UPDATE [5]: “NECESSITY IS THE MOTHER OF INVENTION”: COVID-19 DRAMATICALLY ACCELERATES DIGITALISATION OF ARBITRATION PROCESSES

This fifth update to a blog post initially dated 7 April 2020 has been updated to take into account developments between 14 May – 28 May 2020. These include various institutional changes (set out in the table attached to the blog) as some venues start to reopen in light of changing conditions and the easing of government restrictions, as well as details on new guidance that has been issued by HKIAC on virtual hearings and the SCC on the SCC Platform.

Continue reading

UPDATE [4]: “NECESSITY IS THE MOTHER OF INVENTION”: COVID-19 DRAMATICALLY ACCELERATES DIGITALISATION OF ARBITRATION PROCESSES

This fourth update to a blog post initially dated 7 April 2020 has been updated to take into account developments between 30 April – 14 May 2020. These include various institutional changes (as set out in the table attached to the blog), the alliance between Maxwell Chambers, ICDR, and the Arbitration Place of Toronto and Ottawa to provide “global hybrid hearings”, and developments in the guidance being issued by a collaboration of large international law firms led by HSF.

Continue reading

LOW OIL PRICE – HIGH DISPUTES RISK: THE SCOPE FOR DISPUTES IN A WORLD OF LOW OIL PRICES

Oil prices have collapsed since the start of the year, driven down by concerns around oversupply, compounded by the collapse in demand caused by COVID-19 and the price war between Russia and Saudi Arabia.

This briefing published on our website here looks at the implications of low oil prices on certain key trading and operational agreements for oil companies, and considers the scope for disputes to arise. It considers the position under English law, which is commonly adopted by parties in the oil and gas industry, but many of the same themes apply to contracts governed by other common law systems.

For more information, please contact Paula Hodges QC, Partner, Craig Tevendale, Partner, James Baily, Partner, Steven Dalton, Partner, James Robson, Senior Associate, or your usual Herbert Smith Freehills contact.

Paula Hodges QC
Paula Hodges QC
Partner
+44 20 7466 2027

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445

James Baily
James Baily
Partner
+44 20 7466 2122

Steven Dalton
Steven Dalton
Partner
+44 20 7466 2537

James Robson
James Robson
Senior Associate
+44 207 466 2641

COVID-19: PRESSURE POINTS: PODCAST: A BALANCE OF OBLIGATIONS: THE RESPONSE TO THE PANDEMIC AND INVESTMENT TREATY PROTECTIONS (GLOBAL)

We are pleased to share with you this podcast which looks at the international investment law protections that are relevant to investors and states in the context of the COVID-19 pandemic. We also touch on the key considerations for both states and foreign investors when assessing whether state action taken in response to the pandemic could infringe those protections.

This podcast is chaired by Senior Associate, Hannah Ambrose, who is joined by the co-heads of our Public International Law Practice, Christian Leathley and Andrew Cannon. This podcast can be listened to here.

For more information, please contact Andrew Cannon, Partner, Christian Leathley, Partner, Hannah Ambrose, Senior Associate, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852

Christian Leathley
Christian Leathley
Partner
+1 917 542 7812

Hannah Ambrose
Hannah Ambrose
Senior Associate
+44 20 7466 7585

RECENT DEVELOPMENTS IN INDIA-RELATED ARBITRATION

Herbert Smith Freehills has issued the latest edition of its India arbitration e-bulletin.

In this issue we consider various court decisions, which cover issues such as the constitutional validity of s87 of the Arbitration Act, setting aside an award on the grounds of bias, and the time limits surrounding enforcement of awards. In other news, we consider the latest developments regarding COVID-19, the UAE becoming a reciprocating territory for the enforcement of judgments, as well as India-related bilateral investment treaty news and other developments. Continue reading

UPDATE [3]: “NECESSITY IS THE MOTHER OF INVENTION”: COVID-19 DRAMATICALLY ACCELERATES DIGITALISATION OF ARBITRATION PROCESSES

Please Note: This blog post has been updated. The updated post can be found here

This third update to a blog post initially dated 7 April 2020 has been updated to take into account developments between 23-30 April 2020. These include various institutional changes (as set out in the table attached to the blog), the SCC’s hearing platform, the African Arbitration Protocol on Virtual Hearings and the recent HSF podcast on this topic.

