2021 AMENDMENTS TO THE ICDR ARBITRATION AND MEDIATION RULES: A RESPONSE TO EVOLVING PRACTICE

The International Centre for Dispute Resolution (ICDR) of the American Arbitration Association (AAA) has released its revised Arbitration and Mediation Rules, which came into force on March 1, 2021 (the 2021 ICDR Rules). The 2021 ICDR Rules will apply to any arbitration or mediation commenced after such date unless agreed otherwise.

The Arbitration Rules were last revised in 2014, and the Mediation Rules in 2008. The changes introduced are therefore a comprehensive update, responding to issues that have arisen in both arbitration and mediation over the past decade. They reflect discussions held by the ICDR management and administrative teams, a specific ICDR Committee of practitioners, and feedback from ICDR’s users. Following the trend of recent changes implemented by other major institutions such as the London Court of International Arbitration and the International Chamber of Commerce, the 2021 ICDR Rules include changes relating to third-party funding, joinder and consolidation, data protection, and  the effects of COVID-19 on the arbitral process.

Key takeaways for parties and practitioners

The key changes to be aware of in the 2021 ICDR Rules for parties and practitioners are as follows:

  • The new Arbitration Rules:
    • Permit joinder after the constitution of the tribunal with the consent of the joining party, when the arbitral tribunal considers it appropriate;
    • Allow consolidation when the arbitration involves related parties – as opposed to the more limited “same” parties requirement under the prior rules;
    • Embrace early disposition of issues;
    • Introduce a provision on the disclosure of third-party funding and “undisclosed economic interests;”
    • Acknowledge the use of video, audio, or other electronic means for conducting preliminary matters and final hearings;
    • Require tribunals to discuss cybersecurity, privacy, and data protection with the parties to provide an appropriate level of security and compliance.
  • The new Mediation Rules:
    • Emphasize the importance of party involvement and the obligation of the ICDR to assist the parties in finding an agreeable mediator;
    • Set out best mediation practices by comprehensively outlining how a mediation should proceed;
    • Recognize that all or part of a mediation proceeding may be conducted via video, audio, or other electronic means;
    • Reinforce that it is the responsibility of each party to have present at the mediation a representative with authority to execute a settlement agreement;
    • Allows the parties to request from the ICDR or mediator an attestation that a settlement was reached to assist in enforcing settlement agreements according to the United Nations Convention on International Settlement Agreements Resulting from Mediation (Singapore Convention) or other applicable law.

The most significant of these changes are discussed in more detail below.

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PERU APPROVES ARBITRATION REFORM ON DISPUTES INVOLVING STATE ENTITIES

On January 24, 2020, the Executive Branch of Peru approved the Emergency Decree No. 020-2020 (“Emergency Decree”), introducing amendments to the rules on international and domestic arbitration contained in Legislative Decree No. 1071 (“Peruvian Arbitration Law”).

Interestingly, the modifications provided by the Emergency Decree only concern arbitration proceedings in which the State is involved as a party, apparently as a response to the corruption scandals in the region. The Emergency Decree suggests that the new amendments are aimed to strengthen arbitration in the country and avoid “bad habits” when the State is involved.

The decree was approved without the involvement of the Peruvian Congress, which was dissolved last year in September – and congressional elections were still to be held at the time of its enactment. While the stated intention behind the amendments is to be welcomed, some of the new provisions have already raised concerns among the arbitration community in the region. These concerns are discussed further below.

Background

In Peru, domestic and international arbitrations are governed by the Peruvian Arbitration Law which is based on the 2006 UNCITRAL Model Law (with certain modifications). Adopted in 2008, following extensive deliberations by the Legislative Branch and consultations with experts in the field, the Peruvian Arbitration Law is viewed as a modern arbitration law in the region.

While introducing a number of important improvements to the arbitration regime in Peru, the Peruvian Arbitration Law did not contain specific provisions regarding arbitration proceedings with the State. This was emphasized in the Preamble of the Emergency Decree, which states that, while the Peruvian Arbitration law is suitable for arbitrations between individuals, said law did not consider the particularities of the proceedings where the State was a party. As such, it was “[…] not adequate to ensure transparency and to avoid acts of corruption or situations that affect the interests of the State that can cause serious economic consequences.”

