociedad General de Aguas de Barcelona S.A.- (Water services concession – ICSID case) Registered: 17 July 2003; Settlement agreed by the parties and proceedings discontinued at their request on 24 January 2007.

11. BP America Production Company and others (Hydrocarbon Concessions and Power Generation – ICSID case) Registered: 27 February 2004; Settlement agreed by the parties and proceedings discontinued at their request on 20 August 2008.

12. Camuzzi International S.A. (Electricity distribution and transportation – ICSID case) Registered: 23 April 2003; Settlement agreed by the parties and proceedings discontinued at their request on 25 January 2007.

13. France Telecom S.A. (Telecommunications service provider – ICSID case) Registered: 26 August 2004; Settlement agreed by the parties and proceedings discontinued at their request on 30 March 2006.

14. Pan American Energy LLC and BP Argentina Exploration Company (Hydrocarbon and Electricity Concessions – ICSID case) Registered: 6 June 2003; Settlement agreed by the parties and proceedings discontinued at their request on 20 August 2008.

15. Pioneer Natural Resources Company, Pioneer Natural Resources (Argentina) S.A. and Pioneer Natural Resources (Tierra del Fuego) S.A. (Hydrocarbon and Electricity Concessions – ICSID case) Registered: 5 June 2003; Settlement agreed by the parties and proceedings discontinued at their request on 23 June 2005.

16. RGA Reinsurance Company (Financial Reinsurance Services – ICSID case) Registered: 11 November 2004; Settlement agreed by the parties and proceedings discontinued at their request on 14 September 2006.

Lucy Reed/Nigel Blackaby/Jean-Paul DeChamps

U.S. Discovery in Aid of International Arbitration: Recent Developments

Lucy Reed — Mon, 02 Feb 2009 23:15:11 +0000

Parties involved in foreign litigation have a powerful U.S. discovery tool at their disposal in 28 U.S.C. § 1782(a). Section 1782(a) provides that a federal district court “may order” a person “resid[ing] or found” in the district to give testimony or produce documents “for use in a proceeding in a foreign or international tribunal…” Accordingly, if documents or witnesses relevant to a foreign litigation are found in the U.S., a party to the proceeding may petition a U.S. federal district court for discovery.

Of potentially more interest to readers of this blog, however, is whether Section 1782(a) discovery is available in aid of foreign arbitral proceedings.

Prior to the Supreme Court’s decision in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004) (Intel), hopes were dim. The Second and Fifth Circuits held in 1999 that Section 1782(a) discovery was not available to parties to foreign arbitral proceedings. See National Broadcasting Co., Inc. v. Bear Stearns & Co., Inc., 165 F.3d 184 (2d Cir. 1999); Republic of Kazakhstan v. Biedermann International, 168 F.3d 880 (5th Cir. 1999).

While the Supreme Court in Intel did not directly address the question of whether Section 1782(a) is available to parties to international arbitrations, it did cite an influential article by Professor Hans Smit that stated that the term “tribunal,” in the statutory phrase “foreign or international tribunal,” “includes investigating magistrates, administrative and arbitral tribunals, and quasi-judicial agencies . . .” Intel, 542 U.S. at 258 (emphasis added).

In the wake of Intel, a number of U.S. district courts have held that discovery under Section 1782(a) is available to parties to foreign arbitral proceedings. See, e.g., In re Roz Trading, 469 F. Supp. 2d 1221 (N.D. Ga. 2006); In re Application of Oxus Gold Plc for Assistance Before a Foreign Tribunal, No. MISC. 06-82, 2007 WL 1037387 (D.N.J. April 2, 2007); In re Application of Hallmark Capital Corp., 534 F. Supp. 2d 951 (D. Minn. 2007).

However, two very recent decisions have come to opposite conclusions on Section 1782(a) discovery in the context of international arbitration.

In In re Application of Babcock Borsig AG, No. 08-MC-10128, 2008 WL 4748208 (D. Mass. Oct. 30, 2008), the district court concluded that “the reasoning and dicta [in Intel] strongly indicate that [arbitral tribunals] also fall within the [Section 1782] statute.” Therefore, the district court held that Section 1782(a) discovery was available to parties to a foreign ICC proceeding.

Conversely, less than one month later in Comisión Ejecutiva, Hidroeléctrica del Río Lempa v. El Paso Corp., MISC Action No. H-08-335, 2008 WL 5070119 (S.D. Tex. Nov. 20, 2008), the district court stated that Intel “shed no light on the issue” of whether Section 1782(a) discovery was available to parties to foreign arbitrations. Therefore, the district court followed the Fifth Circuit’s pre-Intel opinion directly on point (as it was bound to do), and held that U.S. discovery was not available in aid of a pending arbitration in Switzerland. Interestingly, the movant also made an application to the District Court of Delaware for Section 1782(a) discovery in respect of the same arbitration, but addressed to a different party. The Delaware court held that discovery was available in aid of the arbitration. See Comisión Ejecutiva, Hidroeléctrica del Río Lempa v. Nejapa Power Co., LLC, No. 08-135, 2008 WL 4809035, at *1 (D. Del. Oct. 14 2008).

While the majority of district courts to consider the issue have concluded that Section 1782(a) is available to parties to foreign arbitrations, it is too early to state with any degree of certainty how the Section 1782(a) jurisprudence will develop in the future. No Circuit Court conflict, or subsequent Supreme Court case, is yet on the horizon. While we wait for a definite answer in the US courts, there is nothing stopping us from participating in one of the hottest current debates: is §1782 discovery a good or bad thing for international arbitration?

Lucy Reed/Elliot Friedman