The arbitration community has steadily adopted new technologies over time to assist in the resolution of disputes. For example, it has become fairly commonplace for case management conferences to be run using virtual meetings or video conferencing, and it is not uncommon – where the circumstances justify it – for cross-examination of some witnesses and experts to take place remotely. The international nature of disputes has also made electronic document storage, trial presentation and electronic bundling a practical option for many arbitrations. All that being said, until very recently, remote hearings at the substantive stages of the case remained the exception rather than the norm and printed hearing bundles remained commonplace.

The COVID-19 pandemic has created an unprecedented need for arbitral institutions and organisations to adapt at very short notice to new and different ways of working, and offer solutions to parties and practitioners that will enable disputes to continue to be resolved in a time of quarantine and enforced social distancing. The leading arbitral institutions have issued a joint statement encouraging parties and tribunals to be constructive in their approach to the challenges presented by COVID-19. Many arbitral institutions have come up with several innovative responses, enabling cases to be filed, parties and tribunals to communicate and, where necessary, for merits hearings to be conducted virtually. This blog piece considers some of those new processes, before setting out the specific offerings of key arbitral institutions and organisations.

A table listing key institutions and organisations’ specific offerings (as at 30 April) can be viewed and downloaded here.

Joint statement from Arbitral Institutions on COVID-19

On 16 April 2020 leading arbitral institutions (the CRCICA, DIS, ICC, ICDR/AAA, ICSID, KCAB, LCIA, MCA, HKIAC, SCC, SIAC, VIAC and the International Federation of Commercial Arbitration Institutions) released a joint statement to the market on COVID-19. While these institutions have engaged constructively and collegiately with other initiatives from the wider community (such as the Equal Representation in Arbitration Pledge), this is a “first” in being a truly cross-institutional initiative.

The statement can be found here. The statement expresses the ambition of these institutions to support international arbitration’s ability to contribute to stability and foreseeability in a highly unstable environment, including by ensuring that pending cases may continue and that parties may have their cases heard without undue delay. The institutions acknowledge the current challenging times, stating their support for parties and arbitral tribunals. The statement also encourages parties and tribunals to deal with the challenges presented by COVID-19 in a constructive way. This includes by consulting each institution’s website for guidelines on running an arbitration in the current landscape and the services offered by those institutions to assist parties and tribunals.

Institutional and organisational responses: Administration

Staff, offices, and pending cases

Most institutions have closed their offices and, like the LCIA, ICC and SIAC (as examples) have moved to remote working arrangements for all or a majority of employees. ACICA, VIAC and CRCICA continue to have some staff members in office for limited purposes (like receiving post) or on a restricted timetable (only on a couple of days a week). Some institutions like FINRA, SCC and VIAC digitalised aspects of case management processes before the pandemic struck, and they are therefore seeking to operate as close to business as usual through those new tools (e.g. the SCC platform or the FINRA Portal).

Almost all institutions have also put in place business continuity and contingency plans for pending cases. Most pending cases are continuing with remote support functionality from institutions or limited in-office support at institutions like the SCC and the DIS. The SCC is allowing parties with pending cases initiated before September 2019 to transfer case data to the SCC Platform.

Some organisations offering sets of rules for ad hoc arbitrations have been less affected by the pandemic, as many arbitrations under these sets of rules are primarily conducted online. While some 400-500 awards are issued each year in LMAA arbitrations, the vast majority of cases are dealt with “on the documents” with only around 20% of their cases involving an oral hearing.

General case administration

Almost all institutions have permitted requests/notices of arbitration to be filed via email for the duration of the pandemic, while some (like ICSID, SCAI and DIS) have continued to accept hard copies using ad hoc arrangements. Other methods of receiving such requests include telefax (DIS), USB (CRCICA) and bespoke portals (AAA-ICDR, LCIA and FINRA). Some institutions and organisations have also developed interim measures relating to payments and transmission of awards. The information available about changes in general case administration practices varies from institution to institution with DIS providing extensive detail and FINRA, SCC and VIAC not being required to drastically change their case administration practices, which already could take place largely online.

Communications

All organisations have shifted to electronic or telephonic means of communication, and only a few still permit documents or communications to be sent via courier or post. Institutions like the SCC or DIS, which had already adopted electronic methods as the standard means of communication before the pandemic, are not required to introduce drastic changes in how they communicate with parties to the proceedings they administer. The SCC, in partnership with Thomson Reuters, has made its digital platform (SCC Platform) available free of charge for ad-hoc arbitrations globally commenced during the pandemic.

