On March 1, 2019, Washington University in St. Louis School of Law’s Whitney R. Harris World Law Institute and Negotiation and Dispute Resolution Program hosted the International Arbitration & Dispute Resolution Symposium: Challenges and Controversies in International Arbitration in St Louis, Missouri.
This year’s Symposium focuses on current developments in the field of international arbitration, including both commercial and investor-state arbitration. It builds upon Washington University’s 2015 symposium, International Dispute Resolution: Protecting Your Client in the Global Economy.
Nicole Gougeon, Faculty Fellow at Washington University School of Law, with contributions from Justin Long (JD, 2019), report:
Opening the symposium, Dean Nancy Staudt of Washington University School of Law congratulated all participants for gathering in St. Louis to take on the role of thought leaders in such a tumultuous time. Professor Leila Sadat, Director of the Whitney R. Harris World Law Institute, touched on the established international law and alternative dispute resolution programs at the law school, which are at the core of the symposium. She further discussed that this annual symposium is aimed at reigniting the conversation around international dispute resolution, and creating forums for thought leaders to convene.
M. Imad Khan of Hogan Lovells, who chaired the symposium, added that this year’s topic was selected to reflect upon the uncertainty surrounding arbitration as a means to resolve international disputes. Recent years have seen a shift in both investor-state and commercial arbitration. The specific changes, as well as their nature, set the scene for the symposium, which challenged the rise of and need for systemic changes in international arbitration precedent, changes in international treaties, and how international dispute resolution mechanisms may further evolve in light of proposed changes to resolution of international commercial and investment disputes.
Sophie Nappert, of 3VB Barristers, launched the program with a keynote address on Future Challenges for International Arbitration. Drawing from quantitative data in the 2018 Queen Mary survey and the Global Pound Conference Series report, Ms. Nappert inferred that challenges to international arbitration stem from the perceived refusal of arbitration practitioners to budge from the arbitration status quo and issues implementing technology in arbitration. Ms. Nappert’s keynote will be discussed separately in a forthcoming article.
Session 1: The Future of Investor-State Arbitration (video)
The Symposium’s first panel on the Future of Investor-State Arbitration, moderated by Mr. Khan, focused on recent critiques of the status of investment law within investor-state dispute settlement (ISDS), the significance of a wave of new or renegotiated investment treaties, and potential outcomes for the EU’s proposed multilateral investment court.
Casey Ballard of the Claro Group first pointed out that popular negative perceptions of ISDS are caused by sticker shock from large awards in these disputes, but situated these realistic award amounts by citing the (large) underlying value of the investments and the (often times large) extent of economic damages suffered. Her example of their nature iterated that these awards are unlikely to be affected by any evolution of protection standards in new treaties.
Samantha Atayde Arellano of RRH Consultores, S.C., formerly the General Counsel for International Trade of the Ministry of Economy of Mexico, responded that in light of existing critiques, States have already identified areas for improvement within ISDS and sought ways to update, clarify or even modify these rules, regardless of their implementation lag-time. By contextualizing the major concerns within ISDS, being ethics and a lack of transparency, she outlined ways in which negotiations for new treaties have drawn from the prior experiences of an increasingly broad set of NGOs, government entities, and other actors in civil society. In particular, Ms. Atayde Arellano claimed that this is not only within the UNCITRAL framework, some States are addressing those concerns by withdrawing from existing Bilateral Investment Treaties (BITs) and renegotiating them to include specific provisions on ethics or creating separate codes of conduct, and by adding more rules to promote transparency, such as making all documents publicly available or by legislating and ratifying more expansive transparency laws.
Mr. Khan challenged Ms. Atayde Arellano’s positive depiction of transparency trends by citing the Mauritius Convention on Transparency, and its low ratification rates. Teddy Baldwin of Steptoe & Johnson rebutted Ms. Atayde Arellano’s claims with the assertion that “States are not leading the charge” with regard to transparency, and, in fact, it was the State in his prior Claimants-side Investor-State Arbitrations which resisted the push for more transparency. Mr. Baldwin, with the aid of Professor Susan Franck in the audience, explained that while the Mauritius Convention is well-drafted and highly important in furthering transparency goals, that with only five signatories, it can accomplish very little.