Amendments introduced by the Emergency Decree

The main amendments introduced by the Emergency Decree are as follows:

  • Ad-hoc and institutional arbitration: when the State is involved, the Emergency Decree establishes that it is possible to have institutional or ad-hoc arbitration – however, the latter is only possible when the amount in dispute does not exceed a certain very low amount (approximately US$ 13,000).
  • Provisional measures: a party seeking a provisional measure against the State must provide security of an amount not lower that the performance bond under the contract. Such bond shall not be subject to any condition and shall continue for the duration of the arbitration proceedings. The provision is not clear on whether this is a requirement applicable when the provisional measure is requested to the arbitral tribunal or a Peruvian court.
  • Conflicts of interest: addressing concerns about conflicts of interest in the appointment of arbitrators, the Emergency Decree prohibits a person who has been previously involved in the same dispute as lawyer of any of the parties or as an expert, or has personal, labor, economic, or financial interests that could be in conflict with the exercise of his or her arbitration function (either as lawyers and/or experts) from being appointed as arbitrator.
  • Challenges and removal of arbitrators: where a party challenges an arbitrator and the other party does not agree with the challenge and the arbitrator rejects the challenge, remains silent, or does not resign, the challenge shall be decided by the arbitral institution administering the arbitration. In domestic arbitrations, if there is no arbitral institution administering the proceedings, the decision will be referred to the corresponding Chamber of Commerce located in the arbitration seat or in the place where the arbitration agreement was concluded. In case of an international arbitration proceedings, the Chamber of Commerce located in the arbitral seat or the Lima Chamber of Commerce (if no arbitration seat was agreed by the parties) will decide on the challenge. Any agreement providing that other members of the arbitral tribunal will decide on the challenge is void.
  • Transparency: the arbitration proceedings as well as the award are to be made public once the proceedings are concluded – although there are exceptions to this rule. Where the parties have agreed to institutional arbitration, such institution’s rules will apply regarding publication. If the arbitration is ad-hoc, such obligation is assumed by the State entity participating in the arbitration proceedings.
  • Abandonment of the case: if no action is taken to pursue and advance the arbitration proceedings involving the Peruvian state in four months, either party may declare that the case is abandoned. The “abandonment” of a case ‒a figure borrowed from the Peruvian Civil Procedural Code− has the effect of concluding the process notwithstanding the parties’ rights.
  • Damages and costs: in the arbitrations in which the Peruvian State is involved as a party, arbitrators are not allowed to order administrative fines or concepts other than the costs of arbitration. The provision does not clarify which other concepts would be excluded.
  • Setting Aside: the Peruvian Arbitration Law already provides that if the award is set aside because a party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case, the arbitral tribunal shall re-initiate the arbitration proceedings at the procedural stage in which the party’s defense right violation occurred.  In those cases, the Emergency Decree adds that either party may request the replacement of the arbitrator that it had appointed, or request the disqualification of the arbitrators who issued the award.

Comment

Although the reforms introduced by the Emergency Decree are portrayed by the Executive Branch as a way to increase transparency and the integrity of arbitration when State entities are involved, they are not exempt from criticism – especially when it appears that the Emergency Decree was adopted without  debate by Congress, and no consultation was offered with commercial parties who may contract with the State.

One of the main criticisms is the decision to incorporate these changes within the arbitration law rather than to produce a consolidated legal framework for disputes involving the State.  It has also been suggested that the provision enabling the parties to request the disqualification or replacement of an arbitrator when the award has been set aside due to the lack of proper notice or inability to present the case could be deemed a disguised appeal given that it allows the parties to have a new tribunal deciding on the same dispute. In addition, some of the provisions have not been clearly drafted, which can create room for disputes regarding their interpretation.

The provisions of the Emergency Decree will be tested once they are concretely applied to arbitration proceedings with State entities. Only at this stage will it be possible to confirm whether the concerns raised by the arbitral community are justified.

For more information, please contact Florencia Villaggi, Of Counsel, Lucila Marchini, Associate or your usual Herbert Smith Freehills contact.

Florencia Villaggi
Florencia Villaggi
Of Counsel
+1 917 542 7804
Lucila Marchini
Lucila Marchini
Associate
+1 917 542 7850

ARBITRATION OF CLIMATE CHANGE DISPUTES

On 28 November 2019, the International Chamber of Commerce Task Force on Arbitration of Climate Change Related Disputes released their Report on Resolving Climate Change Related Disputes through Arbitration and ADR  (“ICC Report“). The 66-page ICC Report explores existing and anticipated climate change-related  disputes and the benefits of using arbitration to resolve these.