Hearings

Virtual meetings and hearings

In most cases, in-person hearings have been cancelled and rescheduled, with some meetings and hearings being held virtually. Some organisations like the ICC, SCC, JAMS, AAA-ICDR, IDRC and the LMAA, are using or proposing the use of commercially available services like FaceTime, Skype, Vidyocloud, Microsoft Teams,Zoom, or Bluejeans, while other organisations are offering more bespoke services – examples being SIAC in collaboration with Maxwell Chambers’ Virtual ADR service, ICSID’s video conferencing platform, JAMS’ EndisputeTM mediation platform,IDRC’s collaboration with Opus 2, and the Stockholm International Hearing Centre’s platform for digital hearings. HKIAC has seen a significant increase in demand for its e-hearing services: 70% of hearings booked in April and May will involve e-hearing services in some form. Looking to the future, the IDRC is already anticipating the development of “semi-virtual” hearings where only the arbitrators and counsel are at the centre and other participants such as the parties and witnesses participate by videoconference even after the pandemic has ended.

Guidance and advice

While it is hugely beneficial to have the services available to facilitate online hearings, such hearings will only be effective if they are well run. This requires tribunals, counsel and parties to cooperate to ensure that learning in the use of this technology is shared and adopted. Given the sensitivity of many arbitrations, it will also require that they ensure that cybersecurity is maintained throughout and that any personal data only processed in ways that are compatible with applicable laws. The ICCA-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration and the consultation draft of the ICCA/IBA Joint Task Force’s Roadmap on Data Protection in International Arbitration, both released earlier this year, offer helpful suggestions to maintain cybersecurity and comply with data protection requirements in any arbitration, however conducted.

Other helpful guidance has been provided by arbitral institutions and organisations in the past few weeks, such as (i) the ICC’s Guidance Note on possible measures aimed at mitigating the effects of the Covid-19 pandemic, which contains a number of helpful suggested clauses to incorporate in cyber-protocols and procedural orders dealing with the organisation of virtual hearings, as well as a checklist to assist parties in dealing with the logistics of holding such hearings, (ii) the Delos checklist, which has been publicised by the SCC and the VIAC, and (iii) the Seoul Protocol on Video Conferencing in International Arbitration providing guidance on best practices in conducting arbitration hearings through video conferencing. Despite the timely release of the Seoul Protocol, it was not released in response to the COVID-19 pandemic, but is the product of discussions within the arbitral community since 2018. While focused, in the main, on witness evidence, it still provides some useful advice that may be helpful for virtual hearings taking place in the present circumstances. The Africa Arbitration Academy has also published a Protocol on Virtual Hearings in Africa 2020, which provides guidelines and best practices for virtual hearings in Africa. The protocol includes, among other things, a model virtual hearing clause, a model pre-virtual hearing agreement, and a model tribunal issued cyber protocol. The Africa Arbitration Academy hopes that the protocol will encourage both African institutions and governments to make references to virtual hearing in their rules and laws.

Further guidance is expected to be issued in the coming weeks by a collaboration group of large international law firms set up and led by Herbert Smith Freehills LLP, in consultation with arbitration institutions, ad hoc arbitration organisations and technology providers, addressing the characteristics and functionality that parties should require of the tools they use for the exchange of data online in their proceedings.

It is also important to consider that the decision to substitute a virtual hearing for an in-person hearing may not be agreed between the parties. In practice, it is likely to be difficult to proceed to a virtual merits hearing where one party insists on an in-person hearing. Nonetheless, there is likely to be a trend towards more virtual hearings, particularly for cases requiring limited or no oral evidence.  Appendix 1 to the Delos checklist lists some of the considerations that might influence a party’s decision whether or not to agree to postpone the hearing, instead of substituting a virtual hearing for an in-person one.

A decision on whether to hold or postpone a hearing will ultimately need to be made by the tribunal on a case-by-case basis considering all the relevant circumstances. These include the availability of the Tribunal members and parties’ counsel to hold the hearing in-person in short order, if it were to be postponed (especially in light of uncertainty as to when travel restrictions will be lifted and the likelihood of congested diaries in the aftermath of COVID-19), the potential due process implications of merits hearings not being held in-person and the institutional rules in question. Given the institutional joint statement mirrors many national courts in seeking to continue with the resolution of disputes during this challenging time, it is likely that those institutions will encourage arbitrators to adopt virtual hearings wherever possible.  For example, the SCC currently expects parties “to live up to their obligations under the SCC Rules and make efforts to keep to established timetables by, when necessary and deemed possible, for example transferring the arbitration to a fully digital environment, including using audio- and visual meeting facilities in the proceedings”. Delos have reported that this part of their checklist was expanded in response to institutional feedback that many parties had initially assumed proceedings would be temporarily suspended, rather than moving forward virtually.