Mr. Khan then pushed the panelists to consider the new generation of investment treaties and their issues, notably concerning higher standards of protection, and the included mechanisms of dispute resolution. Mr. Baldwin responded with a discussion of the definition of “Investor” and “Investment”, citing the nature of citizenship and economic activity as they pertain to new jurisdictional requirements. Mr. Baldwin discussed the issues of what is sometimes referred to as treaty-shopping, asking; if the “Investor” is Guatemalan and lives in Guatemala, the company investing is Guatemalan, and the place of investment is Guatemala, but the mode of investment is a corporate-form Dutch intermediary, will tribunals under these new generation of treaties grant the Investor foreign investment protection?
Mr. Baldwin asserted that the rising standards of protection in BITs are satisfying State’s desires for more protection from unmeritorious claims or claims arising from treaty shopping. But, Mr. Baldwin contended, that does not mean they are a positive change. He claimed this was especially the case for smaller investors, citing the overwhelming representation of the least sympathetic investors in the media as an important reason for negative perceptions of ISDS (and a reason for the new higher standards). Mr. Baldwin asserted that by allowing domestic investors the same access and rights as foreign investors, and thereby increasing use of and access to ISDS mechanisms, access to justice would broaden and encourage good governance, while mitigating negative perceptions and supporting rational outcomes.
Regarding the new generation of treaties, on the investor-side, Ms. Ballard contended that the new higher standards of protection may dissuade potential investors, while they are still figuring out how damages will be awarded. This sparked the discussion that while there are higher standards to prove violations, this does not affect damages – once proven, the damages are assessed at the same rate. In this context, Ms. Ballard noted that ultimately any constriction of investors’ rights will inform the risk assessment analysis undertaken by foreign investors before they engage in foreign direct investment.
Ms. Atayde Arellano pushed back from the perspective of some Latin American countries that continue to negotiate investment treaties with new standards, stating that among other reasons, these implementations are used to signal a positive move for foreign direct investment, and sometimes countries that are looking into new trade agreements take investment as part of that deal.
Shifting the conversation to the proposed European Union Investment Court, Mr. Khan noted that independent investment courts are a not a new idea and has been proposed for decades, with investor-State arbitration being the preferred method for dispute resolution until such time as a court could formally be situated. With this perspective, he asked the panel whether it would actually become a reality after its many years in transition.
In response, Mr. Baldwin reminded the audience of the 3,000 plus treaties which govern international investments, and their existing dispute resolution mechanisms. He stated that as a matter of law you cannot just take away these mechanisms, and that doing so would require either a battle for the enforcement-side of the court, or an un-paralleled convention of states canceling their rights under these existing treaties. Ms. Atayde Arellano pointed out that permanent investment tribunals are about to become a reality in the bilateral context, but when the discussion is taken to the multilateral framework, probably not all of the topics being discussed could be resolved through the proposed Investment Court. Ms. Ballard responded in-kind, citing availability of choice by investors as a primary reason she does not foresee the court removing other ISDS mechanisms.
With this shared sentiment, Mr. Khan funneled the discussion towards the appellate feature in the proposed court, specifically how effective it may be, in light of the panelist’s previous statements against the court becoming the preferred ISDS method. Ms. Atayde Arellano stated, that a secondary instance of review may be desirable, while Mr. Baldwin claimed that an appellate mechanism is a response to a criticism of the current state of ISDS which is a fundamentally flawed criticism to begin with – that ISDS yields inconsistent decisions and requires an active check on the system.
The panel closed with all panelists agreeing that changes are imminent, but not necessarily agreeing which changes will emerge victoriously.
Session 2: Drafting Enforceable and Effective International Arbitration Clauses (video)
In the second panel, the moderator, Professor Susan Franck of American University’s Washington College of Law, raised the issue of Drafting Enforceable and Effective International Arbitration Clauses, transitioning the discussion from investor-state arbitration, to commercial arbitration. Professor Franck, whose background in data analytics regarding arbitration uniquely situates her to probe for difficulties in drafting and who has a forthcoming book, Arbitration Costs, prefaced her questions as specifically regarding how arbitration clauses can react in the face of toxic events between the parties.