Over the last five years, major arbitral institutions have witnessed a steady increase in disputes involving climate change issues.[1] Typically, these have been intrinsically linked to the energy transition away from traditional energy sources such as fossil fuels and coal to increased investments in renewable energy, the modernization of power grids and the improvement of energy and data storage.[2] The ICC Report considers the nature of these disputes and focuses on the following features of the ICC Rules which can enhance existing procedures to effectively adjudicate climate change-related disputes. It also provides extensive guidance on additional language parties may wish to include in their arbitration agreement to tailor these to the types of climate-related disputes which they anticipate may arise.

Expertise of arbitrators and experts

The ICC Report acknowledges that access to appropriate scientific expertise is often critical in climate change disputes. It highlights the parties’ ability under the ICC Rules to have a decisive impact on the choice of arbitrators, including by:

  • setting out the competence and skills they require their arbitrators to have in their arbitration agreements;
  • requiring the ICC Court to consult them prior to appointing a sole arbitrator or presiding arbitrator; and even
  • challenging arbitrator appointments “whether for an alleged lack of impartiality or independence or otherwise“.[3] Interestingly, the ICC Report suggests that the catch-all “or otherwise” opens the door for challenges where parties consider that arbitrators appointed lack the requisite qualifications to hear a dispute.

The ICC Rules similarly leave the door open for the use of both party-appointed experts and/or tribunal-appointed experts in proceedings. This ensures that a tribunal has access to any climate change-related expertise it needs to determine the issues in dispute. The ICC can assist with the appointment of tribunal-appointed experts by providing expert recommendations as well as assisting with the administration of expert proceedings.

In contrast with other institutions such as the Permanent Court of Arbitration (“PCA“), the ICC does not maintain a formal list of specialised environmental arbitrators or technical and scientific environmental experts.[4] The ICC Report highlights this as a potential working point, and issues a recommendation to the ICC to reach out to climate change scientists and other technical and modelling experts.

Measures and procedures to expedite early or urgent resolution of issues

The ICC offers flexibility in the method of resolution of disputes. The parties’ options are not limited to arbitration. They can choose to mediate their dispute or refer these to expert determination, which may facilitate the early neutral assessment of technical facts in issue. The ICC also assists in the formation and use of standing dispute resolution bodies which are uniquely suited to handle disputes arising in long-term infrastructure projects, or projects where funding is subject to the Equator Principles (which require Equator Principles Financial Institutions to have an ongoing grievance mechanism to facilitate the resolution of concerns and grievances about a project’s environmental and social performance).

The ICC Report highlights the availability of a number of measures and procedures to expedite the early resolution of issues in climate change-related disputes, such as emergency arbitration, interim and conservatory measures and other time and cost management techniques. The ICC Rules do not go as far as the PCA Optional Rules for Arbitration of Disputes Relating to the Environment and/or Natural Resources (“PCA Environmental Rules”) which expressly empower tribunals to order interim measures to “prevent serious harm to the environment falling within the subject matter of the dispute“,[5] or the UN Convention on the Law of the Sea (“UNCLOS“) Rules which give tribunals the powers to prescribe provisional measures where necessary to prevent serious harm to the marine environment pending a final decision. However, the ICC Report suggests that should they wish, the parties could include a provision to this effect in their arbitration agreement or in the Terms of Reference.

Transparency and public participation

The ICC Report acknowledges that a major concern in the context of climate change-related disputes is transparency, and the lack of transparency typically associated with commercial arbitration has acted as a barrier to it being viewed as a satisfactory dispute resolution mechanism for climate change-related disputes.

It suggests that increased transparency in relation to climate change-related disputes could be achieved by: (i) opening the proceedings to the public, (ii) publishing case documents; and (iii) publishing awards. The ICC Rules prevent neither open proceedings nor publication of case-related documents, and the parties are free to agree to enhanced transparency wording in their arbitration agreements. The ICC currently promotes a certain degree of transparency, for example by providing for the publication of awards in commercial arbitrations from 1 January 2019 onwards, two years after notification of the award to the parties, absent any objection by the parties. This does provide some additional transparency but falls short of other more extensive transparency provisions, for example, those in the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration.