In some circumstances it could be appropriate for some parties to consider the need for a hearing at all as opposed to a virtual or in-person hearing, instead conducting the arbitration on a documents-only basis. In certain sectors such as construction, maritime, or commodities, or where the facts are not in dispute, parties may decide to agree to resolving the disputes on the basis of documents alone. Parties assessing such an approach will need to consider whether proceeding on the basis of documents alone is available under their chosen rules and whether the agreement of the tribunal and other parties can be obtained.

Hearing services and service providers

Language service providers for arbitration remain fully operational due to their remote working capabilities and are offering alternatives to their usual face-to-face interpreting services for hearings. Similarly, court reporters remain operational by offering remote transcription services.

Impact on the wider arbitral community: events and conferences

Unsurprisingly, large numbers of upcoming events and programmes have been cancelled by arbitral institutions and organisations, while many of the key conferences in the arbitration community calendar (such as ICCA) have also been postponed to 2021. Several institutions have responded by conducting webinars and training sessions specifically tailored to adapting to the COVID-19 pandemic such as the HKIAC Webinar series, SCC Online Seminars, AAA’s education for arbitrators on cybersecurity, AIAC Webinar series and CPR’s webinar on ADR in the time of COVID-19.

Comment

Arbitral institutions and organisations, like many domestic courts, have responded quickly to the COVID-19 pandemic and offered parties and practitioners innovative ways to keep dispute resolution on track in challenging times. While some institutions were already equipped with technology which could be adapted to the changing situation and much ad hoc arbitration was already dealt with on documents only, other organisations have had to make more rapid changes to their processes. The effectiveness of all these new proposals will depend on the willingness and ability of tribunals, practitioners and parties to embrace these technologies and share best practice in arbitration. To this end, guidance and training offered by arbitral institutions and organisations to educate arbitral participants should be welcomed. Whether this public health crisis will result in longer term changes to the way arbitration is practised remains to be seen.

To hear views on this topic from HSF partners, please do listen to our recent podcast which looks at the impact of the COVID-19 pandemic on ongoing and future arbitral proceedings. The team also shares some practical tips from our recent experience on how to manage virtual hearings given the current restrictions on travel and social distancing.

A table listing key institutions and organisations’ specific offerings (as at 30 April) can be viewed and downloaded here.

For more information, please contact Craig Tevendale, Partner, Charlie Morgan, Senior Associate Vanessa Naish, Professional Support Consultant, Kevin Hollis, Associate, or your usual Herbert Smith Freehills Contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445

Charlie Morgan
Charlie Morgan
Senior Associate
+44 20 7466 2733

Vanessa Naish
Vanessa Naish
Professional Support Consultant
+44 20 7466 2112

Kevin Hollis
Kevin Hollis
Associate
+33 1 53 57 78 39

COVID-19: PRESSURE POINTS: PODCAST “THE CHALLENGES OF RESOLVING DISPUTES IN A TIME OF SOCIAL DISTANCING: THE IMPACT OF THE PANDEMIC ON ARBITRATION” (GLOBAL)

We are pleased to share with you this podcast which looks at the impact of the COVID-19 pandemic on ongoing and future arbitral proceedings. We explore what arbitral institutions and other organisations have been doing to assist parties and arbitral tribunals through this difficult period. The team also shares some practical tips from our recent experience on how to manage virtual hearings given the current restrictions on travel and social distancing.

This podcast is chaired by Vanessa Naish, Arbitration Practice Manager and Professional Support Consultant, who is joined by Craig Tevendale, Head of our International Arbitration group in London, Patricia Nacimiento, co-Head of the German dispute resolution team and Kathryn Sanger, Partner in our Hong Kong office.  Along with their roles at Herbert Smith Freehills, Craig, Patricia and Kathryn each have roles at arbitral institutions and also sit as arbitrators, and can therefore share multiple perspectives on the current situation.

This podcast can be listened to here.