Ricardo E. Ugarte of Winston & Strawn opened the session by providing an overview of the legal framework of international commercial arbitration and elements that counsel should consider when drafting an enforceable and effective arbitration clause. Notably, he mentioned the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards and that it should be reviewed for basic elements: An agreement in writing and manifest consent are paramount when creating an effective clause. He mentioned other domestic legislation and the UNCITRAL Model Law as appropriate forms to consider in drafting. The full list of essential and important elements can be reviewed in the broadcast, which is available by request.
Attendees were privy to some “war stories” which included permissive clauses resulting in no arbitration, clauses with two institutions listed giving rise to parallel proceedings, and clauses in the realm of contractors and sub-contractors where their “apparently identical” dispute resolution provisions do not mention or thereby incorporate each other, and result in an inability to join the cases. Most concerning, the last example ended up with two different arbitrations, tribunals, and competing outcomes.
Elizabeth Anderson, Director of Litigation at Emerson Electric spoke to the perspective of in-house counsel at a multinational corporation with a historical preference for litigation over arbitration. She indicated that Emerson’s reluctance to arbitrate originates not from distrust of the process, or tribunals themselves, but from a desire to vindicate the company’s position and, in the American context, utilize procedures for discovery to achieve their goals.
At the same time, she indicated that as companies like Emerson become more international, the use of international arbitration as a mechanism to resolve international disputes will likely become more common. This discussion flowed from the recognition that other countries do not provide options for discovery, or paths through litigation like are found in the United States, and that arbitration can be an efficient and economical option for dispute resolution in these countries.
Professor Franck was curious as to the in-house drafting perspective regarding similarities and differences between arbitration clauses and other types of contracts. Ms. Anderson responded that Emerson has experienced commercial attorneys who draft their contracts and makes use as necessary of attorneys specializing in arbitration to verify appropriate steps and drafting measures. She clarified that because of these experts, she had not yet encountered an arbitration clause with problematic provisions.
Mary Kate Wagner, Deputy Counsel at the Secretariat of the ICC International Court of Arbitration in New York, focused on the institutional perspective and highlighted the tension between specificity and generality in arbitration clauses. Ms. Wagner discussed the role of the Secretariat and the ICC Court as a gate-keeper. While the ICC Court does not render awards, it notably takes a prima facie decision on whether an arbitration agreement under the ICC Rules may exist and, therefore, whether an arbitration should proceed when jurisdictional objections are raised or a party fails to submit an answer. Being an administrative decision-maker in the face of ambiguously drafted clauses allows the ICC Court to act as a safeguard at the outset of the proceedings and filter out cases that do not meet the above test to save time and costs.
By sharing cautionary tales of clauses she has come across, she enumerated the different issues which may arise when drafting too specifically. Examples given included a clause that referred to a non-existent arbitral institution (The “Paris Court of Arbitration”) and an arbitration clause which called for an arbitrator who speaks a particular and uncommon language, is licensed in the country where that language is principally spoken, but who is not a national of such country. Her plea to the audience was to imagine the institution’s potential difficulties in complying with the clause when trying to decide how specific to make clauses – drafters above all need to be aware of the balance between what information is necessary, and what information may hinder the process.
Professor Franck noted encountering a clause which, in requiring resolution by a pre-determined arbitrator, encountered a problem when the arbitrator died. In light of this experience, she asked the panelists: how can parties avoid creating problems when drafting arbitration agreements?
Mr. Ugarte cited specific terminology as a pit-fall for drafters, which Professor Franck was quick to support. She recounted a case involving engineers without knowledge of legal principles drafting an arbitration agreement, which led to a prolonged and expensive battle over the arbitration agreement’s meaning and validity once a dispute arose.
Ms. Anderson was very clear with her advice: Call an expert in international commercial arbitration and you will be told what to avoid.
Ms. Wagner, without missing a beat, answered, “besides use the ICC model arbitration clause?” Her wisdom was not lost behind the humor as she clarified: ‘know what is non-negotiable before going to the table, so it is not negotiated out of your clause.”