In addition, should the parties wish, the interests of third parties such as NGOs, environmental protection agencies or scientific research entities, may be taken into account in a contractual arbitration through: (i) the joinder of an additional party, or (ii) non-party participation such as through a written amicus curiae brief.[6] Again, appropriate wording would need to be included in either the arbitration clause or the Terms of Reference to provide for this.

Comment

The ICC Report responds to the IBA Climate Change Justice and Human Rights Task Force‘s call to all arbitral institutions to “take appropriate steps to develop rules and/or expertise specific to the resolution of environmental disputes, including procedures to assist consideration of community perspectives“.[7] Its publication reflects the growing concern climate change represents, not just for individuals but for corporates alike, and the need to ensure that appropriate fora are available to resolve the increasing number of climate change-related disputes, be they claims against companies and governments for breaches of human rights, claims against governments to accelerate climate change prevention, shareholder claims against companies for failing to adequately disclose the environmental impact of their operations, insurance disputes, company disputes in the energy sector, or other climate change-related disputes.

Herbert Smith Freehills’ partner Thierry Tomasi, who participated in the ICC’s Task Force on Arbitration of Climate Change Related Disputes observes that: “stimulating discussions in the context of the Task Force’s sessions have led to a report which provides both a comprehensive assessment of the current state of play in relation to arbitrating climate change related disputes, and a very useful roadmap for the ongoing reflection, within the ICC, on this growing field of investigation“.

The ICC Report highlights the availability of an existing number of provisions which could make arbitration under the ICC Rules an attractive forum for climate change-related disputes. In particular, provisions can be adopted for increased transparency, the involvement of third parties, interim and conservatory measures, as well as the appropriate expertise of arbitrators appointed. As ever, the flexibility of the arbitration process means that it can be purposefully adapted to suit the dispute resolution needs of the parties. However, the ICC makes it clear that the onus is on the parties to tailor their arbitration agreements or Terms of Reference to suit the particular requirements of their likely disputes.

The ICC Report highlights certain areas where the ICC can focus its efforts, for example by building a more extensive database of climate change-related experts. It does not, at this stage however, propose any changes to its Rules to cater to these types of disputes. This contrasts with  other institutions such as the PCA which have taken a more radical approach to climate change disputes, by enacting new rules specifically designed to attract new users who have climate change-related disputes.

The ICC Report shortly preceded the publication of the much-anticipated  Hague Rules on Business and Human Rights Arbitration, launched on 12 December 2019 (“Hague BHR Rules“), which propose an arbitration framework to deal with human rights-related disputes and therefore also climate change, environmental, and human rights-related claims. The Hague BHR Rules are accompanied by detailed commentary on issues similar to those raised in the aforementioned IBA Climate Change and ICC Reports, including: (i) having arbitrators with expertise appropriate for such disputes and bound by high standards of conduct, (ii) the possible need for the tribunal to create special mechanisms for the gathering of evidence and protection of witnesses, (iii) prescribing rules for third-party participation in arbitrations, and (iv) other procedural issues relevant to human rights disputes.

While the ICC Report does not suggest any radical overhaul or changes to adapt the existing ICC arbitration procedure to meet the specific needs of climate change-related disputes, its recommendations, which overlap with those made by the IBA or contained in the Hague BHR Rules suggest that there may be a growing consensus in the procedural developments that will take on greater significance in climate change-related disputes.

For more information, please contact Florencia Villaggi, Counsel, Maguelonne de Brugiere, Senior Associate, Christine Sim, Associate, or your usual Herbert Smith Freehills contact.

Florencia Villaggi
Florencia Villaggi
Counsel
+1 917 542 7804
Maguelonne de Brugiere
Maguelonne de Brugiere
Senior Associate
+44 20 7466 7488
Christine Sim
Christine Sim
Associate
+1 917 542 7853


[1] “Resolving Climate Change Related Disputes through Arbitration and ADR,” ICC, 2019, Annex, ¶24.

[2] Supra 1, Section II(B).

[3] ICC Arbitration Rules, Art 14(1).