For more information, please contact Craig Tevendale, Partner, Patricia Nacimiento, Partner, Kathryn Sanger, Partner, Vanessa Naish, Professional Support Consultant or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445

Patricia Nacimiento
Patricia Nacimiento
Partner
+49 69 2222 82530

Kathryn Sanger
Kathryn Sanger
Partner
+852 21014029

Vanessa Naish
Vanessa Naish
Professional Support Consultant
+44 20 7466 2112

UPDATED POST: “NECESSITY IS THE MOTHER OF INVENTION”: COVID-19 DRAMATICALLY ACCELERATES DIGITALISATION OF ARBITRATION PROCESSES

This post has been updated, please find our updated post here

 

The arbitration community has steadily adopted new technologies over time to assist in the resolution of disputes. For example, it has become fairly commonplace for case management conferences to be run using virtual meetings or video conferencing, and it is not uncommon – where the circumstances justify it – for cross-examination of some witnesses and experts to take place remotely. The international nature of disputes has also made electronic document storage, trial presentation and electronic bundling a practical option for many arbitrations. All that being said, until very recently, remote hearings at the substantive stages of the case remained the exception rather than the norm and printed hearing bundles remained commonplace.

The COVID-19 pandemic has created an unprecedented need for arbitral institutions and organisations to adapt at very short notice to new and different ways of working, and offer solutions to parties and practitioners that will enable disputes to continue to be resolved in a time of quarantine and enforced social distancing. The leading arbitral institutions have issued a joint statement encouraging parties and tribunals to be constructive in their approach to the challenges presented by COVID-19. Many arbitral institutions have come up with several innovative responses, enabling cases to be filed, parties and tribunals to communicate and, where necessary, for merits hearings to be conducted virtually. This blog piece considers some of those new processes, before setting out the specific offerings of key arbitral institutions and organisations.

A table listing key institutions and organisations’ specific offerings (as at 23 April) can be viewed and downloaded here.

Joint statement from Arbitral Institutions on COVID-19

On 16 April 2020 leading arbitral institutions (the CRCICA, DIS, ICC, ICDR/AAA, ICSID, KCAB, LCIA, MCA, HKIAC, SCC, SIAC, VIAC and the International Federation of Commercial Arbitration Institutions) released a joint statement to the market on COVID-19. While these institutions have engaged constructively and collegiately with other initiatives from the wider community (such as the Equal Representation in Arbitration Pledge), this is a “first” in being a truly cross-institutional initiative.

The statement can be found here. The statement expresses the ambition of these institutions to support international arbitration’s ability to contribute to stability and foreseeability in a highly unstable environment, including by ensuring that pending cases may continue and that parties may have their cases heard without undue delay. The institutions acknowledge the current challenging times, stating their support for parties and arbitral tribunals. The statement also encourages parties and tribunals to deal with the challenges presented by COVID-19 in a constructive way. This includes by consulting each institution’s website for guidelines on running an arbitration in the current landscape and the services offered by those institutions to assist parties and tribunals.

Institutional and organisational responses: Administration

Staff, offices, and pending cases

Most institutions have closed their offices and, like the LCIA, ICC and SIAC (as examples) have moved to remote working arrangements for all or a majority of employees. ACICA, VIAC and CRCICA continue to have some staff members in office for limited purposes (like receiving post) or on a restricted timetable (only on a couple of days a week). Some institutions like FINRA, SCC and VIAC digitalised aspects of case management processes before the pandemic struck, and they are therefore seeking to operate as close to business as usual through those new tools (e.g. the SCC platform or the FINRA Portal).

Almost all institutions have also put in place business continuity and contingency plans for pending cases. Most pending cases are continuing with remote support functionality from institutions or limited in-office support at institutions like the SCC and the DIS. The SCC is allowing parties with pending cases initiated before September 2019 to transfer case data to the SCC Platform.

Some organisations offering sets of rules for ad hoc arbitrations have been less affected by the pandemic, as many arbitrations under these sets of rules are primarily conducted online. While some 400-500 awards are issued each year in LMAA arbitrations, the vast majority of cases are dealt with “on the documents” with only around 20% of their cases involving an oral hearing.

General case administration

Almost all institutions have permitted requests/notices of arbitration to be filed via email for the duration of the pandemic, while some (like ICSID, SCAI and DIS) have continued to accept hard copies using ad hoc arrangements. Other methods of receiving such requests include telefax (DIS), USB (CRCICA) and bespoke portals (AAA-ICDR, LCIA and FINRA). Some institutions and organisations have also developed interim measures relating to payments and transmission of awards. The information available about changes in general case administration practices varies from institution to institution with DIS providing extensive detail and FINRA, SCC and VIAC not being required to drastically change their case administration practices, which already could take place largely online.