Session 3: Mock Arbitrator Challenge (video)
The symposium concluded in lively fashion with a mock arbitrator challenge before an investment arbitration panel presided over by Sarah Vasani of Addleshaw Goddard LLP, and with Ambassador David Huebner, of JAMS, and Sophie Nappert as co-arbitrators. The moot consisted of a challenge to a fourth and fictitious respondent’s arbitrator, who had previously served as counsel in a case funded by the claimant’s belatedly disclosed third party funder.
Frédéric G. Sourgens of Washburn University School of Law gave the audience a literal song and dance, pirouetting to the podium with the help of the Spice Girls’ “Wannabe.” Mr. Sourgens struck a combative pose, asserting the inevitability of a challenge to any award decided on by the respondent’s arbitrator and arguing that her continued involvement threatened the appearance of partiality.
Arguing for the respondent, Teddy Baldwin squared up to the podium to Survivor’s “Eye of the Tiger,” arguing that there was no legal basis for finding a conflict of interest, and that even soft-law instruments like the IBA Guidelines on Conflicts of Interest in International Arbitration did not apply. Without any such basis for finding reasonable doubts as to the arbitrator’s impartiality, Mr. Baldwin maintained, her disqualification would deny the respondent’s right to appoint an arbitrator.
In deliberations, the panel wrestled with what they would do in a perfect world, vs. what they wanted to do in this intellectually stimulating simulation. Arguing on the one hand that a large pool of available arbitrators justified a low bar for disqualification to avoid even the slightest taint of impropriety, the tribunal initially led us to believe they would award for the claimant. Then, our tribunal maintained that the link was simply too tenuous in this instance and that a decision for the claimant would place an undue burden on third-party funding, a necessity for modern arbitration. In the end, the panel turned the decision over to the audience, and the claimant prevailed by vote.
Regarding Third Party Funding (“TPF”), practitioners must be ready for similar challenges. In fact, the 2018 Queen Mary Survey, discussed by Mr. Sourgens in his challenge, highlights the increased use and attainability of TPF in arbitration. The Queen Mary Survey reiterated that nearly half of practitioners surveyed had seen TPF used in practice, while only 3% of practitioners were not aware of its use. What is especially noteworthy in the survey, is the perception of parties who have used non-recourse TPF in international arbitration. 13% of Claimants, and only 8% of Respondents, ad a less than “neutral” view of TPF. These statistics should signal to practitioners that parties are willing to use TPF, and are generally happy with the outcomes. With more TPF, will come more conflicts and challenges. This trend should push us to question whether, like our panel deliberated, if even the barest taint of conflict exists, should an arbitrator be removed? Where would the challenges stop? Could the IBA Guidelines on Conflicts of Interest be collectively accepted and used that to establish soft law to combat these issues?
Professor Karen Tokarz, director of the Negotiation and Dispute Resolution Program at Washington University School of Law, closed the symposium by thanking everyone for committing themselves and their future careers to developing and implementing the highest level of international dispute resolution and international arbitration as possible. She challenged everyone to take Ms. Nappert’s challenge to heart; to enhance and improve and impact the practice of international arbitration, as is our duty to arbitral justice.
With the level of vigilance in education which was displayed at this symposium,the world should be ready for a new generation of arbitration attorneys and arbitrators who are dedicated to challenging the status quo. States will have to take up the mantle of implementing transparency measures as new BITs are negotiated and implemented. Clause drafters must remain alert to the divide between specificity and rationality. We all must do our part to ensure arbitral justice in our changing world.
The International Arbitration & Dispute Resolution Symposium was sponsored by The Claro Group, U.S. Arbitration & Mediation, the American Arbitration Association and its International Centre for Dispute Resolution; the American Branch of the International Law Association; the Asian International Arbitration Centre; the ICC International Court of Arbitration; and the National Academy of Arbitrators. This symposium aims to establish a forum in which top practitioners, academics, attorneys, and students gather on an annual basis to explore sophisticated topics in international arbitration and dispute resolution; advance the development of international arbitration and dispute resolution; educate the next generation of lawyers; and provide networking opportunities for international dispute resolution lawyers.