[4]  Permanent Court of Arbitrators Specialized Panel of Scientific experts, https://pca-cpa.org/wp-content/uploads/sites/6/2016/07/Current-List-Annex-3-SP-SciEXP-update-20190930-184038-v6_.pdf

[5] PCA Environmental Rules, Art 26.

[6]  Supra ¶5.83-5.91.

[7] IBA Climate Change Justice and Human Rights Task Force Report, “Achieving Justice and Human Rights in an Era of Climate Disruption”, 2014, p. 144.

MERCOSUR AND THE EUROPEAN UNION AGREE HISTORIC AND AMBITIOUS TRADE AGREEMENT

On June 28, 2019, the European Union and the Common Market of the South (“Mercosur”), announced they had reached a trade deal after twenty years of negotiations (the “EU-Mercosur Agreement”).  While the agreement in principle is still subject to ratification by the national parliaments of the member states of both blocs, the European Parliament and the European Union Council – a process that could take between one and two years – it lays the ground for an “ambitious and comprehensive trade agreement”,[1] said to be the largest the European Union has ever concluded.

The historic deal creates a market covering a population of 800 million people that represents nearly a fourth of the world’s GDP.  In addition to removing tariffs, the new agreement aims to enhance the economic and political integration of both regions by creating employment and developing a more transparent and predictable regulatory framework.

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HERBERT SMITH FREEHILLS PROMOTES FOUR ARBITRATION SPECIALISTS TO OF COUNSEL

Herbert Smith Freehills has promoted four new Of Counsel from within the global arbitration practice with effect from 1st May. With promotions in New York, Singapore, Hong Kong and Beijing, the new Of Counsel are:

Florencia Villaggi, New York: Florencia specialises in international arbitration. She is a native Spanish-speaking practitioner from Latin America, trained in the Civil Law system but with extensive practice in a Common Law jurisdiction. Her experience encompasses commercial and investment arbitration, with focus on the Latin American region and the energy sector.

Dan Waldek, Singapore: Daniel is a highly rated disputes lawyer specialising in construction, energy and infrastructure disputes covering projects across Asia Pacific. He is admitted as a solicitor in England and Wales and the BVI, and is a Recognised Foreign Lawyer with the Singapore International Commercial Court.

Antony Crockett, Hong Kong: Antony has a significant regional and international market profile in business and human rights. He is qualified in Australia (Victoria), England and Wales, and Hong Kong SAR. He acts as an advocate in international arbitration proceedings and in arbitration-related court proceedings.

Stella Hu, Beijing: Stella is a trilingual Mainland Chinese arbitration specialist with experience in complex cross-border disputes. She has strong client relationships with Chinese State-owned companies, private companies and financial institutions.

Paula Hodges QC notes,  “We are delighted to welcome four new Of Counsel from within the global arbitration practice, which – together with our recent Partner promotions –  showcases the outstanding lawyers we have in our international arbitration practice. With Of Counsel promotions in New York, Singapore, Hong Kong and Beijing, it is wonderful to see affirmation of the strength and breadth of the talent across the network.”

US District Court in New York reviews AAA Appellate arbitral panel decision with the same deference as arbitral awards under the FAA

On February 14, 2019, in considering cross applications to vacate and confirm an arbitration award, the United States District Court, S.D. New York decided to grant the same deference to a decision made by an appellate arbitration panel as is given to an arbitral award under the Federal Arbitration Act (“FAA”) (Hamilton v. Navient Solutions, LLC., No. 18 Civ. 5432 (PAC) (S.D.N.Y. February 14, 2019).[1]

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Inside Arbitration: Issue #7 of the publication from Herbert Smith Freehills’ Global Arbitration Practice

We are delighted to share with you the latest issue of the publication from the Herbert Smith Freehills Global Arbitration Practice, Inside Arbitration.

In addition to sharing knowledge and insight about the markets and industries in which our clients operate, the publication offers personal perspectives of our international arbitration partners from across the globe.

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International Arbitration Community Welcomes Argentina and Uruguay’s New International Commercial Arbitration Acts

On July 3, 2018, Uruguay passed its International Commercial Arbitration Act after its upper house, the Chamber of Senators, signed off the draft in May.[1] A day later, it was Argentina’s turn.[2] These enactments mark the final step of a long awaited reform of the Argentinean and Uruguayan arbitration legislations, and finally place them on an equal footing with neighbouring states.

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