Communications

All organisations have shifted to electronic or telephonic means of communication, and only a few still permit documents or communications to be sent via courier or post. Institutions like the SCC or DIS, which had already adopted electronic methods as the standard means of communication before the pandemic, are not required to introduce drastic changes in how they communicate with parties to the proceedings they administer.

Hearings

Virtual meetings and hearings

In most cases, in-person hearings have been cancelled and rescheduled, with some meetings and hearings being held virtually. Some organisations like the ICC, SCC, JAMS, AAA-ICDR and the LMAA are using or proposing the use of commercially available services like FaceTime, Skype, Vidyocloud, Microsoft Teams or Zoom, while other organisations are offering more bespoke services – examples being SIAC in collaboration with Maxwell Chambers’ Virtual ADR service, ICSID’s video conferencing platform, JAMS’ EndisputeTM mediation platform and the IDRC’s collaboration with Opus 2. HKIAC has seen a significant increase in demand for its e-hearing services: 70% of hearings booked in April and May will involve e-hearing services in some form. Looking to the future, the IDRC is already anticipating the development of “semi-virtual” hearings where only the arbitrators and counsel are at the centre and other participants such as the parties and witnesses participate by videoconference even after the pandemic has ended.

Guidance and advice

While it is hugely beneficial to have the services available to facilitate online hearings, such hearings will only be effective if they are well run. This requires tribunals, counsel and parties to cooperate to ensure that learning in the use of this technology is shared and adopted. Given the sensitivity of many arbitrations, it will also require that they ensure that cybersecurity is maintained throughout and that any personal data only processed in ways that are compatible with applicable laws. The ICCA-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration and the consultation draft of the ICCA/IBA Joint Task Force’s Roadmap on Data Protection in International Arbitration, both released earlier this year, offer helpful suggestions to maintain cybersecurity and comply with data protection requirements in any arbitration, however conducted.

Other helpful guidance has been provided by arbitral institutions and organisations in the past few weeks, such as (i) the ICC’s Guidance Note on possible measures aimed at mitigating the effects of the Covid-19 pandemic, which contains a number of helpful suggested clauses to incorporate in cyber-protocols and procedural orders dealing with the organisation of virtual hearings, as well as a checklist to assist parties in dealing with the logistics of holding such hearings, (ii) the Delos checklist, which has been publicised by the SCC and the VIAC, and (iii) the Seoul Protocol on Video Conferencing in International Arbitration providing guidance on best practices in conducting arbitration hearings through video conferencing. Despite the timely release of the Seoul Protocol, it was not released in response to the COVID-19 pandemic, but is the product of discussions within the arbitral community since 2018. While focused, in the main, on witness evidence, it still provides some useful advice that may be helpful for virtual hearings taking place in the present circumstances.

Further guidance is expected to be issued in the coming weeks by a collaboration group of large international law firms set up and led by Herbert Smith Freehills LLP, in consultation with arbitration institutions, ad hoc arbitration organisations and technology providers, addressing the characteristics and functionality that parties should require of the tools they use for the exchange of data online in their proceedings.

It is also important to consider that the decision to substitute a virtual hearing for an in-person hearing may not be agreed between the parties. In practice, it is likely to be difficult to proceed to a virtual merits hearing where one party insists on an in-person hearing. Nonetheless, there is likely to be a trend towards more virtual hearings, particularly for cases requiring limited or no oral evidence.  Appendix 1 to the Delos checklist lists some of the considerations that might influence a party’s decision whether or not to agree to postpone the hearing, instead of substituting a virtual hearing for an in-person one.

A decision on whether to hold or postpone a hearing will ultimately need to be made by the tribunal on a case-by-case basis considering all the relevant circumstances. These include the availability of the Tribunal members and parties’ counsel to hold the hearing in-person in short order, if it were to be postponed (especially in light of uncertainty as to when travel restrictions will be lifted and the likelihood of congested diaries in the aftermath of COVID-19), the potential due process implications of merits hearings not being held in-person and the institutional rules in question. Given the institutional joint statement mirrors many national courts in seeking to continue with the resolution of disputes during this challenging time, it is likely that those institutions will encourage arbitrators to adopt virtual hearings wherever possible.  For example, the SCC currently expects parties “to live up to their obligations under the SCC Rules and make efforts to keep to established timetables by, when necessary and deemed possible, for example transferring the arbitration to a fully digital environment, including using audio- and visual meeting facilities in the proceedings”. Delos have reported that this part of their checklist was expanded in response to institutional feedback that many parties had initially assumed proceedings would be temporarily suspended, rather than moving forward virtually.

Hearing services and service providers

Language service providers for arbitration remain fully operational due to their remote working capabilities and are offering alternatives to their usual face-to-face interpreting services for hearings. Similarly, court reporters remain operational by offering remote transcription services.

Impact on the wider arbitral community: events and conferences

Unsurprisingly, large numbers of upcoming events and programmes have been cancelled by arbitral institutions and organisations, while many of the key conferences in the arbitration community calendar (such as ICCA) have also been postponed to 2021. Several institutions have responded by conducting webinars and training sessions specifically tailored to adapting to the COVID-19 pandemic such as the HKIAC Webinar series, SCC Online Seminars, AAA’s education for arbitrators on cybersecurity, AIAC Webinar series and CPR’s webinar on ADR in the time of COVID-19.

Comment

Arbitral institutions and organisations, like many domestic courts, have responded quickly to the COVID-19 pandemic and offered parties and practitioners innovative ways to keep dispute resolution on track in challenging times. While some institutions were already equipped with technology which could be adapted to the changing situation and much ad hoc arbitration was already dealt with on documents only, other organisations have had to make more rapid changes to their processes. The effectiveness of all these new proposals will depend on the willingness and ability of tribunals, practitioners and parties to embrace these technologies and share best practice in arbitration. To this end, guidance and training offered by arbitral institutions and organisations to educate arbitral participants should be welcomed. Whether this public health crisis will result in longer term changes to the way arbitration is practised remains to be seen.

A table listing key institutions and organisations’ specific offerings (as at 23 April) can be viewed and downloaded here.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445

Charlie Morgan
Charlie Morgan
Senior Associate
+44 20 7466 2733

Vanessa Naish
Vanessa Naish
Professional Support Consultant
+44 20 7466 2112

Kevin Hollis
Kevin Hollis
Associate
+33 1 53 57 78 39

A BALANCE OF OBLIGATIONS: THE RESPONSE TO THE COVID-19 PANDEMIC AND INVESTMENT TREATY PROTECTIONS

The COVID-19 pandemic has brought about an unprecedented level of state action as governments around the world make difficult decisions in response to the spread of the virus. Over the past few months this has resulted in a variety of measures in different countries, including the suspension of contractual rights, social distancing regulations, the requisitioning or nationalisation of private property, the closure of borders, export and travel restrictions, and bail-outs of state carriers.

In such extraordinary times, a degree of interference with private rights is almost inevitable. Many states are balancing multiple concerns, looking to protect public health and absorbing expert evidence in a fast-moving environment, whilst trying to mitigate both economic and societal damage in the short and longer term. However, even in times of crisis, states nonetheless have domestic and international law obligations (including under investment treaties), which impose standards against which their conduct may be held to account. Depending on the circumstances, state action in response to the COVID-19 pandemic which fails to meet these standards could give rise to claims.

This article describes the potential international investment law protections which may be relevant in response to COVID-19. It also discusses the key considerations for states and foreign investors alike when assessing whether state action may infringe a state’s international law obligations.

Protections for foreign investors under investment treaties

A foreign investor may enjoy protections under an international investment agreement (an IIA), which if breached by state action can give rise to the right to make a claim. An IIA is an agreement between two or more states containing reciprocal undertakings for the promotion and protection of private investments made by nationals of the state signatories in each other’s territories. Such agreements have historically been entered into to provide confidence to foreign investors that their investment will not be negatively affected by certain types of irregular action by the state hosting the investment (the host state) and that if it is, to enable the investor to claim damages. Most commonly, these IIAs are bilateral arrangements (called bilateral investment treaties, or BITs), multilateral treaties or free trade agreements containing investment protections.

The definitions of investor and investment vary between different IIAs but the definition of investment often includes a broad and non-exhaustive list of categories of assets. Whilst IIAs are state-to-state agreements, they usually contain provisions allowing an investor from one state to enforce the guarantees as to the treatment of their investment in the host state through international arbitration before an independent tribunal.

Each treaty must be considered on its terms but IIAs commonly include the following investment protections:

  1. a protection against the unlawful expropriation of an investment without adequate compensation, whether directly or indirectly through a series of governmental acts which encroach on an investment and result in it being deprived of value;
  2. the guarantee of fair and equitable treatment (or FET). Claims under FET provisions typically fall into two broad categories: prohibitions against a denial of justice and claims based on administrative decision-making. Not all regulatory changes will constitute a violation of the FET standard, and the existence of such protections does not deprive a state of its ability to exercise its regulatory powers. However, where the state’s exercise of its regulatory power is arbitrary or based on procedural unfairness or lack of due process, bad faith, discrimination or a failure to protect an investor’s legitimate expectations as to how they will be treated, a FET claim may be warranted;
  3. a guarantee of full protection and security for the investment and for the investor. Whilst this is generally understood to concern physical protection, it may also encompass legal protection;
  4. guarantees of treatment no less favourable than that given either to nationals of the Host State of the investment or to nationals of third states, which prevent the host state discriminating against the foreign investor; and
  5. the right to repatriate profit and capital.

Some treaties specifically guarantee non-discriminatory treatment with respect to restitution, compensation or other valuable consideration for losses due to civil strife or state of emergency.

Treaty obligations in the context of COVID-19

On the one hand, states are undoubtedly facing significant challenges in balancing the need to protect public health with the prospect of short and long term economic damage.  On the other hand, many foreign investors are facing wide-ranging governmental interference in multiple aspects of their business (including, in many jurisdictions, restrictions on the use and movement of their employees, the use of their property and the enforcement of their contractual rights). Some investors have questioned whether the extent of the measures imposed is justified, or whether the measures are proportionate to the serious economic damage which they can inflict.

Based on the standard protections found in IIAs outlined above, key considerations as to whether a state’s response to COVID-19 is consistent with its international law obligations may include:

  • the evidential basis for state measures introduced to address the pandemic in different ways;
  • the length of time for which measures are imposed and the regularity with which they are reviewed;
  • whether measures restricting private rights and freedoms are proportionate based on the anticipated benefit in terms of fighting the virus and the possible negative impact of those actions on the affected investors;
  • whether steps have been taken to mitigate the damage caused by the measures;
  • whether the measures impact unequally or disproportionately on one sector, group or type of company or individual impacting the foreign investor;
  • whether the enforcement mechanisms used by states to implement COVID-19 regulations are consistent with domestic legislation;
  • whether, particularly in the context of any requisitioning or nationalisation, any provision has been made for compensation and, if so,
    • how such compensation is calculated; and
    • the availability (or otherwise) of compensation for all who are similarly affected (including whether nationals of the host State are placed in a better position than foreign investors);
  • whether the measures imposed are capable of, and are being used for, purposes beyond tackling COVID-19;
  • whether any assurances have been given to sectors, companies or individuals as to their treatment in the context of COVID-19 and whether those assurances were fulfilled; and
  • whether existing laws are being used to address COVID-19 in a manner which is inconsistent with their legislative intent.  

States may find it important, for a multitude of reasons, to retain comprehensive contemporaneous records of the reasons for decisions, as well as ensuring that communications with individual investors, as well as industry and sector groups, are clearly documented.

For investors, it will also be important to keep contemporaneous records of the impact on the investment(s) affected by state action. Any communications with states, particularly those seeking or receiving assurances as to treatment, should be carefully recorded and those records preserved.

Other relevant considerations

The fact that state action has negatively affected a foreign investment does not automatically lead to an actionable breach of an IIA. This will depend on the nature of the state action and the circumstances in which it has been taken, the wording and interpretation of the IIA, and whether the IIA contains exemptions or prudential carve outs which apply in certain circumstances (such as national security, public health or public order). In such extraordinary circumstances there may be defences available to a state, either based on the wording of the relevant treaty or on customary international law (including defences based on necessity, distress or force majeure).

In summary, notwithstanding the fact that COVID-19 presents an unprecedented and fast-developing challenge, the guarantees given to foreign investors under IIAs remain relevant to an assessment of state action in response to the pandemic. Whilst the question of whether an investor may be entitled to damages under an IIA is fact and treaty-specific, the prospect of such claims is therefore relevant to states and investors alike.

For more information about our investment treaty practice, and to find a key contact in a relevant jurisdiction, please click here.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852

Christian Leathley
Christian Leathley
Partner
+1 917 542 7812

Hannah Ambrose
Hannah Ambrose
Senior Associate
+44 20 7466 7585